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Sceptical Government seeks views on pan-EU contract law proposals

UK businesses have been asked their views on a pan-EU contract law by the Government. The Government has already expressed concerns about the perceived benefits of the '28th regime' framework.02 Mar 2012

The Ministry of Justice (MoJ) has launched a 'call for evidence' on the draft Common European Sales Law (CESL) published by the European Commission last year.

The Commission has said that the new law would offer a set of harmonised laws, which could operate as an alternative to contract laws that differ between EU nations, reducing costs for businesses and giving consumers more confidence in their rights and access to cheaper goods. It said businesses currently spend €10,000 on average in legal costs when expanding into selling in a new country within the EU.

However, the Government said it has still to be convinced by the proposals.

"The Government is not convinced that the benefits will be as significant as the Commission asserts and is concerned that there may be costs which should also be taken into account. We are therefore seeking views on the Commission’s proposal to inform UK policy and provide the evidence base for negotiations in Europe," the MoJ said in its call for evidence document.

The MoJ said that it was looking for industry to provide as much detailed analysis as possible, such as "specific statistical data and potential costs, benefits and risks of operating an alternative EU contract law regime for cross-border sales alongside national domestic laws". The evidence will help inform the Government's own view of CESL, it said.

In October the European Commission published its full plans for the new optional pan-EU contract law which would be available as a new '28th regime' of contract law alongside the existing frameworks that apply in the 27 EU member states.

 

CESL law would apply only if both the trader and consumer in a sales transaction opted to use it. However, the MoJ said that consumers might not have confidence in the framework because of confusion between their rights under CESL and differing rights under national laws. It also said that, in reality, traders would be unlikely to offer consumers the option between CESL and national contract laws and that therefore consumer choice would be limited between using CESL or not buying from the trader at all.

"In their proposal the Commission have attempted to address these concerns by requiring that the consumer must give their express agreement to the use of the Common European Sales Law and the trader would be required to provide a consumer with standardised information outlining their core rights. The Government is seeking views on whether these provisions will be adequate to meet concerns and if not, whether other provisions could be introduced instead to have better effect," the MoJ said.

CESL could be used in contracts for the cross-border sale of goods between businesses and consumers or between two different traders providing at least one of the traders is a small or medium-sized enterprise (SME). Under the proposed law an SME is defined as a trader that employs fewer than 250 employees and has either an annual turnover of no more than €50 million or an annual balance sheet worth no more than €43 million.

Under the Commission's proposals, traders from outwith the EU could also operate contracts within the new regime providing that the business they are dealing with is based within the EU.

However, for business-to-business contracts the Government said that it was unsure whether businesses would use CESL in practice.

"The use of the Common European Sales Law is intended to ease the negotiation of the applicable law for the small business sector as it claims to be easier to agree on a neutral law that is accessible to both parties. There is potential for SMEs to be assisted in accessing EU markets, provided the detail of the substantive law is sufficiently certain," the MoJ said.

"The Government can see some potential gain in the areas the Commission identifies. It is not sure, however, how businesses would react in practice to the availability of the Common European Sales Law and to what extent any gains would be deliverable. Would larger businesses be interested in switching to use the CESL if available for their cross-border contracts, in place of the law they currently use (which will often be the law of their home state) and if not, how often would the European sales law be used in practice?" it said.

The MoJ was more positive about the proposed ability to use CESL for "digital content contracts", such as music downloads. It said consumers would benefit from "increased [legal] certainty". The benefits "could increase consumer confidence to purchase digital content cross border and to try out new suppliers thus increasing consumer choice and encouraging the development of the digital single market," it said.

Under the Commission's proposals both businesses and consumers would have a duty to "act in accordance with good faith and fair dealing" and may lose certain rights set out in the contracts if they do not.

Under the new regime distance sellers, or off-premises sellers, would also be obliged to provide certain information to consumers, including their name, contact details and total cost, in order for contracts to be deemed binding. Contracts could also be considered to have been agreed to even if there is no written evidence of an agreement.

The Commission's proposals also include details about what constitutes a proposal for the basis of forming a binding contract, how that offer can be revoked, and the time limit for accepting a contract offer.

Banks and other financial service institutions will not be able to offer the new contract law regime for financial service transactions, such as online banking.

EU Justice Commissioner Viviane Reding has said that the new optional sale law would "help kick-start" EU economic growth.

The Commission's proposals must be approved by both the European Parliament and Council of Ministers before they could come into force.