Chapter 4: Purpose of a CFR
39. We have set out above the history of the
CFR. As is apparent, it was not targeted in any single direction.
It was not the result of any survey or impact assessment identifying
or investigating the scope of any particular problem or problems.
A number of strands of thinking led to the work towards a CFR.
The Commission was, in our view justifiably, concerned about the
existing acquis, in particular the consistency and adequacy
of EC legislation regulating consumer contracts in the interests
of consumer protection. It considered that there were significant
gaps in that legislation. But it also raised the broader concern
that, although that legislation was about contracts, there was
no common framework of general contract law into which the acquis
fitted. Moreover, it went on to argue that the diversity of national
laws of contract created obstacles to the efficient functioning
of the internal market as it was more difficult for traders to
predict the outcome of entering into contractual relationships
across borders.
40. In relation to the last point, Professor Vogenauer
noted that no formal cost-benefit analysis had, to his knowledge,
been undertaken (Q 21). Although the Commission had argued
that trans-border trade was impeded, he thought that "in
trans-border contracts the parties, at least in Europe, are free
to choose the governing law and often that works perfectly well
… we have conflicts rules dealing with possible conflicts
and they work reasonably well also, with the exception of some
borderline cases, but that is always the case in the law"
(Q 16). Professor Vogenauer also referred to a survey
of businesses undertaken by the University of Oxford which had
shown a mixed response. A slight majority considered that the
existing diversity of contract laws might have a negative impact
on their business, but most of those surveyed had said that this
issue was not a deal-breaker (Q 21). However, if the CFR
were to replace national laws, the costs of transferring to the
new system would be considerable, as the examples of a major revision
in Dutch law in the 1990s and of German law in 2002 had shown.
But in those two cases, there had been no real dip in those countries'
gross domestic product (QQ 22, 24).
41. Professor Vogenauer also drew attention
to the beneficial influence which the Principles of European Contract
Law had had in the drafting of new contract law codes, in (in
particular, Baltic) countries emerging from communism (Q 24).
Jonathan Faull made the same point more generally, noting that
not all countries have contract law systems going back centuries
(Q 135).
42. The Minister however saw the availability
of different contract laws across Europe as a strength rather
than a weakness for the European Union, enabling parties to choose
a law which met their needs (Q 78), and none of the witnesses
suggested that the Community should aim compulsorily to harmonise
different contract law systems.
43. With regard to European law, Professor Vogenauer
observed that there is at present no general contractual background
to EU law—e.g. defining a contract, or how one comes into
being, or providing common rules of interpretation—with
the result that EU Directives exist in a vacuum (Q 5). A
common framework of contract law would be useful for future EC
legislation in the area of consumer protection, and the interpretation
of existing EC law. It might also be useful in competition law
and areas of company law (Q 19).
44. In seeking to pursue the different strands
of thought identified in its Communications, the Commission, rightly,
identified Principles of European Contract Law and the
then ongoing work of the Study Group as being of great importance.
The manner in which it sought to harness this work has, in our
view, proved significant. It did so by the research contract to
which we have already referred. As the DCFR records (Introduction,
paragraphs 1 and 4), this contract provided funding for the continuing
work of "an existing initiative of European legal scholars".
The Study Group and the Acquis Group were given full independence,
they alone bear responsibility for the end product, and this (the
DCFR) represents no more than "(among other things) a possible
model for an actual or 'political' Common Frame of Reference (CFR)"
(paragraphs 4 and 6). The shape and content of the project was
thus not under the Commission's control. Not surprisingly, in
view of the full title of the Study Group (see above), the end
product has proved to be a full draft Civil Law Code.
45. We are unclear whether this can have been
what the Commission envisaged when it entered into the research
contract. If it was, that does not appear to us to have been made
clear. The vague concept of a Common Frame of Reference and the
use of phrases such as a "toolbox" (a word which the
Minister told us that "I hate" (Q 73)) have, we
think, been capable of meaning different things to different people.
This may be said, on the one hand, to have given the project an
element of certain flexibility, enabling it to develop as seemed
most beneficial, but, on the other hand, to have meant that the
project lacked clearly defined aims (giving rise, for example,
to repeated, and probably unnecessary, fears that it was a prelude
to some attempt at full harmonisation and doubt about what form
the "toolbox" should take). Lord Bach also commented
that "The marriage of convenience between the far-reaching
academic work … and the more limited work to improve European
contract law-making has created perhaps tensions and misconceptions
that might have been avoided if it had been done differently"
(Q 113).
