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Reproduced with permission of the author.

Towards a European Contract Law

Guido Alpa

  1. Background
  2. The starting point
  3. The aim
  4. Which tool should be used to reach the aim? A way forward

1. Background

The title of this meeting, "Towards a European Contract Law" -- besides drawing again on the topic of some European Commission's Communications (COM (2001) 398 and COM (2003) 68), some European Parliament's Resolutions and the title of the Green Paper on Policy Options (COM (2010) 348), to which hundreds of institutions and stakeholders provided analytical replies -- reminds us of the title of a valuable collection of essays, published in different successive editions, devoted to a "European Civil Code". Precisely because it replaces the word "code" with "law", this formula keeps open the choice between the different solutions which can be conceived: "law" is a wider concept, which includes one of E.U. instruments -- regulation, directive and recommendation, in particular -- or simply refers to "principles", "negotiating models", or "codes of conduct", if we want to include also the rules arising from the application of the principle of freedom of contract. However, if a pathway is described -- and, indeed, "towards" implies a direction -- to reach an aim -- namely the European Contract Law -- first and foremost we must identify the starting point, select the aim and finally choose the means to reach it.

We cannot set off if we do not know from where we start our journey, where we want to go and how we want to proceed. The problem lies in the fact that we must consider the opinions of counterparts who have not only different skills and professional backgrounds (academics, independent professionals, associations of consumers and entrepreneurs, other categories of stakeholders, government representatives and, obviously, politicians), but also different ideas on the future. Nevertheless, if we keep on raising the same questions, we will only make a good academic exercise without reaching fruitful practical results. We would not have reached this stage without sound cultural bases, accurate research and the extraordinary work carried out by the groups of experts and academics who, more than 30 years ago, started to work on a forward-looking project such as the "codification" of European Contract Law, the consolidation of Consumer Rights' acquis, the Common Core of European Private Law, the drafting of common terminology and principles, the Principles of European Tort Law, the Study of a European Civil Code, the Draft Common Frame of Reference.

Once and for all, we should overcome the objections raised by sceptics and those who think it is not necessary, or even advisable, to set out on a journey and reach a destination, since they believe we cannot go well beyond the current situation. The reasons underlying this stance are well-known to all of us and point to the diversity of cultures, models, situations, competition between legal systems, cost savings, etc. However, we also know the answers, which justify the intention not to stop the project at this juncture, but rather to implement it with courage and determination.

2. The starting point

Hence, I will start by taking stock of the situation so as to see which is the starting point. Precisely thanks to the success of the previously mentioned initiatives, the starting point is different from the one which prevailed thirty years ago. Over time, significant achievements have been recorded.

Firth and foremost, the "gradual convergence" approach. Instead of competing, the various legal systems have started to converge, namely to express options, guidelines and solutions which tend to smooth down differences and identify common solutions.

Secondly, the approach which tends to clarify -- if not approximate and standardize -- legal terminology and concepts, on the basis of a vocabulary which is the lowest common denominator of any project relying on comparisons, but also on univocal solutions to similar problems.

Thirdly, the approach which records common principles, the expression of values which are typical of the West and are enshrined in the Charters of Rights and in similar orientations defined by national lawmakers.

Thanks to the comparison of cases, as well as conceptual paradigms, and thanks to the dissemination of judgment models, on the basis of which the most difficult cases are decided by judges who want to verify, discuss and adopt foreign models, a "dialogue between courts" has been established.

A more uniform culture has also been created, thanks to the organization of specific courses and the creation of European Private Law chairs, as well as the collection of casebooks and handbooks, the organization of workshops and conferences to delve into this matter, which have led to the expansion of the debate on this topic -- that had started almost as an academic bet -- to companies, consumers and institutions, also involving E.U. institutions. All classes of jurists and legal formants have cooperated in creating a new way to define, interpret and apply private law rules.

