Peter Watts and Kieron O’Callaghan, partners, Hogan Lovells
Opinion: Legal advisers must be EU contract law savvy
24 October 2011
17 September 2013
18 July 2013
8 November 2013
10 June 2013
21 August 2013
For some time the EU has been interested in harmonising member states’ laws of contract. Ideas for achieving this have ranged from the ’toolbox’ approach (model wording for lawmakers to use if they think fit) to establishing a single civil code that would replace existing national laws covering contract, tort and much else.
Now the European Commission has alighted on a middle way, radical enough to mark a significant shift while seeking to preserve national legal cultures and traditions. This is the proposal for a common European sales law (CESL)
that parties can choose or ignore.
The Commission has shown imagination and flexibility, especially by making the scope of the law (for example whether it can be used for purely domestic contracts or only for international transactions) dependent on opt-ins by individual member states. However, the whole idea of introducing a new system of contract law has been criticised, notably by the Ministry of Justice and the Law Society, as a form of “legal Esperanto”, as the Lord Chancellor put it, that will create needless complexity and uncertainty.
This may be a peculiarly British perspective though, since the response to the Commission’s proposal has been broadly positive in other EU member states, and even the UK’s Federation of Small Businesses has declared its support in principle for a measure that “will help small businesses engaging in cross-border activities to have the option of national law and a European-wide regime for their contracts sitting side-by-side”.
Whatever the merits of the Commission’s approach, it seems likely that the proposal will be enacted, as it already has the backing in principle of the European Parliament. Indeed, the Commission intends to introduce the CESL by the end of 2012, that being the 20th anniversary of the single market.
It is therefore crucial that lawyers start preparing for it now and familiarising themselves with, to English lawyers, alien concepts such as ’fair dealing and good faith’ that run through the CESL.
Businesses will be free to adopt the new law or not, but lawyers will need to advise clients on the pros and cons of using it in every situation where that is an option; they should also consider whether it would be in a client’s interest to lobby the UK Government to exercise its opt-ins.
For some organisations the law will not be directly relevant, since it cannot be used for business-to-business transactions unless one of the parties is a small to medium-sized enterprise (SME) or a national government decides otherwise. But if their customers sell to consumers or SMEs, their use, or non-use, of the CESL may well have an indirect impact.
Some UK-centric organisations will want to give the CESL a wide berth, if only because courts in England and Wales in particular are likely to have difficulty applying it consistently until a substantial body of case law has developed.
However, businesses operating internationally may see the law as a chance to tidy up their contractual arrangements by making them more uniform, or be attracted to some of its provisions or its broad principle of fairness.
For the growing number of online businesses in particular, the prospect of being able to offer a single contract that works for customers across the EU will have its attractions. Similarly, businesses looking at the EU from outside have long craved what might be termed ’a single contract for Europe’.
Whether the CESL will succeed is uncertain. Perhaps it is best compared to a firework. Even when the EU lights the blue touchpaper it may be some time before we know whether it will go off with a bang or be a damp squib.