46. There is, Professor Vogenauer said,
"still considerable uncertainty with regard to the actual
purposes of the final CFR" (p 3). The definition of
position adopted by the Justice and Home Affairs Council on 18
April 2008 would, assuming it to be maintained, set some clear
and limited parameters. Jonathan Faull's evidence to the Committee
was given at a point in time when the Justice, Freedom and Security
Directorate had only just taken over responsibility for the project.
He said: "We are currently reviewing everything that has
been done until now and have very much an open mind about what
should be done from here on", and that they would be preparing
a Communication to the Council and Parliament to set out their
ideas (Q 123). He recognised that the project "need[s]
to become more precise now about what we are going to do with
the work that has been done" (Q 157).
47. The Government are not wholly negative about
the CFR project. Lord Bach considered that there were real possibilities
for the political CFR. Jonathan Faull acknowledged that the matter
was one of great size and complexity and said that the Commission
would seek to act in the interests of the European Union, its
citizens and businesses. "We are not involved in legal theory
for the sake of legal theory" (Q 149).
Possible uses of a CFR
48. Over the period during which the CFR has
been under discussion, a number of possible uses for a CFR have
been mooted. They range along a spectrum from "hard law"
to "soft law", but can conveniently be considered under
five heads.
HARMONISED EU LAW
49. This would involve using the CFR to develop
a European Code of contract law to replace, wholly or partly,
the national laws which presently occupy the ground which the
Code would cover. We have set out above the evidence touching
on this subject. The subject of harmonisation is one which has,
time and again, been raised in relation to the CFR project and
may have been in the minds of some involved in sponsoring and
developing it. However, the Committee regards it now as essentially
a red herring, albeit one still encouraged by the very name of
the Study Group with which the Commission allied itself when contracting
for the development of the DCFR.
50. The Committee understands both the aspirations
of some that the Commission should, and the apprehensions of others
that the Community might, propose large-scale harmonisation of
contract law. But the case for a new European ius commune is
in the Committee's view in no way made out. Whether and how far
there is a significant problem arising from disparate contract
law is a question to which even the Commission does not know the
answer, let alone whether there is one which requires further
harmonisation (Q 148). Professor Vogenauer argued that
general harmonisation of contract law would present "enormous
problems" until a body of settled case law could be developed,
albeit that there might thereafter be enormous savings—there
was no way to predict (Q 55). The present position is that
any move towards general harmonisation would be highly questionable
in terms of vires, value and efficacy.
51. The Committee also considers that there is
a risk, perhaps especially among lawyers, of over-valuing the
importance of substantive law. As Jonathan Faull rightly accepted,
the United Kingdom with its two systems of contract law "seems
to have survived" (Q 148)—we would add, without
anyone being bold enough to suggest that they need to fuse or
amalgamate. Cross-border trade may often depend on considerations
other than those relating to the law or the legal issues or remedies
arising if contractual expectations are disappointed—for
example, trust that expectations will not be disappointed, past
experience, language, culture, accessibility when it comes to
pursuing a complaint, differences in the procedures, time taken
and costs involved in resolving issues in different Member States,
etc. (See also the discussion with Professor Vogenauer at
QQ 60-62.)
52. For practical purposes, the idea of large
scale harmonisation can, we think, be put on one side. It is clear
that there is extremely little support for this use of a CFR.
The Council of Ministers rejected it in plain terms when it endorsed
the conclusions of the Committee on Civil Law Matters in April
2008.[23] Professor Vogenauer
noted that a European code of contract law "is not currently
advocated by any of the European institutions or by any Member
State" (p. 3). He considered the idea of a binding EU instrument
of general contract law was "not on the horizon in the foreseeable
future" (Q 25). While careful not to rule anything out
at this stage, Jonathan Faull thought there was currently no political
impetus for harmonisation of contract law (Q 142) and pointed
out that in the civil justice area, "the thrust is very much
one of mutual recognition rather than harmonisation" (Q 143).
In his experience, there was a strong preference in the Justice
and Home Affairs Council for practical cooperation measures. It
could be inferred that legislation to impose definitions displacing
national law would be unwelcome (Q 148). More generally,
"I do not think people are thinking in terms of codes"
(Q 131).