European Private Law affects and includes many sectors, one of which has developed before the others, namely consumer law. The acquis communautaire on the matter, which relied on wide literature and a huge number of cases emerged at national level and tackled with accurate scientific studies and research, strengthened itself by developing a body of rules and postulated the need to collect these rules in a systematic framework, a general Consumer Rights Directive.

Hence, the starting point is different compared to the one to which we usually refer when we talk about the meaning of "European Contract Law", since it is based on existing law, both in terms of consumer law and contract law. Dozens of directives have regulated matters such as the ways to fulfil obligations, payments (carried out also by e-means), the contract content, the assessment of the parties' behaviour, unfair terms, the contract formation (including distance contracts and off-premises contracts), the ways to unilaterally terminate a contract (such as the right to withdraw), the information provided to the parties before entering into a contract (the so-called pre-contractual duties), etc. New subjective rights have been created. Even though they are designed to protect the weaker contractual parties, namely consumers, users, non-professional investors -- these rules have affected the way of conceiving the contract, the parties' choices and behaviours, as well as judges' and lawmakers' decisions. The various directives introduced over time have gradually increased the harmonization level of the rules regarding relations with consumers, thus leaving smaller leeway to national lawmakers who had diversified protection models. Therefore the need is felt to coordinate consumer rights within a framework to ensure the same -- and highest -- level of protection to all European consumers.

Directives are ever more precise, mainly consisting of mandatory rules, and have no longer the "legal irritant" effect they could have in the past.

Also the European Court of Justice's judgments have a unifying effect, obviously with all the uncertainties and ambiguities of some decisions, which have been criticized by academics and experts.

There are still two important new events which must be recalled among many others, namely the adoption of the Nice Charter (2000) and the European Parliament's recognition of its binding value (2007), as well as the adoption of the Lisbon Treaty (2007) and its entry into force on December 1, 2009. In spite of the provisions enshrined in Article 6 of the Treaty, which would seem to point to a restrictive solution, the problems regarding the direct application of fundamental rights protection to private parties' relations, including contracts, always remain and, indeed, are even more acute. This holds true also regardless of the direct application of the individual member States' constitutional provisions to private parties' relations. It is true that the Lisbon Treaty has not enlarged E.U. competence, but it is equally true that once a rule has been introduced in a system, its interpretation cannot be constrained into a fully foreseeable pathway. Far-reaching literature is being collected on the application of fundamental rights to contractual relations, and the link existing between the Charter of Fundamental Rights of the European Union and European Contract Law projects. This was inconceivable in the past and has ended up by involving also the European Convention on Human Rights.

Another new issue, the debate on which is not considered to be specifically at an initial stage, regards the political and social significance of a "code", a "model", a "box" in which contract rules can be collected. Is it a politically neutral project? What political (and not only institutional) legitimization have those who have participated in it? What involvement should or shall national Parliaments have in the continuation of the pathway designed to implement the original project, as changed over time by these events?

Certainly the project is not politically neutral: it tackles the social problems faced by consumers and weak contractual parties and it tries to reconcile companies' needs to have a simplified and standardized internal market and the need to limit the freedom of contract to safeguard the interests which deserve protection.

Hence, we must adjust the aim: the journey must not be started from scratch; the current starting point is far different from the one faced by the few courageous "pilgrims", who set out on that journey thirty years ago. We are already near to destination: therefore, we must no longer decide whether it is better to set off or stay, since we are already on that journey and we can no longer go back.

Some people have regretted the timid approach of the Commission's last Communication on European Contract Law and have seen in the Green Paper a step back rather than forward towards approximation, harmonization and standardization of contract law rules. Some others have noted that isolating contract law, by ignoring that contracts are a source of obligations, is a methodological mistake, and that only by placing contract rules side by side with those on the other sources of obligation can we think of defining a set of rules coordinated in a systematic and not piecemeal and fragmented way. This has been exactly the positive choice made by the drafters of the Draft Common Frame of Reference.

