Communication from the Commission to the Council and the European Parliament on european contract law

Executive Summary

This Communication is intended to broaden the debate on European Contract law involving the European Parliament, Council and stakeholders, including businesses, legal practitioners, academics and consumer groups.

The approximation of certain specific areas of contract law at EC level has covered an increasing number of issues. The EC legislator has followed a selective approach adopting directives on specific contracts or specific marketing techniques where a particular need for harmonisation was identified. The European Commission is interested at this stage in gathering information on the need for farther-reaching EC action in the area of contract law, in particular to the extent that the case-by-case approach might not be able to solve all the problems which might arise.

The Commission is seeking information as to whether problems result from divergences in contract law between Member States and if so, what. In particular, the Communication asks whether the proper functioning of the Internal Market may be hindered by problems in relation to the conclusion, interpretation and application of cross-border contracts. Also the Commission is interested in whether different national contract laws discourage or increase the costs of cross-border transactions. The Communication also seeks views on whether the existing approach of sectoral harmonisation of contract law could lead to possible inconsistencies at EC level, or to problems of non-uniform implementation of EC law and application of national transposition measures.

If concrete problems are identified, the Commission would also like to receive views on what form solutions should or could take. In order to assist in defining possible solutions, the Communication includes a non-exhaustive list of possible solutions. Other solutions may be suggested by any interested party, however.

- To leave the solution of any identified problems to the market.

- To promote the development of non-binding common contract law principles, useful for contracting parties in drafting their contracts, national courts and arbitrators in their decisions and national legislators when drawing up legislative initiatives.

- To review and improve existing EC legislation in the area of contract law to make it more coherent or to adapt it to cover situations not foreseen at the time of adoption.

- To adopt a new instrument at EC level. Different elements could be combined: the nature of the act to be adopted (regulation, directive or recommendation), the relationship with national law (which could be replaced or co-exist), the question of mandatory rules within the set of applicable provisions and whether the contracting parties would choose to apply the EC instrument or whether the European rules apply automatically as a safety net of fallback provisions if the contracting parties have not agreed a specific solution.

TABLE OF CONTENTS

1. Introduction

2. Purpose of the Communication

3. Present situation of contract law

3.1. Existing legislation

3.1.1. International Instruments

3.2. Description of the Community acquis

3.3. Implications for the Internal market

3.4. Uniform application of Community law

4. Options for future EC initiatives in contract law

4.1. Option I: No EC action

4.2. Option II: Promote the development of common contract law principles leading to more convergence of national laws

4.3. Option III: Improve the quality of legislation already in place

4.4. Option IV: Adopt new comprehensive legislation at EC level

4.5. Any other option

5. Conclusions

1. Introduction

1. Over recent years, discussion has intensified on possible harmonisation of substantive private law, in particular contract law [1].

[1] Cf. Ole Lando and Hugh Beale (eds.), Principles of European Contract Law Parts I and II, (Kluwer Law International, 2000); Academy of European Private Lawyers, European Contract Code - Preliminary draft, (Universita Di Pavia, 2001) hereafter referred to as "the Pavia Group"; the 'Study Group for a European Civil Code'. A comprehensive discussion, including a detailed bibliography, of the issues concerning civil law in Europe can be found in Hartkamp, Hesselink, Hondius, Joustra, Perron (eds.), Towards a European Civil Code (Kluwer Law International, 1998).

2. The European Parliament has adopted a number of resolutions on the possible harmonisation of substantive private law. In 1989 and 1994 the European Parliament called for work to be started on the possibility of drawing up a common European Code of Private Law [2]. The Parliament stated that harmonisation of certain sectors of private law was essential to the completion of the internal market. The Parliament further stated that unification of major branches of private law in the form of a European Civil Code would be the most effective way of carrying out harmonisation with a view to meeting the Community's legal requirements in order to achieve a single market without frontiers.

[2] . OJ C 158, 26.6.1989, p. 400 (Resolution A2-157/89); OJ C 205, 25.7.1994, p. 518 (Resolution A3-0329/94).

3. Furthermore, in its resolution of 16 March 2000 concerning the Commission`s work program 2000, the European Parliament stated "that greater harmonisation of civil law has become essential in the internal market" and called on the Commission to draw up a study in this area [3]. In its reply of 25 July 2000 to the European Parliament, the Commission stated that it would "present a communication to the other Community institutions and the general public with the aim of launching a detailed and wide-ranging discussion, without losing sight of the date of 2001 set by the European Council" at Tampere. The Commission also stated that "in view of the importance of secondary legislation for the development of the internal market and future commercial and technological trends, this communication will analyse this legislation - in force or in preparation - at Community level in the relevant areas of civil law in order to identify and assess any gaps, as well as the academic work which has been or is being carried out".

[3] . OJ C 377, 29.12.2000, p. 323 (Resolution B5-0228, 0229 - 0230 / 2000, p. 326 at point 28).

4. Indeed the conclusions of the European Council held in Tampere requested, in paragraph 39, 'as regards substantive law an overall study on the need to approximate Member State's legislation in civil matters in order to eliminate obstacles to the good functioning of civil proceedings' [4]. A consultative document has been announced in the Commission's "scoreboard for the evaluation of progress in the establishment of an area of freedom, security and justice" [5]. The Tampere European Council dealt with issues concerning judicial civil cooperation on the basis of title IV of the EC Treaty. In this regard this Communication can be considered as a first step towards the implementation of the Tampere conclusions.

[4] . Presidency Conclusions, Tampere European Council 15 and 16 October 1999, SI (1999) 800.

[5] . COM(2000) 167, 24.3.2000, last updated in May 2001, see COM(2001) 278 final, 23.5.2001

5. Finally, this Communication was also included in the Commission communication on E-Commerce and Financial Services [6] within the policy area of ensuring coherence in the legislative framework for financial services.

[6] . COM(2001) 66 final, 7.2.2001, p. 11.

6. Leading representatives of the academic world have had detailed discussions on harmonising certain sectors of contract law. Two drafts of a contract code [7] and of general principles of contract law [8] have recently been published. This academic work continues, and includes work on other issues not included in the two published drafts, such as contracts in the specific areas of financial services, insurance contracts, building contracts, factoring and leasing as well as some areas of the law of property. In particular, the academic work is focusing on areas that have a particular significance for securing rights across the European borders. [9]

[7] . The "Pavia Group" has recently published its "European Contract Code - Preliminary draft", (Universita Di Pavia, 2001) based on the work of the Academy of European Private Lawyers. This code contains a body of rules and solutions based on the laws of members of the European Union and Switzerland and covers the areas of contractual formation, content and form, contractual interpretation and effect, execution and non-execution of a contract, cessation and extinction, other contractual anomalies and remedies.

[8] . The "Commission on European Contract Law" (which has received a major part of its subsidies from the Commission of the EC) has published Principles of European Contract Law Parts I and II, edited by Ole Lando and Hugh Beale (Kluwer Law International, 2000). These common principles for the countries of the European Community concern the issues of formation, validity, interpretation and contents of contracts, the authority of an agent to bind his principal, performance, non-performance and remedies. The book provides text proposals for common rules and includes commentary and comparative analysis for each rule.

[9] Another important ongoing academic exercise in this area is the « Study Group on a European Civil Code » consisting of academic experts of the 15 Member States and some candidate countries. Their work concerns areas like « Sales/Services/Long Term Contracts », « Securities », « Extracontractual Obligations » or « Transfer of property on movable Goods » and includes a comparative research with the final objective of a fully formulated and commented draft on the areas concerned.

7. The aim of the academic work carried out varies from the establishment of a binding code to principles similar to `restatements' that can be used to provide reliable comparative information on the European legal situation in these areas.

8. The approximation of certain specific areas of contract law at EC level has covered an increasing number of issues. In the area of consumer law no fewer than seven Directives dealing with contractual issues have been adopted in the period from 1985 to 1999 [10]. Other areas also show increased harmonisation. [11]

[10] . Directive 1999/44/EC of the European Parliament and of the Council of 25 May 1999 on certain aspects of the sale of consumer goods and associated guarantees (OJ L 171, 7.7.1999, p.12). Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts (OJ L 95, 21.4.1993, p. 29). Council Directive 90/314/EEC of 13 June 1990 on package travel, package holidays and package tours (OJ L 158, 23.6.1990, p. 59). Council Directive 85/577/EEC of 20 December 1985 to protect the consumer in respect of contracts negotiated away from business premises (OJ L 372, 31.12.1985, p. 31). Council Directive 87/102/EEC of 22 December 1986 for the approximation of the laws, regulations and administrative provisions of the Member States concerning consumer credit (OJ L 42, 12.2.1987, p. 48) as modified by Directive 90/88 (OJ L 61, 10.3.1990, p. 14) and Directive 98/7 (OJ L 101, 1.4.198, p. 17). Directive 97/7/EC of the European Parliament and of the Council of 20 May 1997 on the protection of consumers in respect of distance contracts (OJ L 144, 4.6.1997, p. 19). Directive 94/47/EC of the European Parliament and the Council of 26 October 1994 on the protection of purchasers in respect of certain aspects of contracts relating to the purchase of the right to use immovable properties on a timeshare basis (OJ L 280, 29.10.1994, p. 83).

