Freedom of Contract: Mandatory and Non-mandatory Rules in European Contract Law

Author:Matthias E. Storme
Position:Professor, Universities of Leuven and Antwerpen

1. The position and function of common European rules in respect of mandatory and non-mandatory rules of contract law - 1.1. Two forms of intransparency - 1.1.1. Intransparencies due to differences in structure - 1.1.2. Intransparencies due to differences in interpretation - 1.2. Uniform mandatory rules or a uniform structure of contract law rules in general? - 1.3. The importance of non-mandatory... (see full summary)


Matthias E. Storme

Professor, Universities of Leuven and Antwerpen

Freedom of Contract: Mandatory and Non-mandatory Rules in European Contract Law

Although I am not French, I shall divide this paper into two parts. The first part deals with the position and function of common European rules in respect of limitations to freedom of contract and with the role of mandatory and non-mandatory rules in general. The second part addresses the different techniques restricting freedom of contract that we find in the PECL, the acquis communautaire, or the draft 'common frame of reference' (CFR).

1. The position and function of common European rules in respect of mandatory and non-mandatory rules of contract law

The preceding papers of the Tartu conference dealt with many questions surrounding the harmonisation of contract law in Europe, and its aims and methods. I will start from a moderate - and, in my view, rather realistic - perspective, which sees a future for multilevel contract law with different sources.

At least in the foreseeable future, private law is going to continue to spring from many sources, governmental and non-governmental. I will not enter here into the discussion of whether a contract itself can be seen as a source of law - which it does, in my view, to a certain extent.

As to governmental sources, on the other hand, we will, at least for the foreseeable future, have to accept living with, and continue to live with, a multilevel government with at least two legislative levels, those being the European Union and its member states. In many parts of Europe, we will continue to have three levels - namely, in federal states where regions have legislative powers, as is the case today for some jurisdictions even in the field of contract law. Further, the reality of harmonised law in this foreseeable future is going to be a law that is applied to a very large extent by national or regional judges in different languages, in contexts with different understandings of the harmonised law. Harmonisation does not equal uniformity.

Thus we have to find ways to organise this diversity, not to eliminate diversity but to organise it in such a way that it is contained within certain limits and is to a certain extent predictable. This is, in my opinion, especially necessary in the field of contract law, at least when we concern ourselves with freedom of contract. It is key to point out that we have to take care that the various limitations to freedom of contract should be predictable and contained within certain limits.

Am I, in so doing, avoiding the question of whether uniform contract law is necessary or not? This question is, at least to a certain extent, misleading because it all depends on what is meant by 'uniform contract law' and there are many possible answers apart from a mere 'yes' or 'no'. In its most radical sense, it would mean completely replacing national and/or regional contract law and transferring the competence in this field from national and/or regional legislators to some centralised European institution as a sole legislator, whereby the former surrenders every competence. It could involve installing concurrent powers, with priority given to the European rules. It could mean independent powers of both levels to formulate contract laws that are competing in practice, or at least competing in the case of international contracts. It could mean restricting national contract law to non-international contracts. It could mean the existing practice of piecemeal legislation on the European level with priority over national law but dealing only with specific questions, mainly in relation to consumer contracts. It could also entail a model law that, at least for the moment (and if it were up to me, also for the future), leaves it within the competence of national legislators to deviate therefrom. That is the American model of the Uniform Commercial Code, which is - and it is important to stress this - not a federal code but a code that has been adopted by most, if not all, state legislatures. In this model, the state legislators retain their competence to change the model law if they wish; in reality, the force of the uniform law is so strong that they do not. That may, however, seem an ideal model from an ideal world, which probably is not made for the European Union.

1.1. Two forms of intransparency

In any case, I believe that the problem is not diversity in contract law as such; it is, rather, intransparent or unpredictable diversity in contract law. Now, there are two forms of this intransparency and unpredictability. In the first form, the rules limiting freedom of contract are substantially the same but look different; in the second form, they appear to be the same when they are, in fact, different.

1.1.1. Intransparencies due to differences in structure

The first form of intransparency is caused by the fact that rules limiting freedom of contract in different jurisdictions may be qualified differently and found in very different places under different headings according to different theories, even if they are the same in substance. For someone from another jurisdiction, the problem may thus be not that the rule is different but that it is not recognised. Also, where the rules are effectively different, the difference may not be very transparent, for the same reason. Substantially equivalent limitations to freedom of contract are to be found in some jurisdictions in the rules on formation of contracts, in others under the topic of validity, and in still other systems in rules on the contents of a contract. Rules that one may find in general contract law in some jurisdictions are addressed in relation to specific contracts in others. Rules that in some systems are drafted in the form of very specific predictable rules are in other systems hidden behind vague norms like good faith, reasonableness, public policy, and so on.

This difficulty is often as serious as substantive differences in law are, although it could perhaps be set aside more easily. It can be solved by using a common structure and common categories of rules in contract law. Under a common structure, it becomes much easier to see similarities and differences among jurisdictions; one no longer has to search through the whole of the law, in every possible place.

Transparency and predictability can thus already be enhanced substantially without imposition of uniform solutions on national legislative bodies, on the condition that a common structure and terminology can be found. In my opinion, national and/or regional legislators should indeed retain basic-level competence in private law, even in contract law - on the condition, however, of their competence being exercised in a more transparent way by using a common frame of reference in the sense of a common structure and terminology. Put more clearly, they could remain competent in respect of the way they fill in the content and at the same time lose competence for the overall scheme.

1.1.2. Intransparencies due to differences in interpretation

The second type of unpredictability is linked to the use of vague norms or general norms, such as good faith and fair dealing, reasonableness, or public policy. As one can readily imagine, the vaguer a norm is, the larger the number of different interpretations it may have within a national system but also varying from system to system. These vague norms are means to create a fake legal unity such that people think the same rule applies but whereby it may be interpreted in very different ways. We should not forget that different jurisdictions have quite different national traditions in the relationship between judges and legal rules, as to the way in which judges interpret and develop legal rules.

Recently, in our Compilation and redaction team, we faced a very difficult discussion on the notion of implied terms (former PECL article 6:102 2 ); it turned out that it was difficult to agree on the rule concerning implied terms of a contract because Continental lawyers wanted to have an article granting the judges the authority to imply some terms that are hidden additional legal rules, whereas common lawyers did not want to leave so much open as their judges in any event have the authority to develop legal rules without having to hide behind implied terms of a contract. The same was true concerning the role of the principle of good faith: Continental lawyers need it in order to give judges the possibility of developing the legal rules step by step, a power for which common law judges do not need a vague norm on good faith. Again, the provision on good faith could be restricted to some extent with it having been made clear that the draft CFR accepted generally that judges do develop the law incrementally anyway and are authorised to do so.

It was clear to all of us that we need techniques that avoid petrification of the law and allow for...

To continue reading