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April 22, 2014

UK Government Response to Common European Sales Law Proposal

After years of fierce negotiation, the European Commission published its controversial draft Regulation for a common European sales law (CESL) on 11 October 2011.  The draft specifies that the adoption of the CESL will be voluntary, and that it will apply to contracts for the sale of goods and digital content and for mixed goods and services.  The CESL will only be used to govern transactions where at least one party has its habitual residence in the European Union, and it applies only to business-to-consumer transactions and business-to-business (B2B) transactions where at least one party is a small or medium sized enterprise (SME).

In February 2012, the UK Government issued a call for evidence on the European Commission’s draft Regulation for the CESL in order to determine its position.  The Government received 43 responses from representatives of the legal profession, businesses and consumers, consumer and trade organisations, the judiciary, academics and individuals.  Following analysis of the evidence provided, on 13 November 2012 the Government published its response to the consultation, which revealed a number of recurring themes.

Lack of Support for The CESL

Almost half the respondents said they would not use, nor advise others to use, the CESL.  A number of respondents were explicit in their opposition to the CESL in principle.  Those who were opposed were unconvinced that current contract laws presented a commercial barrier that necessitated the introduction of such an extensive legal measure.

These respondents also raised concerns over increased legal uncertainty, high levels of confusion in the market place and the significant costs involved in the implementation of this new legislation.  Even respondents generally in favour of the CESL had concerns over the clarity and legal certainty of the current draft.

Concerns Over The Scope of The CESL

A number of respondents were opposed openly to the CESL’s present scope.  A common view was that the CESL should be limited to cross-border sales only, and that it should not be extended to domestic contracts.  Respondents also expressed the view that the requirement that at least one party to a B2B contract must be an SME was impractical or undesirable.  Views on the applicability of the CESL to different types of transactions were mixed.  While some thought that other types of transactions ought to be included, such as pure service contracts, others would like the scope of CESL to be narrowed.

Respondents were clear in their view that the CESL as drafted did not achieve its objective of being a stand-alone code of contract law.  Concerns were also raised in relation to the areas of law not covered expressly in the CESL, including capacity, illegality, transfer of ownership and whether or not contractual and non-contractual liability can be pursued in tandem.

Uncertain And/Or Novel Legal Concepts

The Government’s response identifies various technical concerns relating to the CESL.  The provision imposing a duty for parties to act with good faith and fair dealing, regardless of the other provisions of the contract, attracted significant comment.  These concepts do not exist in this context under English law so there is no existing case law to assist interpretation or to provide guidance on this point. 

A number of respondents expressed concern over provisions that would relieve a party of its contractual obligations where it had “urgent needs” or was “ignorant”, which may disadvantage unfairly a party that is knowledgeable or well advised.  It is also apparent that there are reservations over the uncertainty surrounding the role of the intentions of the parties in interpretation of contracts. 

Dispute Settlement and Jurisprudence

Some respondents believed there was a lack of consideration of dispute settlement and the process of developing a body of jurisprudence in relation to the implementation of the CESL.  In particular, it was felt that insufficient consideration had been given to the increased burden the introduction of the CESL would impose on court systems, that legal advice on national laws would still be required and the decisions of one Member State would not be binding on another. 

Level of Consumer Protection

The majority of respondents expressed the view that the level of consumer protection provided by the CESL was inappropriate.  Some thought it was too high—imposing an unreasonable burden on business—while others considered it too low. 

The provisions relating to consumer remedies for non-conformity were of particular concern.  Those who were of the view that the CESL offers excessive consumer protection were concerned that a potential 10 year termination right for non-conformity was too long.  Those respondents who considered the level of protection too low were anxious that consumers will be disadvantaged by the standard two year limitation period and the fact that damages would not be awarded for inconvenience or distress.

Balance Between Interests of Supplier and Customer

Various instances of imbalances between suppliers and consumers were identified by respondents.  While an emphasis on fairness to the detriment of certainty is appropriate to protect the consumer, it is not suitable in B2B contracts.  As mentioned above, respondents also commented that consumer protection levels were too high in some areas, and too low in others.

The provisions dealing with mistake and fraud were felt to not impose adequate obligations on a party to protect its own interests, as unnecessarily broad duties are placed on the other party.  Some respondents also expressed reservations in relation to the duty imposed on a supplier to disclose any information concerning the main characteristics of the goods or related services supplied as being disproportionately onerous.

UK Government’s Conclusion

The UK Government has taken the stance that there is insufficient evidence for the need for the CESL as drafted in the proposed Regulation, and it doubts the veracity of the benefits and cost savings claimed by the European Commission.  The Government advises that the limitations, optional nature and the inherent uncertainty of the CESL as laid out in the draft Regulation are likely to cause confusion.  Further, the Government remains of the opinion that a novel, voluntary contract law is less likely to be effective than harmonisation of consumer law across Europe.

The Government encourages the European Commission to carry out a detailed review of the barriers to cross-border commerce and to consider the most appropriate solutions to these barriers before developing the CESL any further.  However, if the proposed CESL is to go ahead, the Government recommends that it remains restricted to cross-border contracts, and states that it would not support the extension of CESL to UK domestic contracts.

The UK Government response includes many of the concerns set out in the European Parliament’s Legal Affairs Committee autumn 2012 report and the United Kingdom is not alone in opposing the CESL as drafted.  Despite these numerous reservations, the European Parliament report is confident that all the issues will be attended to, and that the CESL will come into effect on schedule. 

Keo Shaw, a trainee solicitor in London, also contributed to this article 

© 2014 McDermott Will & Emery

About the Author

Partner

Rohan Massey is a partner in the law firm of McDermott Will & Emery UK LLP, based in its London office.  He focuses his practice on media, e-commerce, outsourcing, IT and data protection.  As well as advising on intellectual property issues arising in corporate transactions, Rohan specialises in media and marketing, advising on a wide range of sponsorship, advertising, sales promotions, clinical trials and intellectual property issues.  His client base is international in scope, as he works extensively across Europe and has been based in our LA office. ...

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