3 May 2011
Hearing of the European Conservatives and Reformists Group
on European Contract Law
Welcome by Sajjad Karim (ECR Spokesman, Legal Affairs)
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An optional instrument would lack legal certainty, which is enjoyed by existing
national systems and due to an established and clear body of jurisprudence.
Divergent interpretations of the optional instrument would be produced in
different Member States and the Court of Justice is ill-equipped to act as an effective
commercial court currently.
The consumer would not have the knowledge to choose the most beneficial
contractual regime and therefore the concept of optionality is questionable.
Costs, disruption and confusion for businesses and consumers from a new
regime, as well as associated costs for re-training legal professionals, revising
commercial practices and litigation costs must also be considered.
Keynote address by Vice-President Viviane Reding
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75 per cent of EU traders do not currently sell cross-border. The Commission is keen
to remove contract law obstacles and associated transaction costs in this regard. The
UK Federation of Small Businesses was quoted as it stated that it would costs SMEs
9,000EUR per Member State to trade cross-border.
Statistics have supported that differences in contract law are a problem that should
be addressed.
The security of online payments must be addressed for consumers
The Commission services are drawing up an impact assessment of all the
different options and none have been ruled out.
300 replies to the consultation have been received.
The Expert Group's feasibility study on European Contract Law had just been
published and it represented a balance regarding geographical origins and
experience of different traditions of contract law. The study will be used by the
Commission in its preparations for a proposal.
Stakeholders will be able to comment on the study until July.
Questions to the Commissioner
Ashley Fox MEP (ECR IMCO shadow draftsman)
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Concern regarding the practical aspects and the impact on consumers
Language is the major barrier to cross-border trade.
Ensuring freedom of contract, consumer protection and respect for different legal
systems should be met by shelving the dossier and focus instead should be on
barriers to trade.
Not convinced about the evidence for an optional instrument and that it would
actually deliver benefits to consumers, industry or cross-border trade.
Is the harmonisation to the fragmented contract laws being proposed a just a method
of transferring more power to Europe?
Extra costs and burdens for industry and uncertainty would arise a result of
harmonisation of contract laws, rather than jobs and growth.
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The optional instrument would not be optional for the consumer since the trader
would decide which jurisdiction or body of law to use due to them having the
dominant bargaining position and also since consumers will not be able to make an
informed choice.
An average level of consumer protection will need to be set and businesses will
opt for the optional instrument in Member States, such as the UK and in
Scandinavian countries, where the level of consumer protection is high, while in
Member States with a lower level of consumer protection businesses would opt
for the national system.
Better lawmaking principles are essential and every proposal must be
accompanied by a thorough impact assessment and should be subjected to a
cost benefit analysis. This is why MEPs in the IMCO committee were keen to wait
until a detailed impact assessment of all the policy options had been carried out by
the Commission or at the very least until the CRD negotiations had been concluded.
The announcement that the optional instrument for contract law is in the Single
Market Act would be an expensive waste or resources that would meet the same fate
as the CRD.
Any proposal in this area must be met with intense scrutiny by the Parliament.
Response by the Commissioner
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In Luxembourg, language is not an issue since people speak five or six languages. In
any case, the draft common frame of reference is already translated into all EU
languages, and the optional instrument could therefore be translated easily to add to
legal certainty.
Consumer protection is high on the agenda.
The principle of freedom of contract and respect for contractual terms is important.
The Consumer Rights Directive outcome will be incorporated into the contract
law proposal.
Traders have not opened up their goods to Luxembourg because they do not want to
adapt to consumer protection law. Consumers do not want to buy online cross-border
as they do not know their rights.
Diana Wallis MEP (ALDE JURI rapporteur)
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The need for a high level of consumer protection has been underlined in all
discussions so far.
It would be an opt-in regime
The European optional instrument would be the least invasive way in terms of
damage and detriment to national law, and has the potential to open up the Single
Market.
An instrument would be available in all EU languages
There is too much concern about the optionality. At the moment, the consumer does
not have a choice.
Consumer choice and consumer protection should be extended.
Deborah Prince, Which?
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There is a problem with and lack of the facts and figures available which
support the initiative.
There is a lack of impact assessments and there is concern that the figures of the
Commission would not stand up to scrutiny.
All UK stakeholders have joined together to oppose the proposal.
There is concern that stakeholders´ views are not being sufficiently taken into account
by Commission experts.
In relation to accessibility of goods between consumers of different Member States,
the question is whether traders would want consumers to take advantage of price
differentials.
2/7
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Collective redress is important as alternative dispute resolution only goes so far.
Collective redress should be at the top of the agenda but it is not being
discussed by the Commission.
Several different complex concepts are being bundled together in this proposal.
Jason Rix, Allen & Overy
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Consumer issues should be solved through consumer law, rather than contract
law.
Michael Patchett - Joyce OQ, Bar Council of England and Wales
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Many of Commissioner Reding´s comments were consumer, rather than business
focused.
The outcome of the CRD should be incorporated in this proposal and
stakeholders should have the opportunity to consider it too.
