European Union: European Law On Contracts Or The Great Illusion

Last Updated: 21 November 2011
Article by Bénédicte Chesnelong

This article is a translation of an article written originally in French, by Bénédicte Chesnelong, Litigation Counsel in Allen & Overy's Paris office.

The Green Paper published last July by Viviane Reding as Commissioner for Justice, Fundamental Rights and Citizenship aims at reviving the old debate on a European contract law. This debate was very controversial up until 2007/2008 after which it was nearly forgotten. The EC proposal aims to improve consumer protection in the EU and harmonise consumer law within the EU.

The EC created a working group with experts from all around the EU to transform the draft Frame of Common Reference into one simplified European contract legal framework. This task seems doomed to failure as the principles of the existing EC rules such as good faith, non discrimination, loyalty etc... are subject to the interpretation by local Courts which may differ in their understanding and application of such principles from one country to another. It seems inappropriate to conceive general rules applicable to contract law using existing specific rules which were originally created in order to protect consumers. In this respect the principles of the existing EC rules should therefore be used as a common basis for EU consumer rules.

The Green paper puts forward several options:

  • publishing on the internet some basic common rules which could be chosen to be applied within the internal market;
  • a tool box that the EU legislator would use when modifying or adding to EU law in order to improve the coherence and quality of European law;
  • a recommendation for the member states to incorporate in their national legal system European contract rules, such as the Uniform Commercial Code that most of the States within the USA have incorporated in their legal system;
  • a 28th regime which would involve putting in place optional EU contract rules that consumers and SMEs could decide to apply to their contracts. This would be an alternative to the national legal framework. These European rules would be available in all languages spoken within the EU
  • the harmonisation of national laws on contracts through a Directive
  • the harmonisation of national laws on contracts through a Regulation
  • the creation of a European Civil Code

In 2005, a Clifford Chance survey indicated that 80% of SMEs were in favour of common European contract rules but only if they were optional and an alternative to their national system. There is no reason why opinions would be very different today.

Of the various options considered in the EC Green Paper, the optional system seems to be the most realistic. This would imply the creation of the 28th regime.

The EC's main aim remains consumer protection, and to a certain extent SME transborder transactions. Because of this, it seems unrealistic to further plan a complete harmonisation of European contract law which would require all MS to renounce their national legal system and centuries of political culture and history. Indeed, contract law policy is closely linked to general politics. There is no need to ignore the various steps taken by the 27 MS to create their own legal system and formulate their own laws on contracts, as these are also subject to economic, social and cultural factors or hurdles which differ from country to another. And again three main legal systems coexist in the EU (the common law system, the continental one, and in Germany there being some significant differences with other continental law inspired legal systems. A good example is that German law on Contracts is based on the concept of "legal act" while this concept is ignored by common law which only recognises the contract as the basic concept of contract law.

In other words, giving up national laws for a common European law on contracts is such a radical move that it would require a very strong and cohesive political will which does not exist at the moment within the EU.

2010 has been an annus horribilis for the EU and its member states. The Greek crisis developed into a Euro crisis, which not only shook the common currency and spread to Ireland, but also raised doubts over the prospects of the European integration project. There is today within the EU an increase of national focus, a real distrust among member states and a growing gap between national capitals and Brussels. The economic crisis had already stimulated national egoism and even some unilateral reactions. The impact of the European debt crisis could be even worse as it goes beyond the realm of the economy.

The deteriorating political atmosphere among EU countries and their citizens could lead to a standstill of the building of the EU. Major reforms such as European-wide contract rules would require a strong consensus between member states, as well as their full support, which currently seems unlikely.

Some very significant research and think tank associations and/or foundations have been considering the various options and are expected to publish their opinions on the Green Paper soon.

The strong influence of the 1804 Napoleonic Code, beyond the European zone, is a good example of how some common rules can be shared by many people who have different cultural and political backgrounds. Military conquests, the French colonial past, the French intellectual influence or just the unity of the French Civil Code are objective reasons explaining its success worldwide but not the only ones. As was stated by by Konrad Zweigert and Hein Kotz (two comparative law professors): " The Code Civil was received in these countries as the result of a careful evaluation of its merits, in the way that a customer in a shop might choose the goods which best suited him. The reception of foreign law is not so much a question of quality as a question of powers: a good reception occurs when the law being received is in position of power, at least intellectually and culturally, as being the law of a country which still enjoys political power or did so until so recently that its strength and culture are still clearly remembered" (CF. An Introduction to Comparative Law by Konrad Zweigert and Hein Kotz).

The worldwide and unique influence exercised during the XIXth and the beginning of the XXth centuries by the French Civil Code and its codification shows that what is decisive in such an influence is what is currently missing in the EU: political and intellectual power.

However, the French Civil Code, compared to the new German Civil Code (BGB) the influence of which has also been quite significant, now seems dated and urgently needs renovation : the recent proposal for a reform of French contract and civil law shows that the French legal system is leaning towards this.

When the Association Henri Capitant and the Society for comparative law worked on the influence of the French Civil Code in the '50s , they examined closely the expected unification of European Law which was, at that time, an idea very popular among lawyers. Professor Henri Mazeaud wrote: "In order to build our Europe, we need to build a European legal framework. What is to be done? Fight particularism and national pride [.. ] What matters and what lawyers need to do now, is to look for the best legal solutions in all the European laws, exactly as was done with the Napoleon Code".

At the time of this statement, the EU was in its infancy and was perceived as a symbol of the after war reconciliation and the best defence against communism. Unification of EU law on contracts was more recently presented as the last necessary step of the building of the Internal Market.

The various steps taken during these last ten years in order to create European contract rules have sparked concerns and controversy in France. Not many people supported the idea as it sounded too unrealistic to be implemented. The recent Green paper is now perceived as another attempt by the EU to stimulate and revive a debate as doubt and skepticism curently clouds the EU.

The Green Paper's "à la carte" menu aspect may be interpreted as the last attempt of a revival of what remains of an idealistic but not realistic academic project.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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