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Law Commissions publish advice on proposed Common European Sales Law
Practical Law UK Legal Update 5-512-0009 (Approx. 5 pages)
Law Commissions publish advice on proposed Common European Sales Law
by PLC Commercial
| Published on 10 Nov 2011 • England, Scotland, Wales |
The Law Commission and the Scottish Law Commission have published their advice to the UK government about the proposed Common European Sales Law. (free access)
Speedread
The Law Commission and the Scottish Law Commission have published their advice to the UK government on the advantages and disadvantages of the proposed Common European Sales Law (CESL), see Legal update, European Commission proposes optional Common European Sales Law. The advice deals solely with sales contracts and does not consider digital content. The Law Commissions believe that there is a case for a new optional code to cover distance selling across the European Union and welcome the fact that CESL offers parties a choice. However, they do not consider that the current text strikes the right balance. They believe that efforts would be better spent in developing a European code for consumer sales over the internet, where there is stronger evidence that the current variety of contract laws inhibits the single market.
Background
On 11 October 2011, the European Commission published its controversial draft Regulation for a Common European Sales Law (CESL). This represented the culmination of the discussions in recent years concerning the development of a European contract law. The Common European Sales Law will sit alongside member states' domestic contract law and can be used by parties to govern cross-border transactions where at least one party is based in the EU and both parties expressly agree to its application. The law can be used for business-to-consumer transactions for the sale of goods and ancillary services, including digital content. The law can also be used for transactions between businesses where at least one party is a small or medium enterprise (SME). Member states may choose to make the law available for use in domestic business-to-consumer and business-to-business transactions. For the background to the proposal, see the PLC Commercial legislation tracker: European contract law instrument.
Law Commission advice
The UK government asked the Law Commission and the Scottish Law Commission to provide advice on the CESL. The Law Commissions believe that there is a case for a new optional code to cover distance selling across the European Union. However, they are not sure that the current text strikes the right balance. In particular, the text needs to:
- Clarify when a contract is formed, the effect of a change of circumstances and unfair terms protection.
- Add provisions on the transfer of property.
Key problems
The Law Commissions believe that there are three main problems with the text as currently drafted:
- It is not always easy to understand. It needs notes and internal references and an authoritative guide. In addition, it would be helpful if there were separate codes for business-to-consumer contracts and business-to-business contracts.
- From a trader's perspective, the proposal has the following drawbacks:
- Unless member states exercise an option to extend the CESL to domestic sales, traders must use one contract law system for domestic sales and one for cross-border sales.
- It is cumbersome to use for telephone sales.
- Traders must still find out about and comply with the linguistic requirements of any member state to which they direct activities. Therefore, linguistic requirements may still limit small business start-ups and create a barrier to trade.
- The proposal provides consumers with an extended right to reject faulty goods for up to two years from the date the consumer could be expected to be aware of the fault. The Law Commissions believe that this period is too long (in their report on consumer remedies for faulty goods, they suggested a period of 30 days, see Legal update, Law Commissions publish final report on consumer remedies for faulty goods) and that it may discourage traders from using the CESL at all.
- From a consumer's perspective, there is too much scope to argue whether a consumer has acted in good faith or should give the trader an allowance for their use of the product. In addition, the lack of damages for distress and inconvenience may reduce the level of consumer protection in some circumstances.
Should the CESL be confined to cross-border sales?
The CESL will apply to cross-border transactions (Article 4) where at least one party is based in the EU (so it can be used for contracts between a party in the EU and a party outside the EU). However, member states can choose to make the CESL available for domestic contracts (recital 15).
If CESL is confined to cross-border sales, traders will need to use two systems of law, one for domestic sales and one for cross-border. Consumer groups fear that if the CESL is used domestically it could undermine consumer protection in the member states. In addition, there is an inconsistency in the provisions. The Law Commissions give the example of a trader based in Luxembourg doing a lot of business in the UK and being able to use the CESL, but a trader based in Leicester being unable to. This scenario could discourage multi-national traders from setting up in the UK. Therefore the Law Commissions think that the UK government should exercise its option to extend the CESL to distance sales. However, it would have to extend it to all consumer sales, and this might undermine the UK's ability to respond to specific abuses in certain areas, such as doorstep selling.
Restrictions on the use of the CESL
Businesses who are not SMEs. The Law Commissions are concerned about the fact that the CESL cannot be used by businesses who are not SMEs because this conflicts with the principle that businesses should be given a free choice of law and such a restriction may need an amendment to the Rome I regulation, see Practice note, Rome I: an outline of the key provisions. Further, the definition of an SME in Article 7 adds unnecessary complexity to the process. The Law Commissions believe that the UK should exercise its option to remove this restriction.
Mixed-use contracts. The CESL cannot be used for mixed-use contracts, which include any elements other than the sale of goods, the supply of digital content or the provision of related services. This would make the CESL difficult to use in cases where, for example, a party provides training, or loans or supplies equipment on hire. This exclusion could therefore cause problems.
Content of the CESL
Commercial laws have to deal with the tension between fairness and certainty. Whereas English and Scottish contract law endeavours to provide certainty, the CESL sets out to provide fairness. It sets high standards of good faith and fair dealing and provides discretionary remedies to a party who has suffered from a lack of good faith. Although this may protect a weaker party in the negotiations, it is less helpful in an optional regime, where a weaker party may have a choice of law imposed on them. The open-ended nature of the discretion may also disadvantage the party least able to litigate.
Although there may be a market for the CESL, the Law Commissions are unclear on whether the market would be sufficiently large or significant for the CESL to develop the critical mass it needs. Those who would most benefit from it are least likely to use it. Where a weaker party contracts with a stronger party the choice of law is likely to be dictated by the stronger party. The Law Commissions believe that some traders may impose the CESL on consumers, with consumers having the choice only to buy from the trader or not, and not contract on the terms of their national law. In addition, the Law Commissions have concerns that another choice of law will only add to the complexity and confusing array of possible choices of law.