[11] . Council Directive 86/653/EEC of 18 December 1986 on the co-ordination of the laws of the Member States relating to self-employed commercial agents (OJ L 382, 31.12.1986, p. 17), Directive 2000/31/EC of the European Parliament and of the Council of 8 June 2000 on certain legal aspects of information society services, in particular electronic commerce, in the Internal Market (OJ L 171, 17.7.2000, p. 1), Directive 2000/35/EC of the European Parliament and of the Council of 29 June 2000 on combating late payment in commercial transactions (OJ L 200, 8.8.2000, p. 35), Council Directive 85/374/EEC of 25 of July 1985 on the approximation of the laws, regulations and administrative provisions of the Member States concerning liability for defective products (OJ L 210, 7.8.1985, p. 29) as modified by the Directive 99/34/EC (OJ L 141, 4.6.1999, p. 20), Directive 97/5/EC of the European Parliament and the Council of 27 January1997 on cross-border credit transfers (OJ L 43, 14.2.1997, p. 25) should be noted as examples.

9. This sectoral harmonisation has concerned specific contracts or specific marketing techniques. Directives have been adopted where a particular need for harmonisation was identified.

2. Purpose of the Communication

10. The European Commission is interested at this stage of the discussion in gathering information on the need for farther-reaching EC action in the area of contract law, in particular to the extent that the case-by-case approach might not be able to solve all the problems which might arise. This does not preclude the right of initiative of the Commission in the future to make proposals for specific actions on contract law aspects if a specific need for this exists, in particular on-going initiatives launched or to be launched in the framework of the Internal Market policy.

11. The purpose of this Communication is therefore to broaden the debate by encouraging contributions from consumers, businesses, professional organisations, public administrations and institutions, the academic world and all interested parties. Part C examines the current situation of contract law, the reasons for its importance in cross-border negotiations and problems of uniform application of EC law. Part D presents a general framework for future EC policy in the area of contract law.

12. Contract law encompasses several areas of law. These are linked to Member States' different cultural and legal traditions, but most Member States' legal regimes for contract law have similar concepts and rules. Contract law constitutes the principal body of law regulating cross-border transactions and some Community legislation regulating contract law already exists, although this legislation has taken a sector-by-sector approach.

13. The areas concerned by this Communication include contracts of sale and all kind of service contracts, including financial services [12]. General rules on performance, non-performance and remedies are an indispensable basis for these contracts and are therefore also covered. Additionally, rules on general issues such as the formation of a contract and its validity and interpretation are also essential. Furthermore, because of the economic context, rules on credit securities regarding movable goods as well as the law of unjust enrichment may also be relevant. Finally, the aspects of tort law linked to contracts and to its other features relevant to internal market should also be taken into consideration insofar as they are already part of existing EC law.

[12] . COM (2001) 66 final, 7.2.2001, p. 11.

14. In certain areas of private law, contracts are only one of the tools of regulation given the complexity of the relationship between the parties concerned. These areas, such as employment law and family law, give rise to particular issues and are not covered by this Communication.

15. The Commission intends to focus the attention of this Communication on two areas: firstly on possible problems resulting from divergences of national contract law, and secondly on options for the future of contract law in the EC. This will enable the Commission to define its future policy in this area and to propose any necessary measures.

3. Present situation of contract law

3.1. Existing legislation

3.1.1. International Instruments

16. International remedies offer solutions to certain potential problems related to differences in national contract law. The first remedy is the application of uniform private international rules to determine which law is applicable to the contract. The most important of these rules is the 1980 Rome Convention [13], ratified by all Member States.

[13] . 1980 Rome Convention on the law applicable to contractual obligations (consolidated version) (OJ C 27, 26.1.1998, p. 34).

17. The rules of the Rome Convention apply to contractual obligations in any situation involving a choice between the laws of different countries. Under the Rome Convention parties may agree on which national law to apply. However, the Convention places limits on this choice of applicable law and determines which law is applicable if no choice is made. Furthermore, the rules do not apply to areas mentioned in Article 1 of the Convention (such as questions relating to the status or legal capacity of natural persons or to insurance contracts which cover risks situated in the territories of the Member States of the European Community).

18. The second remedy is the establishment of harmonisation of substantive law rules on an international level. Here the most relevant instrument is the 1980 United Nations Convention on contracts for the international sale of goods (the CISG), adopted by all Member States except the United Kingdom, Portugal and Ireland.

19. The CISG establishes uniform rules for the international sale of goods, which apply to sales contracts unless the parties state otherwise. Some areas are excluded from the scope of the Convention, such as the sale of goods bought for personal, family or household use and the sale of stocks, shares, investment securities or negotiable instruments.

20. The Convention includes provisions dealing with the formation of a contract (offer and acceptance of offer), and the rights and obligations of the seller and the buyer. The Convention does not govern the validity of the contract or of its provisions, nor does it cover the effect which the contract may have on the property in the goods sold. The Convention also does not address the seller's liability beyond the contract.

3.1.2. Description of the Community acquis

21. Several Community acts include provisions harmonising private law. Certain Directives specify rules on the conclusion of a contract, on the form and the content of an offer and its acceptance and on the performance of a contract, i.e. the obligations of the contractual parties. Several Directives also specify in detail the content of the information to be provided by the parties at different stages, in particular before concluding a contract. Certain Directives cover rights and obligations of the contracting parties regarding the execution of a contract, including poor execution and non-execution.

22. A description of the most relevant Community acts regarding contract law is given in Annex I. Annex II lists binding and non-binding international instruments relating to substantial private law issues. Annex III is a structured presentation of the acquis illustrating the extent to which legislation at Community level as well as the CISG has already dealt with issues of contract law of areas concerned by this Communication.

3.2. Implications for the Internal market

23. The Commission would like to find out if the co-existence of national contract laws in the Member states directly or indirectly obstructs to the functioning of the internal market, and if so to what extent. If such obstacles do exist, the European Institutions may be called upon to take appropriate action.

24. The EC Treaty has given the European Institutions powers to facilitate the establishment and functioning of the internal market, in particular the free movement of goods, persons, services and capital. This has allowed the European Community to significantly reduce impediments for economic actors, including manufacturers, service providers, intermediaries and consumers, to operate throughout the EC and beyond.

25. Technical developments, such as the possibilities offered by the Internet for electronic commerce, have made it easier for economic actors to conclude transactions over long distances. The introduction of the Euro as the common currency of twelve of the Member States is also an important factor in facilitating cross-border trade. However, in spite of the major successes achieved thus far, certain problems still remain. Markets are not as efficient as they could and indeed should be, to the detriment of all parties involved.

26. The exchange of goods and services, be it through sales, leasing or barter is governed by a contract. Problems in relation to agreeing, interpreting and applying contracts in cross-border trade may therefore affect the functioning of the internal market. Do existing contract law rules meet the current and future needs of businesses and consumers in the internal market, or is EC action required-

27. Generally, national contract law regimes lay down the principle of contractual freedom. Accordingly, contracting parties are free to agree their own contract terms. However, each contract is governed by the laws and court decisions of a particular state. Some of these national rules are not mandatory and contracting parties may decide either to apply these rules or to agree different terms instead. Other national rules, however, are mandatory, in particular where there is an important disparity between the positions of the contracting parties, such as contracts with tenants or consumers.

28. Normally these different national regimes do not create any problems for cross-border transactions, as parties can decide which law will govern their contract. By choosing one national law, they accept all the mandatory rules of that law, as well as those non-mandatory rules which they do not replace by different terms. However, conflicts may arise between mandatory rules of the laws in one country with contradictory mandatory rules of another national law. These conflicts between different mandatory rules may have a negative impact upon cross-border transactions.

29. Although not required by national laws, certain clauses in contracts may result from common practice in a given member state, especially if such practice has been formalised in standard contracts. It may be hard to agree a contract containing terms and conditions different from those generally applied in a particular member state. There may be important economic or even legal reasons why it is hard or even impossible for a party to agree to the terms and conditions in a standard contract that is generally used in the other party's member state. Yet, for similar reasons, it may be hard for the latter party to accept the type of terms which are common practice in the first party's member state.

30. For consumers and SMEs in particular, not knowing other contract law regimes may be a disincentive against undertaking cross-border transactions. This has been part of the rationale for some existing Community acts aimed at improving the functioning of the internal market. Suppliers of goods and services may even therefore regard offering their goods and services to consumers in other countries as economically unviable and refrain from doing so. In the field of subcontracting, the provisions covering subcontracting and supply contracts are quite different in the different Member States [14]. These differences may make it difficult for subcontractors - mostly SMEs - to make cross-border agreements.

[14] Provisions range from a specific subcontracting law in Italy and a law on payment conditions to subcontractors in France, to civil code provisions on contractual relations in most Member States (e.g. in Germany subcontracting falls under a 1976 law on the general terms of business and under a few articles of the civil code).

31. Moreover, disparate national law rules may lead to higher transaction costs, especially information and possible litigation costs for enterprises in general and SMEs and consumers in particular. Contractual parties could be forced to obtain information and legal advice on the interpretation and application of an unfamiliar foreign law. If the applicable law has been chosen in the contract, this applies to the contractual party whose law has not been chosen. It applies to a minor extent also to contracts where the parties have agreed standard contract terms in the cases where these terms do not cover all possible problems.