53. The Government, as we have made clear, also
reject harmonisation. Lord Bach noted that the then Lord
Chancellor, Lord Falconer of Thoroton, had made this clear in
a speech in 2005, and said "We are opposed to a harmonisation
of contract law across the Member States on either a compulsory
or a voluntary basis other than where there is a clear benefit
of harmonisation, and that remains our position" (Q 78),
and Lord Bach said, as we have indicated, the Government see "the
availability of different contract laws across Europe [as] a strength
rather than a weakness for the European Union" (Q 78).
54. We also remain opposed to harmonisation
of the general law of contract. However, this is not now on the
agenda and further discussion of it appears to us to serve no
useful purpose.
AN OPTIONAL INSTRUMENT
55. A second possibility, one that has in the
past attracted a degree of support, is that the CFR could be made
a framework of EU law binding where parties chose to adopt it.
Parties to a contract could decide to make such law the law applicable
to their agreement, just as they are able now to agree that the
law of a Member State or of a third country will apply. Alternatively,
there could be a presumption that the framework would be binding
unless the parties agreed to exclude it. But the EU framework
would not be mandatory.
56. However, if the principles and rules provided
in such an instrument were to prevail over any conflicting mandatory
provisions of the otherwise applicable national law, the optional
instrument would require to be underpinned at the European legal
level by some European legal instrument (QQ 140, 88), and
that would raise a question whether the Treaties provide the necessary
competence for EU action (Q 144) as well as issues of subsidiarity
and proportionality (Q 145).
57. The Commission appears to have given the
possibility of an optional instrument some support in its October
2004 Communication. However, although he maintained his general
caveat that nothing was ruled out, Jonathan Faull made clear that
the Commission is not at this stage contemplating any optional
instrument underpinned by European legislation.
58. The Government are opposed to this possible
use of a CFR, as the quotation from Lord Bach at paragraph 53
above makes clear. Paul Hughes noted that the Commission appeared
not actively to be taking forward the idea of an optional instrument
but, if the Commission were to pursue the idea, it would take
"an awful lot of justification" to convince the Government
of its merits (Q 87). On the other hand, as Professor Vogenauer
speculated, there might be opportunities for the British legal
profession and the economy in developing an expertise in a pan-European
law of contract (Q 58). The Committee does not doubt the
ability of the British legal profession to meet any new legal
challenge, but that is not of course a litmus test by which to
assess the merit of any European legal proposal (Q 58).
59. During the course of the Minister's evidence
a concern was expressed that "an optional instrument might
lead to harmonisation without our intending it" (Q 79),
on the basis, as Lord Kerr put it, that "The optional tends
to turn into the obligatory over time in the European Union"
(Q 91). This is the "Trojan horse" fear that we
discussed in our last report[24]
(paragraphs 64, 67, 115 and 141). However, the basic question
is, in the Committee's view, whether there is a need for an optional
instrument which the Community ought nevertheless to seek to satisfy.
60. In theory, such an instrument could provide
additional benefits for contracting parties. If Europe were being
built from scratch, a single European law of contract would clearly
be developed. But the reality is that different Member States
have developed different legal systems and traditions, and we
are very doubtful about the value of investing further resources
to produce what would become a wholly untested legal framework
to add to the world's existing systems. To do so without legal
underpinning at the European legal level would be unwise, and
likely to undermine the effect of the new system of law. To do
so with legal underpinning (which the Commission is not contemplating)
would still involve ensuring that the new system meshed with existing
national systems.
61. We agree—certainly in the absence
of any cost-benefit analysis—with the Government's approach
that there is no need for an optional instrument. We have not
for our part seen any convincing evidence of pressure to introduce
an optional instrument from the business community or their professional
advisers, or indeed from consumer organisations.
STANDARD TERMS AND CONDITIONS
62. The Commission's Communication of October
2004 also canvassed the possibility that the CFR could be used
by private parties to develop EU-wide standard terms and conditions
for incorporation into business-to-business and business-to-government
contracts. It was suggested that the Commission might develop
a website to promote this. Commenting on the Commission's Green
Paper on Review of the Consumer Acquis, the Committee on Legal
Affairs of the European Parliament considered that cross-border
trade and consumer confidence could be assisted by the development
of EU-approved standard terms and conditions.[25]
We found little support for this possibility during our last inquiry.
Jonathan Faull did not comment on it beyond his general caveat
that he could at this stage rule nothing out.
