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Reproduced with permission of the author.

The Proposal for a Common European Sales Law:
Does the European Union Need This Optional “Common” Code?

Elidora Grigorova Ilieva [*]


Abstract

In October 2011 the European Commission introduced a proposal for a Regulation for Common European Sales Law (CESL). The CESL is a sales law intended to function alongside national sales laws, on a voluntary basis, for parties engaged in either B2C, or B2B cross-border transactions. This proposal is a result of an on-going process of private law harmonisation and integration within the EU, and if adopted as proposed by the Commission the CESL would become a twenty-eighth sales law in the union. The present paper addresses a number of issues concerning the proposal, including its background and constitutional implications in terms of conferral, subsidiarity and proportionality, as well as relationship with international instruments. It is revealed, that the CESL would function fundamentally differently from other similar supranational instruments, such as the CISG, because a new level of vertical regulatory competition is introduced. In addition, the adoption of the proposal based on Art.114TFEU is not viable, as demonstrated by existing optional instruments and national positions.

Keywords: private law, optional instrument, EU internal market, contract law, consumer protection, harmonisation, legal basis, principle of subsidiarity, CISG

List of Abbreviations

CESL    

Common European Sales Law

CISG

United Nations Convention on Contracts for the International Sale of Goods   

ECJ

Court of Justice of the European Union

EU

European Union

MS

EU member state

SE

European Company (Societas Europaea)

SCE

European Cooperative Society (Societas Cooperativa Europaea)

SME

Small and Medium-sized Enterprise

TEU

Treaty on European Union

TFEU

Treaty on the Functioning of the European Union


I. Introduction

The Common European Sales Law (CESL) is a proposal by the Commission from October 2011. If adopted, an optional sales law for transnational transactions within the Union will be introduced. This has the aim of improving the functioning of the internal market through the provision of uniform contract rules.[1] However, the introduction of an alternative regime to function alongside national regimes also presents a number of challenges. These stem from the competences of the Union, as well as legal certainty in the interaction with national law and in the conflict of laws sense. In order to address the necessity (or lack thereof) for the proposed ECSL, it is essential to examine the shell of the proposal in detail.

Looking at the aforementioned Commission proposal, one can put forward a number of concerns regarding the character and common features of sales law in Europe. What is “European sales law”? Is there anything “common” in contract law in the European Union? These are but a few of the questions underlining the emergence of European private law. Comparative law research can reveal a number of relevant similarities and differences.[2] The European continent is a source of many legal traditions and different legal families tend to approach law in a different manner, from the process of law making to the implementation of court decisions. In the context of this diversity, two main legal families can be distinguished: the (continental) civil law and the Anglo-Saxon common law.[3] In addition, civil law systems can be classified roughly as Napoleonic, Germanic, Scandinavian and post-Communist.

The EU itself is a relatively new development and builds an additional layer of complexity in the form of acquis communautaire. Although the growth of supranational legislative efforts contributes to the development of law within the member states (MSs), the Union is by no means the only influence, especially in the field of international or transnational commerce. A common law for Europe is a rather old concept, with Roman law heritage and pan-European canonical law tradition charting a long history of common legal culture, legal scholarship and practice. Sales law itself can be traced back to transnational mercantile custom,[4] and thus a common commercial code does hold some appeal.

International commercial law is, and does, provide a common frame of reference in many aspects. Reasonably, there is also doubt as to the suitability of the Common European Sales Law as a meaningful contribution to the EU acquis. Thus, it is of utmost importance to uncover the correct place of the proposed instrument, not only within the framework of EU legislation, but also within the somewhat wider area of private law in Europe and in the world. The 2011 Communication on European Contract Law,[5] the (Draft) Common Frame of Reference [6] and the 2010 Commission Green Paper [7] provide a mere starting point.

When assessing the viability of the optional instrument one cannot omit the aim and alleged beneficiaries of the proposal, as well as the relevant wider context. The balance between general and individual interests, and concretely between the functioning of the internal market and effective consumer protection, is a precarious issue that directly affects the success of the proposal. By combining rules for commercial transactions with substantive protection of the weaker party provisions, the proposal does bring something new to the table. Nonetheless, it is essential not only to look at EU law and European national law, but also to take into consideration the relevant legislative and legal context. Placing the CESL within the wider framework of international law is yet another challenge to be addressed, with particular attention to the external effects of the optional instrument.

The present paper studies the Common European Sales Law as proposed by the Commission. Firstly, the proposal itself is examined, with particular attention to its purpose, substance and applicability. Secondly, an overview of the context of the proposal is provided, focusing on harmonisation initiatives paving the way for the CESL. Following this, the constitutional implications of the proposal are analysed, including the choice of legal basis and consequent compliance with the principles of subsidiarity and proportionality. In order to place correctly the CESL in a broader context, a wider perspective is outlined, focusing on the interaction with international commercial law, and in particular the Vienna Convention on International Sale of Goods. Lastly, conclusions regarding the proposal, its legal basis, and international position are drawn. By analysing the aims, scope, legal basis and context of the draft CESL Regulation, this paper identifies key issues, including the utility, feasibility, as well as constitutional implications of the proposed instrument within the EU, and beyond its borders, demonstrating the shortcomings in terms of scope, certainty and interaction with the existing legal order.

II. Common European Sales Law

1. Purpose of the proposal

The Commission proposal from 11 October 2011 [8] provides for the introduction of an optional instrument through a Regulation. It presents a sales law, which is intended for incorporation as a second contract law regime within the national legal order of each member state (MS). The territorial scope is build to encompass (primary) cross-border transactions involving at least one party from a MS. Personal scope is limited to B2C transactions, or B2B transactions involving at least small and medium-sized enterprises (SME).[9] However, MSs are allowed to extend the application of the instrument in two directions: to (purely) domestic transactions, and to all B2B transactions, irrespective of SME involvement.[10]

With respect towards the material scope, it is notable that the CESL is especially tailored towards electronic commercial activity, which, according to the Commission, has the potential to facilitate a considerable increase of transnational consumer activity. The operations covered by the instrument are limited to sale of (movable) goods, supply of digital content and the provision related services, with a few key exceptions.[11] Building a digital internal market is one of the key aspects of Union policy in this field. Ironically enough, Internet is not a panacea for inter-Union trade, as various impediments constrain its transnational efficiency. The Commission is quick to pinpoint higher transactional costs due to diverging contract law regimes as one of these impediments.[12] Accordingly, the proposed CESL optional instrument is also envisioned in the Digital Agenda, and included under the Digital Single Market pillar thereof.[13]

2. Substance

The proposed instrument is intended to cover the whole life cycle of a contract, and encompasses elements of both contract law and consumer protection law. In addition to contractual obligation it extends further to cover pre-contractual information duties to the consumer. Therefore, the CESL itself covers a wide range of issues, including, but not limited to the making a binding contract and the interpretation thereof, obligations and remedies, passing of risk, damages, restitution and prescription.[14] According to the Commission, the proposal offers a high level of consumer protection as required by the internal market legal basis. This is of utmost importance, because ‘opting-in’ the CESL regime also means that mandatory national consumer protection laws would not apply to the B2C transaction(s) in question. The situation is less clear with regard to purely commercial transactions on a B2B basis, that by default do involve a less advantaged party, a SME as opposed to a large enterprise. There seems to be room for concern regarding a ‘consumerism creep’, introducing a threat to the equality of arms in the commercial context.[15]

The fact that the CESL is geared towards e-commerce also reflects on the substance of the proposed rules. A key feature of the proposal is its material scope – it not only extends to supply of digital products, but also covers content supplied on both tangible and intangible medium. Likewise, the CESL does not overlook the fact that the supply of online content is often compensated in more subtle ways, e.g. through advertisement or with personal information. Consequently, the applicability of CESL is not dependent on the payment of a monetary compensation. Hence, there is room for the adoption and application of the optional instrument in a wide variety of Internet sectors, including, for example, social networks and online gaming products.

Nonetheless, some issues remain to be determined by national law, including illegality of contracts, and representation.[16] There is no ‘complete’ code in the sense that every single situation is taken into account. However, whether or not the CESL itself fulfils its objective of regulating the whole life cycle of the contract is not the subject of this paper. Rather, it should be noted, that the complementary role of national provisions could raise questions as to the precarious issue of legal certainty.