32. These higher transaction costs may furthermore be a competitive disadvantage, for example in a situation where a foreign supplier is competing with a supplier established in the same country as the potential client.

33. The Commission is seeking contributions on how far issues described above create problems for the internal market, and what other issues relating to contract law also obstruct the functioning of the internal market.

3.3. Uniform application of Community law

34. The European Community legislator must ensure consistency in the drafting of EC legislation as well as in its implementation and application in the Member States. The measures adopted by the European Community must be consistent with each other, interpreted in the same manner and produce the same effects in all Member States. The European Court of Justice (the ECJ) has stated that "the need for uniform application of Community law and the principle of equality require that the terms of a provision of Community law which makes no express reference to the law of the Member States for the purpose of determining its meaning and scope must normally be given an autonomous and uniform interpretation throughout the Community" [15].

[15] . Case C-357/98 The Queen v. Secretary of State for the Home Department ex parte: Nana Yaa Konadu Yiadom [2000] ECR-9265, at para. 26. Cf. also Case C-287/98 Luxemburg v. Linster [2000] ECR-6917, at para. 43; Case C-387/97 Commission v. Greece [2000] ECR-5047; Case C-327/82 Ekro v Produktschap voor Vee en Vlees [1984] ECR I - 107, at para. 11. The principle of uniform application also applies in the area of private law cf. Case C-373/97 Dionisios Diamantis v. Elliniko Dimosio (Greek State), Organismos Ikonomikis Anasinkrotisis Epikhiriseon AE (OAE) [2000] ECR I-1705, at para. 34; Case C-441/93 Pafitis and Others v. TKE and Others [1996] ECR I-1347, at para. 68 to 70.

35. In the area of contract law the European legislator has taken a 'piecemeal' approach to harmonisation. This approach combined with unforeseen market developments, could lead to inconsistencies in the application of EC law. For example, under certain circumstances [16] it is possible to apply both the doorstep selling Directive and the Timeshare Directive. Both Directives give the consumer a right of withdrawal; however the time period during which the consumer can exercise this right is different. Although such cases of conflicts between rules are exceptional, the Commission would welcome information on problems resulting from possible inconsistencies between EC rules.

[16] . Cf. Case C-423/97, Travel-Vac S.L. and Manuel José Antelm Sanchís [1999] ECR I-2195.

36. Using abstract terms in EC law can also cause problems for implementing and applying EC law and national measures in a non-uniform way. Abstract terms may represent a legal concept for which there are different rules in each national body of law [17].

[17] . These matters have recently been examined by a EP study, drafted by a team of high ranking independent legal experts. It states with regard to the example of the term "damage" that: 'The European laws governing liability do not yet have even a reasonably uniform idea of what damage is or how it can be defined, which naturally threatens to frustrate any efforts to develop European directives in this field';European Parliament, DG for Research: 'Study of the systems of private law in the EU with regard to discrimination and the creation of a European Civil Code' (PE 168.511, p. 56). Some Directives (Art. 9 of Directive 85/374/EEC, Art. 17 of Directive 86/653/EEC) contain differing definitions of the term «damage». Each definition, however, is intended solely for the purpose of each respective Directive. Other Directives (Art. 5 of Directive 90/314/EEC) use the term without defining it.

37. In general, differences between provisions in directives can be explained by differences in the problems which those directives seek to solve. One cannot, therefore, require that a term used to solve one problem is interpreted and applied in precisely the same manner in a different context. However, differences in terms and concepts that cannot be explained by differences in the problems being addressed should be eliminated.

38. In addition, domestic legislation adopted by Member States to implement EC directives refers to domestic concepts of these abstract terms. These concepts vary significantly from one Member State to another. [18] The absence of a uniform understanding in EC law of general terms and concepts at least in specific or linked areas) may lead to different results in commercial and legal practice in different Member States. [19]

[18] . This problem is highlighted by a case pending with the ECJ (C-168/00, Simone Leitner/TUI Deutschland GmbH & Co KG). On the basis of a package travel contract concluded under Austrian law with a German tour operator, the complainant seeks compensation for 'moral damages' (unrecoverable holiday spent in hospital). Austrian law does not grant compensation for this kind of damage, but the laws of Germany and some other Member States do. The complainant points at Article 5 of the Package Travel Directive, saying that this Article establishes a specific concept of 'damage' that includes 'moral damage'.

[19] . The Commission has emphasised for example in its report on the application of the Commercial Agents Directive (COM (1996) 364 final, 23.7.1996) that the application of the system of compensation for damage foreseen in the Directive concerning the same factual situation produces completely different practical results in France and the UK due to different methods of calculation for the quantum of compensation.

39. This kind of problem does not only apply to horizontal questions concerning general terms of contract law as mentioned above. It is also relevant to specific economic sectors. [20]

[20] . The problem referred to here also exists outside the contract law area. Thus in its report on the Regulation of European Securities Markets, the Committee of Wise Men led by Alexandre Lamfalussy pointed to problems resulting from the use in certain directives in the financial area of ambiguous notions, which allowed member states to apply these directives in a disparate manner. Final Report, Brussels, 15.2.2001, Annex 5 (Initial Report of 9. 11.2000).

40. The Commission is reflecting whether - in order to avoid the kind of problems described above - the necessary consistency could be ensured through the continuation of the existing approach or should be improved through other means. The Commission is therefore interested in receiving information on practical problems relating to contract law resulting from the way that EC rules are applied and implemented in the Member States.

4. Options for future EC initiatives in contract law

41. Responses to this document may show that there are impediments to the functioning of the internal market for cross border transactions. If these problems cannot be solved satisfactorily through a case-by-case approach, a horizontal measure providing for comprehensive harmonisation of contract law rules could be envisaged at EC level. However, there are of course limits on the power of the Commission and the other EC institutions to intervene in this area.

42. Any measure must be in accordance with the principles of subsidiarity and proportionality, as described in Article 5 of the EC Treaty and the protocol on subsidiarity and proportionality. As the European Parliament pointed out in its resolutions on the Better Lawmaking reports [21], the subsidiarity principle is a binding legal standard that does not rule out the legitimate exercise of the EU's competencies. The need to achieve balanced application of this principle has been highlighted by a number of Member States [22] and the European institutions.

[21] . COM (2000) 772 final, 30.11.2000, p. 3.

[22] . COM (2000) 772 final, 30.11.2000, p. 3.

43. The principle of subsidiarity serves as a guide as to how the Community powers are to be exercised at Community level. Subsidiarity is a dynamic concept and should be applied in the light of the objectives set out in the Treaty. It allows Community action within the limits of its powers to be expanded where circumstances so require, and conversely, to be restricted or discontinued where it is no longer justified [23]. There should be clear benefits to taking action at Community level instead of national level. Where the intention is to have an impact throughout the EC, Community-level action is undoubtedly the best way of ensuring homogeneous treatment within national systems and stimulating effective co-operation between the Member States.

[23] . See Protocol on the application of the principles of subsidiarity and proportionality (OJ C 340, 10.11.1997, p. 105).

44. Moreover, legislation should be effective and should not impose any excessive constraints on national, regional or local authorities or on the private sector, including civil society. The principle of proportionality, which is one of the general principles of Community law, requires that measures adopted by Community institutions do not exceed the limits of what is appropriate and necessary in order to attain the objectives legitimately pursued by the legislation in question; when there is a choice between several appropriate measures recourse must be had to the least onerous, and the disadvantages caused must not be disproportionate to the aims pursued [24]. Clearly, the Commission is duty-bound to propose whatever measures are necessary to supplement Member States' efforts to achieve the Treaty's objectives. The Commission follows two criteria designed to guarantee that fixed objectives are complied with in both political and legal terms: the ability of national and regional authorities, and of civil society, to act to achieve the objectives laid down in a Community provision; and the compatibility or conformity of these objectives with national or sectoral practices [25].

[24] . Case C-331/88 Fedesa [1990] ECR-4023 at para. 13; Case c-133/93, C-300/93 and C-362/93 Crispoltoni [1994] ECR-4863 at para. 41; Case C-157/96 The Queen v Ministry of Agriculture, Fisheries and Food, Commissioners of Customs & Excise, ex parte : National Farmers' Union [1998] ECR-2236 at para. 60.

[25] . COM (2000) 772 final, 30.11.2000, p. 8 - 9.

45. Preparing legislative proposals by way of communications and green and white papers is one way of consulting the private sector, civil society and institutions at all levels on the expediency, level and content of legislative instruments in order to achieve these objectives. Additionally, the Commission will seek to identify areas of intervention by involving both civil society and business with a view to producing legislative instruments geared to users' real needs. This Communication and possible further documents are intended to determine whether EC action is needed and if so in which areas.

46. There are a number of options that can be considered should the case-by case approach not fully solve the problem. This Communication briefly examines four possible scenarios:

I. no EC action;

II. promote the development of common contract law principles leading to more convergence of national laws;

III. improve the quality of legislation already in place;

IV. adopt new comprehensive legislation at EC level.

47. There are other options beyond these, and these options could also be combined. These options may cover the field of contract law or other fields within private law. Each option could be used for specific economic sectors or apply horizontally. The binding character of a measure would depend on the area to which the measure applied and all the interests at stake. However, as a matter of principle, all options should allow contracting parties the freedom they need to conclude the contract terms best suited to their specific needs.

