BACKGROUND

On 1 July 2010, the European Commission published its Green Paper on European contract law, setting out possible practical and legislative actions designed to bring more coherence to contract law across the European Union. The Green Paper considered what should be the legal nature of any instrument of European contract law and set out options ranging from a nonbinding instrument or official “toolbox” for the legislator, which is aimed at improving the consistency and quality of EU legislation, to a binding instrument that would set out an alternative to the existing plurality of national contract law regimes by providing a single set of contract rules.  

The Commission is now moving forward with its proposals for an optional “28th regime”, which would operate as an alternative to national contract law systems when the parties choose to adopt it in their contracts. Certain Members of the European Parliament (MEPs) have already backed the regime, attesting that EU Member States would be given more choice and flexibility. According to the Commission, the current position, which makes both businesses and consumers deal with divergent national contract laws for each of the Member States in which they operate, results in increased complexity and expense and leads to legal uncertainty.  

The draft proposals could form the basis of legislation, working as a “common frame for reference”, covering the standard provisions of legal arrangements between businesses and between businesses and consumers. The proposals would bring together legal concepts, definitions and principles based on the laws of each Member State. Furthermore, there would be “off the shelf” model contracts that businesses would be able to use in order to reduce their legal costs and ancillary costs associated with cross-border trading.  

The Commission’s reasoning for putting forward these proposals is to encourage more cross-border commerce within the European market. The attempt to standardise national rules including those on advertising, labelling and product liability is intended to simplify the plethora of legal systems within the European Union, thus helping smaller companies looking to expand outside their home markets.  

A plenary meeting of the European Parliament is set to vote on the proposals for the 28th regime in early July 2011. The Council for Bars and Law Societies of Europe has stated that, in theory, most of its members support the optional additional set of rules, as long as parties had the option to “opt-in” to the terms when forming a contract. They have requested clear rules as to how the additional rules will function alongside current domestic legislation.  

COMMENT

The plans have been criticised due to the likelihood of them causing uncertainty for both businesses and consumers. In certain transactions, such as a real estate sale for example, the contract could be governed by EU contract law, but it would nonetheless be affected by national property laws and, if something went wrong, domestic tort law. Rather than alleviating confusion, the 28th regime could do the opposite. In December 2010, certain business and consumer organisations expressed “shared concerns about the too-rapid pace at which this dossier is evolving.”

The Law Society of England and Wales has stated that there is no demonstrable need for a revised contract law system. Furthermore, certain consumer groups have argued that reticence to conduct cross-border trade is not caused solely by a multiplicity of contract law systems. Likewise, there is a fear that consumers will not be able to choose which system of law governs their contract, thus they might be obliged to use the new system. This could potentially undermine consumer rights that currently offer protection to consumers in each Member State. Consequently, whilst the system may be beneficial to small businesses by reducing their legal costs, consumers might suffer.