The replies have been manifold.

It has been agreed to provide more information on the current situation and initiatives, as well as on the fact that the outstanding issues are real and relevant and the text of the Common Frame of Reference can be considered a toolbox on which to draw for drafting regulations, contracts or for other purposes. A preference has emerged for the introduction of an optional instrument (the so-called twenty-eighth model), rather than a directive or a regulation requiring member States to change their systems.

Therefore today -- unlike thirty years ago -- we are not faced with a tabula rasa, but rather a canvas -- the canvas of an Impressionist painter -- having many points of light which, however, reveal an overall blurred picture. For the time being, the aim we can reach is not the clear, physical and concrete image of a text not laying itself open to uncertain interpretations, a text which can be considered satisfactory since it is reasonable and shareable; nor its content, scope of application and, hence, its specific goal are defined.

3. The aim

Therefore many destinations appear on our map; we can identify at least four, each of which can be reached by following different pathways:

(Ai)  the pathway which stops at the toolbox, by keeping alive the debate, the dissemination of information and the gradual approximation of systems;

(Aii)  the pathway going forward with a view to reaching an intermediate aim, namely the drafting of a text which considers the general principles of contract law, the formation of contracts and pre-contractual obligations,the content of contract and unfair terms, contracts sales and related services, damages for non-performance , restitutions and limitation of actions;

(Aiii)  the pathway designed to complete the Common Frame of Reference, on the basis of the considerations made by stakeholders and the indications emerged from the replies given to the Green Paper. Indeed, the issues raised by the Green Paper were more methodological than content-related, but many people seized that opportunity also to make comments on the merits of the choice made by the drafters with reference to the CFR structure, the sectors considered and the solutions identified;

(Aiv)  the pathway which resumes the Draft analysis and adds all the chapters omitted -- for the time being -- in the CFR definition, thus including obligations and corresponding rights, benevolent intervention in another's affairs, torts, unjustified enrichment, acquisition and loss of ownership of goods, proprietary security rights, trusts.

All solutions imply -- at the same time -- decisions on other important issues, which cannot be taken individually without having in mind the aim identified:

(Bi)   the future of the draft Consumer Rights Directive;

(Bii)  the CFR coordination with the Rome I Regulation, or the revision of the latter, thus enabling the parties to choose, as applicable law, also model rules and not only the laws in force in a specific legal system;

(Biii)  the extension of the CFR scope of application to the contracts reached between parties having the same nationality;

(Biv)  the CFR extension to B2B contracts.

With reference to the first issue, clearly a general Consumer Rights Directive should be coordinated with the CFR, in the sense that the parties which choose model rules should not be allowed to avoid the mandatory rules which protect consumers. However, E.U. institutions must also clarify why the scope of application of the proposal has been gradually reduced and how the Directives on off-premises sales, unfair terms and manufacturer's liability should be updated. The pragmatic solution, which is currently emerging, seems to be oriented to a policy characterized by small steps finally leading to a a body of uniform consumer rights rules for all member States. Nevertheless, the level of protection is still uncertain. However, it is advisable for any CFR text on contracts to include also consumer protection rules.

The second issue can be more easily tackled since we can correct the Rome I Regulation by including the optional model of contractual rules, or we can draft a Regulation which, by leaving the parties free to choose the optional model, provides for the possibility of derogating to the applicable law set of rules.

However, I wish to raise a problem that is always taken for granted and regarded as solved, namely whether it is always expedient and advisable for the stronger party to impose its own national law or for the weaker party to request the application of its own national law. For consumers the ban has been laid down to impose rules which reduce the protection ensured to them by the laws of the country of origin. For non-consumers, however, the problem remains outstanding and should be solved by the parties concerned, on a case-by-case basis, by comparing rules until their standardization is reached.

