Towards a European Contract Law for Consumers and Businesses: A Trojan Horse?

Introduction

English law remains one of the United Kingdom's leading invisible exports in the professional services sector. Many international contracts contain an express choice of English governing law, notwithstanding that the parties may be established or resident outside the United Kingdom and the subject matter of the contract itself may have little significant connection with the UK. This is particularly true in the world of international finance and in the maritime industry. The main reason for this is that English common law, long in its evolution, has established itself as a fair, reasonable and certain system of law for regulating a variety of contractual relationships between persons (particularly in the business context). Additionally, the court and arbitral systems, as well as the developing alternative dispute resolution (ADR) system in the UK, provide both efficient and reliable fora and processes for the resolution of cross-border disputes. Now it seems the European Commission may have in view the removal of this advantage for the United Kingdom under the guise of "modernisation" of contract law removing the existing advantages of legal certainty inherent in its common law system. if these proposals are left unchallenged, other countries with common law systems: Ireland, Cyprus and Malta, could find a civil law approach being imposed on them, while civil law systems would face the uncertainty of having to dismantle long established national codes and principles in favour of a new and untested European standard. There is also the risk that more general principles, such as the English law of tort and general laws of obligation and property law, may also become unbalanced or subsumed within the "European Civil Code" notion being put forward as one of the options canvassed in the Commission Green Paper of 1 July 2010 on this subject.

Status of the EU's Proposal

Following the issue of a Commission Communication on European contract law in October 2004,1 on 3 September 2008 the European Parliament adopted a Resolution for a common frame of reference (a "CFR") on European contract law. The European Council's conclusions on this were released on 27 and 28 November 2008.2 An "academic" draft of a CFR was then produced on 23 December 20 financed by the Commission with some further Council conclusions on the subject released in June 2009. The academic draft contained provisions for both commercial and consumer contracts and covered principles, definitions and model rules for both contract and tort law.

Meanwhile, outside the EU framework UNIDROIT had developed its principles of International Commercial Contracts representing model rules, not only for the sale of goods, but also for the provision of services, and the UN Commission on International Trade Law (UNCITRAL) had created a standard for business-to-business sales of goods—the Vienna Convention on International Sales of Goods—which although ratified by many countries, notable exceptions included the UK, Ireland and Portugal in the European Union.

Importantly from the UK's standpoint, the House of Lords' EU Committee reported critically on the EU developments in June 2009. This report is discussed in further detail below. Further, the Vienna Convention only applies by default when the parties have not chosen another system of law and no mechanism exists to ensure its uniform interpretation by the ratifying states.

The European Parliament's Legal Affairs Committee ('JURI') on 3 September 2009 discussed the then current state of play with the EU's proposals, and commissioned a study of the draft CFR and its relationship with the Consumer Rights Directive on 15 October 2009. Consolidation of the Council's conclusions took place on 21 October 2009 and the proposals were included in the Stockholm Programme for 2010-2014 of 11 December 20094 for future work. The Commissioner-designate for Justice, Fundamental Rights and Citizenship included this subject as one of her priorities on 7 January 20105 and it also featured in the Commission's Communication 'Europe 2020' released on 3 March 2010.

By the time the draft CFR had been published, however, attitudes to European contract law had changed significantly, at least at the EU level. The European Parliament had by then given its backing to the idea of an optional European contract law in its resolution of 25 November 2009. As part of the Europe 2020 strategy that was launched in March 2010 by EU President José Manuel Barroso and subsequently endorsed by the European Council in June 2010, the European Commission announced its intention to work on harmonised solutions for consumer contracts, EU model contract clauses and to make progress towards an optional European contract law. In May 2010 the European Commission followed up this statement by launching a new expert group to convert the draft CFR into a non-binding instrument that could be used by Community legislators to improve the quality and consistency of Community legislation relating to contract law. The Commission also stated that the creation of an optional contract law instrument was a key action in its Digital Agenda for Europe.6 The Commission has also set up an Expert Group on this subject (discussed further below). Finally, on 7 July 2010 the Commission published its Green Paper on developing European contract law, one of the purposes of which is to better inform the work of the Expert Group. This is considered further in this DechertOnPoint, but first more detailed aspects of the background to these proposals need to be considered.

Background Steps Towards the Green Paper's Proposals: Some Further Details

With regard to the earliest proposals, the Commission's 2001 Communication received a considerable response from governments, businesses, legal practitioners, academics and consumer organisations, and led the Commission to issue an 'Action Plan for a more coherent European Contract Law' in 2003. At the heart of this Action Plan was the concept of a Common Frame of Reference to establish common principles and terminology to be used by EU or national legislators when making or amending legislation. The CFR was also intended to form a basis for reflection on the need for an optional contract law instrument (that is, an instrument that would exist in parallel with, rather than instead of, national contract laws). By that time however, there had also been resolutions of the European Parliament encouraging work towards a "European Code of Private Law" and a "greater harmonisation of civil law". At the time of the Commission's 2002 Communication on European Contract law, in the United Kingdom the House of Lords' EU Committee had reported that whilst there were inconsistencies in European legislation of both substance and terminology the removal of which would be welcome, there was no demonstrated need for any new comprehensive legislation at the European level. Indeed this possibility had also attracted widespread criticism from...