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One Contract law for Europe

11 October 2011

11 October 2011 - The European Commission today published a "Common European Sales Law" for use throughout the EU as an alternative to national law. This move has the potential to transform the way companies do business throughout Europe by allowing them to avoid much of the current complexity of selling in 27 different countries.

A fresh approach

For some years the European Union has been interested in harmonising Member States' national laws of contract.   The European Commission's latest proposal - an alternative "Common European Sales Law" that parties can choose in preference to their own national contract law - has been called a form of legal Esperanto.    The text of the new law was published today in the form of a Council Regulation which focuses on the sale of goods (including digital content) and related services across the EU, and is expected to come into force in one to two years' time.

Peter Watts, Co-Leader of Hogan Lovells global commercial practice said:

"This Regulation is controversial, as some consider that it complicates the overall legal environment in which businesses operate. However, it does offer potentially significant benefits for companies who currently have to work with a variety of legal regimes across the EU. If enacted it would provide opportunities for international business to streamline procedures and simplify life for small and medium sized enterprises (SMEs) looking to move into other European markets more." 

How radical is the Commission's proposal?

The idea of introducing an alternative law is not new; it has been proposed before in other contexts but this proposal brings it significantly closer.  As such it raises new questions for those putting in place contracts and those handling disputes arising from contracts.

Kieron O'Callaghan, a partner in Hogan Lovells dispute resolution practice said:

"One could say that the proposal is reassuring, even, because it allows existing legal cultures to continue undisturbed, and no party will be obliged to use it.   The Commission has also been careful to limit the scope of the new law, at least initially, so that, unless and until an individual Member State decides otherwise, it can be chosen only in cross-border contracts between businesses and consumers, or between businesses where one of the parties is an SME.  

"If the proposal proves popular as a neutral system of law that businesses favour in a wide variety of cross-border transactions, then it has the capacity to transform the legal landscape in the EU.  It could even be used for purely domestic contracts if individual Member States permit it."

How different is the proposed law?

The proposed law draws on concepts from both European civil law and English common law traditions.

Peter Watts said:

"The difference between the new law and the legal systems in each member state vary.  For example, requirements to act "with good faith and fair dealing" could have a big impact for businesses in the UK where these ideas do not currently exist. The precise meaning of the new concepts and the way they work with other aspects of member state law will have to be clarified by the courts though, so there is likely to be considerable uncertainty about the effects of the new law for some years after it comes into force."

How much time will businesses have to prepare for the new law?

Peter Watts said:

"There is a serious prospect that this initiative will come to fruition. The Commission's aim is to introduce the new law by the end of 2012.

"The success of the new law will depend heavily on whether business adopts it and persuades Member State governments to embrace it fully. This is the time for businesses from within the EU and those from outside who do business in the EU to examine the opportunities the new law might bring." 

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