EU Parliament committee backs Commission's cross border contract plans

The Parliament's Legal Affairs Committee has backed  the creation of a '28th regime' for contracts, a contract law which would apply instead of the 27 EU member states' contract laws when buyers and sellers chose to opt in to it.

The Committee said that there should also be 'off the shelf' model contracts that companies could use to reduce the legal costs associated with cross border trading.

Standardised terms and conditions would be included in the new contracts and give greater legal certainty to firms in cross-border deals with businesses and consumers, a European Parliament statement said.

The new contracts would be voluntary to use, available in all EU languages and would benefit businesses, consumers and the judicial systems across Europe, Diana Wallis, an MEP on the Parliament's Legal Affairs Committee, said.

"At the moment, businesses, in particular small and medium-sized ones, are discouraged from engaging in cross-border trade because of the divergences in national contract law. [Friday's] vote was an important step towards introducing a simplified and flexible optional instrument which will enlarge the choice of parties when drawing up contracts, provide legal certainty across borders and can be put in place relatively quickly," Diana Wallis said.

"Retailers and consumers alike will be able to benefit from a flexible European contract law option. It is important now to ensure that any new rules created are simple, comprehensible and ready for use", Wallis said.

The Committee was investigating a European Commission proposal, first announced last year, to create a pan-European contract law in conjunction with the national contract laws in the 27 EU members.

The '28th regime' of contracts could cover everything from the sale of goods and services, insurance, digital rights and beneficial ownership, which is where a person owns an asset for the benefit of another.

The European Parliament said the new EU contract law would benefit e-commerce and distance transactions but that the Legal Affairs Committee is keen not to limit the use of the contracts to those purposes. The new contract could eventually be used in deals between companies in the same country, but will initially be for cross-border purposes, it said.

In a draft report (10-page / 173KB PDF) in January Diana Wallis said that any new raft of contracts should be limited for fairly simple contract purpose.

"Simplicity and readiness for use should be a key objective. Furthermore, [a contract] will have to be seen in the context of standard terms and conditions, and it will be crucial for those seeking to use the [contract], in particular for SMEs, that simple and comprehensible sets of standard rules are available. If some form of trust mark system were in place, this would ensure additional consumer confidence," Wallis said in the draft report.

"An attractive [contract], by opening up business opportunities and strengthening competition, will actually broaden the overall choice available to consumers," Wallis said.

Wallis said that work on cross-border alternative dispute resolution would be aided by the adoption of standardised contracts in Europe. Alternative dispute resolution is when mediation is sought to alleviate a dispute before it gets to court.

The Legal Affairs Committee's backing means the wider European Parliament will now consider the proposals in more detail.

The creation of a '28th regime' of contracts in Europe is not popular with the UK government. In February it said that there was no evidence that 27 differing national contract laws was hampering trade across Europe.

The European Commission's finalised proposals for the development of a '28th regime' of contracts is expected in the autumn.

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