48. Another approach, which is not discussed here as it goes beyond the level of a European initiative, could be the negotiation of an international treaty in the area of contract law. This would be comparable to the CISG but with a broader scope than purely the sale of goods. However, the provisions of the CISG could also be integrated into options II and IV which would increase their acceptance in commercial and legal practice.

4.1. Option I: No EC action

49. In many cases the market creates problems of public concern, but it also develops its own solutions. The effectiveness of the market in responding to different social values and to public opinion should not be underestimated. As a result of competitive behaviour, many of the problems created by the market may be solved automatically by the pressure exercised by the interest groups involved (consumers, NGOs, enterprises). Public authorities can enhance this coincidence of self-interest and public interest.

50. Different incentives by Member States and trade associations e.g. offering assistance and advice on cross border transactions can efficiently channel the market in a specific direction (for example speed up the use of new technologies or encourage new types of commercial practices). These could compensate for economic and psychological risks of cross-border trade activity, whether these risks are perceived or real. Different services from economic operators can efficiently overcome problems of cross border transactions that have been identified. For example, trade associations could offer assistance or advice to SMEs. [26]

[26] . Below are two examples of national/industry associations' initiatives that aim at providing a solution for cross-border contractual problems through voluntary agreements on cross-border model contracts: -In 1999 a group of six German industry federations, the so-called working group of the components supply industry, agreed on a set of minimum clauses for cross-border contracts. However, this model applies to cross-border contracts ruled exclusively by German law (the contractual parties must agree to rule the cross-border contract in question under German law) and includes provisions on prices, confidentiality, moulds, equipment, industrial property rights, guarantee, liability, product damage, etc. - Also ORGALIME (European group of the mechanical, electrical, electronic and metalworking industries) issued a model for international "consortium agreement" to foster cross-border inter-enterprise co-operation.

51. Economic developments, in particular the increasing integration of markets into a genuine internal market, also create incentives for national policymakers and legislators to look for solutions to problems with contracts involving parties in other Member States. This could result in a certain degree of "soft harmonisation" - not driven by binding EC rules, but coming about as a result of economic developments. This could solve some of the problems for intra-community trade, provided that there is a genuine and fair free choice of law for contracting parties, full, correct and freely available information about the existing rules and practices and fair and affordable alternative dispute resolution mechanisms.

4.2. Option II: Promote the development of common contract law principles leading to more convergence of national laws

52. In order to achieve more convergence of national contract laws, one solution would be for the Commission to promote comparative law research and co-operation between - amongst others - academics and legal practitioners (including judges and experts) . This co-operation could aim to find common principles in relevant areas of national contract law. The existing work in this area could be used and developed, including the results of academic studies and conclusions drawn in international academic forums. The framework for this research and co-operation could be a kind of partnership, in which the EC institutions - and more particularly the Commission - could play a co-ordination role. In the field of trans-national contracts, some common solutions, principles or even sets of rules could be defined.

53. The outcome of these discussions could vary from common principles to the drafting of guidelines or specific codes of conduct for certain types of contracts. The common principles could be useful for contractual parties at the drafting stage of new contracts, as well as for the execution of contracts. They could also be useful for national courts and arbitrators who have to decide legal issues - especially concerning cross-border cases - which are not fully covered by binding national rules or where no legislative rules exist at all. The courts or arbitrators would know that the principles they were applying represented the solution common to all the national contract law systems in the EU. At the same time common principles could help national courts which have to apply foreign law to have a basic understanding of the underlying general principles of law. The guidelines could be followed as much as possible by Member States or the EC when issuing new legislation or adapting old legislation in the area of contract national law.

54. The application of common principles could even lead to the creation of customary law provided that there is a long and continued application and a commonly shared conviction. This might influence or even change existing commercial practice in the Member States that could create impediments to the full functioning of the internal market.

55. Once those common principles or guidelines were established and agreed upon by all interested parties in the Member States, broad dissemination should be ensured amongst those who would be supposed to apply them. This would ensure coherent and uniform application of the common principles or guidelines. These common principles or guidelines could however only be applied on a voluntary basis. If this were indeed done continuously by a sufficiently large number of legal practitioners as well as EC and national legislators, this would bring about greater convergence in the area of European contract law. However, for this option to be meaningful, it is clear that the common principles should be defined in such a way as to meet all legitimate requirements.

56. Another solution could concern standard contracts. In order to facilitate economic transactions a large number of standard contracts are in use in all Member States. Such standard contracts spare parties the need to negotiate the contract-terms for every single transaction. They also provide a degree of certainty to parties and obtain almost semi-regulatory status. It is precisely for this reason that it is often difficult to agree a contract with a party in another Member State which does not comply with the standard contract terms that the other party is used to. Parties from different Member States may indeed be used to different terms which are in standard use in their respective states. These problems could be solved, in conformity with Community law, if standard contracts were developed for use throughout the EC. The Commission could promote the development of such standard contracts by interested parties.

4.3. Option III: Improve the quality of legislation already in place

57. The Lisbon European Council has asked the Commission, the Council and the Member States "to set out by 2001 a strategy for further co-ordinated action to simplify the regulatory environment". Answering to this request, the Commission has given an initial response through an Interim Report to the Stockholm European Council [27] which takes stock of the situation and sets out the Commission's initial thoughts on putting the Lisbon mandate into practice.

[27] . Interim Report from the Commission to the Stockholm European Council «Improving and simplifying the regulatory environment» - COM (2001) 130, 7.3.2001.

58. Improving the quality of legislation already in place implies first modernising existing instruments. The Commission intends to build on action already undertaken on consolidating, codifying and recasting [28] existing instruments centred on transparency and clarity. Quality of drafting could also be reviewed; presentation and terminology could become more coherent. Apart from those changes regarding the presentation of legal texts, efforts should moreover be systematically focused on simplifying and clarifying the content of existing legislation [29]. Finally, the Commission will evaluate the effects of Community legislation and will amend existing acts if necessary [30].

[28] . Cf. Interim Report, - COM (2001) 130, 7.3.2001, p. 10.

[29] . Cf. Interim Report, - COM (2001) 130 , 7.3.2001, p.10.

[30] . Cf. Interim Report, - COM (2001) 130, 7.3.2001, p. 9.

59. Where appropriate, directives could be subject to simplification of their provisions. In fact, for several years now, the EC has been pursuing a policy of simplifying Community legislation. The SLIM initiative [31] (simpler legislation for the internal market) remains one of the most ambitious examples of the ongoing simplification work. Simplification exercises [32] could be used to improve the quality, reduce the volume of existing regulatory instruments, and, at the same time remedy possible inconsistencies or even contradictions between legal instruments.

[31] . The SLIM (Simpler Legislation for the Internal Market) pilot project - This project was introduced in 1996 as an initiative for improving the quality of Internal Market legislation, for counteracting superfluous legislation and for limiting the costs associated with implementing. SLIM attempts to focus attention on specific issues and is not meant to advocate deregulation. The work is extremely targeted, in order to be run in a limited period of time, and focused on making precise recommendations.

[32] .* The BEST (Business Environment Simplification Task Force) - In 1997 the Commission also set up the Business Environment Simplification Task Force (BEST). This task force submitted a report containing 19 recommendations in 1998. These focused on the business environments in the Member States in a wide variety of fields.

60. Moreover, a further improvement would be to adapt the substance of existing legal instruments where necessary [33] before adopting new ones. For instance, the scope of application of various directives should be extended if necessary and if appropriate to those contracts or transactions which have many similar features with those covered by the directive but, for various reasons, were in not included in the scope of application of the directive at the moment of its adoption. This would ensure greater coherence within a well-defined sector of activities or type of transactions [34]. Along the same lines, reasons why different solutions are given to similar problems in the context of different directives should be re-examined.

[33] . The above-mentioned 'Study of the systems of private law in the EU with regard to discrimination and the creation of a European Civil Code', launched by the European Parliament states in general terms that 'The existing rules enshrined in the agreements and directives need to be systematically gone over with a fine-tooth comb, incorporated into national law where necessary, supplemented in content and refined in form. They must be co-ordinated and dovetailed with each other, cleansed of all redundant regulation, inconsistency and terminological insularity, so that they can ultimately be fitted into a systematically coherent structure, into the 'overall picture' of a codified system.'

[34] . A limited scope of application is typical for many directives (e.g.: Directives 85/577 on Doorstep Selling : not covered are insurance contracts, contracts on real estate, construction, ... ; 97/7 on Distance Contracts: not covered are contracts on real estate, construction,... ; 94/47 on Timesharing Contracts: covered are only contracts with a minimum term of 3 years, Directive 2000/35/EC on combatting late payment in commercial transactions: transactions with consumers are not covered.

4.4. Option IV: Adopt new comprehensive legislation at EC level

61. Another option would be an overall text comprising provisions on general questions of contract law as well as specific contracts. For this option, the choice of instrument and the binding nature of the measures need to be discussed.

62. The choice of instrument depends on a number of factors, including the degree of harmonisation envisaged.

63. A Directive would, on one hand, give Member States a certain degree of flexibility to adapt the respective provisions of the implementation law to their specific national economic and legal situation. On the other hand, it may allow differences in implementation which could constitute obstacles to the functioning of the internal market.