3. Application

The parties are to be free to choose to use this regime, and special focus is placed on the protection of the weaker party, including through information rights. The consumer needs to explicitly agree to the use of CESL, which can be done, for example, by using a ‘blue’ button at online stores.[17] Once the parties to the transaction agree to ‘opt-in’ the optional instrument, all aspects of the contractual relation in question would be regulated thereby, including consumer protection. The advantage of this autonomous regime is that both parties would not only use a ‘national’ sales law in the sense of choice of law under private international law, but the same sales law. Accordingly, the costs and the legal uncertainty connected with offering/purchasing goods and/or services would be reduced, since there will only be one system to take into account, and this is a ‘national’ system for both parties.

a) CESL and the internal market

Is the proposed CESL a second national regime or a twenty-eighth ‘European’ regime? This relates directly to the conflict of law choice underlining whether the proposal is an independent ‘law’ to be chosen, or part of national law. The difference between these two concepts is essential for the future of CESL. According to the Commission’s proposal, the optional instrument will be a second national sales law regime. However, there is also room for the interpretation of the CESL as a predominantly ‘European’ instrument, effectively creating a separate supranational regime for ‘trans-European’ transactions, as opposed to national regimes covering domestic transactions. Thus, competition between undertakings operating on the internal market can be distorted by the duality of consumer protection and contract law regimes available based on the existence a transnational element (or lack thereof). This strikingly resembles the way people’s EU citizenship rights are enhanced on the basis of cross-border activity.[18]

Walter Doralt puts forward a convincing argument that permitting parties to ‘opt-in’ CESL for domestic transactions is essential to the success of an optional instrument,[19] and indeed there seem to be a number of good reasons for extending the territorial scope to all transactions to include purely domestic ones. It is hard to agree that the differentiation of trade into ‘European’ and domestic would contribute to the development of the internal market. On the contrary, the CESL in its current form has the potential to create new barriers within the EU in the form of competing harmonised national laws and predominantly supranational law of consumer protection (CESL), as well as unnecessary additional complexity. On a micro-level, it is even less likely for a business, operating both nationally and abroad, to justify the burden of dealing with a new contractual regime only for some of its clients.[20] Thus the proposed territorial scope of ECSL undermines the very core of the proposal and instead of lightening the administrative burden of operating in multiple jurisdictions adds a new ‘European’ alternative regime.[21] Meanwhile, direct competition with national law remains a source of concern for national authorities, especially with regard to the danger of replacement of national law by EU supranational law.[22]

Nonetheless, in the context of businesses with branches in different MSs, a case can be made for contracting between a consumer in one MS and a branch in another MS, as a technique to ‘opt-in’ the CESL. This already has been discussed within the context of the Principles of European Insurance Contract Law.[23] There is room for a similar artificial ‘opt-in’ in the context of e-commerce, albeit employing a somewhat awkward construction. When user A, who lives in Germany, goes to the German version of a website and buys a song, making use of the ‘blue button’, user A can no longer contract with the German branch of the website, but would need to contract with, for example, the Dutch branch of the website in order to use CESL.[24] Despite the possibility to circumvent the narrow scope of the CESL proposal, building a case for contracting cross-border, instead of domestically, in order to make use of the CESL regime does leave much to be desired in terms of simplicity and clarity.

b) Legal certainty and uniform application

Legal certainty remains an issue even when 27 MSs apply the same regime, likely constructing and supplementing it in differing manner.[25] There are various methods for ensuring uniform interpretation at national jurisdictions. Two main approaches can be distinguished: firstly, decentralized, on an ad-hoc basis,[26] and secondly, centralised, with a supreme court or a similar mechanism supporting its uniform application. The Vienna Convention on International Sale of Goods (CISG) [27] is the most notable instrument with ad-hoc mechanisms for interaction between different jurisdictions. There exist several databases with case law from states applying the Convention,[28] the most notable being Case Law on UNCITRAL Texts (CLOUT),[29] and its digests.[30] UNCITRAL also provides technical assistance, for example, in the form of training for judicial officers and legal personnel.[31] Despite the international effort to promote CISG in the context of European transnational trade, ‘opt-outs’ are rather popular.[32]

The proposal for CESL in its form from October 2011 takes a slightly different path with regard to uniform application, incorporating both an official database with case law,[33] and the advantages of having a central court as a last instance on interpretation of the Union law. Although the proposal endorses the creation of a database with case law of the European Court of Justice (ECJ) and national courts applying CESL,[34] the eventual involvement of ECJ can make a difference. This might constitute a slight advantage of CESL over CISG in B2B transactions, but the limited personal scope of application and existent commercial practice remain at odds with the advanced goals of the newer instrument. What’s more, the capacity to handle an increased caseload due to CESL references for preliminary rulings also needs attention.

III. Legal Context

The European Union project is based on the common goal of maintaining peace and reconciling nations through (initially) economic integration: member states forfeit sovereignty in the name of a common future, and more often than not, economic progress.[35] Nonetheless, the European decision-making process had been marked by different policy fields, with correspondingly different national attitudes and strategic interests.[36] Within this framework, private law holds a peculiar position: it is both very nationalistic, in the sense that each state has its own tradition, if not legislative, than at least interpretative,[37] but also voluntary, provided that the parties often have the choice of law and forum.[38] Consequently, EU law has influenced private law to a lower extent as compared to other internal market areas such as competition law.

For a long time European Contract Law and European private law have developed through consumer protection and internal market measures, and the proposed CESL represent an entirely new step in this process. In view of that, the Commission had been criticized for rushing the proposal.[39] It is safe to assume that the CESL is a priority of the 2010-2014 Commission and Commissioner Reding: from the Green paper in 2010,[40] though the 2011 feasibility study [41] right down to the October 2011 CESL proposal. Nonetheless, hastening the proposal need not be an entirely unreasonable move; inducing change does necessitate action.

1. Harmonisation

The EU approach towards regulation had undergone a significant evolution since the creation of the European Economic Community: starting from standardisation in technical fields, and moving to minimum and even full harmonisation of less controversial areas. Nowadays much attention is paid to newer approaches to approximation of MS legal norms, such as ‘targeted harmonisation’.[42] Optional instruments are but one example of this approach. Accordingly, finding the place of the proposed CESL within the framework of Union initiatives requires further enquiry into the legislative practices of the Union, especially in the fields of market integration and consumer protection.

Minimum harmonisation establishes requirements that all MSs need to fulfil, but can deviate from in the form of stricter rules. In the field of consumer protection, this means that the minimum level of protection is put down in a Regulation or a Directive, but MSs are free to adopt rules that are more stringent. This method reduces the competitive impact of legal differences, but still allows significant competition distortions though different national rules.[43] The danger of a ‘race to the bottom’ is often seen as another shortfall of this method,[44] its forerunner being regulatory competition between MSs on the basis of least consumer protection provided, and thus better business prospects in a Delaware-styled regulatory competition.[45] Consequently, the minimalistic approach towards market regulation can be perceived as a danger to the maintenance of high standards associated with the European welfare state.[46] Nonetheless, there is room for the opposite notion as well, allowing MSs to compete by providing better protection to their consumers in order to improve their confidence, and corresponding market activity. Therefore, there is substantial room for interpretation and theorization as to the side effects of minimum harmonisation, and harmonisation as a whole. In order to discard this conflict it is sensible to assume that regulatory competition is not a zero-sum game with consumers and businesses being casted in the roles of winners and losers.[47]

Unlike minimum harmonisation, ‘maximum’, or full harmonisation, prescribes concrete rules MSs cannot deviate from – neither in favour of laxer, nor stricter criteria. This can be interpreted as levelling the field: while the consumer protection for some would increase, there would also be loss for other consumers.[48] Therefore it is essential to incorporate a high level of protection, as prescribed in Art.114 (3)TFEU.[49] In the course of the continuing drive to achieve a better-functioning internal market, the Commission is actively seeking new solutions for bringing forward more effective harmonisation. One of these is the so-called “targeted harmonisation”, which has the goal of finding the “optimum harmonisation” level for different policy fields.[50]

2. Optional instruments as an alternative to harmonisation

Harmonisation has the inherent goal of bringing forward change, “approximation” of laws and rules. The existing legal order is fine-tuned, which often requires changes and adaptation of the national law. However, interfering directly with the rules within member states is not the only way to provide a uniform level of consumer protection. Sometimes offering an alternative, ‘optional’ instrument can provide the impetus for the industry to move towards the desired standard. In this manner, without directly initiating a change in national law, the relevant market actors are allowed to choose, exercising their own party autonomy. Fornasier outlines two possible models for an optional instrument according to its private international law implications: firstly, a twenty-eighth regime [51] to be chosen in accordance with the Rome I Regulation, and secondly, a lex specialis, second national regime within the national legal system.[52] In contrast, harmonisation itself can be classified as a first regime – a change that amends or introduces national rules.[53]

Within the context of the EU, optional instruments have been adopted in a number of situations, including the Societas Europaea (SE) Regulation,[54] the EU trademark,[55] as well as the Principles of European Insurance Contract Law (PEICL).[56] Some of these, like the SE Regulation, adopt the twenty-eighth regime model,[57] while others exemplify the second regime option, for example, PEICL.[58] The CESL itself is but the most recent step in this direction.[59] Nonetheless, there are also some peculiar features distinguishing this proposal, chief among these being the waiver of mandatory (national) consumer protection law and the horizontal integration within the national legal order, as opposed to choice of law in the international private law sense of the Rome I Regulation.

