Select Committee on European Communities Seventeenth Report


C. LEGAL AND PROCEDURAL ISSUES

46.  PROPOSAL FOR A DIRECTIVE ON LATE PAYMENT IN COMMERCIAL TRANSACTIONS

Letter from Mrs Barbara Roche MP, Parliamentary Under-Secretary of State for Small Firms, Trade and Industry, Department of Trade and Industry, to Lord Tordoff Chairman of the Committee

  The amended proposal for a European Parliament and Council Directive on Late Payment in Commercial Transactions was the subject of an Explanatory Memorandum (12571/98) submitted on 27 November.

  I am writing to bring you up to date on the latest position with this Directive. As I stated in the Explanatory Memorandum, following Industry Council on 16 November, the Presidency has been aiming to get political agreement on the basis of a compromise text which omits Articles 4, 6, 7, 8 and 9 of the original Directive. What now remains are Article 1 on the Directive's scope, Article 2 on definitions and Article 3 on due date, interest and damage incurred.

  You will recall that the UK also opposed Article 5, on accelerated recovery procedures for undisputed debts, because we believe that civil justice procedures are a matter for individual Member States. Several Member States reserved their position on Article 5 until the opinion of Council Legal Service had been obtained. We now have their ruling which is that this particular measure is not supported by the proposed legal basis—Article 100A of the Treaty establishing the European Community. I will forward a copy of this ruling as soon as it is available.

  I am well aware of the requirement to provide your Committee with adequate opportunities to scrutinise measures before their adoption in the Council. However, the compromise text will be now debated at Internal Market Council on Monday 7 December and there is a possibility (albeit a very remote one) that it will be put to a vote. We strongly support the principle of joint European action to tackle late payment and would not wish to jeopardise the adoption of this measure which, to some extent, complements our own late payment legislation, which commenced on 1 November.

  In view of this, and of the Council Legal Services' ruling, which means that Article 3 is now likely to be the only substantive proposal contained in the Directive, I believe that the UK should vote in favour. Therefore, should the proposal be put to the vote, I intend to lift the UK Parliamentary scrutiny reserve which we have maintained hitherto. I hope that this information, along with the Explanatory Memorandum already submitted, assists the Committee.

4 December 1998

Letter from Lord Tordoff, Chairman of the Committee to Michael Wills MP, Parliamentary Under-Secretary of State for Small Firms, Trade and Industry

  Sub-Committee E (Law and Institutions) considered this document at its meeting on 13 January. The Committee noted the contents of Mrs Roche's letter of 4 December 1998 and was informed that the proposal had not in fact been agreed at the Internal Market Council on 7 December.

  The Committee also noted that concern had been expressed by the Government and others, including the Council Legal Service, as to the adequacy of Article 100a as a legal base for a Directive including Article 5 as currently proposed. The Committee supports the view of the Government that civil justice procedures are a matter for individual Member States.

  As regards the changes proposed to Article 3, the Committee considers that the requirement to provide a bill of exchange might not be feasible in certain circumstances and that it might interfere with the parties' commercial freedom

  This letter clears the document from scrutiny. The Committee would be pleased to be kept informed of developments.

18 January 1999

Letter from Lord Tordoff, Chairman of the Committee, to Michael Wills MP, Parliamentary Under-Secretary of State for Small Firms, Trade and Industry, Department of Trade and Industry

  At its meeting on 21 April Sub-Committee E (Law and Institutions) considered your Explanatory Memorandum of 30 March. Your officials helpfully provided the Committee with a copy of the latest text of the Proposal and a letter giving further clarification of Article 3 and its application in the case of the United Kingdom.

  The Committee decided to clear the document from scrutiny but also to request the Government to give a fuller explanation of the amendments recently made to Article 5 (Recovery procedures for unchallenged claims). You may recall that when the Committee considered the draft Directive last January it noted the concern expressed by the Government and others as to the adequacy of Article 100a as a legal base for a Directive including Article 5 as then drafted. I would be grateful therefore if you could provide the Committee with a note describing in more details the changes which have been made to Article 5 and setting out the Government's reasoning as to why it no longer believes the Article would cause difficulty, particularly as regards the question of the adequacy of the legal base being proposed.

22 April 1999

Letter from Michael Wills MP, Parliamentary Under-Secretary of State for Small Firms, Trade and Industry, Department of Trade and Industry, to Lord Tordoff, Chairman of the Committee

  Thank you for your letter of 22 April about Sub-Committee E's (Law and Institutions) recent meeting to consider the Explanatory Memorandum on the Late Payment Directive.

  I was pleased that the Sub-Committee felt able to clear the document from scrutiny. However, I also understand your concerns about the inclusion of Article 5 on Recovery Procedures for Unchallenged Claims and, in particular, whether this was supported by the proposed Treaty base. As you know, the European Scrutiny Committee in the House of Commons did not clear the document but raised a number of questions. I will be writing separately to the Chairman and Clerk of the House of Commons Committee.

  As the Committee is aware, when the Explanatory Memorandum was submitted on 30 March the text was in transition. The version accepted by the Industry Council is now attached.

  My understanding at the time the EM was prepared was that the intention was that Article 5 (renumbered Article 4 in the new consolidated version) should not require Member States to amend their civil procedures and would instead set out an aim or objective for the Community with which Member States should comply within their existing procedures.

  Taking account of the new draft, including the preamble, I do not consider that this aim—if it was the aim—has been achieved. I therefore accept the point implicit in the House of Commons Committee's first four questions (paragraphs 1.10-1.13 of their Report) that Article 4 in its present version would indeed require some Member States to amend their civil procedure (although it will not require any such amendments here). We have therefore had to look again at the question of whether the Article 100a Treaty base is adequate.

  We have reached the conclusion that although finely balanced, there is a justification for using Article 100a as the basis for Article 4.

  There is a precedent for provisions based on Article 100a being used to harmonise civil justice procedures in a context in which the purpose of the provision in question is so closely related to the main purpose of a directive that it cannot be divorced from it. In the present case we consider that it is arguable that this is the case. The main purpose of the present directive is to put in place measures aimed at discouraging late payments, namely by imposing a requirement to pay interest.

  We consider that there is room for the argument advanced by the Commission that the main purpose of the Directive could be dissuasive only if accompanied by a provision of the type contained in Article 4, intended to provide rapid redress procedures in the case of uncontested debts. It does not follow from our acceptance of that proposition that we accept that Article 100a gives rise to a general competence to adopt measures which require member States to amend their civil procedures, a point we have underlined in a minutes statement made jointly with Luxembourg, a copy of which I enclose, which will be included in the minutes of the meeting of the Council which formally adopts the common position.

  I hope that this is helpful.

13 May 1999


 
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