64. A Regulation would give the Member States less flexibility for its integration into the national legal systems, but on the other hand it would ensure more transparent and uniform conditions for economic operators in the internal market.

65. A Recommendation could only be envisaged if a purely optional model is chosen.

66. Concerning the binding nature of the measures to be proposed, the following approaches, which can also be combined, are:

a) A purely optional model which has to be chosen by the parties. An example would be a Recommendation [35] or a Regulation [36] which applied when the parties agree that their contract was to be governed by it.

[35] . Cf. for example Article 1 :101 (2) of the Principles of European Contract Law (see footnote 1, p. 2).

[36] . An example could be the "Council Regulation on the Statute for a European Company (SE)" on which the Council adopted a political orientation on 20 December 2000 (Council document 14.886-00, 1.2.2001).

b) A set of rules which would apply unless their application were excluded within the contract. This kind of legislation already exists in the context of the late payments directive [37] or in the CISG [38]. This approach would create fall-back provisions where the contracting parties are free to agree on other solutions by way of contract, i.e. the application of a co-existing national law or contract-specific solutions. It would ensure that contractual parties keep complete contractual freedom to define the content of the contract. At the same time it would represent a "safety net" which would only apply if no specific contractual provisions were in place.

[37] . Article 3(1)(b) of Directive 2000/35/EC provides for specific criteria for defining the date as of which interest shall become payable, if the date or period for payment is not fixed in the contract (30 days following the date of receipt by the debtor of the invoice or 30 days after the date of receipt of the goods or services). Article 3(1)(d) provides for a "statutory interest rate" to be paid, unless otherwise specified in the contract.

[38] . Cf. Article 6 CISG.

c) A set of rules whose application cannot be excluded by the contract.

67. The third approach would replace existing national law, while the first would co-exist with national law. The second approach could co-exist with national law or replace it.

68. Each applicable set of rules could distinguish between mandatory and non-mandatory rules.

69. A combination of the above-mentioned second and third option could, for instance, be envisaged in areas of law like consumer protection where, besides a general and automatically applicable set of fall-back provisions, some mandatory provisions which cannot be waived by the contracting parties still apply.

4.5. Any other option

70. As indicated above, the list of options is not exhaustive but only indicative. Therefore, the Commission welcomes any other suggestions for efficient and effective solutions to the problems identified.

5. Conclusions

71. The purpose of this Communication is to initiate an open, wide-ranging and detailed debate with the participation of the institutions of the European Community as well as of the general public, including businesses, consumer associations, academics and legal practitioners. In the light of the feedback received, the Commission will, within its right of initiative, decide on further measures.

72. In particular the Commission would like to have views on problems for the functioning of the internal market resulting from the co-existence of different national contract laws. To be the most useful, such information should be as specific as possible. Ideally, it should include concrete examples of cases in which differences between the contract laws of the Member States have made intra-community trade more onerous or even impossible for manufacturers, service providers, traders or consumers. This may include cases in which sellers, businesses or consumers have incurred substantial additional costs as a result of differing legal requirements in Member States.

73. Moreover, the Commission is keen to receive feedback on which of the possible options explained in part D (or other possible solutions) would be the most appropriate in order to solve the problems identified in the present Communication.

All parties that wish to contribute to the debate are requested to send their contribution - by 15 October 2001. These contributions should be sent if possible in electronic form to European-Contract-Law@cec.eu.int, or otherwise in writing to the European Commission, Rue de la Loi 200, 1040 Brussels. Each contribution should be marked "Communication on European Contract Law". In order to stimulate a real debate on the issue, the Commission has published this Communication on the Commission's Europa website under http://europa.eu.int/comm/off/green/index_en.htm. Incoming contributions will be published on the same website if senders request.

ANNEX I IMPORTANT COMMUNITY ACQUIS IN THE AREA OF PRIVATE LAW

General Remarks

The purpose of the following non-exhaustive presentation is to describe the acquis communautaire that is relevant to private law, in particular to contract law. The objectives of some directives are clearly aimed towards the harmonisation of national contractual rules. Other directives have a more indirect effect on these rules.

1. Consumer Contract Law

General comments

This section shows that among the lacunas relating to EC Directives concerning contract law there is an absence of any reference to the formation of a contract and the sanctions that will apply in case of the non-adherence to obligations in the Directives concerning pre-contractual information.

1.1. Sale of consumer goods and associated guarantees

Directive 1999/44/EC of the European Parliament and of the Council of 25 May 1999 on certain aspects of the sale of consumer goods and associated guarantees

Objective

Ensure consumer protection and strengthen consumer confidence in cross-border shopping by laying down a common set of minimum rules valid no matter where the goods are purchased.

Content

Directive 1999/44/EC harmonises the notion of lack of conformity of consumer goods with the contract, the consumers' rights in the case that the consumer buys a defective product and the conditions under which the consumer can exercise these rights. Consumer goods are defined, with exceptions, as any tangible movable item (Article 1(2)(b)). These must be in conformity with the contract of sale (Article 2(1)). Article 2(2) contains presumptions when consumer goods are deemed to be in conformity with the contract.

The seller is liable to the consumer for any lack of conformity that exists when the goods are delivered to the consumer that become apparent within a period of two years (Article 5(1)), unless at the moment of conclusion of the contract of sale the consumer knew or could not reasonably be unaware of the lack of conformity (Article 2(3)). Any lack of conformity becoming apparent within six months of delivery will be presumed to have existed at the time of delivery, unless proof to the contrary is furnished or this presumption is incompatible with the nature of the goods or the nature of the lack of conformity (Article 5(3)).

Upon a lack of conformity notified to the seller, the consumer is entitled to ask for the goods to be repaired or replaced free of charge within a reasonable period and without considerable inconvenience to the consumer (Article 3(2)). If repair or replacement is impossible or disproportionate, or if the seller has not remedied the lack of conformity within a reasonable period of time or without major inconvenience to the consumer, the consumer may ask for an appropriate reduction to be made to the price (Article 3(5)). Alternatively, where the lack of conformity is not minor, the consumer may request that the contract be rescinded (Article 3(6)).

When the final seller is liable to the consumer because of a lack of conformity the final seller will be entitled to pursue remedies against the person responsible, under the terms of national law. The lack of conformity, however, must result from an act of commission or omission by the producer, a previous seller in the same chain of contracts or any other intermediary (Article 4).

Any guarantee [39] will be binding as per the terms set down in the guarantee, written contract or the associated advertising (Article 6(1)). Further, the guarantee must feature in a written document, freely available for consultation before purchase showing in particular the duration and territorial scope of the guarantee, and the name and address of the guarantor (Article 6(2) and 6(3)). Where such a guarantee is offered and it does not conform to the provisions contained in the Directive the consumer may still require the guarantee to be honoured (Article 6(5)). Contractual terms or agreements waiving or restricting the rights resulting from the Directive are not binding on the consumer (Article 7(1)).

[39] Any additional undertaking given by a seller or producer over and above the legal rules governing the sale of consumer goods offered by the seller or producer.

1.2. Unfair terms in consumer contracts

Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts

Objective

To eliminate unfair terms from contracts drawn up between a professional and a consumer.

Content

Directive 93/13/EEC applies to non-mandatory, non-negotiated contractual terms incorporated in contracts drawn up between a professional and a consumer (Article 1). A non-negotiated term is unfair when it establishes a significant imbalance, to the consumer's detriment, between the rights and obligations of the contracting parties (a list of unfair terms is annexed to the Directive) (Article 3). An allegedly unfair contractual term is assessed in the light of the nature of the goods or services covered by the contract, the circumstances in which the contract is drawn up and other terms in the contract or in another contract to which it relates (Article 4). Where there is doubt as to the meaning of a term, the interpretation most favourable to the customer will prevail (Article 5). In all cases, such contractual terms found to be unfair will not bind the consumer (Article 6).

1.3. Package travel, package holidays and package tours

Council Directive 90/314/EEC of 13 June 1990 on package travel, package holidays and package tours

Objective

To approximate the laws, regulations and administrative provisions of the Member States concerning package travel, package holidays and package tours sold or offered for sale in the territory of the Community.

Content

Directive 90/314/EEC applies to the sale of a pre-arranged combination of transport, accommodation and or other tourist services not ancillary to transport or accommodation and accounting for a significant proportion of the package. For the Directive to be applicable it is necessary that two or more of these elements are sold or offered for sale at an inclusive price and the service covers a period of more than twenty-four hours or includes over-night accommodation.

Any brochure made available to the consumer must indicate clearly and accurately the price, destination, itinerary and the means of transport used, type of accommodation, meal plan, passport and visa requirements, health formalities, timetable for payment and the deadline for informing the consumer in the event of cancellation (Article 3). Information contained in the brochure becomes part of the contract (Article 3). Further, before conclusion of a contract the organiser is required to provide, in writing, certain information regarding passports, visas (periods for obtaining them) and health formalities (Article 4).

The organiser of the package must supply in writing the times and places of intermediate stops, details of the place to be occupied by the traveller, the name address and telephone number of the organiser's local representative or, failing that, an emergency telephone number. There are additional details that must be provided where the journey is to involve the transport of a minor as well as information on optional contracts covering insurance or assistance (Article 4(1)). The consumer may transfer his / her booking to another person (Article 4 (3)).