3. Horizontal and vertical regulatory competition

EU legislation in the field of private law and in general can be seen as an effort to regulate in two main ways: through a change in the rules of the game (harmonisation) and through the introduction of new sets of rules (optional instruments). The effects of these two types of integration can be fundamentally different despite a seemingly similar objective and a common legal basis. One of the reasons for this is the manner in which EU instruments interact with the national law of the MSs. Typically, a top-down approach though agreement to approximate existing laws is adopted. However, this is not always useful, and it had been recognized in case law that the competences of the Union extend beyond mere harmonisation of MSs’ law.[60] Thus in order to conceptualize the different effects of harmonising instruments, on one hand, and optional ones, on the other hand, a distinction between horizontal and vertical regulatory competition needs to be introduced.

Currently, when considering cross-border transactions, by default the parties either make a choice of law, or choose not to opt-out of the applicable law. Hence, horizontal competition between national legal systems [61] is possible. From the point of view of conflict of laws and competition of laws, it is possible to classify partial harmonisation by the EU as a vertical measure not affecting (significantly) the choice of law between MSs. After all, a (minimum) standard of consumer protection would be present in all MSs, and thus the field would remain level to the extent that MSs cannot depart from the set standard. Consequently, minimum harmonisation holds the potential to be most disruptive to regulatory competition. Full harmonisation, in contrast, should not present a challenge in terms of horizontal competition between the MSs of the Union.[62]

The draft CESL influences the horizontal balance between national laws, because it introduces a qualitatively different option for private parties to opt-in. Notably, this new regime is not an entirely “horizontal” competitor, as the optional instrument possesses some distinctly “vertical” characteristics distinguishing it from other purely national systems.[63] These include not only the aforementioned privileged position under the Rome I Regulation, but also the more direct involvement of the supranational EU level in daily business, as opposed to predominantly national implementation of traditional harmonisation measures. As Grundmann outlines, the former inequality raises the added danger of parties opting-in due to the more favourable rule of choice, rather than substantive advantages offered by the draft. This can in effect minimize the initiative for innovation and lead to the realisation of negative network effects. As a result, the proliferation of the CESL would lead not only to the desirable effect of lowering transaction costs (in the long term), but also the emergence of exit costs when opting for the national law.[64]

4. The road to CESL

Several types of European private law can be distinguished in contemporary writings. According to Zaccaria, these are, firstly, uniform law stemming from the ratification of international conventions by European states, secondly, rules issued by bodies of the European Union, and lastly, a “European common law”, an intellectual product of scholars.[65] In view of that, different levels of Europeanization of private law can be distinguished, ranging from common legal heritage through Roman law and canonical law, to harmonising measures adopted by the Union. International private law mechanisms, as well as conventions, such as the CISG, and optional instruments, like the proposed CESL, all fit within this spectrum.

The development of Union law around the internal market led to considerable changes within the landscape of national legal systems. Private law, albeit not an explicit competence of the Union, has been shaped most directly thereby. However, building the internal market does not stop at consumer protection; contract law also plays an important role in economic activity. Several initiatives pertaining to the functioning of the internal market in terms of contracting have been undertaken, both on consultative and academic level.

A cultivated by the Commission “spill-over” can be observed since 2001 when the Commission Communication on European Private Law was released.[66] The follow-up includes a number of research projects in the field of contract law, including the Principles of European Contract Law, the (draft) Common Frame of Reference, as well as other relevant instruments such as the Principles of European Insurance Contract Law. Although restricted to the academic fora, rather than officially adopted in a binding form, such projects demonstrate that bringing diverging legal cultures closer to a new ius commune holds some appeal. Furthermore, now that the CESL proposal is on the table, a more official basis for the continuing development of a common European private law can be established. Yet, the lessons of previous projects, like the Draft Common Frame of Reference, also urge cautiousness, as finding common ground in this vast field is a challenge.

IV. The Legal Basis for CESL

1. Why the legal basis matters

According to the principle of conferral, the Union has competence only in the fields where competence is transferred thereto and the legal basis serves to translate these competences to concrete areas of interest.[67] There are three different levels of EU competences: exclusive, shared, and ‘support, coordinate and supplement’.[68] Accordingly, procedures, including voting and consultation, vary according to the competence invoked, as reflected by the legal basis for each proposal. Thus, the legal basis of every EU legislative proposal is of vital importance for two main reasons: firstly, the legal basis determines the procedure to be followed when adopting the proposal, and secondly, the legal basis reflects the competence of the Union legislature.[69] Some provisions can constitute a joint legal basis, while others are mutually exclusive. There is no concrete legal basis providing for private law harmonisation by the EU.[70] However, the internal market provision already has been employed to justify harmonisation in the field of consumer protection.

The legal basis chosen by the Commission for the draft Regulation introducing CESL is Art.114TFEU, the establishment and functioning of the internal market. This provision justifies harmonisation of substantive laws, given that the aim is proportionate and in compliance with the subsidiarity principle. The Commission holds the opinion that this optional instrument would serve an objective that cannot be effectively achieved through other, less intrusive measures. A number of alternative, but unsuitable measures are enumerated in the proposal: a toolbox for the legislator, Recommendation for CESL, or a Directive on a mandatory CESL.[71] Yet, despite the argumentation provided by the Commission, some MSs demonstrate reluctance [72] and need for further debate [73] as to the effects of the proposed instrument.

2. Legal basis: the options

There are several provisions in the treaties that can serve as a legal basis for a private law instrument. These include the wide ‘internal market’ competence enumerated in Art.114TFEU, the so-called “flexibility clause” - Art.352TFEU, consumer protection – Art.169TFEU, as well as judicial cooperation in civil matters - Art.81TFEU, and private international law - Art.67TFEU. The choice of legal basis depends on the proposed instrument itself, and reflects on the procedure for the promulgation of the instrument. The form of the adopted text can be recommendation, directive or regulation, irrespective of the legal basis employed. The current section will examine the suitability of the abovementioned provisions, sans Art.114TFEU, the legal basis selected by the Commission, which will be subject to further analysis in the following section.

a) Civil procedural law and private international law: Art.67 TFEU and Art.81 TFEU

The Area of Freedom, Security and Justice [74] is one of the options for grounding a private law instrument, albeit not one with the optional character and wide aspirations akin to the CESL. According to Art.67(4) TFEU: “The Union shall facilitate access to justice, in particular through the principle of mutual recognition of judicial and extrajudicial decisions in civil matters.” Building on this, Art.81TFEU addresses judicial cooperation in civil matters, including cross-border implications thereof.[75] In this context, three crucial characteristics need to be taken into account: firstly, measures that can be adopted need to approximate laws and regulations of MSs, secondly, the focus is on the proper functioning of the internal market,[76] and lastly, a catalogue of measures is enumerated in Art.81(2)(a-h).

