An Optional European Sales Law

11 October, Brussels – ‘Crisis’, quipped Viviane Reding, stressing talk of ‘the disintegration of Europe’ (though she might just as well have meant the euro). The Union needs to respond strongly – she urged – by stimulating trade, boosting income and creating jobs. It needs to restore Europe’s credibility and regain the confidence of its citizens.
A key problem lies with the contract laws in the Union. Consumers are not buying across borders because they fear such transactions to be ‘unsecure’. On the part of firms, it is simply too expensive or a waste of too much time to get to know the essentials of a foreign law. According to recent eurobarometer studies, only 7% of consumers buy online from a foreign vendor, and only 10% of firms sell across borders. This untapped potential amounts to €26 billion, or the GDP of Lithuania.

Commissioner Reding unveiled her ‘Optional European Sales Law‘ as a novel solution. National contract law regimes are left completely intact, as this instrument is aimed only at cross-border trade. The instrument will be voluntary – presumably meaning that it is an opt-in regime. It is promised to contain a high level of consumer protection (which is of course a requirement under Arts 114 and 169 TFEU) which matches or exceeds the levels of existing European and national standards of protection.

Since it is a regime that requires parties to choose it, what incentives are there for them to do so? Reding explains that consumers will choose it because of the level of consumer protection offered (presumably in contrast to that otherwise offered by the law of his habitual residence), and firms will choose it because it is cheaper to learn one set of rules (i.e. the optional instrument) than to learn 26 other contract law regimes. She noted that it costs approximately €10,000 for each firm to learn a new set of laws (I recall the Feasibility Study quoting this to be €8,850, so I guess lawyers’ billable rates have gone up), and the issue of costs is more of a problem for the thousands of SMEs active in the Single Market than for larger firms. Reding is therefore confident that both firms and consumers will take to the instrument, that it will become a ‘mark of quality’, and increase confidence in the Single Market.

I welcome the introduction of an optional instrument, if for nothing but the academic curiosity of whether (and if so why) it will succeed where the CISG and the Unidroit principles have failed. Separately, Reding’s linkage of legal diversity in contract law to problems in the Single Market makes it readily apparent that the legal basis of the instrument is Art 114 TFEU. This was picked up by our colleagues in Edinburgh recently, and confirmed in the Commission’s own forward programming for Q4 2011. Is this the correct legal basis? My present quibble is not with whether diversity of contract laws distorts competition or is an obstacle to trade, or whether such problems are ‘appreciable’ within the meaning of Tobacco Advertising. The question is whether, despite the explanation found on page 8 of the proposed Regulation, such an instrument falls within the meaning of Art 114(1)’s ‘measures for the approximation of …[ Member States laws]’. This is, in particular, since the instrument leaves intact national contract law regimes, and may purport to create new legal rights.There is no lack of judicial authority on the subject (e.g. European Cooperative Society or ENISA), since the question of legal basis is hotly contested especially where different choices lead to different voting requirements in Council and the involvement of Parliament (given the post-Lisbon ordinary legislative procedure, this is less important now). In choosing Art 114 TFEU, the Commission might be attempting to bypass a minority of malcontents in Council; but in so doing, may find a Member State challenging the measure before the CJEU and proposing instead Art 352 TFEU (which requires unanimity and can therefore be vetoed). If the Court rules in favour of the Commission, it might indeed, as Reding herself said in the press conference, make for a ‘novel’ proposal.

(Update 1 Nov 2011: For those with an interest in this subject, I’ve just posted an article on firms’ behaviour in choosing an optional contract law instrument)

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