The price stipulated in the contract may only be changed if this is expressly provided for in the contract and variations in price may only reflect changes in exchange rates, transportation costs, taxes or fees chargeable(Article 4(4)). Significant alterations to the contract entitle the consumer to withdraw from the contract without penalty and, should the consumer withdraw, he is entitled to reimbursement of the sums paid (Article 4(6)). The organiser is responsible for the failure to perform or the improper performance of the contract and, where appropriate, the consumer is entitled to compensation for the non-performance of the contract (Article 4(7)).

Member States shall take the necessary steps to ensure that the organiser and/or retailer party to the contract is liable to the consumer for the proper performance of the obligations arising from the contract. The organiser and/or retailer is/are liable for any damage arising from failure to perform or improper performance provided that failure to perform or improper performance is attributable to fault of theirs or another supplier of services. The quantum of damage may be limited in accordance with the international conventions. Where damage results that is not of the nature of personal injury a reasonable contractual limitation can be placed on the quantum of compensation for this damage (Article 5).

The consumer must communicate any failure in the performance of a contract which he perceives on the spot to the supplier of the services concerned and to the organiser and/or retailer in writing or any other appropriate form at the earliest opportunity. This obligation must clearly and explicitly stated in the contract (Article 5). In cases of complaint, the organizer and/or retailer or his local representative, if there is one, must make prompt efforts to find appropriate solutions (Article 6).

1.4. Contracts negotiated away from business premises

Council Directive 85/577/EEC of 20 December 1985 to protect the consumer in respect of contracts negotiated away from business premises

Objective

To protect consumers against dishonest business practices in connection with contracts negotiated away from business premises.

Content

Directive 85/577/EEC applies to contracts, involving a payment of over EUR60 (Article 3), entered into between a trader and a consumer during an excursion organised by the trader away from his business premises. The Directive is also applicable to contracts entered into during a visit by a trader to a consumer's home or place of work. Provided the visit does not take place at the express wish of the consumer or, where the consumer requested the visit, the consumer could not have known the extent of the trader's commercial activities the Directive is applicable. Finally, the Directive also applies to contracts in respect of which the consumer makes a contractual or non-contractual offer to receive a visit from or take part in an excursion organised by a trader (Article 1). The trader is required to inform consumers in writing about their right to cancel the contract (Article 4). Once informed, consumers have seven days within which to exercise this right of cancellation (Article 5).

1.5. Consumer credit

Council Directive 87/102/EEC of 22 December 1986 for the approximation of the laws, regulations and administrative provisions of the Member States concerning consumer credit as modified by Directive 90/88/EEC and 98/7/EEC

Objective

To harmonise the rules governing consumer credit while ensuring a high level of consumer protection.

Content

Directive 87/102/EEC applies to credit agreements whereby a creditor grants a consumer credit in the form of a delayed payment, a loan or a similar financial arrangement (Article 1). Credit agreements are to be made in writing incorporating the essential terms of the contract including a statement of the annual percentage rate of charge and the conditions under which this may be amended (Article 4).

When credit is advanced on a current account other than on credit card accounts, the consumer has only to be informed of certain matters in writing at or before the time the agreement is concluded. In particular, the consumer must be informed of the credit limit (if there is one), the annual rate of interest and charges applicable and any changes thereof and the procedure for terminating the agreement (Article 6). Where there is a consumer credit agreement granted for the acquisition of goods with a right of repossession granted to the creditor, Member States must lay down the conditions under which the goods may be repossessed and ensure there is no unjustified enrichment (Article 7).

Under a consumer agreement, where a consumer has discharged his or her obligations before the due date, the consumer is entitled to an equitable reduction in the cost of the credit (Article 8). Consumer rights are to remain unaffected by any assignation to a third party (Article 9). The Member State must also ensure further consumer safeguards. These safeguards include protection if the consumer uses bills of exchange, promissory notes and cheques for making payments or giving securities (Article 10). Also, under certain conditions, there is a right of redress against the grantor of credit when the consumer has purchased goods or services under a credit agreement from a person other than the creditor and the goods or service are not supplied or are not in conformity with the contract. This right is in particular available only if the consumer has sought redress against the supplier but failed to obtain satisfaction (Article 11).

1.6. Distance contracts

Directive 97/7/EC of the European Parliament and of the Council of 20 May 1997 on the protection of consumers in respect of distance contracts

Objective

To approximate the laws, regulations and administrative provisions of the Member States concerning distance contracts between consumers and suppliers by laying down a common set of minimum rules.

Content

Directive 97/7/EC applies to any contract ('distance contract') concerning goods or services concluded between a supplier and a consumer under an organised distance sales or service-provision scheme run by the supplier. For Directive 97/7/EC to be applicable, the supplier, for the purpose of the contract, must make exclusive use of one or more means of distance communication up to and including the moment at which the contract is concluded (Article 2(1)).

Prior to the conclusion of a distance contract, the consumer must be provided with clear and comprehensible information, complying with the principles of good faith in commercial transactions. In particular, this information must state: The identity and, possibly, the address of the supplier; the characteristics of the goods or services and their price; delivery costs; the arrangements for payment and delivery or performance; the existence of the right of withdrawal; the period for which the offer or the price remains valid and the minimum duration of the contract, where applicable, the cost of using the means of distance communication. Where dealings are by telephone, the identity of the caller and commercial purpose of the call must be made clear at the beginning (Article 4).

The consumer must receive written confirmation or confirmation in another durable medium (electronic mail) at the time of performance of the contract. The following information must also be given in writing: arrangements for the exercise of the right of withdrawal; the place to which consumer complaints are to be addressed; information relating to after-sales service; conditions under which the contract may be rescinded (Article 5).

The consumer has the right of withdrawal with regard to most distance contracts. Where the supplier has met his obligations relating to the provision of information, the consumer has at least seven working days to cancel the contract without penalty. Where the supplier has failed to meet his obligations concerning information, this period is extended to three months (Article 6(1)). The supplier is obliged to repay the amounts paid by the consumer within thirty days after the exercise of the right of withdrawal (Article 6(2)).

In principle, the supplier has thirty days in which to perform the contract (Article 7(1)). Where the supplier fails to perform his side of the contract, the consumer must be informed and any sums paid refunded (Article 7(2)). In some cases it is possible to supply substitute goods and services. Member States shall ensure that appropriate measures exist to allow a consumer to request cancellation of a payment where fraudulent use has been made of his payment card in connection with distance contracts covered by this Directive 97/7/EC. In the event of fraudulent use of a payment card, the consumer is to be credited with the sums paid or have them returned (Article 8).

Where unsolicited goods are supplied, the consumer's failure to reply does not constitute consent (Article 9). The use of an automatic calling machine or facsimile machine by a supplier to communicate with a consumer requires the prior consent of the consumer. Other means of distance communication that allows individual communication may be used only where there is no clear objection from the consumer (Article 10).

Public bodies, consumer and professional organisations may take action before the courts or competent administrative bodies in the event of disputes. (Article 11).

1.7. Timeshare immovable property

Directive 94/47/EC of the European Parliament and the Council of 26 October 1994 on the protection of purchasers in respect of certain aspects of contracts relating to the purchase of the right to use immovable properties on a timeshare basis

Objective

To approximate laws, regulations and administrative provisions of the Member States on the protection of persons who purchase the right to use immovable property on a timeshare basis.

Content

Directive 94/47/EC covers aspects relating to information on the constituent parts of the contract relating to the right to use immovable property on a timeshare basis and the procedures for cancelling and withdrawing from such contracts (Article 1). On request, the vendor is required to supply a document containing a general description of the property. Also certain minimum items referred to in the Annex to the Directive (identity and domicile of the parties concerned, number of the building permit etc), along with details of how to obtain further information, should this be required, is to be supplied in the same document. This information forms an integral part of the contract (Article 3).

The purchaser has a right of withdrawal. This may be done within ten days of signing the contract without giving any reason with the effect of the cancellation of the contract (Article 5(1)). Only those expenses incurred as a result of the conclusion of and withdrawal from the contract are liable to be repaid (Article 5(3)). The purchaser's right of cancellation may be exercised within three months of signing the contract if the information required by the Directive is not included. In this eventuality the purchaser is not required to make any repayment (Article 5(1)). Any clauses incorporated in to the contract that are contrary to the rights of the purchaser and/or the responsibilities of the vendor under the Directive will not be binding on the purchaser (Article 8).

1.8. Distance marketing of consumer financial services

Proposal for a Directive concerning the distance marketing of consumer financial services, and amending Council Directives 90/619/EEC, 97/7/EC and 98/27/EC [40]

[40] As at 5th December 2000, this proposal is awaiting a Council common position following a first reading in the European Parliament where modifications were made to the original proposal.

Objective

To establish a harmonised and appropriate legal framework for distance contracts, pertaining to financial services while ensuring an appropriate level of consumer protection.

Content

This proposal for a Directive aims to establish common rules to govern the conditions under which distance contracts for financial services are concluded. The proposal covers contracts for retail financial services negotiated at a distance by any means that does not require the simultaneous physical presence of the parties to the contract.

