EU unveils plans to create new pan-Europe contract law

EU Commissioner for Justice, Fundamental Rights and Citizenship Viviane Reding has outlined her plans for her term in office and they include some major changes to the law that would govern cross-border distance selling. Reding was previously the Commissioner for the Information Society.

"The only way out [of rising unemployment and slow growth] for Europe is to strengthen the single market," she said. "But the single market is far from being completed. There are still far too many cross-border problems that prevent businesses and citizens from benefiting from the single market."

"Business-to-consumer relationships are complicated by 27 different regimes for contractual relations," she said. "That means that a consumer may be able to return a defective product for a full refund within 15 days of the sale in one country, whilst a consumer in another nation may get three months.

"The general terms and conditions for business-to-consumer relations are a huge burden for small companies. The EU needs to do better," said Reding. She proposed creating a '28th regime' for contracts which would run in conjunction with the laws of the 27 EU member states.

"Such a European Contract Law would exist in parallel to the national contract laws and provide standard terms and conditions," she said. "The United States started with a uniform commercial code to become a globally competitive economy. Why couldn't we have, in the end, a European civil code for our single market?"

Reding suggested that instead of creating a new pan-EU law, the Commission could ensure that the laws of the 27 member states agreed on certain important points of consumer contract law.

"Another possibility is to harmonise different contract laws that would give a high level of consumer protection," she said. "What's important is legal certainty. Businesses must know what the law is if they operate across the 27-nation EU."

Reding said that action was necessary because of the low levels of cross border trade in the EU, despite a growth in online retail.

"Businesses are not taking advantage of the power of the internet to boost sales. In 2008 only 7 percent of transactions over the web were cross-border in nature. This unacceptably low figure is partly explained by the results of an EU-wide test of 11,000 cross-border transactions which revealed that 61 percent of cross-border transactions fail largely because the on-line shops refuse to serve the consumer's country," she said.

Peter McHugh, a lawyer with Pinsent Masons, the law firm behind OUT-LAW.COM, said that it was not at all clear that Redings proposed new pan-EU contract law would actually solve the problems she had identified.

"I think that consumers are typically shopping not just domestically but often regionally and locally, rather than across borders," he said. "I'm not sure the benefits would outweigh the massive task of this push to codify consumer law and contracts across Europe, and I'm not sure it would add significantly to consumer protection."

"I don't think it's contract law that's stopping people buying abroad," he said. "I think there are many other impediments to people buying across borders. From a UK perspective the fact that we're not part of a single currency, our legal systems have evolved differently from mainland Europe, that our linguistic skills are less well developed than our European counterparts - all mitigate against UK consumers purchasing goods from outside the UK."

Reding also said that she would continue the Commission's attempts to harmonise consumer protection across the EU through its proposed Consumer Rights Directive. This controversial plan has been opposed by law groups and consumer rights bodies in the UK for fear that it would actually reduce consumer rights here.

"The proposed Consumer Rights Directive is … deliberately ambitious," said Reding. "The current status quo of minimum harmonisation in the existing consumer protection directives does not come close to establishing a real single market for businesses and consumers."

The Commission's proposal is currently being considered by the European Parliament.

"It's imperative that the co-legislators move swiftly to reach an agreement on this important law, which must balance businesses' need for legal certainty with a guarantee for the highest level of consumer protection," said Reding.

UK consumer activism body Consumer Focus opposes the proposed Directive. "At present, it is a long way off what we want to see. Hopefully it won’t progress in anything like its current form," said Lola Bello, senior policy advocate at Consumer Focus. "Along with other nations with strong consumer rights, the UK has been lobbying hard for changes to this Directive."

The Law Commission and the Scottish Law Commission, which advise the Government on legal reform, have both also said that the Directive would be bad for UK consumers and should be rejected.

UK consumers have a "right to reject" goods provided they act within "a reasonable time", according to the Sale of Goods Act. The UK would have to abolish this right under the Consumer Rights Directive, the Commissions said.

"[The right to reject] is a simple, easy to use remedy which inspires consumer confidence," said the Law Commission of England and Wales's David Hertzell when it reported on a consultation process last year. "Consultees told us that the only problem with the right to reject is uncertainty over how long it lasts."