The CESL clearly is not intended to directly approximate national law, especially not in the narrow sense of conflict of laws and jurisdictions, or mutual recognition of judgments. In fact, the CESL specifically avoids calling upon conflict of laws rules by adopting the form of a lex specialis second national regime. In addition, some MSs, notably Denmark and the UK, are not bound by measures adopted in the field of freedom, security and justice.[77] This can give rise to further confusion and legal uncertainty regarding the CESL draft. To sum up, it is not feasible to employ neither Art.67TFEU, nor Art.81TFEU, since their scope does not match the goals and aspirations of the optional instrument.

b) Consumer protection: Art.169 TFEU

Art.169(2-3)TFEU provides legal basis for the adoption of consumer protection measures, either jointly with the internal market legal basis (Art.114TFEU), or solo, taking the form of measures additional to MS policy in this field. Therefore, two distinct levels of competence can be distinguished. Firstly, there is a shared competence in conjunction with Art.114TFEU, which will not be further examined due to the connection with Art.114TFEU, the subject of the following section.

Secondly, there is a competence to monitor, support, or supplement to MS policy in the field of consumer protection. It is hard to build a case around an optional instrument used to monitor or support national polices in the field of cross-border consumer protection. Supplementing, however, is a distinct option, given the fact that cross-border transactions are already regulated on the national level in some manner. Along these lines, a Union competence to supplement national measures with an optional instrument is not out of context. Still, as to the content of this proposal, it would need to be limited to, for example, additional guidance as to the application of consumer protection rules in cross-border transactions. This tool, used voluntary by businesses, would then enhance consumer confidence. In addition to the limited functions of an optional instrument under Art.169TFEU, extending the scope towards B2B transactions is not possible. Therefore, adopting CESL based on consumer protection alone is not feasible, if the purpose and scope of the proposal remain in their current form.

c) Flexibility clause: Art.352 TFEU

Yet another option for a legal basis for the CESL is Art.352TFEU, a ‘catch all’ provision embracing measures necessary for the operation of the internal market, but falling outside the ambit of all other Union competences.[78]Accordingly, Art.352TFEU cannot be used jointly with Art.114TFEU. The requirements for adopting measures are also higher, reflecting the high level of consent MS need to demonstrate:

… acting unanimously on a proposal from the Commission and after obtaining the consent of the European Parliament… [emphasis added]

The CESL proposal is not the first attempt to introduce alternative Union regimes through optional instruments. The Societas Europaea (SE) Regulation [79] provides for an optional company law instrument, in essence a “European company” (SE) legal form. This SE can be used as a vehicle for transfer of companies between MS. Some aspects are regulated on Union level, while others are left to the national legal order. Art.[352]TFEU [80] is the legal basis under which the Regulation is adopted. In a same manner the Societas Cooperativa Europaea (SCE) Regulation [81] introduces an alternative “European Cooperative Society” company form to function alongside national ones.

This choice of Art.352TFEU as a legal basis for the introduction of an (optional) company form has successfully faced a challenge by the European Parliament before the Court of Justice in the Societas Cooperativa Europaea (SCE) case.[82] Therein the Court of Justice scrutinises the choice of a legal basis for an optional instrument, introducing an alternative regime, and finds that the legal basis needs to selected with regard to objective criteria, such as the aim and the content of the proposed measure.[83] Accordingly, the court finds that the use of Art.[352] is justified for the introduction of a new form of corporative body, which cannot be viewed as approximating national laws in the context of Art.[114]TFEU.[84]

The essential difference between the instrument under consideration by ECJ, and the CESL proposal, lies in the scope of the optional regime. While the contested SCE Regulation [85] introduces a ‘vehicle’ for re-incorporation, the majority of the issues remain to be resolved by national law. Therefore, the horizontal competition between different national legal systems remains undisturbed. However, CESL is a different kettle of fish, as it creates a hybrid competitor enjoying vertical competitive advantages, notably a privileged position with regard to the Rome I Regulation as compared to national (e.g. German or French law) and non-state legal regimes (e.g. CISG).[86]

3. Art.114TFEU as a legal basis

Art.114TFEU is a general competence for furthering the internal market, also referred to as a “functional cross-sectoral competence”, due to the numerous sectors under its influence.[87] Accordingly, the Union is allowed to “adopt the measures for the approximation of the provisions laid down by law, regulation or administrative action in Member States which have as their object the establishment and functioning of the internal market”.[88] However, this does not extend to a general power to regulate the internal market,[89] nor a power to introduce alternative regimes additional to national law.[90]

Nonetheless, the Commission has put forward Art.114TFEU as a legal basis for the proposal for CESL.[91] Therefore, it is necessary to examine the feasibility of Art.114TFEU as a legal basis for the discussed proposal, as opposed to a legal basis for any optional instrument. With the assumption that no other provision can serve as legal basis for the proposal,[92] it is reasonable to look at the suitability of Art.114TFEU. Here the underlining question lies in the relation between the term ‘approximation’, and the optional character of CESL. What is ‘approximation’ within the EU context, and how far can the Commission go in the name of the internal market?

Approximation in the context of the internal market and Art.114TFEU has been subject of several ECJ judgments, among these being Smoke Flavouring [93], ENISA [94] and Tabacco Advertisement I case.[95] The Smoke Flavouring judgment makes it clear that the Commission has the discretion to choose the most appropriate harmonisation technique, which is not limited to immediate harmonisation measures, and includes mechanisms for harmonisation.[96] In this respect, two main conditions need to be fulfilled. First, the basic elements of the harmonising measure must be determined in the act,[97] and secondly, the mechanism for implementation of these needs to be designed in such a way that it leads to harmonisation within the meaning of the relevant article.[98] In ENISA the court once again considered less direct steps in the approximation of laws, an agency which can issue non-binding recommendations, and found this arrangement acceptable, as long as there is a clear connection with the internal market objectives. What is common between Smoke Flavouring and ENISA is that both strike a step in the direction of approximation, which in turn is examined by the court in terms of remoteness from actual approximation.[99] The Tabacco Advertisement I case, however, discounts the notion that Art.[114]TFEU entails a general competence to regulate the EU internal market. The Court reaffirms the limitation of the powers of the Union by the principle of conferral, and finds that being able to adopt any market regulatory measure goes again the very meaning thereof.[100]

Applying these findings to the CESL proposal, it is not all that clear that the alleged purpose of contributing “to the proper functioning of the internal market by making available a uniform set of contract law rules that can be used for cross-border transactions”[101] would be achieved in the manner prescribed, through an optional instrument. With regard to the foreseeable results, no effect, or even the opposite effect, is more likely to materialise. Nonetheless, building a database with final judgements could constitute a qualifying measure in terms of harmonisation, as it would facilitate the consistent interpretation of the CESL. This, in turn, can be considered ‘harmonisation’ in a broader sense.

Additionally, the possibility for MSs to extend the territorial and personal scope of application of the also serves to reaffirm the progressive nature of the proposal. In fact, the permissive provision on territorial scope expansion has already been criticized by the UK House of Commons in its reasoned opinion on the CESL proposal.[102] Nonetheless, it can be argued that leaving the choice whether to extend the applicability of CESL to MSs is a disservice to the stated goal of internal market harmonisation, as it facilities further fragmentation of the legal rules applicable to commercial activities. The results of different MSs adopting different approaches could very well deprive the proposed instrument of its value to businesses, and thus remain without impact due to the lack of incentive to make use of the new contract law regime.[103]

Moreover, it can also be argued that the proposed CESL in fact would not serve to improve the functioning of the internal market through approximation of the national laws of MS.[104] The concept of “harmonisation without harmonisation” had been used to define this effect.[105] There also seems to be some room for concern regarding an eventual Europeanization as a replacement of national law, rather than approximation. The character of CESL instrument does not presuppose that national systems would align themselves therewith. Rather, it can be seen as an intermediate step towards a more advanced ‘European’ code, for which treaty revisions would be required.[106] Considering the fact that the instrument is optional, and its effect on the internal market is very much under question, it does not seem appropriate to adopt the CESL, in its current form, under Art.114TFEU. This leaves Art.352TFEU as the sole option for a legal basis, with the relevant consequences in terms of applicable procedure.

V. Subsidiarity and Proportionality: interaction between national and supranational actors

The guiding rules in terms of Union competence to take action are the principles of conferral, subsidiarity and proportionality. On one hand, conferral and legal basis relate to the very existence of a Union competence. Subsidiarity and proportionality,[107] on the other hand, examine the use of the competences granted to the supranational organs.[108] The EU has exclusive competence in a limited number of fields, and private law is not among these.[109] In the absence of such a “full” competence, Union action needs to be assessed with regard to its suitability as compared to action(s) of MS(s). It falls to Union institutions to justify Union action against this constitutional safeguard.

