Brussels, 14 February 2003
More coherence for European contract law: Commission adopts Action plan
The European Commission has adopted an Action Plan setting out a road map for greater coherence of contract law in Europe. Contract law underpins all internal market transactions in Europe - whether it be businesses selling products or services to other businesses or purchases made by consumers. EU laws such as the Sale of Consumer Goods Directive or the Package Travel Directive already harmonise specific aspects of Member States' contract laws. The Action Plan marks an attempt by the Commission to make this interaction between EU and national laws more coherent and overcome problems for the smooth functioning of the internal market. Measures being proposed include support for voluntary initiatives to develop standard Europe-wide contract terms, the improvement of existing and future EU law on contracts, and a research initiative to develop common contract law rules based on the best solutions found in the Member States' laws. The Commission will consider the desirability and feasibility of creating an optional body of EU contract law that contractual parties could use to facilitate cross-border trade. The Action Plan follows up on the Communication on European Contract Law of July 2001 (see IP/01/996) and stakeholders' responses to that document (see IP/02/496). Business, consumer groups, Member States and other stakeholders now have until 16 May 2003 to comment on the Action Plan.
The Action Plan is a joint initiative of Commissioners David Byrne, António Vitorino, Frits Bolkestein and Erkki Liikanen.
Health and Consumer Protection Commissioner David Byrne said: "All the evidence shows that unless consumers are confident their rights will be protected, they will not shop across borders. There is already a significant body of EU acquis on certain aspects of contract law, but the Action Plan we have published today aims for a more strategic and long term approach" .
Internal Market Commissioner Frits Bolkestein said: "Differences in contract law need to be addressed if we are to unleash the true potential of the Internal Market The Action Plan should remove hurdles placed in the way of business by legal complexities and uncertainties. It will help to ensure that business models are valid throughout the EU".
Enterprise Commissioner Erkki Liikanen said: "This Action Plan will bring about important benefits for European enterprises. It aims to remove red tape and enhance the quality of the legislation. In addition, the aim of the Action Plan is to work towards reducing legal costs for SMEs that are involved in or intend to start up cross-border activities".
Why the Action Plan is needed
Responses to the Commission's July 2001 consultation on European contract law (see IP/02/496) highlighted some significant problems caused by differences in Member States' contract laws, which the Action Plan describes at some length. For example, in some Member States companies often conduct business on the basis that the buyer only owns the goods once they have actually paid for them. Selling goods in this way - i.e. using a "reservation of title" clause in the contract - provides a cost effective guarantee to the seller that they are going to get paid. This is particularly useful for smaller companies that might find alternative forms of security, such as bank guarantees, prohibitively expensive. In other Member States, though, some types of "reservation of title" clauses cannot be enforced. So, companies from countries such as the UK and Germany where reservation of title clauses are widely used may find their guarantee of payment vanishes as soon as their goods cross a border.
A further set of issues identified in the July 2001 consultation concerned inconsistencies in the EU laws governing contracts. For example, there are four EU directives in four different areas that give consumers a "cooling off period" during which they can withdraw from a contract without giving reasons. In each case the length of the "cooling off period" is different. This can create problems if two Directives apply to the same situation. Another problem is that a number of EU Directives use abstract legal terms such as "contract" even though there is not an EU level definition of what sort of agreement constitutes a valid contract.
Details of the Action Plan
The Action Plan proposes a long-term strategy based on a mixture of both regulatory and non-regulatory actions. The first set of measures proposed in the Action Plan aim to improve existing EU contract law. An initial step in this process will be the elaboration of a "common frame of reference" for EU contract law developing common rules and terminology. The work to create this would be funded through the 6th Framework Programme for Research and use input from stakeholders to ensure that its contents meet the practical needs of economic operators. The common frame of reference could, for example, contain definitions of concepts and terms such as "contract" or "damage" and rules that apply in the case of non-performance of contracts. The Commission intends to use the common frame of reference, where appropriate, when reviewing existing EU law or making new legislative proposals.
The second set of measures proposed aim to promote the use of Europe-wide standard contract terms. The Commission will facilitate the exchange of information on initiatives already underway in the Member States. It will also offer guidelines on the limitations EU law already imposes on contracts: for example, the Unfair Contract Terms Directive or EU competition law.
The third strand of the Action Plan is a process of reflection on the desirability and the feasibility of creating a body of European level contract law that could be used to facilitate cross-border contracts. The aim would be an optional body of European contract law of wide application rather than a sector specific instrument. This would exist in parallel to, rather than instead of, national contract laws.
The Commission is looking for views from business, consumer organisations, lawyers, the Member States and other EU Institutions on the range of measures proposed, and in particular on the creation of an optional set of rules.
The present Action Plan is complementary to the Green Paper on the conversion of the Rome Convention of 1980 on the law applicable to contractual obligations into an EU legal instrument and its modernisation. This remains important, as any decision to have a contract governed by European contract law would have to be made in conformity with the norms of private international law.
For further information see the European Contract Law website: