A more coherent European contract law

Dirk Staudenmayer looks at the European Commission's action plan on contract law

Do divergent national contract laws create problems for doing business across borders? Are inconsistencies with the application of European Community (EC) law creating a hindrance? If so, what can be done about it?

These were the themes of a European Commission consultation launched in July 2001.

Following the results of this consultation, the commission published an action plan in February, outlining the problems in this area and suggesting solutions.

The plan describes at some length the practical problems identified by respondents to the commission's 2001 communication.

It then goes on to propose a mix of regulatory and non-regulatory measures.

The first measure aims to improve existing and future EC law.

The problem to date has been inconsistencies and lack of common terminology in EC law, which can lead to differing results in practice.

The plan suggests that a starting point for solving this problem could be the establishment of a 'common frame of reference' with common rules and terminology.

These might deal with, for instance, the conclusion and validity of contracts as well as performance and remedies.

The commission intends to finance research into the preparation of the common frame of reference.

That research should draw not only on existing EC law but also on national rules to find common denominators and help formulate 'first best solutions'.

It will also be important to analyse case law to assess which national rules are most able satisfactorily to solve problems in practice.

Equally important is the examination of standard contracts developed, for example, by chambers of commerce or practitioners.

It is expected that the creation of the common frame of reference will take until at least 2007/2008.

The second measure aims to promote the elaboration of European-wide standard contract terms.

The intention is to assist those organisations and interested parties that have already elaborated common-form contracts to make these available to third parties and exchange information by means of a dedicated Web site.

This could be implemented within one year.

The third measure concerns further reflection on the appropriateness of non-sector-specific measures, such as an optional instrument.

Such an instrument would avoid situations of legal uncertainty and higher transaction costs resulting from the existence of divergent national contract laws.

The objective would be to provide contractual parties with a body of rules, which could constitute the law applicable to the contract and provide an element of transparency and certainty for both parties.

The action plan mentions some of the questions which would need to be resolved before such an optional instrument could be elaborated.

It is left open as to whether it should only contain general contract law rules or also rules on specific types of contracts (for example, contracts of sale).

It is also left open as to whether the instrument should have an opt-out or an opt-in character.

Reflection is also needed as to whether the instrument should only deal with business-to-business contracts or also apply to business-to-consumer contracts.

Linked to this last scenario is the possible inclusion of mandatory provisions, for example, in the area of consumer protection.

The aim of the exercise is not the creation of a European civil code.

The purpose of the optional instrument would be a combination of a modern tool facilitating cross-border contracts with maximum flexibility for the parties.

Results cannot be expected quickly, firstly because it will take time to develop a common frame of reference, and secondly because of the nature of the process.

If such a reflection leads to the elaboration of an optional instrument, its success will stand or fall on its acceptance by legal practitioners and economic operators.

It can only be expected to become an attractive option for contractual parties if it is of high quality and meets practical requirements.

This can only be ensured through a suitable discussion and preparation time.

The aim of the action plan is to receive feedback.

It is indispensable that the process and discussion benefits from the extensive experience in the common law system.

Dirk Staudenmayer chaired the Commission inter-services working group which prepared the 2003 Action Plan.

This article expresses exclusively his personal opinion and not that of the commission

Consultation

Following an invitation by the European Commission for comments on its proposed action plan on contract law, the Law Society's European Union committee is preparing a response.

To do this effectively, it is looking for input from practitioners.

The committee is particularly interested in answers to the following questions:

- Have you in your daily practice come across problems arising out of the differences in national contract laws within the European Union? These might relate to commercial or consumer contracts in areas such as cross-border sales/ distance selling, timeshares, holidays, property purchases or purchase of cars across borders.

- Can you give any background on what problems arose and how you were able to deal with them?

- Did these problems involve considerable extra expense for your client?

- Have you come across examples where differences in the national laws that implement EC directives have raised problems?

- Have you come across examples of inconsistencies in the way in which different pieces of EU legislation involving contract law have created specific problems for clients?

Possible new instruments

Have you ever concluded a contract under the Convention on the International Sale of Goods? If so, do you think a similar EU instrument would be useful, or would the UK's accession to the convention suffice?

Would a Web site for interested parties to exchange information such as best practice and standard forms be useful? Would you use such a Web site if it existed?

The action plan has also put forward the idea of an 'optional instrument' which would exist in parallel to national law provisions to facilitate cross-border transactions.

We would like to hear your views on all or any of the following:

- In advising on cross-border contracts, would it be helpful to refer to a harmonised set of rules rather than to refer to the law of the jurisdiction of one party?

- If so, would it be better if parties could choose to 'opt for' that harmonised set of laws in place of national law (that is to say, in a choice of law clause) or would it be better if it applied automatically to cross-border contracts unless the parties chose otherwise?

- Should such an instrument only apply to business-to-business contracts or should it also apply to business-to-consumer transactions?

- Should the instrument contain a core set of mandatory provisions (for example, in the case of consumer contracts?)

- What should be the scope of the instrument? Should it only contain general contract rules such as those on the conclusion or non-performance of the contract or should there be rules for specific types of contracts, for example, insurance contracts?

Send responses, by 30 April 2003, to June O'Keeffe at 142-144 avenue de Tervuren, B-1150 Brussels; DX 1065 BDE, Belgium; fax: +32 2 743 85 86 or e-mail: June.O'Keeffe@lawsociety.org.uk