The Lisbon amendments introduced an extended duty to inform, requiring the Commission to keep national parliaments appraised of legislative proposals.[110] An additional bite to this obligation is added by the so-called ‘yellow card’ mechanism, through which member states monitor EU organs’ compliance with the principles of subsidiarity and proportionality. Although the power of national legislators does not extend as far as preventing the adoption of a draft, time for further discussion and dialogue with governmental decision-makers can be afforded. In addition, national parliaments have standing to bring in claims before ECJ regarding non-compliance with the principles. Therefore, it is useful to explore the national concerns in terms of subsidiarity of the proposal.

Reasoned opinions of national parliaments, within the context of the monitoring procedure, provide an interesting enumeration of MS concerns, views and expectations. There is some activity in this respect, although the ‘yellow card’ mechanism was not triggered.[111] Outlining the main points, the positions of five randomly selected parliaments (or chambers thereof) are summarised in table 1.[112] There seems to be little consensus past the concerns for the legal certainty. In general, approaches differ, as the UK, for example, does not examine the legal basis in conjunction with the subsidiarity and proportionality principles, while Germany and Austria pay particular attention to the choice thereof. Furthermore, the depth of the analysis by different parliament appears to be rather heterogeneous, as demonstrated by the Portuguese reasoned opinion providing very little argumentation,[113] and the Bulgarian opinion addressing predominantly technocratic issues. Interestingly, no reasoned opinion examined actually breaches into the topic of European contract law as an expression of a European identity secondary to the national identity, despite the fact that the dangers of substituting national law with EU law are being addressed.[114]

VI. The Broader Context: CESL and CISG

The Common European Sales Law represents a significant step in the process of harmonisation of European law, and an instrument quite different from contemporary international commercial law. Conversely, on the international level, the idea of a common sales law is hardly innovative. One such set of rules is already applicable with regard to transnational B2B in most EU MSs (with a few notable exceptions): the Vienna Convention on International Sale of Goods (CISG).[115] Nonetheless, the two instruments differ in a few key areas. Firstly, the overall personal scope of the CISG is dissimilar – CESL (mandatory) deals with at least one weaker party, be it a consumer or a SME, while CISG functions on the level ‘pure’ B2B environment, drawing no distinction between SME and other enterprises. There exists no international consumer law convention, and with good reason – protecting the weak party is not an objective of international commercial law, which primary deals with transactions between equals. The EU with its supranational sources of consumer law regulation seems to be an exception rather than the rule. Its functioning can be attributed to the internal coherence of MSs, which remains inconceivable on a wider level. In the same vein, even on EU level, coherence is a substantial challenge, especially in the light of the historical enlargements in the last decade.

Secondly, CISG is a different type of an optional regime, as parties need to ‘opt-out’,[116] while CESL installs the higher psychological barrier of a voluntary ‘opt-in’,[117] sometimes referred to as a ‘blue button’ in the context of e-commerce. To continue elaborating the differences between the two regimes, it must be highlighted that both the CISG and CESL remain incomplete,[118] despite the fact that the material scope the CESL leaves less to be regulated by national law. This can be constructed both as an advantage, and as a drawback, since the flexibility of a contractual system has practical implications on its application. Thirdly, CESL brings the promise of more interpretative coherence through a database with final judgements and a central court, the latter notably lacking in the CISG system.

A strong argument can be raised against an international B2B sales law, based on business practice in the use of standardized contracts as opposed to CISG. These business terms can effectively render national (or where applicable international) laws irrelevant in practice, while providing opportunity for self-regulation and entrepreneurship. Allocating risks through contract is a practice that already helps businesses to keep transaction costs low. However, the relationship between such standard contracts and the mandatory rules applicable can be of essential importance, as it is in the business’s interest to enter into enforceable contracts.[119]

In business context, a ‘consumerism creep’ can also be interfered by CESL’s consumer focus and, furthermore, facilitative provisions for the protection SMEs,[120] as also enumerated in the Green Paper.[121] There are two sides of the coin – B2B transactions tend to self-regulate optimally based on freedom of contract, while consumer protection is already, at least partially, harmonised on EU level. In the light of this divergence, it remains hard to advance a convincing argument in favour of a Common European Sales Law, in its current form, as an optional instrument for B2C and B2B cross-border transactions.

VII. Conclusions

1. CESL as an optional instrument

The Common European Sales Law represents an innovative project to approximate national legal rules on (cross-border) contract in a manner both more, and less direct than harmonisation. The scope of the present proposal is both limited and farther-reaching, or as characterized by Low, “harmonising without harmonisation”.[122] Considering the proposal from the viewpoint of private international law, horizontal regulatory competition between member states is being threatened. The reason is that the proposal combines some of the characteristics of harmonisation, which is vertical in regulatory character, with a scope of application, consistent with a horizontal competitor of national regimes.

The (un)success of the model depend on the way content is finalized, and the scope of its application. In its present form, the shell Regulation represents a small step to encourage cross-border transactions, with particular attention to e-commerce. However, this advance is balanced against danger for both the functioning of the internal market, and the maintaining of the consumer protection provided by national systems. Therefore, the proposal is not consistent with the purpose cited, and should be amended to address the outstanding issues of scope and legal certainty.

2. CESL and its constitutional implications

In order to adopt a legislative proposal, the Union legislature must be conferred competence in this field, and needs to respect the constitutional constraints of subsidiarity and proportionality. The legal basis plays a key role in delineating the competence, its extent and procedure for the exercise thereof. Since there is no specific legal basis for private law harmonisation, one needs to look for an alternative. Art.352TFEU, a ‘catch-all’ provision, had been used to adopt optional instruments, such as the SE and SCE Regulations. In the meantime, the Commission’s choice of Art.114TFEU for CESL, holds creating and improving the internal market as an objective, and is the basis for far-reaching cross-sectoral approximation of laws. Considering these two most viable options for a legal basis, and despite the connection of the CESL with the internal market, it seems that the proposal goes beyond the Union competence under Art.114TFEU. Therefore, the correct legal basis is Art.352TFEU, as previous optional instruments and relevant case law indicate.

Although the adoption of the optional CESL proposal is at the hands of the Council of Ministers and the European Parliament, compliance with the principles of subsidiarity and proportionality is subject to additional scrutiny by national legislature. Since the Lisbon treaty, parliaments of member states play a more active role by monitoring compliance with the principles of subsidiarity and proportionality and the ‘yellow card’ procedure. While the current proposal does not suffer a national parliament setback, it has been subject to constructive criticism. Clearly, there is concern on national level regarding the legal uncertainty and fragmentation to be generated by CESL. Art.352TFEU, with its more stringent procedural requirements, finds favour in this context.

3. CESL in a global context

Although CESL and CISG are similar in at least two aspects, they also differ considerably. Both instruments regulate cross-border B2B transactions, and constitute a non-state source of private law. However, they diverge in terms of mechanisms of uniform interpretation, territorial scope, and the way choice is made by the parties. While the combination of ECJ as a final interpretative authority, the ‘opt-in’ as opposed to CISG ‘opt-out’, do make a difference, the deeper distinction lies elsewhere. The consumer-focus of CESL, necessitated by the choice of Art.114TFEU as a legal basis, combined with a wide personal scope, extending also to transactions involving consumers, turn the optional instrument into a truly ambitious project from the point of view of international commerce. Accordingly, the effect of CESL will very much depend on the degree of legal certainty, and the additional transaction costs associated with it.


Appendix 1 – Reasoned opinions by national parliaments

Table 1: Overview of five national parliament positions on compliance with the principle of subsidiarity by the CESL proposal

National Parliament

Subsidiarity

Correct Legal Basis

Expressed Concerns and Comments

Austrian Federal Council

incompatible

Art.352TFEU

- legal uncertainty: limited scope, undefined notions requiring autonomous interpretation;

- sidestepping the Consumer Rights Directive and reopening issues on which consensus had not been reached therein;

- lack of real choice of law for consumers and SMEs;

- the Austrian Code of Civil Law is compatible with the goals of the proposal;

- consumer confidence and harmonisation in specific fields (i.e. supply of digital contents) is preferable.

Bulgarian National Assembly

compatible, but there is a proportionality breach

not considered

- added value for consumers;

- too many issues left to be regulated by national law;

- need for such a far-reaching instrument;

- specifying the text.

