Cross-border transactions: European Commission publishes expert group's feasibility study on European contract law

4 May 2011 12:44 PM

An expert group established by the European Commission has yesterday delivered a feasibility study on a future initiative on European contract law. In April 2010, the Commission convened the group, made up of legal practitioners, former judges and academics from across the European Union, to explore ways to improve contract law in the EU (IP/10/595). The group met monthly and regularly discussed its work with representatives of businesses – including small- and medium-sized companies (SMEs) – consumer organisations and legal professionals. Observers from the European Parliament and the Council also participated. The study covers the most relevant practical issues in a contractual relationship, such as legal rights for faulty goods and rules on which contract terms may be unfair. Following today’s publication, interested parties can send their feedback on the individual articles drafted by the expert group until 1 July 2011. The Commission will take into account this input, as well as the results of a public consultation concluded in January 2011 (MEMO/11/55). As a next step, the Commission will have to determine if and to what extent the expert group’s text can serve as a starting point for a political follow-up initiative on European contract law.

"After more than 10 years of intense work on contract law by the European Union, I am grateful to the members of the expert group for having consolidated, simplified, modernised and narrowed down the preparatory work done so far into a feasibility study. It is also good to see that contract law experts from very different legal traditions and professional backgrounds arrived at a consensus on the document," said Vice-President Viviane Reding, the EU's Justice Commissioner. "The result of the expert group is without doubt a major step in the work towards a future European contract law instrument, which the European Parliament's Legal Affairs Committee favoured in a vote last month. This study provides the EU institutions with a toolbox for any future EU initiative in the field of contract law. I plan to discuss this further with the European Parliament, the incoming Polish Presidency and stakeholders to see whether and how this toolbox can serve as the basis of a political follow-up initiative on contract law this autumn. My goal is that SMEs and consumers should benefit from a user-friendly contract law instrument, especially when it comes to cross-border transactions in the Single Market."

Background

Contracts are essential for running businesses and concluding purchases by consumers. They formalise an agreement between parties and can cover a broad range of matters, including the sale of goods and associated services such as repairs and maintenance.

Under yesterday's legal situation, businesses and consumers in the Single Market have to deal with different national contract laws for cross-border transactions. This is markedly different from the situation in the USA where a trader can sell products across the 50 states on the basis of one set of rules, despite different laws from New York to California.

Within the EU, the current fragmentation of contract laws contributes to higher costs, increased legal uncertainty for businesses and lower consumer confidence in the Single Market. Transaction costs (like adapting contractual terms and commercial policies to up to 27 legal systems) and the legal uncertainty involved in dealing with foreign contract laws make it particularly hard for SMEs, which make up 99% of EU businesses, to expand within the Single Market.

For example, imagine a UK company with six employees and an average annual turnover of €150,000 has a successful product and wants to sell it across Europe. The company could face transaction costs of around €275,000 from hiring contract law experts to take into account the laws of the other 26 countries.

Consumers are also wary of taking advantage of the Single Market because of uncertainty about their rights. A Finnish woman could buy her favourite brand of shoes from a French online shop for €110 (excluding delivery), but might still feel more comfortable paying €150 in Finland. This is because she may be unsure whether after an online purchase she has the right to ask for a replacement if the soles of the shoes fall off after a week.

Under the Europe 2020 strategy (IP/10/225), the Commission is currently tackling bottlenecks in the Single Market to drive the economic recovery forward. This includes making progress towards a European contract law.

In July 2010, the Commission put forward several options in a Green Paper for a more coherent approach to contract law. The Commission then held a public consultation that ran until 31 January 2011 and resulted in 320 responses (MEMO/11/55).

On 12 April 2011, the European Parliament's Legal Affairs Committee approved an own-initiative report by Diana Wallis that backs an optional European contract law (MEMO/11/236). The Committee also said an optional instrument could be complemented with a reference 'toolbox' to ensure the coherence and quality of legislation on European contract law.

For more information

Feasibility study carried out by the Expert Group on European contract law:

http://ec.europa.eu/justice/policies/consumer/policies_consumer_intro_en.htm

Justice Directorate General Newsroom:

http://ec.europa.eu/justice/news/intro/news_intro_en.htm

Homepage of Vice-President Viviane Reding, EU Justice Commissioner:

http://ec.europa.eu/commission_2010-2014/reding/index_en.htm

ANNEX

The composition of the Expert Group on European contract law

Professor Hugh Beale (United Kingdom), QC, FBA, Law Commissioner for England and Wales from 2000 to 2007 and currently Professor of Law at the University of Warwick and visiting professor at the Universities of Amsterdam in the Netherlands and Oxford in the United Kingdom.

Professor Eric Clive (United Kingdom), CBE, FRSE, member of the Scottish Law Commission from 1981 to 2000 and visiting Professor of Scots Law at the University of Edinburgh.

Dr Susanne Czech (Austria), Secretary General at the European E-commerce and Mail Order Trade Association.

Professor Fernando Gomez (Spain), Professor of Law and Economics at Universitat Pompeu Fabra in Barcelona.

Professor Luc Grynbaum (France), Professor of Law at Université Paris-Descartes in Paris.

Professor Torgny Håstad (Sweden), judge at the Swedish Supreme Court until December 2010 and currently Professor of Law at Uppsala University.

Professor Martijn Hesselink (Netherlands), Professor of Law at the University of Amsterdam.

Professor Miklos Kiraly (Hungary), Professor of Law at the Eötvös Loránd University in Budapest.

Professor Irene Kull (Estonia), Professor of Law at the Faculty of Law in Tartu.

Maître Pierre Levêque (France), Lawyer at the Paris Bar.

Professor Paulo Mota Pinto (Portugal), Professor of Law at the Universidade de Coimbra.

Professor Jerzy Pisulinski (Poland), Professor of Law at the Jagiellonnian University in Kraków.

Mr Bob Schmitz (Luxembourg), representative of the Consumer Union of Luxembourg.

Professor Hans Schulte-Nölke (Germany), Professor of Law and Director at the European Legal Studies Institute in Osnabrück.

Professor Jules Stuyck (Belgium), lawyer at the Brussels Bar and Professor of Law at the University of Leuven.

Professor Anna Veneziano (Italy), Professor of Law at the Università degli Studi di Teramo.

Ms Ioana Lambrina Vidican (Romania), Notary in Bucharest.