European Sales Law – necessary for business growth!?

I'm troubled by the optional European Sales Law (CESL) and the attempts to stop the proposal dead in its tracks through academic argument at the cost of commercial common sense. I'm trusting that the Ministry of Joined Up Government is carefully considering all the options available based upon practical evidence because to get it wrong will hinder the UK's economic recovery.

The European Commission has been pushing hard to progress CESL since publishing a Green Paper in July 2010 and the real proposal in October 2011 with help from the Polish Presidency. The initiative has gained strong support within the European Parliament but faces fierce opposition from the UK’s Ministry of Justice as well as the Law Society of England and Wales and EU national parliaments.

Justice Commissioner Viviane Reding introduced the proposal in response to a 2009 report revealing that up to 60 per cent of EU cross border e-commerce transactions failed for one reason or another. This high statistic is a scandal in itself but came as no surprise given 27 EU member states all with different legal systems (the UK has 3 alone), language, culture and levels of membership maturity.

Of course, we all know but daren't admit it that many businesses have been afraid to embrace the full Single Market for fear of too much liability since the Brussels I Regulation which allowed for the jurisdiction of  consumer courts in cross border trading (including website activities). In introducing the Sales Law, Commissioner Reding appears to be redressing the imbalance by providing a pan European framework of standard contractual terms upon which businesses can rely.

At a political level a number of Member States have presented opposition to the proposals (including Germany, Spain, France, Portugal, the Netherlands, Finland, Solvenia and the United Kingdom).  The European Commission’s proposals seem to be moving faster than many Member States wish: criticism is growing that too much time has been focused on the technical issues before there has been an appropriate political debate as to whether to undertake this initiative at all and the legal basis for it.

The legal basis remains a particularly sensitive issue because single market legislation does not involve opt outs for the UK and Ireland but justice and home affairs matters do (The UK and Ireland are the two principal common law jurisdictions within the Union).

Law Commissions' advice

The Law Commission and the Scottish Law Commission have produced joint advice to the UK Government on the potential advantages and disadvantages of the CESL proposal at the Ministry of Justice's request. They concluded:

"The CESL offers the parties a free choice – which we welcome. Even if the CESL is hardly ever used, no harm would be done. On the other hand, we are not convinced that developing a CESL for commercial parties should be seen as a priority. We think efforts would be better spent on developing a European code for consumer sales over the internet, where there is stronger evidence that the current variety of contract laws inhibits the single market."

All very well, but I don't think the evidence can be much clearer - 60 per cent of cross border e-commerce contracts fail! And let's not convince ourselves that a business will admit to breaking Single Market laws by restricting access to goods and services over fears of liability.

Unfortunately the UK government cannot ignore current economics and reject CESL without good reason. Businesses are the back bone of the British economy and Tomorrow's Google, Facebook and Ebay dot coms are all lurking among the highlands of Scotland, valleys of Wales, and in villages the length and breadth of England. Even Northern Ireland could hide a Zuckerberg or the next Bill Gates! To make any adverse decision which prevents the UK's strong online economy from embracing full EU and global opportunities will be political suicide.

Achilles heel

The Law Society's and the Ministry of Justice's current positions are that freedom of choice should be retained and maintained.  Accordingly the so-called “mandatory provisions” of the CESL represent the Achilles heel of the proposals: an optional contract law with provisions that cannot be excluded (whether under existing laws of a Member State or under this new regime) is both unattractive and dangerous to legal certainty.

They point out a number of problematic areas arising in relation to the proposals, including the following:

  • confining the CESL to cross-border sales means that a trader seeking to standardise its trading on common terms will not be able to do it as intra-state and the state transactions must be governed by laws of a member state;
  • a lack of common jurisprudence of CESL law or court infrastructure;
  • language and interpretation issues; and
  • differing consumer rights and compatibility with Brussels I

I'm not saying that the legal arguments are necessarily wrong. But businesses also need to obtain stronger evidence that the final draft proposal will give legal certainty and enable cross border supply and demand.

These days there's something unsettling about expert opinion. I've seen too many destroyed in the witness-box and I do question whether some can actually 'see the wood for the trees'.  Indeed, with all the brain power available it makes you wonder why we got into this economic mess in the first place!