German Bundestag

incompatible

Art.352TFEU

- Art.114TFEU cannot be used for parallel regimes leaving national law intact, unless otherwise provided, e.g. Art.118TFEU (on uniform intellectual property protection);

- the correct procedure would require the Bundestag and the Bundesrat to authorize the federal government’s assent to the CESL;

- increasing legal uncertainty.

Portuguese Assembleia da República

compatible

Art.114TFEU

- cross-border scope safeguards subsidiarity.

UK House of Commons

incompatible

not considered

- though the introduction of the optional CESL national consumer protection also becomes optional;

- failure to provide a detailed statement regarding subsidiarity (Protocol No2 procedural requirement);

- no assessment of the impact on national rules on law of contract;

- uniform interpretation - a database of judgements does not set legal precedents;

- higher levels of legal complexity with no guarantee that the objectives of the proposal will be met;

- no evidence that Art.13CESL Regulation is necessary (permission for MSs to extend the application of CESL to domestic transactions).

Appendix 2 – Statements for the presentation of the bachelor thesis

  1. The Common European Sales Law proposal, in its current form, is a second lex specialis contractual regime within the national legal system. It introduces a qualitatively new form of harmonisation measure, which amounts to a vertical ‘EU’ competitor of national legal orders.
  2. The correct legal basis for the adoption of the proposed optional CESL instrument is Art.352TFEU, because no other treaty provision can justify the introduction of an entirely new set of contract rules. The Commission is advancing Art.114TFEU due to the less stringent procedure for adoption of ‘internal market’ measures.
  3. The CESL is fundamentally different from CISG in terms of personal scope, ‘opt-in’ mechanism, and interpretative arrangements.


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Whittaker, S., The Proposed Common European Sales Law: Legal Framework and the Agreement of the Parties, University of Oxford Legal Research Paper Series,Paper No 10/2012, February 2012, at WWW <http://ssrn.com/abstract=2006786> (accessed 28 February 2012).

Wilhelmsson, T., The Legal, the Cultural and the Political – Conclusions from Different Perspectives on Harmonisation of European Contract Law, 13 European Business Law review (6) 2002, pp. 541–555

Zaccaria, A., The Basis and the Development of European Private Law, 3 US-China Law Review 24, (6) 2006, pp.24-32.

Zimmermann, R., The Present State of European Private Law, American Journal of Comparative Law (Spring) 2009, pp.479-513.

Internet Resources

Press Releases, News and Blogs

‘Common European Sales Law easily survives first subsidiarity challenge’ European Private Law News, The University of Edinburg School of Law, 4 January 2012, at WWW <http://www.law.ed.ac.uk/epln/blogentry.aspx?blogentryref=8844> (accessed 24 April 2012).

‘“Common European Sales Law” no panacea for trade in the single market, say SMEs’, UEAPME, press statement, 11 October 2011, Brussels, at WWW <http://www.ueapme.com/IMG/pdf/111011_pr_common_sales_law.pdf> (accessed 1 March 2012).

Consumer rights: "full harmonisation no longer an option", Press Release, European Parliament, 17 March 2010, at WWW <http://www.europarl.europa.eu/sides/getDoc.do?language=en&type=IM-PRESS&reference=20100317IPR70798> (accessed 22 April 2012).

Dębek, J., European Commission for the introduction of the ‘blue button’, Polish Presidency 2011, 11 October 2011, at WWW <http://pl2011.eu/en/content/european-commission-introduction-blue-button> (accessed 26 April 2012).

Dickinson, A., EU’s Proposed Sales Law Hits the Shelves, ConflictofLaws.Net, 11 October 2011, at WWW <http://conflictoflaws.net/2011/eus-proposed-sales-law-hits-the-shelves/> (accessed 21 April 2012).

Other online resources

Subsidiarity, European Parliament Fact Sheets, at WWW <http://www.europarl.europa.eu/factsheets/1_2_2_en.htm> (accessed 22 April 2012).

Albert H. Kritzer CISG Database at WWW <http://www.cisg.law.pace.edu/> (accessed 18 April 2012

Action 13: Complementing the Consumer Rights Directive, Digital Agenda for Europe, at WWW <http://ec.europa.eu/information_society/newsroom/cf/fiche-dae.cfm?action_id =171&pillar_id=43&action=Action%2013%3A%20Complementing%20the%20Consumer%20Rights%20Directive> (accessed 9 April 2012).

CHAPTER 3: Full harmonisation, EU Consumer Rights Directive: getting it right - European Union Committee, House of Lords, at WWW <http://www.publications.parliament.uk/pa/ld200809/ldselect/ldeucom/126/12606.htm> (accessed 24 April 2012).

‘CLOUT’: Case Law on UNCITRAL Texts (CLOUT), United Nations Commission on International Trade Law, at WWW <http://www.uncitral.org/uncitral/en/case_law.html> (accessed 18 April 2012).

Conference on European Contract Law: A Law-and-Economics Perspective, University of Chicago Law School, 27 April 2012, at WWW <http://www.law.uchicago.edu/events/europeancontractlaw> (accessed 25 April 2012).

Digests, United Nations Commission on International Trade Law, at WWW <http://www.uncitral.org/uncitral/en/case_law/digests.html> (accessed 18 April 2012).

Technical Assistance to Law Reform, at WWW <http://www.uncitral.org/uncitral/en/tac/technical_assistance.html> (accessed 20 April 2012).

Project Group “Restatement of European Insurance Contract Law”, at WWW <http://www.uibk.ac.at/zivilrecht/restatement/> (accessed 26 April 2012).

SEC/2011/1165, IPEX, at WWW <http://www.ipex.eu/IPEXL-WEB/dossier/document/SEC 20111165.do#dossier-COD20110284> (accessed 1 April 2012).


FOOTNOTES

* Bachelor thesis, LL.B. International and European Law, Faculty of Law, University of Groningen (the Netherlands), Supervisor: prof. mr. dr. H.H.B. Vedder, English tutor: R. Stoffer (June 2012)

1. Proposal for a Regulation of the European Parliament and of the Council on a Common European Sales Law, COM (2011) 635 final, 2011/0284 (COD).

2. For example, on contract law see Miller, L., The Common Frame of Reference and the feasibility of a common contract law in Europe, Journal of Business Law (June) 2007, pp. 385-389.

3. On common law see Samuel, G., Common Law in: Smits, J.M.,(ed) Elgar Encyclopedia of Comparative Law, Edward Elgar Publishing, 2006, p.145-160.

4. On Lex mercatoria see Stone Sweet, A., Islands of Transnational Governance in: Shapiro, M. and Stone Sweet, A. (eds), On Law, Politics, and Judicialization, Oxford Univeristy Press, 2002, pp.329-332.

5. Communication from the Commission to the Council and the European Parliament on European Contract Law COM(2001) 398 final, 11.07.2001.

6. Published as: Study Group on a European Civil Code/Research Group on EC Private Law (Acquis Group), Principles, Definitions and Model Rules of European Private Law: Draft Common Frame of Reference (DCFR), Sellier, Munich, 2009.

7. Green Paper on policy options for progress towards a European Contract Law for consumers and businesses COM(2010) 348, July 2010.

8. See supra note 1.

9. According to Commission Recommendation 2003/361/EC, a SME has less than 250 employees, and either annual turnover not exceeding 50 million euro, and/or an annual balance sheet total not exceeding 43 million euro. This is the majority of undertakings, as according to Eurostat about 99.8% of all enterprises are micro, small or medium sized and therefore “SME”. Large enterprises account for the mere 0.2% of all enterprises.

See Commission Recommendation concerning the definition of micro, small and medium-sized enterprises (2003) 2003/361/EC, 6 May 2003, OJ L124/36A.

10. Art.13 CESL draft regulation: [emphasis added]

Member States' options

A Member State may decide to make the Common European Sales Law available for:

(a) contracts where the habitual residence of the traders or, in the case of a contract between a trader and a consumer, the habitual residence of the trader, the address indicated by the consumer, the delivery address for goods and the billing address, are located in that Member State; and/or [on domestic jurisdiction]

(b) contracts where all the parties are traders but none of them is an SME within the meaning of Article 7(2). [on extended B2B jurisdiction]

11. One of the most notable exclusions from the CESL are financial services, even where these facilitate the purchase of good of services, e.g. consumer credit for online purchases. Nonetheless, subscriptions fall within the scope of the proposed instrument.