Response by the Commissioner
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The collective redress proposal is being prepared and the Commission is taking
this issue seriously.
The text of the Expert Group was available for consultation until 1 July 2011.
The Commissioner is open to stakeholders who wish to correct the Commission's
figures or provide their own, explaining why the Commission's figures are incorrect.
A solution for B2B and B2C contracts will be sought.
The Commissioner conceded that the proposal was not beneficial for the UK as
such, but that as Commissioner her duty is to make proposals for the benefit of the
EU as a whole.
The Commissioner said she was looking forward to the challenge of the proposal,
bearing in mind the peculiarities of the Member States and the different vested
interests of certain professions, with the ultimate goal being to deliver for the 500
million citizens in Europe.
Detailed panel session
Views from the Legal Profession
Edward Pitt, Bates Wells and Braithwaite LLP
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Not convinced that an optional instrument would address legal difficulties
since the contractual differences mentioned are very simple. The differences in
legal terms refer to advertising laws, product liability, and different labelling
requirements, which are not contractual issues. As a result, differences in contract
law are actually not the problem.
The optional instrument does not address the cross-border trade difficulties
Whether consumers will benefit from such an instrument should be investigated
Concepts which enable consumers to benefit and enforce their rights should be
considered instead.
Consumers cannot always benefit from consumer protection laws in their own
Member State and this has discouraged sellers from selling abroad.
Traders are sometimes worried that their liability in a consumer's country will be
affected by what is viewed as bias in favour of the consumer in the case of a dispute.
Rome I rules allowing a consumer to have access to their national courts may
not have benefited consumers as they may have made sellers more reluctant to
sell cross-border.
There is no point in an optional instrument unless enforcement methods are
scrutinised in depth.
3/7
Bénédicte Chesnelong, Allen & Overy LLP
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The initiative has caused controversy in France.
The optional instrument would raise questions due to the need for agreement
from all Member States.
France has a high level of consumer protection that would be classified as public
policy rules.
France's (or a Member State's) own law would be needed to challenge the
applicability of an optional instrument.
Tools such as UNIDROIT have not been used much and there is a risk that an
optional regime would not be used much either.
Sitg Bigaard, Bech Bruun
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The optional instrument should cover B2B and B2C contracts
The view that businesses will always look for a way to benefit at the expense of
consumers is outdated.
Businesses would benefit from a more uniform set of contracts.
A lot of work on harmonisation of contracts is carried out successfully in Denmark.
If it includes fair rights and high consumer protection levels, the most important
element of the optional instrument would be the confidence of consumers and
businesses to use it.
The draft common frame of reference is too broad and covers too many areas.
Dangerous elements should not be included, such as non-economic loss including
pain, suffering and quality of life, which could prevent and close down the use of the
optional instrument entirely.
There has not been much input from the legal profession in the work so far and
examination by the profession is essential.
Commenting on the expert group's findings by 1 July will not be possible.
there should be some standard agreements, as if there were a book of clauses the
risk would be that they would remain on the shelf and be of no use
The optional instrument should be chosen but in an intelligent way.
Questions to the panel
Joanna Kielty, Law Society of England and Wales
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Discussion so far had focused on B2C only but the Commission's expert group had
also produced a B2B text? Was there a need for an optional instrument to assist
with B2B trade? If not, what else would help cross-border trade?
Consultant in the audience
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Extra fees resulting from an optional instrument were not clear.
Had the struggle between DGs to obtain the file changed its outcome and not been
particularly beneficial.
The Vienna Convention for the sale of goods for B2B already exists.
Sven Pieterson, Danish Chamber of Commerce
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There was no need for a B2B instrument.
The Commission should be spending its time on other issues.
4/7
Helga Trupel MEP
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How was the proposal linked to the intention of Commissioner Kroes to improve the
digital single market?
What did the panelists think about the need to change contract law in order for
artists to be fairly remunerated?
Responses by the panelists
Sitg Bigaard, Bech Bruun
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B2B is not the largest obstacle but if a small business can sell cross-border without
seeking legal advice, it is beneficial.
The cost question is relevant.
The train will not stop, which is why the optional instrument should be made as
focused as possible.
Bénédicte Chesnelong, Allen & Overy LLP
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B2B is also concerned but the focus has been on B2C as consumers are considered
the weakest party.
Member States´ different legal systems should be considered in order to come up
with a pragmatic solution.
Edward Pitt, Bates Wells and Braithwaite LLP
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B2B should be treated separately to B2C since freedom of contract should be
borne in mind.
Businesses use other standard terms that they can draw on.
A quick and efficient mechanism is needed for consumers to exert their rights.
Mentions of vested interests and protecting the status quo (as stated by
Commissioner Reding) are not correct.
Balancing the needs of businesses and consumers
Andrea Benassi, UEAPME
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If neither SMEs or consumers are not calling for this proposal as a priority, then
why is it being rushed?
Supportive of the toolbox
The current drafting of the Commission favours consumers but both parties need to
have an advantage to use the optional instrument.
'Think small first' concept must be promoted much more and there should be a
better balance between businesses.