By the proposal there is a duty to provide information to the consumer prior to the conclusion of the contract. The supplier is required to transmit a draft contract to the consumer, in writing or other durable form, provided that the consumer gives his consent to the transmission. The draft contract is to include all the contractual terms and conditions, together with a summary of them.

The proposal refers to the entitlement to a reflection period for the consumer prior to the conclusion of a contract and the right of withdrawal with some exemptions, together with the obligation of payment for services rendered provided these are rendered before the consumer exercises the right of withdrawal.

Payments made by electronic means can be cancelled if fraudulent use is made of such means and limits are placed on certain means of distance communication.

2. Systems of Payment

2.1. Late payments in commercial transactions

Directive 2000/35/EC of the European Parliament and of the Council of 29 June 2000 on combating late payment in commercial transactions

Objective

To combat late payments made as remuneration in commercial transactions within the European Union, whether the delays in payment are between enterprises or between the public sector and an enterprise.

Content

Directive 2000/35/EC contains a wide range of measures to combat late payments in commercial transactions within the European Union. The Directive applies to all payments made as remuneration for commercial transactions (Article 1). These measures apply to all delays in payment between enterprises and between the public sector and enterprises (Article 2(1)).

In addition the Directive lays down a legal framework to discourage late payments. In particular, Member States shall ensure that interest shall become payable from the day following the date or the end of the period for payment set down in the contract. If the date or period for payment is not fixed in the contract, interest shall become payable automatically, without the necessity of a reminder, 30 days following the date of receipt by the debtor of the invoice or an equivalent request for payment. Where there is a procedure of acceptance or verification by which conformity of the goods or services with the contract is to be ascertained, interest shall become payable 30 days after the date of the procedure. If the debtor receives an invoice or an equivalent request for payment earlier or on the date on which such acceptance or verification takes place, time runs from the later date. The interest rate charged for late payments shall be that applied by the European Central Bank plus a margin of seven percent at least (Article 3).

Member States shall also provide in conformity with the applicable national provisions that the seller retains title to goods until they are fully paid, if a retention of title clause has been expressly agreed between the buyer and the seller before the delivery of the goods (Article 4). Member States are also to provide that, where the debt is not in dispute, an enforceable title can be obtained irrespective of the amount of the debt, usually within 90 calendar days of the lodging of the creditor's action or application at the court or other competent authority (Article 5).

2.2. Cross-border credit transfers

Directive 97/5/EC of the European Parliament and of the Council of 27 January 1997 on cross-border credit transfers

Objective

To establish minimum information and performance requirements for cross-border credit transfers up to EUR50.000, effected in the currencies of the Member States and in Euro within the European Union and the European Economic Area and carried out on the initiative of an originator. The overriding purpose of Directive 97/5/EC is to enable funds to be transferred from one part of the Community to another rapidly, reliably and inexpensively. "Debit transfers" and payments by cheques are not under the scope of Directive 97/5/EC.

Content

1) Obligation of Transparency vis-à-vis the Customer (Art. 3 and 4)

Before carrying out a cross-border credit transfer, institutions must provide general information on the arrangement of such a transfer. In particular, the execution time, the method of calculating any commission fees and charges payable by the customer to the institution, the value date applied by the institution, details of complaint and redress procedures, the reference exchange rates used.

After a cross-border credit transfer has been carried out, institutions must provide information consisting of a reference enabling the customer to identify the transfer, the actual (original) amount of the transfer, the amount of any charges or commissions payable by the customer and the value date applied by the institution.

If the originator has specified that the transfer charges are to be completely borne by the beneficiary or that the charges shall be shared with the beneficiary, the latter must be informed of this by his own institution.

2) Minimum standards for the transfer

In cases of cross-border credit transfers with stated specifications, the institution must - at the customers request - either give an undertaking concerning the time needed for carrying out the transfer and the commission fees and charges, or refrain from accepting to carry out the transfer (Article 5).

The transfer must be effected within the agreed time limit. If this agreed time limit is not complied with rules providing for compensation have been included in the Directive. No compensation is to be paid if the beneficiary's institution can establish that the delay is attributable to the originator or to the beneficiary (Article 6).

The originator's institution, any intermediary institution and the beneficiary's institution, after the date of acceptance of the cross-border credit transfer order, shall each be obliged to execute that credit transfer for the full amount thereof. This is the case unless the originator specifies that the costs of the cross-border credit transfer are to be borne wholly or partly by the beneficiary. Wrongful deductions by the originator's or the beneficiary's institution or any intermediary institution must be refunded (Article 7).

In cases where an originator's institution accepts a transfer order but the relevant amount is not credited to the account of the beneficiary's institution the "money-back guarantee" of up to EUR 12.500 plus interest and charges applies (Article 8).

2.3. Settlement finality in payment and securities settlement systems

Directive 98/26/EC of the European Parliament and of the Council of 19 May 1998 on settlement finality in payment and securities settlement systems

Objective

To reduce the systemic risk inherent in payment and securities settlement systems and to minimise the disruption caused by the insolvency of a participant in such a system. Directive 98/26/EC was created to deal with the legal problems specifically linked to insolvency situations and bankruptcy (i.e. rights of foreign creditors) and to protect the development of a single monetary policy in the European Monetary Union (EMU) by promoting the efficiency of cross-border operations.

Content

Directive 98/26/EC protects 'netting [41]' in securities settlement systems, insulates collateral given to the operators of these systems from the effect of bankruptcy and clarifies the law applicable to dispositions of collateral evidenced by recording in a register, so-called 'book-entry securities'. Settlement systems for securities are also protected by a general clause against the insolvency of a participant in a system (Article 1 and Article 2). The law governing rights and obligations arising from participation in a securities settlement system is the law applicable to that system (Article 3(3)). The Directive also covers collateral security provided in connection with operations of the central banks of the Member States in the performance of their central banking functions (including national monetary policy) (Article 4).

[41] The conversion into one net claim or one net obligation of claims and obligations resulting from transfer orders which a participant or participants either issue to, or receive from, one or more other participants with the result that only a net claim can be demanded or a net obligation be owed (Directive 98/26/EC, Article 2(k)).

3. Commercial Agents

Council Directive 86/653/EEC of 18 December 1986 on the co-ordination of the laws of the Member States relating to self-employed commercial agents

Objective

Directive 86/653/EEC co-ordinates national laws governing the legal relationships of self-employed commercial agents and their principals. An objective of social protection for commercial agents is pursued by the Directive, which sets minimum levels of harmonisation in this area. The provisions of the Directive cannot be derogated from to the detriment of a commercial agent. Agreements leading to a contract more favourable to the commercial agent are permitted. The Directive also lays down provisions concerning the remuneration of the agent and the right to indemnity or reparation where the agent suffers harm by the cessation of the contract.

Content

1) Scope of application:

Directive 86/653/EEC applies to contracts for goods (and not services) made between a self-employed intermediary (the commercial agent) and the principal. The commercial agent must have the continuing authority to negotiate the sale or the purchase of goods on behalf of and in the name of another person (the principal) or to negotiate and conclude such transactions on behalf of and in the name of that principal in return for payment.

Under the Directive the notion of a commercial agent has independence from the principal at its core, therefore excluding salaried commercial intermediaries and representatives of the principal from the scope of application of the Directive (Article 1). Certain further categories of commercial agents are also excluded from the scope of the Directive (Article 2).

2) Obligations imposed on parties to the contract (Articles 3-5)

Directive 86/653/EEC imposes a non-excludable obligation on a commercial agent to look after his principal's interests and act dutifully and in good faith. The duty includes the obligation on the agent to make proper efforts to negotiate and, where appropriate, conclude the transactions upon which he has received instructions. The agent must also communicate to the principal all the necessary available information and comply with the reasonable instructions given by principals.

The principal has a reciprocal non-excludable obligation to act dutifully and in good faith. In particular, to provide the commercial agent with necessary documentation relating to the goods concerned. Th principal must also obtain for the commercial agent the information necessary for the performance of the agency contract, in particular notification once the principal anticipates that the volume of commercial transactions will be significantly lower than that which could have been normally expected.

3) Remuneration for the Commercial Agent (Articles 6-12)

In the absence of an agreement to the contrary made between the parties and without prejudice to the application of compulsory provisions of the Member States, a commercial agent shall be entitled to the remuneration that is customary for commercial agents in the market upon which the agent is operating. Where there is no commercial customary practice, the commercial agent shall be entitled to reasonable remuneration taking into account all the aspects of the transaction (Article 6).

Where the commercial agent is remunerated wholly or in part by commission a commercial agent shall be entitled to commission on transactions concluded during the period covered by the agency contract. The commission arrangement envisaged under the Directive is as follows:

(1) The agent is entrusted with a specific geographical area or group of customers or alternatively, where the agent has an exclusive right to a specific geographical area or group of customers, and

(2) The transaction has been entered into with a customer belonging to that area or group (Article 7).

The entitlement to a commission on commercial transactions continues after the agency contract has been terminated (Article 8), provided the payment of the commission is equitable in the circumstances (Article 9). The commission becomes due once the transaction has been executed and should not be paid any later than on the last day of the month following the quarter in which it became due (Article 10).

The principal shall supply the commercial agent with a statement of the commission due within a set time period. The agent is entitled to demand that he be provided with all information that is available to the principal that is needed to check the amount of commission due to him (Article 12).

