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Thursday, 26 May 2011

An EU Contract Law? Too Tough To Digest

A hat-tip to Mayer Brown for the heads-up on the latest in the saga of a proposed European Contract Law. We have until 1 July to send feedback on 189 individual articles included in a 'feasibility study'. The Commission will then consider that feedback, together with the results of an earlier consultation.

As I have posted previously in another place, I'm not terribly supportive of a new European Contract Law. It doesn't fix any real problem, and it won't catalyse a single, cross-border market - notwithstanding the rationale advanced by the European Commission. The example used is:
"An Irish consumer buys an MP3 player online from a French retailer. In this case, Irish contract law would apply if the French retailer has designed his website for Irish consumers."
This is a strange scenario, littered with odd assumptions. Besides, there are notable instances of successful cross-border retailing in the EU that rely on the law of a single Member State as the law of the contract. And choice of law is the least of the barriers to setting up such an operation, as the European Commission itself discovered in the context of the reform of laws related to consumer rights and consumer credit. In particular, a May 2007 study by Civic Consulting revealed that:
“the main [non-regulatory] barriers hindering selling of consumer credit products in other EU Member States are different language and culture; consumers’ preference for national lenders; credit risk for lenders – no access to creditworthiness information; problems related to tax, employment practices etc.; difficulties to penetrate local market; different consumer demand in different Member States; lack of consumer confidence in a brand; differing stages of development of consumer credit; and lack of adequate marketing strategies.”
Furthermore, the law should follow, not lead commerce (though I realise that is a common law, rather than a civil law view). Otherwise, it acts as a hurdle to innovation and market development, and only those who are 'good at regulation' (incumbent players) will cope.

A pan-European contract law also conflicts with the principle already enshrined in various financial and other regulatory frameworks that, in general, the law in a corporation's home Member State should govern that corporation's cross-border EU activities. In fact, given the preponderance of any EU-based cross-border retailer's trade is with the citizens of its home state (with the exception of retailers based in Luxembourg) this proposal would seem to envisage retailers either imposing European Contract Law on their local customers, or creating separate set of terms for cross-border customers. I don't see how either is helpful, other than to generate work for the likes of... well, me.

But I'm not in the business of creating more hurdles for cross-border trade. So, while I will of course personally attempt to digest yet another European dog's breakfast, I propose to focus my drafting energies on an exclusion clause that will mean my clients and their customers won't have to.

Apply within ;-)