Ben Butters, EUROCHAMBRES
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Applauded the Commission on the rigorous consultation process
Disappointed that stakeholders will only have two months to respond to the
publication of the document published by the expert group.
Discussions should be in tandem with CRD
Language is important.
The optional instrument might contribute to an increase in the level of cross-border
transactions.
Predictability of rules is essential as is having a very clear text and a clear indication
of whether it is covering just B2C or both B2C and B2B contracts.
It should be applied to online, offline, domestic and non-domestic contracts.
SMEs are not in a position to choose whether to use the optional instrument on
a case by case basis.
5/7
Sietske de Groot, Federation of Small Businesses
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There might be an opportunity for SMEs if an optional instrument were to exist.
SMEs currently have less experience of foreign trade and contracts and they seek a
DIY solution. SMEs do not often take legal advice before selling cross-border.
Time and costs could be saved by using an optional instrument and SMEs
could break into new markets as a result.
An optional instrument could serve both parties and even big businesses as
they use SMEs in their supply chain. A neutral set of terms could be offered
while the current situation favours big business.
Ursula Pachal, BEUC
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The European Parliament should evaluate the Consumer Rights Directive to evaluate
the lessons that can be learnt. It should not be a case of just copying and pasting
the CRD into the optional instrument but considering what it does and does not
solve and where improvements can be made.
For B2C, the proposals need to be considered in a results-orientated way.
Consumers and SMEs do not see a need for the instrument so who is it for?
The proposal has been based on assumptions rather than evidence
They key issue is enforcement and redress
79 per cent of consumers state that they would not change their behaviour
following the introduction of an optional instrument.
The main reason why consumers do not shop cross-border has nothing to do with
legal uncertainty but rather redress.
Some business organisations have an incorrect understanding of Rome I - there is no
freedom of choice.
The optional instrument would increase legal uncertainty.
The 'optional' aspect is misleading as there would be no opt-in and no
negotiation - purely imposition instead.
Traders would be able to segment the optional instrument due to it being more
beneficial to them in certain jurisdictions than others, circumventing consumer
protection standards.
A long term strategy rather than a new tool is necessary.
Redress and alternative dispute resolution are crucial for increasing consumer
confidence.
BEUC is working on model contracts for distance selling.
Business education is important.
Chairman Malcolm Harbour asked if a potential DIY solution might be a set of model
contracts, which could act as best practice and as a toolbox.
Panel responses to the proposal for model contracts:
Edward Pitt, Bates Wells and Braithwaite LLP
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Standard form contracts that could be chosen, rather than an optional
instrument, would be a much more flexible solution.
The Law Society was working on model terms.
Sitg Bigaard, Bech Bruun
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If the concept is to be successful, standard contracts need to be incorporated.
Model terms could be a good idea.
6/7
Evanna Fruithof, Bar Council of England and Wales
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The Bar Council had initially supported a toolbox since it would have been for the EU
legislator to look at and would have been useful, provided it were kept up to date.
However, the toolkit on its own is a different issue.
Christopher Hancock, Commercial Bar Organisation
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In the larger spheres, model contracts are used all the time by multinationals.
Predictability avoids disputes
Supportive of a proposal for model clauses as it could be useful.
Ursula Pachal, BEUC
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There is a problem with calling the optional instrument 'non-intrusive' since it
would have a significant impact on consumer rights.
Model contracts could be a way forward and costs could be saved as a result.
Sietske de Groot, Federation of Small Businesses
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SMEs would need to adapt to any proposal and they would only do this once.
Model contracts would be good to start with.
The optional instrument is a better solution than a toolbox.
Model contracts should be included in an optional instrument
Ben Butters, EUROCHAMBRES
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Not convinced than an optional instrument is the best way forward.
It is important that model contracts are on a sectoral level.
SMEs must be convinced of its merits for it to be successful.
There can only be one attempt.
Andreas Benassi UEAPME
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SMEs are not taken into account sufficiently.
An SME assessment has not been carried out.
The impact assessment is ongoing.
UEAPME´s clear choice is a toolbox.
The Commission must be reminded the 'think small first' in all its proposals.
Final reflections by Chairman Malcolm Harbour
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The obstacles perceived as legal barriers are more about enforcement.
Consumers are keen to see evidence that their problem is being dealt with.
A large part of the key issue is in relation to marketing and perception.
Companies are highly conscious that they need to look after their consumers as well
as providing them with easy access to redress. Consumer ombudsmen have their
role to play as well.
Alternative dispute resolution forms part of the holistic approach.
A more pragmatic approach would be better.
Immediate feedback to the Commissioner regarding the unworkable timescale
for responses to the Expert Group's paper would be sent.
The Single Market Act provides a framework for all Single Market issues to be
discussed. This holistic approach is difficult to achieve at Commission level and
the consumer elements need to work much better. The IMCO committee will be
drafting its own own-initiative report on Consumer Policy Strategy in an
attempt to tie some of these key issues together.
The Single Market Forum will be held in Krakov on 3 and 4 October to look at a
range of Single Market issues, and contract law will be discussed.
7/7