Common European Sales Law

Author:Larry A. DiMatteo
Position:Department of Management and Legal Studies, University of Florida, Gainesville, Florida, USA

Purpose – This article seeks to take a critical look at the proposed Common European Sales Law (CESL). Design/methodology/approach – The article looks at the rationales given to support the enactment of the CESL. The approach is critical in nature seeking to vet the plausibility of the rationales given for a new regulation The article also takes a critical look at the CESL's... (see full summary)

1 Introduction

The Proposed Common European Sales Law (CESL) is the latest entry into the area of supranational contract and sales law1. This provides an opportunity to assess the state of both hard and soft supranational private law. Does the current mix of hard – Convention on Contracts for the International Sale of Goods (CISG) and soft laws – UNIDROIT Principles of International Commercial Contracts (“Principles”) and Principles of European Contract Law (PECL) provide sufficient avenues to structure international business transactions? Does the CESL fill a void in these established choices of law or does it add an unneeded level of complexity to an already crowded field? What is the likelihood of confusion over what may be interpreted as overlapping legal regimes? This Article will examine the legal nature, objectives, and functions the CESL is expected to serve. This examination will allow for a tentative assessment of a number of important issues including the influence of the CISG on the drafting of the CESL and any resulting redundancies; and whether autonomous interpretations of the CESL should diverge with the CISG? Will judges and arbitrators be tempted to use the CESL in applying the CISG, especially in areas where the CISG lacks sufficient clarity and certainty, such as the conflicting general terms and conditions, the remedy of specific performance, the scope of damages and interest, and the role of good faith in the interpretation, performance, and enforcement of contracts

Article 1 of CESL restates the fundamental principle of contract law – the parties are “free to conclude a contract and to determine its contents”. The principle of freedom of contract or private autonomy is the core rationale for all contract laws. In reviewing a new contract law instrument, the key analysis is how that core principle is limited. Once again, Article 1 continues by saying that the freedom enunciated above is “subject to any applicable mandatory rules”. Therefore, the most fruitful analysis looks to determine the rationales for restrictions on complete freedom of contract which include – freedom to contract where the agreed terms are freely enforceable (no prohibitive terms) and freedom from contract (no mandatory terms) are to be automatically implied. In this secondary sense, the second order and over-riding rationale for the CESL is that its numerous mandatory rules are meant to protect weaker parties in the sale or supply of goods, digital content, and related services. Traditionally, such protections were meant to protect consumers in business-to-consumer transactions (B2C). The various EU Directives that intervene into the freedom of contract principle attest to the perceived need to protect consumers from overreaching by businesses. The overreaching is made possible by the superior bargaining power of the business due to the uniqueness of its products, superior information, and, at times, the lack of sophistication of the consumer. This lack of “sophistication” is often due to bounded rationality (limited information or time constraints).

The protection rationale is extended to certain business-to-business (B2B) transactions as well. This is the true novelty found in CESL rules. The CESL carves out a sub-set of businesses and designates them as small-to-medium sized enterprises (SMEs). In most legal systems, there are only the traditional classifications of B2C transactions and commercial or merchant-to-merchant (B2B) transactions. However, some legal systems, such as the German BGB, intervene to police unfair terms in both consumer and commercial transactions. Other legal regimes, such as the American Uniform Commercial Code's (UCC) Article 2 (sale of goods) provide policing doctrines that control all sales of goods transactions. It codifies the principle of unconscionability that allows courts to rescind or reform overly one-sided terms2. This doctrine is not limited to consumer transactions and, therefore, applies to merchant-to-merchant transactions as well. However, in reality, courts have only applied the principle to consumer transactions. Neither the German BGB nor the American UCC recognizes the classification of SMEs. The issue of the designation of SMEs as unique types of businesses in need of protection will be further discussed later in this article.

