UK: Perfecting The Single Market Through Optional Law: The Common European Sales Law

Last Updated: 30 April 2012
Article by Edward Craft

2012 marks the twentieth anniversary of one of the EU's most successful and most popular policies: the single market. The European Commission remains acutely aware that in some areas the necessary integration to fully complete the single market has not yet taken place and it is therefore focusing energy on breaking down the remaining barriers to full market integration: the Common European Sales Law (CESL) is an initiative to deliver a complete and mature single market by creating a new model for cross-border contracts which is intended to encourage trade.

Viviane Reding, Vice President of the Commission has been advocating a novel approach to law-making at a European level: an entirely optional law in the form of the CESL. Reding's proposals have the strong support of the European Parliament. The CESL was launched on 11 October 2011 as a draft regulation following a significant body of work by or for the European institutions and on the back of a significant green paper from the summer of 2010.  The original green paper elicited a high level of response and a significant divergence of views across Europe: a CESL was not the favoured option.

Empowering the consumer and small businesses

The stated objective of the CESL is to bring new benefits to both consumers and businesses by creating a safe and certain legal environment in which cross-border transactions may be entered into within the EU with the objectives of:

  • increasing cross-border trade; and
  • giving consumers access to a greater choice of goods at more competitive prices from a wider range of suppliers, while providing a high level of consumer protection.

There is some evidence that many traders are not prepared to supply goods outside of the jurisdictions in which the trader has specifically decided to operate. One reason for this could be the complexities of consumer protection law across member states. This necessarily restricts consumer choice.

The CESL proposal is intended to be capable of being used in both B2C and B2B transactions involving SMEs.  

Where the problems lie

There are a number of difficulties with the approach being adopted by the Commission and the Parliament. A number of these are considered and analysed below:

Difficulties with the CESL approach

  • Use of mandatory provisions
  • Pre-contract regime and defining the point where one law gives way to the CESL
  • Enforcement and no CESL judiciary or court system
  • Compatibility with the Rome I Regulation and consumer protection
  • Does not present any genuine choice to consumers

Mandatory provisions

The CESL has been developed through the lens of consumer protection, hence the use of protective mandatory provisions. However, these mandatory provisions themselves create a significant barrier to the wider adoption of the instrument in non-consumer situations: restricting the selective use of CESL provisions in member state law contracts renders it less likely that traders will use the instrument at all.

Pre-contract regime

CESL being an optional regime represents a conceptual flaw: the CESL instrument itself does not define the point at which member state law gives way to the CESL. Accordingly, it is very difficult to see how the pre-contract CESL provisions (including those relating to the ways in which a CESL contract is formed and the duties owed by the parties up to that point) operate.

No CESL claims procedure

Whilst member state courts have already had to develop the skill to apply EU law over national law, the CESL system does not currently provide for any common means of enforcement or judicial focus, other than a database of decisions. Accordingly, the fear of bringing claims through non-national courts remains. This could be remedied by the creation of a CESL small claims procedure with a dedicated body of tribunals. However, in an age of austerity, it is unlikely that we would see the establishment of new institutions requiring the recruitment of additional staff funded by the public purse.

Consumer protections

The Rome I Regulation on the law applicable to contractual obligations ((EC) 593/2008) makes it clear that parties have a freedom of choice to determine the law under which they are to contract.  Article 6(2) of the Rome I Regulation allows a trader to enter into cross-border contracts under its own law, whilst giving a consumer the protections available to it under the laws of the member state of the consumer. Accordingly the Rome I Regulation strikes a pragmatic compromise which gives certainty to the trader and appropriate protections to the consumer.  The CESL would need to be structured in a manner to be compatible with this regulation; at the moment it is not and is clearly not a recognised system of law under it.

Effectively only a choice to the retailer

It is axiomatic that to deliver certainty and the economies of scale of trading under a single contract system, the trader must determine whether to trade under CESL or national law.  Accordingly, no choice is given to the consumer.

Relationship of CESL with national laws

One of the earliest cases brought to the European Court of Justice confirmed the supremacy of EU (then EEC) law over the laws of a member state (Costa v ENEL [1964] ECR 585 (6/64)).  The case made it clear that laws stemming from the European institutions represented a source of law independent of national parliaments and courts which could not, by its very nature, be overridden by domestic legal provisions.  It has always been the case that EU law is applied through national courts.  The CESL would be different. It would not represent an overriding body of law, but an alternative one.  However, in the same manner as with EU law's relationship with national law, it would not be possible to interpret the CESL through the lens of national law.   This is clearly set out in the initial provisions to the draft regulation.

Not yet persuaded

The UK Ministry of Justice (MoJ) with the relevant devolved administrations have launched a call for evidence and consultation paper to build a better picture of the perceived need for the instrument.  The UK has not yet been persuaded that the benefits of the CESL will be as significant as the Commission asserts and is concerned that not all relevant costs have been taken into account by supporting the studies: if the CESL were to become a success, retailers would need to put in place at least two forms of contract, one under home law for intra-member state transactions and one under CESL for cross-border transactions within the EU.

The Law Society of England and Wales has been working closely with the MoJ and in Brussels to constructively engage on the CESL proposals.  Wedlake Bell has been closely involved and we recently had the benefit of a meeting with Viviane Reding on the project.  The Commission is very open to critical analysis of the proposals and new ideas that will enhance the policy and increase the prospects of its success and use by SMEs and consumers.

At our recent meeting with the Commission, practitioner views on practical challenges of the CESL structure were presented and taken on board.  The Commission is keen to work further with businesses, consumers and professionals to deliver a structure that delivers a genuine benefit to the peoples and economies of Europe.

The Commission is proud of the novelty of the optional solution it has devised, but there are other options which might be more deliverable and do not require the inevitable political compromises between member states that will arise as a regulation is negotiated.

Suffice it to say, consumer pressure for a CESL instrument may be greater in smaller member states than the larger economies.

The Danish presidency of the Council has called for a more critical evaluation of the various available options for economic integration through contract law and it is anticipated that the progress of this initiative will show the common tensions between the member states in the Council and the Commission and the Parliament.

EU endorsed Ts and Cs

We have for some time been advocating the development of EU endorsed standard terms and conditions for certain types of contract, drawing upon the precedent set in many industry sectors.  To earn EU endorsement it would clearly be necessary to include appropriate consumer protections, simple language and a focus on concepts that can be uniformly applied across the 27 jurisdictions of the European Union.  We think that such an approach may be attractive to the Commission as it is a project that could be delivered without the need for any legislative instrument (whether optional or not) and could grow and develop in an organic manner and become "bottom-up" delivery of one of the final stages of the single market project.

Evidence base

Commissioner Reding has promoted a radical approach through her policy of optional law.  What is clear is that a better evidence base must be developed over the coming months so that the instrument delivers a material benefit to businesses and consumers of Europe.

The CESL initiative has been developing for at least 20 years.  However, it is not something that should be rushed from this point but carefully considered and directed over the coming years, allowing sufficient time for the concepts to filter into the behaviours of businesses and consumers across Europe and for necessary changes to law at national and EU level to be made.

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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