On 3 May 2011, the EU Commissioner for Justice, Vice-President Viviane Reding, launched the European Commission's (the Commission) feasibility study on an optional European contract law instrument for consumers and businesses.

In a recent speech, Commissioner Reding outlined her intention to publish a proposal for an optional instrument in October 2011. In the meantime, Poland, which is due to take over the presidency of the Council of the European Union (the Council) on 1 July 2011, has already indicated that it will start discussions for a new optional European contract law regime, which it believes will facilitate more cross-border sales agreements (particularly online).

In addition to the steps taken by the Commission, on 8 June 2011, the European Parliament voted to support the combination of a "toolbox" and an optional instrument for cross-border business-to-consumer (B2C), business-to-business (B2B) and insurance contracts, together with the creation of "European standard contract models" linked to an online alternative dispute resolution system (see box "Web links").

But is this the best way forward? The Law Society of England and Wales (the Society) is raising a number of issues on behalf of practitioners. It would also like to elicit practitioner comments for the Society's response to the feasibility study text. The deadline set by the Commission is 1 July 2011 (see box "Law Society response").

The Commission argues that the current system of national contract laws creates unnecessary complexity, leading to additional transaction costs, legal uncertainty, and a lack of consumer confidence. The publication of the feasibility study follows a consultation (which ended in January 2011) on seven options, ranging from publication of the contract law wording produced by the Commission's expert group as a source of inspiration for legislators and contracting parties, to a European civil code (www.practicallaw.com/5-502-8713).

In practice, discussions among policymakers have focused on some form of toolbox to assist legislators in improving the consistency and coherence of new EU legislation and the idea of a new, optional "28th regime" of European contract law (that is, in addition to the legal systems of the 27 EU member states).

The feasibility study is divided into aspects of contract law comprising: general principles; formation; obligations and remedies; damages; restitution; and prescription.

The initial text on which the Commission's proposal is likely to be based comprises 189 Articles for B2C and B2B contracts, covering predominantly sale of goods contracts and related services agreements. However, the scope of any future instrument is as yet unclear, with no definite statement in the feasibility study (although Article 150 purports to exclude transport, training, telecommunications support, and financial services).

The Commission also asks practitioners to consider whether a European contract law instrument should cover digital content (rather than only the "durable medium" on which it can be delivered, as is currently the case in the text).

The proposals raise a number of concerns and uncertainties, including the following:

Lack of jurisprudence. The diversity of national contract laws within the EU means that businesses may wish to take legal advice on cross-border transactions, but practitioners are not convinced that an optional instrument would assist, because it would lack established jurisprudence (unlike national laws). It would not be possible to ensure uniform interpretation of a new regime across the member states with their different legal traditions and cultures, and practitioners are worried that this would lead to uncertainty for contracting parties.

The European Court of Justice, which has little experience in the commercial sphere, may not be well-equipped to create jurisprudence. This raises concerns because any contract law is closely bound up with the mechanism for its enforcement through the courts.

Scope. Many cross-border transactions also involve additional areas of law: for example, areas of contract law outside the scope of the current text, the law of property and, if problems arise, the law of tort. These would still need to be governed by national laws, and practitioners are concerned that there could be confusion if some issues in an agreement fall outside the scope of the optional instrument.

What does optional mean? Although the instrument is described as optional, the feasibility study does not explain how the optional mechanism would function. A range of different approaches are being discussed by policymakers.

For B2C contracts, practitioners note that businesses' fear of selling into other member states often relates to contracts being subject to the consumer's home state mandatory rules of protection. However, if a seller had the sole choice of governing law, there is concern that this could be imposed on consumers to their detriment. On the other hand, if there was an "opt-in" mechanism for both seller and consumer (known as the "blue button" that businesses could place on their website and which consumers could select), practitioners do not think that consumers would be able to make an informed choice between different governing laws.

Offering this choice could also place a greater burden on businesses: if they choose to offer the optional instrument to consumers, they also have to offer the protection of the consumers' home state rules as an alternative.

For B2B contracts, it is unclear how the choice of governing law would work. If there was a free choice between the parties to a contract, then the choice of governing law could, in practice, be determined by the party with greater bargaining power. That would mean that the optional instrument would effectively give an additional choice to the stronger party. But if the stronger party was obliged to offer the optional instrument to the weaker party, then it is questionable how optional the instrument would really be.

The Society is concerned to ensure that freedom of contract is retained for all parties to a contract.

Good faith and fair dealing. It is unclear how the general principle of "good faith and fair dealing" (as previously included in the Principles of European Contract Law and the Draft Common Frame of Reference) would operate in B2B contracts, and how businesses would comply with this principle in the course of, and when breaking off, negotiations. Businesses would also be required to comply with requirements for the pre-contractual disclosure of information about the characteristics of the goods or services to be supplied, in contrast to the common law principle of caveat emptor (let the buyer beware).

Cost. The legal professions and judiciary across the member states would need to be trained in the new instrument and it is difficult to assess the cost of this.

The Society supports the initiative for a non-binding toolbox that could be used by EU legislators to improve the quality, coherence and consistency of EU legislation, but does not believe that a need for an optional instrument has been demonstrated, or that the diversity of national contract laws is of itself a significant impediment to cross-border trade in the EU.

The Society's view is that many of the main barriers to cross-border trade are practical and procedural, and improving access to means of effective redress would be a key step for increasing confidence in cross-border B2C and B2B trade. The laws in relation to other topics such as advertising, packaging requirements, product liability and non-contractual representations are also important.

While the Society is keen to explore positive approaches that could deliver benefits for both SMEs and consumers in cross-border trade (and will continue to engage constructively in the debate wherever possible), it is concerned that there is a risk of unintended economic consequences, and that the potential impact of a 28th regime has not yet been adequately assessed.