12. Concerns given more weight by other stakeholders include logistical issues and linguistic diversity.

13. Action 13: Complementing the Consumer Rights Directive, Digital Agenda for Europe, at WWW <http://ec.europa.eu/information_society/newsroom/cf/fiche-dae.cfm?action_id=171&pillar_id=43&action= Action%2013%3A%20Complementing%20the%20Consumer%20Rights%20Directive>.

14. CESL proposal, pp.30-32.

15. About the ‘consumerism creep’, see also below, chapter VI “The Broader Context: CESL and CISG” at p.16.

16. CESL proposal, p.6.

17.Dębek, J., European Commission for the introduction of the ‘blue button’, Polish Presidency 2011, 11 October 2011, at WWW <http://pl2011.eu/en/content/european-commission-introduction-blue-button>.

18. On the integration qualities of the dual regime see: Mak, C., In Defence of CESL (draft), Conference on European Contract Law: A Law-and-Economics Perspective, University of Chicago Law School, 27 April 2012, pp.8-10. See also Hesselink, M., The Case for a Common European Sales Law in an Age of Rising Nationalism, European Review of Contract Law (2) 2012, p.10.

19. Doralt, W., The Optional European Contract Law and why success or failure may depend on scope rather than substance, Max Planck Private Law Research Paper No. 11/9, pp.16-17

20. Ibid.

21. Ibid.

22. Hesselink, supra note 18; Reasoned Opinion of the House of Commons on Common European Sales Law, 23 November 2011, p.12, para 35.

23. Fleischer, H., The Optional Instrument in European Private Law ('28th Regime') (Optionales europäisches Privatrecht („28. Modell“)), Max Planck Private Law Research Paper No. 12/5, 1 January 2012, p.14.

24. This is illustrated under the assumption that Germany does not extent the scope of application of CESL to domestic transactions.

25. Uniform interpretation of far less complex instruments can prove challenging, as illustrated by CISG, which applies only in transnational B2B to transactions and does not deal with issues such as consumer protection and pre-contractual information duties, and yet faces interpretation challenges. For ‘CISG’ see: United Nations Convention on Contracts for the International Sale of Goods, Vienna, 11 April 1980, UNTS 1489.

26. A prime example being CISG, that arguably can meet better the needs of the parties through a uniform methodology of interpretation rather than uniform outcomes of interpretation. See Blair, H., Hard Cases under the Convention on the International Sale of Goods: A Proposed Taxonomy of Interpretative Challenges, Duke Journal of Comparative and International Law (21) 2011, p.274.

27. As of 2012 all EU member states have acceded to the CISG with the exception of the UK, Ireland, Portugal and Malta.

28. For example the Albert H. Kritzer CISG Database, at WWW <http://www.cisg.law.pace.edu/>, and the more official ‘CLOUT’: Case Law on UNCITRAL Texts (CLOUT), United Nations Commission on International Trade Law, at WWW <http://www.uncitral.org/uncitral/en/case_law.html>.

29. Id, CLOUT.

30. Digests, United Nations Commission on International Trade Law, at WWW <http://www.uncitral.org/uncitral/en/case_law/digests.html>.

31.Technical Assistance to Law Reform at WWW <http://www.uncitral.org/uncitral/en/tac/technical_assistance.html>.

32. As evidenced by the answers to question 27 of a survey among 100 European enterprises: 46% are reported to be based in a (CISG) contracting state and usually opt-out of CISG and 19% based in contracting states opt-out occasionally. See Vogenauer, S. and Hodges, C.(eds), Civil Justice Systems in Europe: Implications for Choice of Forum and Choice of Contract Law, October 2008, Oxford, p.24. Regarding the availability of CISG for B2B contract see also: Doralt, supra note 19, p.18.

33. CESL proposal, Art.14.

34. CESL proposal, pp.10-11.

35. Regarding the focus on economic, as opposed to political development of the Union see: Zaccaria, A., The Basis and the Development of European Private Law, 3 US-China Law Review 24, (6) 2006, p.32.

36. According to Hoffman’s intergovernmentalism theory, some fields are ‘low politics’, while others can be classified as ‘high politics’. Non-governmental actors have more opportunities to influence the decision-making in the former, and integration therein might not lead to further integration in the latter. See Bache, I., George, S. and Bulmer, S., Politics in the European Union, Third edition, Oxford University Press, 2011, pp.11-12, 19.

37. An example being France and Belgium: the Napoleonic Code civil is applicable in both states, but the interpretation and legal practice have developed separately.

38. Art.6 Rome I Regulation prescribes the habitual law of the consumer as consumer protection regime by default. European Parliament and Council Regulation (EC) No 593/2008 of 17 June 2008 on the Law Applicable to Contractual Obligations (Rome I) [2008] OJ L 177/6. (hereafter Rome I Regulation)

39. Micklitz, H.-W and Reich, N., The Commission Proposal for a “Regulation on a Common European Sales Law (CESL)” – Too Broad or Not Broad Enough?, EUI Working Papers Law 2012/04, pp.2-3.

40. Green Paper on policy options for progress towards a European Contract Law for consumers and businesses, supra note 7.

41. A European contract law for consumers and businesses: Publication of the results of the feasibility study carried out by the Expert Group on European contract law for stakeholders' and legal practitioners' feedback, April 2011, at WWW <http://ec.europa.eu/justice/contract/files/feasibility_study_final.pdf>.

42. Consumer rights: "full harmonisation no longer an option", Press Release, European Parliament, 17 March 2010.

43. Chalmers, D., Davies, G. and Monti, G., European Union Law: Cases and Materials, Cambridge University Press, 2011, pp.700-701.

44. Id, p.707. See also Posner, E., The Questionable Basis of the Common European Sales Law: The Role of an Optional Instrument in Jurisdictional Competition, Chicago Institute for Law and Economics Working Paper No.597 (2nd series), May 2012, p.9.

45. For an European-centred analysis of the ‘race to the bottom’ see Søndergaard Birkmose, H., Regulatory Competition and the European Harmonisation Process, 17 European Business Law Review (4) 2006, pp., pp.1081-1084. About three different positions on the same concept within the context of Delaware company law consult Trachtman, J., International Regulatory Competition, Externalization, and Jurisdiction, Harvard International Law Journal (34) 1993, pp.61-63.

46. See Chalmers et al., supra note 43, p.709.

47. This assumption is based on the arguments of the third school mentioned by Trachtman, see supra note 45, p.63.

48. Chapter 3: Full harmonisation, EU Consumer Rights Directive: getting it right - European Union Committee, House of Lords, para 46.

49. Consolidated version of the Treaty on the Functioning of the European Union [2010] OJ C 83/45.

50. Consumer rights: "full harmonisation no longer an option", supra note 42.

51. It would be far more appropriate to consider this an additional regime, as it is arguable that the EU has merely 27 national regimes, given the constitutional characteristics of some member states, for example, the UK.

52. Fornasier, M., 28. versus 2. Regime - Kollisionsrechtliche Aspekte eines optionalen europäischen Vertragsrechts (28th versus 2nd Regime – An Optional European Contract Law from a Choice of Law Perspective), Max Planck Private Law Research Paper No. 11/10, pp.6-7.

53. Ibid.

54. Council Regulation (EC) No 2157/2001 of 8 October 2001 on the Statute for a European company (SE) [2001] OJ l L 294 /1.

55. Council Regulation (EC) No 40/94 of 20 December 1993 on the Community trade mark [1993] OJ L 011/1.

56. The Principles of European Insurance Contract Law is an academic restatement of insurance contract law in the spirit of the Draft Common Frame of Reference. The restatement group participated in the Network of Excellence, created within the Sixth Framework Programme, and drafted a Common Frame of Reference of European Insurance Contract Law (DCFR Insurance), which is published in 2009. See supra note 6.

57. See Fornasier, supra note 52.

58. Regarding the advantages of the proposed PEICL as compared with Baltic insurance law see Luik, O.-J. and Braun, M., Significance of the Principles of European Insurance Contract Law for the pre-contractual information duty: Experience of the Baltic States, 6 Current Issues of Business and Law (2) 2011, pp.192–215.

59. For an overview of EU optional instruments see: Fleischer, supra note 23, pp.7-9.

60. For an overview on case law relating to less direct harmonisation, see section 3, “Art.114TFEU as a legal basis”, below at pp. 13-15.

