The European Union has been striving to create a European contract law for a decade. Following a lengthy period of preparatory legal research, in July 2010 the European commission launched a public consultation on different ways to develop a unified contract law that could be applied throughout the EU. In June 2011, the European Parliament voted with a four-fifths majority in favour of putting in place an optional EU-wide contract law that would govern cross-border transactions.
The European Commission has now published a draft Regulation for a Common European Sales Law (the Sales Law), which will sit alongside Member States’ domestic contract law. The purpose of the Regulation is that parties to a contract located in different territories may opt for the Sales Law to govern the contract, provided that at least one party is based in the European Union and the seller is happy to offer the contract under this law. Use of the Sales Law will therefore be voluntary rather than obligatory.
Scope of the Sales Law
The Sales Law will apply to business-to-consumer contracts and business-to-business contracts where at least one party is a SME (defined in Article 7 of the draft Regulation as a trader that employs fewer than 250 persons with an annual turnover of less than €50 million or an annual balance sheet of less than €43 million or the equivalent currency). The Sales Law applies to contracts for the sale of goods and for the sale of mixed goods/services: it does not apply to purely service contracts.
The Sales Law covers a broad spectrum of contractual areas: from pre-contractual information duties, contract formation, delivery and the passing of risk; to buyer’s remedies for non-performance and termination.
Opinion of the House of Commons
The House of Commons in the United Kingdom has issued a draft opinion, available here, that the draft Sales Law contravenes the principle of subsidiarity, one of the fundamental ‘pillars’ of the European Union.
The principle of subsidiarity means that the EU can only act in areas outwith its exclusive competence if the action cannot be sufficiently achieved by the Member States themselves. The proposed action must, due to its scale or effects, be better achieved at EU level. The principle is designed to ensure that the EU does not encroach on matters that would be better regulated at national level. In other words, the EU is the ‘subsidiary’ body to the Member States in all areas except those over which it has exclusive competence.
The opinion of the House of Commons comes at a time when the UK Government is increasingly keen to demonstrate its autonomy in relation to EU matters.
The House is of the view that the Sales Law does not comply with the principle of subsidiarity because, firstly, it is not necessary, and secondly because it does not produce any clear benefits by reason of its scale and effect when compared with action in this area by the individual Member States.
Regarding the first point, necessity, the House states that the research carried out by the European Commission does not show that different contract laws discourage or stop consumers or businesses from engaging in cross-border trade.
On the second point, that action in this area by the EU is not of benefit to the Member States, the House argues that the Sales Law could lead to higher levels of legal complexity. The House asserts that there is no mechanism in the draft Regulation to ensure that the Sales Law will be interpreted and applied uniformly throughout the EU, and this could lead to a lesser degree of legal certainty. Further, the Sales Law could create confusion for consumers who would potentially be faced with a situation in which different rules apply to the same products depending on who they are purchasing them from and where the supplier is located. In the House’s view, therefore, the Sales Law is clearly not of benefit to consumers.
Comment
It is not clear how the Sales Law will interact with the new Consumer Rights Directive that as recently been adopted, which introduces new rules in relation to consumer contracts in the EU. Given that the European Commission plans to have the Sales Law agreed by 1 January 2013, it will be critical for the Commission to ensure that the draft Regulation is fully considered and properly implemented, given the tight timescale. Despite the fact that, when implemented, the Sales Law will be optional, it may still affect consumers who purchase goods from suppliers that choose to use it. It will therefore not always be optional for consumers.
It will be interesting to see how far the UK is willing to go in objecting to the latest regime proposed by its European counterparts.