63. General terms and conditions are essentially
something to be worked out by the different parties to contracts,
or institutions or bodies representing their interests, and, in
the absence of any harmonising or underpinning law, they have
to comply with and meet the needs of whatever national law governs
the relevant contract. General contractual terms and conditions
are subject to European and national legislation regulating unfair
contract terms. Parties are otherwise generally free to incorporate
in their contracts the terms of any document they like (including
the DCFR), but these will then be construed and applied in accordance
with the framework provided by the relevant national law. We
do not think that the DCFR can or should be developed with a view
to providing parties with further material on which they might
draw in any such way.
A TOOLBOX
64. We have already noted the vagueness of the
whole concept of a CFR. The notion of the CFR as a toolbox is
equally lacking in definition, but the expression has been used
to denote a document which could include definitions, principles
and model rules on which a legislator could draw when preparing
legislation. Jonathan Faull described it as a range of optional
ideas, provisions, mechanisms on which Member States or the EU
Institutions could call without having to start from scratch (Q 132).
In the event, as we have said, the outcome of the academic research
project has been a full-scale draft of a code of European Civil
(and not merely Contract) Law.
65. The Government support the development of
a CFR as a toolbox for European legislators, for use as a guideline
or dictionary for EU legislators. Lord Bach told us that "We
could support a future CFR that was a non-binding source of guidance
and reference for Community lawmakers when they are drafting or
reviewing legislation in the contract area as a sort of voluntary
guidance to lawmakers" (Q 78). Paul Hughes also noted
the value of the comparative law materials which will accompany
the DCFR: "The better understanding of respective legal traditions
of Member States can only help to develop better legislation that
fits and works …" (Q 78). We have no doubt that,
as its authors hope, the DCFR will also promote the knowledge
of, and collective deliberation on, private law in all the jurisdictions
of the European Union.
66. Jonathan Faull agreed. "We now have
27 countries [in the European Union] and at least 28 legal systems
and the arguments for options rather than prescription become
all the more compelling" (Q 133). It would help the
Commission to have the DCFR and the work that goes with it, as
an encyclopaedia explaining how words and concepts are used in
the contract law systems of the Member States (QQ 134-135).
67. Professor Vogenauer told us, and Mr Faull
confirmed, that a draft of the DCFR was indeed used by the Commission
when preparing the proposal for revised consumer protection legislation[26]
currently under consideration (QQ 19, 136), which appears
to us to have been a primary justification for a CFR. Two points
are however to be noted. The first is an oddity of timing: a basic
aim of the CFR was to improve the existing acquis, but
the process of developing even a final academic DCFR was understandably
long. The Commission (in part in response to pressure for progress
from Member States, including the United Kingdom) did not wait,
and issued its Green Paper on Consumer Rights in February 2007
and proposed draft Directive in October 2008, on the basis of
the work done to that date (Q 136), but before the final
academic DCFR was available and in terms which do not therefore
necessarily correspond with those of the DCFR. Second, in using
even the then draft of the DCFR, the Commission treated it as
"an authoritative but non-binding statement", taking
it into account and following it when they thought sensible, but
deviating from it when they thought it did not really fit (QQ 19,
136-137).
68. At this stage in his Directorate's consideration
of the DCFR, Jonathan Faull, while seeing the usefulness of the
idea of the CFR as a toolbox, was unable to commit the Commission
to proposing any particular use for a CFR.
69. Jonathan Faull spoke of the CFR's potential
use by European institutions (Q 132), one of which is of
course the European Court of Justice. Professor Vogenauer
pointed out that a CFR might well be used by the Court in developing
the existing acquis, and referred to a recent opinion of
the Advocate General[27]
in which she drew inspiration as to the meaning of a "contract"
in Community consumer law from the DCFR (Q 19). This is an
example of the effect which even soft law instruments can have
in European law, and underlines a need to ensure that their terms
are properly tested and evaluated for practicality and general
appropriateness, before they are in any sense formally endorsed.
70. We find helpful Lord Bach's description
of a toolbox as a "guide or vade mecum for use by
European legislators to improve the quality, coherence and consistency
of European legislation" (Q 73). We would therefore
approve in general the approach taken by the Council at its 18
April 2008 meeting, although it leaves open just how comprehensive
and detailed the contemplated set of definitions, principles and
rules should or need be. The purpose of a CFR would then be to
improve the quality of EU legislation to which the law of contract
is relevant.
71. Further, the comments, notes and comparative
law material produced in the course of a substantial research
programme underpinning the DCFR, which are to be published later
this year, should on any view be a useful aid to mutual understanding,
and be of general value nationally and at a European level.