The article begins with a review of the evolution of EU initiatives leading to the proposed CESL. This will include an analysis of the purposes or rationales, express or implied, for the decision to focus on sales law and further, to focus on consumer and SME protections, as well as internet trading and rules for digital content and related services. Of course, part of the answer, is to protect the proposed regulation from the attack of its coverage being outside the competency of the EU. Thus, the Feasibility Study3 and Explanatory Memorandum4 focus on the perceived barriers to transborder trade in order to support the claim that CESL advances the goal of creating a fully functioning internal market. These documents provide a plausible case for the “constitutionality” of CESL. Nonetheless, Part 2 will critique the “stated” rationales for the CESL.

Part 3 compares the CESL with the CISG. It examines the scope of both instruments and explores the areas in which CESL is said to cover new ground. This exploration looks at CESL rules to determine their uniqueness relative to CISG rules. This will form the basis for answering the following question: does CESL respond to a sufficient need not currently provided by the CISG or national sales laws? This question is doubly important because the answer will likely be predictive of whether the CESL will become a meaningful opt-in instrument. Part 4 examines the “problems” related to the process of developing the CESL, as well as some unresolved substantive issues and problems relative to CESL's coverage. Part 5 confronts the issues of the impact of CESL on the EU Consumer “Acquis” and the idea that CESL is part of a strategy that will lead to a broad EC Contract Code or an even a broader EU Civil Code. Finally, Part 6 briefly revisits the interrelationship between CESL and the CISG. It also ventures a prognostication of the likelihood that CESL will be a meaningful addition to the marketplace of private law in the event it is enacted into law.

2 CESL: history and rationales

This part briefly reviews the history and process leading up to the publication of CESL. It then analyzes the rationales – expressed and implied – put forward to justify the need for the enactment of CESL.

2. 1 History

The CESL can be seen as a progression or culmination of a process in the development of hard and soft laws whose goal is greater harmonization in European and international contract and sales laws. The success of the CISG, measured on its rapid adoption among European countries, helped provide the motivation and structural foundation for new harmonization efforts. The PECL ( Lando et al., 2001/2003 ) and UNIDROIT Principles of International Commercial Contracts ( UNIDROIT, 1994 ) can both be seen as the progeny of the CISG. The CISG showed by its adoption in Europe that additional trans-European and international model or soft laws could help advance the harmonization of private law. Subsequently, the Study Group on a European Civil Code (Principles of European Law)5 and the “Acquis” Research Group on Existing EC Private Law6 embarked on the study of more ambitious schemes – the former concerned with the feasibility of a comprehensive civil code for the EU and the latter concerned with the organization of the consumer law “Acquis” into a coherent whole. In the end, these two efforts provided the fodder for the all-encompassing Draft Common Frame of Reference (DCFR) issued in 2009 ( von Bar et al., 2009 ). The crucial development for the CESL was the 2011 publication of a feasibility study entitled “A European Contract Law for consumers and businesses”. Publication of the Results of the Feasibility Study carried out by the Expert Group on European Contract Law for Stakeholders' and Legal Practitioners' Feedback3.

It is out of this broadly titled instrument – “A European Contract Law for consumers and businesses” – that the CESL evolved.

Starting points in the drafting of the CESL were the CISG, PECL, and the DCFR. This helps explain the general contract law texture of some of its provisions and the numerous CESL provisions that are nearly identical to parallel provisions found in the CISG, especially in the areas of contract formation and contractual duties. In the end, the structure of CESL is best understood as a body of general contract rules with the sales or supply rules as subsequent add-ons ( MacQueen, 2012 ). As such, CESL is a combination of sales law rules and general contract law rules. Also, the influence of the “Acquis” Project – aimed at providing an overall framework for the long list of EU consumer protection directives – is seen in the fact that CESL looks to pre-empt the Directives with a single set of consumer protection rules.

2. 2 Purposes and rationales: express and implied

This part explores the stated rationales or purposes for the creation of the CESL and offers an initial critique of the stated rationales. The second part examines some of the more unique substantive rules provided in the CESL for commercial and consumer transactions7. It provides a critique of whether these “new” rules...

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