61. Or, as is the case in some jurisdictions, competition between different legal regimes within the national law is yet another option, for example English and Scottish Law in the UK. The choice of CESL would also find its place within this horizontal choice of legal regimes within the national legal system. However, in states with one internal legal system the introduction of CESL constitutes introduction of a new type of regulatory competition.

62. Grundmann, S., Costs and Benefits of an Option Common European Sales Law (CESL) (draft), Conference on European Contract Law: A Law-and-Economics Perspective, University of Chicago Law School, 27 April 2012.

63. On the vertical aspects of CESL regulatory competition see also Fleischer, supra note 23, pp.17-19.

64. Ibid. On the issue of exit rights and the loss of location-specific assets in a traditional exit scenario see also Epstein, R., Harmonization, Heterogeneity, and Regulation: Why the Common European Sales Law Should Be Scrapped (draft), Conference on European Contract Law: A Law-and-Economics Perspective, University of Chicago Law School, 27 April 2012, pp.8-9.

65. Zaccaria, supra note 35, pp.24-32.

66. Communication on European Contract Law, see supra note 5. On the supranational concept of cultivated spill-over see Bache, supra note 36, pp.18-19.

67. Art.5 TEU. See Consolidated version of the Treaty on European Union [2010] OJ C 83/13.

68. A catalogue of competences according to policy field can be found in Arts.3-6TFEU.

69. About the division of competences between the national and supranational level of the EU see Mak, C., Constitutional Aspects of a European Civil Code, in: Hartkamp, A., et al. (eds.), Towards a European Civil Code, Kluwer Law International, 2011, pp.344-346.

70. Rutgers, J., European Competence and a European Civil Code, a Common Frame of Reference or an Optional Instrument in: Hartkamp, A., et al. (eds.), Towards a European Civil Code, Kluwer Law International, 2011, p.315.

71.CESL proposal, p.8.

72. e.g. Austrian Federal Council, see table 1 (Annex 1, p.19).

73. The UK government has launched a call for evidence on the impact of the CESL. See: A Common European Sales Law for the European Union - A proposal for a regulation, Ministry of Justice (UK), at WWW <https://consult.justice.gov.uk/digital-communications/common-european-sales-law>.

74. Title V TFEU, see art.67-89TFEU.

75. See Art.81TFEU: [emphasis added]

1. The Union shall develop judicial cooperation in civil matters having cross-border implications, based on the principle of mutual recognition of judgments and of decisions in extrajudicial cases. Such cooperation may include the adoption of measures for the approximation of the laws and regulations of the Member States.

2. For the purposes of paragraph 1, the European Parliament and the Council, acting in accordance with the ordinary legislative procedure, shall adopt measures, particularly when necessary for the proper functioning of the internal market, aimed at ensuring: …

(c) the compatibility of the rules applicable in the Member States concerning conflict of laws and of jurisdiction;

76. Albeit there remains some room for measures not connected with the internal market. See ibid, Art.81(2) – the internal market is an obligatory requirement, but more of a preference.

77. Protocol No 21 on the Position of the United Kingdom of Great Britain and Northern Ireland in Respect of the Area of Freedom, Security and Justice [2010] OJ C 83/295; Protocol No 22 on the Position of Denmark [2010] OJ C 83/299.

78. Mak, supra note 69, pp.344-346.

79. Council Regulation on the Statute for a European company, supra note 54.

80. In the present context ‘Art.[352]TFEU’ indicates the provision after the Lisbon treaty restructuring and renumbering of the treaty provisions. The case itself, as well as other cases cited hereinafter, precedes these amendments. Accordingly, the original judgement still holds references to the previous numbering of treaty provisions. For the sake of convenience and consistency, the present paper disregards the differences between the old and the new provisions, and adopts the new numbering. The brackets indicate where the original text refers to the old provisions.

81. Council Regulation (EC) No 1435/2003 of 22 July 2003 on the Statute for a European Cooperative Society (SCE) [2003] OJ L 207/1.

82. For the ECJ case, see C-436/03 European Parliament v Council of the European Union [2006] ECR 2006 I-03733. (hereinafter SCE case)

83. Ibid, pars. 35-36.

84. See ibid, pars.44-45. See also Rutgers, supra note 70, pp.316-317.

85. Council Regulation on the Statute for a European Cooperative Society, supra note 81. (SCE) [2003] OJ L 207/1.

86. Grundmann, supra note 62, p.11.

87. See Gutman, K., Case C-66/04, Smoke Flavorings; Case C-436/03, SCE; & Case C-217/04, ENISA, 13 Colum. J. Eur. L. 147, 2006, pp.147-148.

88. See Art.114(1) TFEU. Also note that the objectives to be achieved are set out in Art.26(2)TFEU: “The internal market shall comprise an area without internal frontiers in which the free movement of goods, persons, services and capital is ensured in accordance with the provisions of the Treaties.”. [emphasis added]

89. C-376/98 Germany v Parliament and Council [2000] ECR I-08419, par.83. (hereinafter “Tabacco Advertisement I”)

90. As clarified in the SCE case, par.44.

91. See CESL proposal, pp.8,14.

92. Including Art.352TFEU, that would not apply when there is another appropriate legal basis.

93. C-66/04 United Kingdom v Parliament and Council [2005] ECR I-10553. (hereinafter “Smoke Flavouring”)

94. C-217/04 United Kingdom v Parliament and Council [2006] ECR I-3789. (hereinafter “ENISA”)

95. Tabacco Advertisement I, supra note 89. See also Gutman, supra note 87,pp.147-187.

96. Smoke Flavouring, pars. 45, 50. See also Chalmers et al., supra note 39, p.693.

97. Id (Smoke Flavouring Case), pars. 43, 48.

98. Id, para 49.

99. Low, G., Unitas via Diversitas: Can the Common European Sales Law Harmonize Through Diversity?, 19 Maastricht Journal of European and Comparative Law (1) 2012, p.140.

100. Tabacco Advertisement I, supra note 89, par. 83; Twigg-Flesner, C., The Cambridge Companion to European Union Private Law, Cambridge University Press, 2010, p.62-64. See also Rutgers, supra note 70, pp.317-318.

101. CESL proposal, p.9.

102. Reasoned Opinion of the House of Commons, supra note 22.

103. Doralt, supra note 19, pp.9-10, 13.

104. Low, G., A Numbers Game – the Legal Basis For an Optional Instrument in European Contract Law, Maastricht European Private Law Institute Working Paper No. 2012/2, January 2012, p.11.

105. Quoted from Low, see ibid.

106. Twigg-Flesner, supra note 100, p.68.

107. The principles are enumerated in Art.5(3) and At.5(4)TEU, as well as Protocol No 2 on the Application of the Principles of Subsidiarity and Proportionality [2010] OJ L C 83/206.

108. Gutman, supra 87, p.182.

109. The exclusive competences of the Union are laid down in Art.3TFEU.

110. Arts.4-5, Protocol No 2 supra note 106.See also Art.12 TEU (on the role of national parliaments).

111. SEC/2011/1165, IPEX, at WWW <http://www.ipex.eu/IPEXL-WEB/dossier/document/SEC20111165.do# dossier-COD20110284>.; See also ‘Common European Sales Law easily survives first subsidiarity challenge’ European Private Law News, The University of Edinburg School of Law, 4 January 2012.

112. See Annex 1, p.19.

113. This conclusion is reached based on examination of the translated in English version of the document. Therefore, mistakes are not excluded, given that discrepancies between the original document in Portuguese and the (abridged) translation are likely.

114. Reasoned Opinion of the House of Commons, supra note 22, p.12, para 35. On the European identity and contract law see Hesselink, supra note 18, pp.11-13.

115. About CISG see supra note 25.

116. Which European businesses often do. See supra note 32.

117. Kornet, N., The Common European Law and the CISG – Complicating or Simplifying the Legal Environment?, Maastricht European Private Law Institute Working paper 2012/4, March 2012, p.7.

118. As in a sense no codification can be complete; putting down rules in writing necessitates their continuous interpretation.

119. Kornet, supra note 16, p.5.

120. Id, p.15.

121. Green Paper on policy options for progress towards a European Contract Law for consumers and businesses, supra note 7, p.7.

122. Quoted from Low, see supra note 104.


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