INTER-INSTITUTIONAL AGREEMENT
72. The Minister suggested that one ultimate
use which any final or political CFR might well serve was in an
"inter-institutional agreement", in other words, an
agreement between the European institutions—the Commission,
Council and Parliament—that it would be used as the basis
of any future legislation, and that authority for this might be
found in Article 211.1 of the European Community Treaty (Q 91).
We asked whether such a CFR would resemble any previous inter-institutional
agreements. We suggested that these had involved relatively hard
sorts of agreement on substantive, not technical, matters and
were not a sort of guide to jurists and legislators, to which
Oliver Parker said that that "would not be at all where [the
Ministry] wished to be" (Q 106).
73. The Committee has reservations about any
inter-institutional agreement in the present context. Legislators
should not be bound in advance to legislate in any particular
terms or form. A final or political CFR could be a valuable tool
for legislators, but, as the Council said on 18 April 2008, it
should operate as "a set of non-binding guidelines to be
used by lawmakers at Community level on a voluntary basis as a
common source of inspiration or reference".
DOES THE DRAFT CFR PROVIDE A SUITABLE
BASIS FOR A TOOLBOX?
74. It was not to be expected that the work undertaken
by the academic groups would result in a document that could serve,
ready-made, as a CFR for use as the kind of toolbox we have described.
The Government do not consider that the DCFR provides a blue-print
for a toolbox (Q 73). But the question is whether the DCFR
provides a suitable foundation for an eventual political CFR.
75. We think that the DCFR raises problems in
three main areas, which need to be faced: the first is its scope,
which goes far beyond the law of contract; the second consists
in its general approach; and the third relates to the need to
review its detailed terms for their acceptability.
76. The first problem can be met to a considerable
degree, though not entirely, by concentrating on Books I to III,
as Professor Vogenauer advised (QQ 2, 64), and
as we understand Jonathan Faull also to agree (Q 129). As
we have already noted, however, Book III is itself affected by
the academic drafters' desire and decision to draft a code not
confined to contract, but covering the whole law of obligations.
In order to make any final or political CFR more accessible and
usable, it needs, as Professor Schulze has said, to be "re-contractualised".
77. As to the second problem area, Jonathan Faull
considered that the DCFR had, to a considerable degree, succeeded
in meeting the objectives set by the Commission's action plan,
but reserved his opinion as to the extent to which it meets all
the objectives (Q 127).
78. We are more doubtful, particularly in the
light of some of the academic commentary to which we have referred,
although we recognise that the DCFR project has, rightly, attracted
much commentary, and that we have concentrated on problem areas
which have been identified. Above all, in our view, Europe
should not commit itself, even in principle, to a generally interventionist
view of the law of contract, which tends to over-regulate contractual
terms and behaviour and to undervalue the virtues of party autonomy
and the principles of freedom and choice for which Europe otherwise
stands.
79. It should not, in short, endorse a dirigiste
view of contract, or one which opens the way to extensive court
intervention or re-writing of contracts. There are potentially
very important differences between the provisions for protection
and intervention required in respect of contracts involving consumers
and small businesses and the provisions appropriate more generally
in contract law. Generalisation from one situation to another
is, as Professor Vogenauer indicated, controversial (Q 4).
80. Third, at a more detailed level, the DCFR
would undoubtedly require substantial review to consider whether
the solutions adopted are appropriate and acceptable, particularly
where they are applied across all fields, consumer and business.
One general point that can be made about the detailed drafting
is that the DCFR does not offer a European legislator choices.
However, this may be addressed either by re-drafting, or by reference
to the underlying discussion and the comparative law material
which we were informed is to be published, although we have not
had the opportunity of considering it.
81. All these problems would need to be considered
during the process of producing any final or political CFR.
23 Doc 8286/08. Back
24
European contract law: the way forward; see footnote 12. Back
25
Report on the Green Paper on the Consumer Acquis of the Committee
on the Internal Market and Consumer Protection, 16 July 2007 (A6-0281/2007). Back
26
See paragraph 15 above. Back
27
Professor Vogenauer was no doubt referring to Advocate General
Trstenjak's opinion in Ilsinger v. Martin Dreschers (Case
C-180/06) (11 September 2009), paras. 49-52. The same Advocate
General has referred to the DCFR on earlier and subsequent occasions:
Commission v. Italian Republic (Case C-275/07) (11 June
2008), FNs 48 and 55 and Messner v. Kruger (Case C-489/07)
(18 February 2009), paras. 85 and 94. Back
|