4) Form, duration and termination of the contract (Articles 13-20)

Directive 86/653/EEC leaves open the possibility of concluding an agency contract in verbal or written form, it is left to the Member States to determine whether an agency contract shall be valid if not evidenced in writing. Regardless of this, each party is entitled to receive from the other, on request, a signed written document setting out the terms of the agency contract (Article 13).

A fixed term agency contract that continues to be performed beyond its agreed duration shall be converted into an agency contract for an indefinite period (Article 14).

An agency contract for an indefinite term may be terminated by notice equal to one month for every year that the contract remains in force. The parties cannot agree a shorter term than this. If the parties agree a longer term than this then the period of notice must be the same for both parties. Member States may fix the period of notice at four to six months, once the contract has been effective for a corresponding number of years (Article 15).

Directive 86/653/EEC also imposes an obligation on all Member States to take necessary measures to ensure the commercial agent has a right to indemnity (Article 17(2)) or compensation (Article 17(3)-(4)) where the principal has terminated the agency contract without justification (Article 18). This right may not be derogated from before the agency contract expires.

Further, in contracts relating to commercial agency, a restraint of trade clause will only be valid if it is no more than two years in duration and only to the extent that it is concluded in writing. The restraint of trade clause must also relate to a geographical area or group of customers and geographical area entrusted to the commercial agent, and to the kind of goods covered by his agency under the contract. The provisions in Directive 86/653/EEC do not affect the provisions of national law restricting the validity or enforceability of restraint of trade clauses or reducing the obligations in the parties resulting from such agreements (Article 20).

4. Posting of Workers

Directive 96/71/CE of the European Parliament and of the Council of 16 December 1996 concerning the posting of workers in the framework of the provision of services

Objective

To remove uncertainties and obstacles which may impede the freedom to provide services, by increasing legal certainty and allowing identification of the terms and conditions of employment applicable to workers who carry out temporary work in a Member State other than that whose law governs their employment relationship; to avoid the risks of abuse and exploitation of posted workers.

Content

1) Scope

The Directive applies to undertakings which, in the framework of the transnational provision of services, post workers to the territory of a Member State:

- on their account and under their direction, under a contract concluded between the undertaking making the posting and the party for whom the services are intended;

- to an establishment or to an undertaking owned by the group;

- as a temporary employment undertaking, to a user undertaking.

2) Obligations

Member States must ensure that undertakings guarantee posted workers a central core of mandatory protective rules laid down in the Member State in which the work is carried out:

- by law, regulation or administrative provision and/or

- by collective agreements or arbitration awards which have been declared universally applicable, in so far as they concern the activities set out in the Directive's annex (construction).

Conditions of work and employment to be covered are:

- Maximum work periods and minimum rest periods;

- minimum paid annual holidays

- minimum rates of pay, including overtime rates

- conditions of hiring-out of workers, in particular by temporary employment undertakings

- health, safety and hygiene at work

- protective measures with regard to the terms and conditions of employment of pregnant women or women who have recently given birth, of children and of young people

- equality of treatment between men and women and other provisions of non-discrimination.

5. Liability for Defective Products

Council Directive 85/374/EEC of 25 July 1985 on the approximation of the laws, regulations and administrative provisions of the Member States concerning liability for defective products (Amended by Directive 1999/34/EC of the European Parliament and of the Council of 10 May 1999).

Objective

Directive 85/374/EEC (as amended by Directive 99/34/EC) is an internal market measure striking a balance between a high level of consumer protection and a stable legal framework of liability for producers, thus eliminating competition distortion due to diverging liability regimes and facilitating the free circulation of goods under common liability rules.

Content

Council Directive 85/374/EEC of 25 July 1985 sets common liability rules in case of damages caused to individuals by defective goods. A defective product is any movable that is lacking the safety which the public at large is entitled to expect, taking into account the presentation of the product, the reasonably expected use of the product and the time when the product was put into circulation (Article 2 and Article 6).

Directive 99/34/EC extended the scope of Council Directive 85/374/EEC to primary agricultural products. Producer liability in each Member State is limited to a threshold of no lower than EUR70 million for death or personal injury caused by identical items with the same defect (Article 16). The Directive does not affect the rights victims may have under existing legislation on contractual and non-contractual liability.

The producer (or the importer) is liable to compensate the death or personal injury and damages to property caused by the defective product, whether or not he is negligent. The victim has to prove the existence of actual damage, a defect in the product and a causal link between both (Article 4). The Directive introduces joint and several liability where several persons are liable for the same damage (Article 5). The producer is not liable if he proves the existence of exonerating circumstances by which he has reduced or, where appropriate, no liability in case of the victim's contributory negligence (Article 7).

The victim must file an action for damages before the end of a three-year limitation period. Under the Directive, the producer is not liable for damage ten years after the product has been put on the market (Article 10). Waivers of liability are not valid.

6. Electronic Commerce

6.1. Electronic commerce services

Directive 2000/31/EC of the European Parliament and of the Council of 8 June 2000 on certain legal aspects of information society services, in particular electronic commerce, in the internal market ('Directive on electronic commerce')

Objective

Directive 2000/31/EC seeks to contribute to the proper functioning of the internal market by ensuring the free movement of information society services between the Member States. (Article 1 (1))

Content

The Directive contains a number of specific obligations relevant concerning contract law, in particular the following:

- Member States shall ensure that their legal systems allow contracts to be concluded by electronic means. Member States shall in particular ensure that the legal requirements applicable to the contractual process neither create obstacles for the use of electronic contracts nor result in such contracts being deprived of legal effectiveness and validity on account of being made by electronic means (Article 9(1))

- Transparency rules applicable to the contractual process are to be respected by the service provider. These rules provide that the service provider must clearly, comprehensively and unambiguously ensure certain information is given to the consumer. In particular, the different technical steps to follow to conclude the contract. For example, whether or not the concluded contract will be filed by the service provider and will be accessible, the technical means for identifying and correcting input errors prior to the placing of the order and the languages offered for the conclusion of the contract. Further, the service provider must also indicate any relevant codes of conduct to which he subscribes and information on how these codes can be consulted electronically. This information must be supplied prior to the order being placed by the recipient of the service (Article 10(1)(2))

- Where the recipient of the service places his order through technological means, the service provider has to acknowledge receipt of the recipient's order without undue delay. Receipt takes place where the party to whom the communication is addresses is able to access them. (Article 11(1))

- Member States shall ensure that the service provider makes available to the recipient of the service the technical means allowing him to identify and correct input errors, prior to the placing of the order. (Article 11(2)

6.2. Electronic signatures

Directive 1999/93/EC of the European Parliament and of the Council of 13 December 1999 on a Community framework for electronic signatures

Objective

To ensure the proper functioning of the internal market in the field of electronic signatures, by creating a harmonised and appropriate legal framework for the use of electronic signatures within the European Community.

Content

Directive 1999/93/EC enforces the recognition of electronic signatures that have previously been unrecognised, solely by reason of their electronic form. The Directive sets criteria which forms the basis for the legal recognition of electronic signatures by focusing on certification services (Article 1). Electronic signatures that conform to the requirements of Directive 1999/93/EC will automatically be accorded the same status as written signatures in the law of the Member State concerned. These signatures are then admissible as evidence in legal proceedings in the same manner as hand-written signatures (Article 5).

7. Financial Services

General remarks

Directives concerning banking, assurance and movable valuables set down a financial and prudential regime that regulates the conditions of establishment and the allocation of services of financial institutions in the European Community. By definition, therefore, these do not consist of private law arrangements. The sole texts that concern aspects of private law relevant to contract law and financial services are as follows:

7.1. Banking

7.1.1. Solvency ratios for credit institutions

Directive 96/10/EC of the European Parliament and of the Council of 21 March 1996 amending Directive 89/647/EEC as regards recognition of contractual netting by the competent authorities (solvency ratios for credit institutions).

Objective

To contribute to the harmonisation of prudential supervision and to strengthen solvency standards among Community credit institutions, thereby protecting depositors and investors and maintaining banking stability.

Content

The amended Directive on solvency ratios applies to credit institutions (defined in Directive 77/780/EEC). The own funds of each credit institution are expressed as a proportion of the risk adjusted value of its assets and off-balance sheet business (Article 5(1)).

The risk adjusted value of assets and off-balance sheet business relates primarily to the credit risks associated with counterpart default, and a distinction is made between the degrees of risk associated with particular assets and off-balance sheet items, and with particular categories of borrower (Article 5).

Weightings vary between low risk items and high-risk items (Article 6). The prescribed minimum ratio is 8% (Article 10). After January 1993 credit institutions are required to maintain at all times a ratio of at least 8%. It is the responsibility of the national supervisory authority to ensure this ratio is adhered to (Article 10(3)).

7.2. Insurance

7.2.1. Life insurance

Council Directive 79/267/EEC of 5th March 1979 on the co-ordination of laws, regulations and administrative provisions relating to the taking up and pursuit of the business of direct life insurance (First Life Assurance Directive)

Council Directive 90/619/EEC of 8 November 1990 on the co-ordination of laws, regulations and administrative provisions relating to direct life assurance, laying down provisions to facilitate the effective exercise of freedom to provide services and amending Directive 79/267/EEC (Second Life Assurance Directive