Contract law: variations in legal systems and the cost of foreign advice pose obstacles

Legal and tax differences between member states are the greatest barriers to cross-border trade in the EU, research commissioned by magic circle law firm Clifford Chance has revealed.


A survey of 175 international companies across Europe found that two-thirds (65%) had experienced obstacles to cross-border trade despite ongoing attempts to create a free market.


A similar amount (63%) said these obstacles had a financial impact on their company, with more than a quarter (28%) claiming to be deterred from conducting cross-border trade as a result.


Respondents cited tax differences, variations in legal systems, and the cost of foreign legal advice as the most significant hurdles to be overcome, rather than cultural and language differences.


The companies were broadly supportive of EU directives, with a majority (59%) claiming such legislation had reduced trading difficulties. But there was widespread frustration over variation in the ways different countries have implemented the directives.


The Clifford Chance survey comes as the European Commission continues to work on an EU contract law. More than 80% of respondents were in favour of some form of harmonised EU contract law, but did not want to be forced to use it. While 82% said they would use such a law if it existed, just 20% said it should be mandatory and only half (54%) believed it was achievable.


The survey of businesses in the UK, France, Germany, Holland, Italy, Spain and Poland also revealed that nearly half choose to use the contract laws of countries other than their own, with English law the most favoured alternative.


Clifford Chance senior partner Stuart Popham said: 'The complexity of handling cross-border tax and legal issues is increasing. Businesses take a pragmatic view and one of the main messages is the high importance these companies set on improving implementation of existing EU legislation. We believe this is the way to go for the future - this is, after all, a business issue rather than a political matter.'


Ian Rose, London-based EU and competition partner at US firm McDermott Will & Emery and chairman of the Law Society's European Group, said: 'I am not surprised by these results, as contract law is so steeped in the traditions of each member state.'


He added: 'EU directives have gone some way towards harmonisation but much is left up to nation states under the principle of subsidiarity. It would be hard to have one law that covered everything.'