We think -- wrongly -- that choosing our own national law is always the best choice, since it is the law we better know; or because we must not waste resources in the comparative analysis of the most favourable law and also because the application of one single national law makes relations easier. Nevertheless, our professional activity and experience teach us that there may be cases in which, well knowing the differences between national systems, sometimes it is preferable to choose the law of the other party or of a third country.

The contractual clauses inherent in the choice of applicable law cannot be controlled with the unfairness criterion, since a national law cannot be considered "unfair" and we cannot derogate from the national regime if it is more favourable to consumers. Even by applying a different law, we cannot worsen consumers' situation.

With reference to the third issue, we must consider the point we have reached and take note of the hesitations expressed by the Commission in its retrogressive interventions. Hence, we cannot think of such an ambitious and futuristic project, consisting in requiring member States to replace their rules with the CFR ones (and, even more unlikely, with the Draft). Conversely, I think it is reasonable to enable also the parties having the same nationality to benefit from an additional opportunity provided by them through the choice of model rules.

From the systematic viewpoint, and with the aim of safeguarding freedom of contract, there is no reason to grant the right of choice to the parties only in the case of transnational contracts. In view of streamlining and simplifying the rules to be applied to contracts, it is appropriate to expand the freedom of contract so as to gradually reach uniform rules in terms of their drafting and interpretation, at least in this sector.

The fourth issue regards B2B contracts, for which the response is two-pronged. In relations with companies, small and medium-sized enterprises (SME) must be granted a protection regime. All legal systems have tried to provide this protection in various forms and in various ways, with a view to curbing large companies' economic dependence and contractual power abuse. In relations with consumers, however, SMEs would like to avoid too high a level of consumer protection. We cannot proceed by excessive simplifications, but this aspiration cannot be met because we cannot gauge and scale consumer protection according to company size and for the additional reason that, if protective measures are granted to SMEs in their relations with large companies, for the sake of consistency the same principle shall also apply to their relations with consumers.

Therefore, if preliminary issues can be thus solved, in a synthetic way, it gets easier to identify the aim. The first one (Ai) has already been reached: the toolbox is included in the Draft or in the more limited CFR text submitted to stakeholders. Those who want to "avail themselves" of these formulas, by possibly extending their choice to the Principles of European Contract Law (PECL) or the Unidroit Principles, can freely do so. The fourth aim (Aiv) has been basically ruled out both in the Green Paper and the replies received from the parties concerned.

The intermediate aim (Aii) and the final one (Aiii) still remain to be reached. They imply moderate choices, but wider consensus is likely to emerge on them than the one achieved on the other two. Having participated for many years in the Staty Group for a European Civil Code coordinated by Christian von Bar, I would have chosen the (Aiv) aim, and I would have even imposed the text -- revised, re-discussed on the merits and shared by the widest possible number of stakeholders -- by means of a regulation. Nevertheless, taking in consideration also the position of the stakeholders, the position of the CCBE (Council of Bars and Law Societies of Europe) I believe that today a pragmatic choice must be made so as to try and achieve what can be reached.

With reference to the final aim, namely (Aiii), the debate on content must be resumed, rather than on the structure and goals, which I think are now clear and shareable as outlined in the Green Paper and the workshops organized by the Commission with the group of experts and stakeholders' representatives.

In relation to the intermediate aim, namely (Aii), I think that some provisions, which would make the text more significant, are unavoidable.

I only wish to make some examples.

Reference to fundamental rights. The formula used in the Draft is wide (Book I, art. 1:102) since it refers to "any applicable instruments guaranteeing human rights and fundamental freedoms and any constitutional laws". I wonder whether we could not make direct reference to the Charter of Fundamental Rights of the European Union.

Discrimination against the parties. I do not think we can omit non-discrimination rules but, at the same time, I think that those included in the Draft (Book II, art. 2:101) are limited only to "sex or ethnic or racial origin", whereas the Charter of Fundamental Rights extends the scope of discrimination. Hence remedies shall be envisaged, which can be clearly applied in case of infringements, namely compensation for damage, by possibly including also specific performance.

