A European Commission proposal to consolidate contract law across the EU would hamper international trade by diluting the strength of English law, City lawyers have warned.

Responding to a Ministry of Justice call for evidence on a European Commission green paper proposing a new European contract law, the City of London Law Society (CLLS) said that there is a ‘paucity of statistical evidence and analysis identifying any problems or any need for action’ in the commission’s proposals.

The CLLS called into question the competence of the commission to act in this area.

The commission argues that differences between member states’ contract and private international laws hinder cross-border trade and increase transaction costs. It says that action is needed to reduce the divergence of laws, and has suggested creating a ‘common frame of reference’ for contract law, bringing together legal concepts, definitions and principles based on the laws of all EU member states.

The CLLS, which represents 14,000 City lawyers, said in its submission to the MoJ: ‘Even an optional law would be seen as a slippery slope towards enforced abandonment of member states’ own systems of contract law.

‘Evidence also indicates that many companies prefer their international dealings to be governed by English law rather than the law of any other legal system. A new instrument would dilute the effect of English law as a gateway for attracting trade into the EU and the UK, and may be more likely to benefit the economies of New York or Switzerland, whose law might increase in popularity.

‘The loss of trade and revenue for the government and businesses providing legal and related services may in fact exceed any supposed benefits from the creation of a competing legal system, while limited resources would be exhausted by the unnecessary costs and uncertainties of developing and applying new laws.’

The submission continued: ‘Even if divergent national laws could be shown to deter trade, it would be difficult to show that any of the options in the green paper would actually reduce such effect. There could be particular difficulties for Europe’s financial centres and for legal certainty.’

The CLLS said that the move could ‘add to the anti-EU feeling engendered by the current financial crisis’.