Contract interpretation. The Draft refers to the common intention of the parties (Book II, art. 8:101), which is understandable: this is the subjective interpretation, but no mention is made of the parties' behaviour and the rules on objective interpretation are reduced since the application of a very flexible criterion is preferred, namely the reasonable person model. Are we granting excessive power to judges?

Conversely, the inclusion of merger clause and hardship rules is appreciable.

As to unfair clauses, bearing in mind that control is still of judicial nature, it is appropriate to extend consumer protection also to the terms individually negotiated, or anyway clearly ensure the best suited forms of protection to the weaker party, considering that individual negotiations with the stronger party are always unbalanced and lopsided (Book II, artt. 9:103 and 9:402).

The list of unfair terms as such, envisaged by Directive 93/13, should be expanded since, in member States, judicial control has led to different results according to the various experiences. This should avoid the weaker party being granted different degrees of protection according to the national judges' approach and trends and should also ensure more effective control over the contract content. It would also be appropriate to coordinate unfair commercial practices rules with the rules on the formation and content of contracts . Moreover, as previously outlined, it would be advisable for the unfair clauses rules, as well as the principles for protecting the weaker contractual party (obviously with a differentiation compared to consumers), to be extended also to B2B contracts.

No criticism has been levelled at the inclusion of a text on sales and sales-related contract rules: it is understandable to start with somehow uniform rules on sales, not only because they are the most frequent contracts and the most important tool to regulate economic transactions on the internal market, but also because they are the regulatory model to which lawmakers usually refer when they have to define the general rules of contract . Similarly, it is useful to extend the text also to sales-related contracts. However, considering that these rules regard specific contracts, they should be added to the general rules of contract and not be included in them. Contracts, from the conceptual viewpoint, but also special contracts, from the contractual and commercial practice viewpoint, are based not only on exchange, but also on cooperation. General rules of contract must be read, interpreted and applied as if they were designed to regulate all types of contracts, except the special rules envisaged for each type of contract.

4. Which tool should be used to reach the aim? A way forward

Now we must make a step forward for contract rules to be shared by everybody. When I say everybody I refer -- first and foremost -- to jurists, then to stakeholders and finally to citizens.

I am not worried about stakeholders, since their position is well-known and most of them have expressed a favourable opinion on the project.

Nor am I worried about citizens, because saying that this text must be accepted by everyone -- in other words, "recognized" as expression of one's own belonging to the European Union -- means to identify and associate these rules with political choices. Certainly they are not "neutral" rules; they are expression of a law policy which, however -- as I have previously mentioned -- is not based only on an economic logic and, hence, is not only market-oriented. Nevertheless, we cannot assimilate this text to a treaty, on which citizens are called upon to express their opinions directly. Only the expression of their will through national Parliaments will be enough. On the other hand, the content of such a technical text could not be submitted to a referendum, nor discussed in Parliaments. Though different from traditional civil codes, each model of contractual rules should not be subjected to an "ad personam" check, as was the case with national codes. If the parties are free to adopt the text, they may adopt it "as a whole" or select some parts or individual provisions. Freedom of contract always enable the parties to include individual formulas in their texts, subject to compliance with mandatory rules.

Conversely, I am worried about jurists -- namely those who want to protect well-acquired models; those who, owing to laziness or nationalism, want to make their own model prevail over a uniform model, as well as those who fear that standardization would make scientific and professional work opportunities fade away. However, the work linked to the interpretation and application of the text would not disappear; quite the reverse, everybody would benefit from having an additional optional model.

As I said before, our destination is in the offing and we cannot go back. By paraphrasing the reply of a famous historical figure, I could also answer: "non volumus, non possumus, non debemus".

©Pace Law School Institute of International Commercial Law - Last updated September 8, 2011
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