The European Union (EU) Proposal for a Regulation on a Common European Sales Law (CESL) of 11 October 20111 is a very ambitious project that can be traced back to the idea of building a Civil Code within the EU. This article will not review this history or about the different projects that have been put forth towards the unification of private law within the EU. Instead, we focus but just on the scope of application of the CESL with a specific focus on how it compares to the well-established United Nations Convention on Contracts for the International Sale of Goods (CISG) which was approved at the Vienna Convention in 1980.
CESL and the CISG have similar scopes of application. However, the CESL is an optional instrument for business-to-business transactions (B2B) in the area of the international sale of goods2. Despite its title, CESL does not only apply to contracts for the sale of goods between European enterprises, but also applies where only one of the parties is from a EU country3. So in this way, the CESL may be characterized as both a regional and an international instrument.
The optional regulation applies also to the sale of goods, digital content and services related to any of them.
It is therefore self-evident that the optional regulation has a subjective and objective field of application very similar to that of the CISG (Articles 1-3). The choice of the instrument as applicable law to the contract (opting in) means the exclusion of the CISG (opting out) as recognized by Preamble 25 of CESL4. The opting into the CESL is likely to be construed as an opting out of the CISG given the freedom of contract principle and right to derogate provided in the CISG5.
If we take into account that the CISG is the Domestic Law of 23 out of the 27 member states6 and that the CISG has been used as a model law in the revision of numerous civil codes around the globe including those of the EU, the logical question that arises is whether the CESL is a necessary addition to EU law, especially in the area of B2B contracts.
The argument for EU legitimacy or competency to legislate in this area, according to the Preamble of CESL7, is anchored on a statistical survey showing that businesspersons consider that one of the main problems in cross-border contracts is the choice of the applicable law. The problem of choice of law is partly the outcome of the underutilization of the CISG and the lack of an institution that assures uniform interpretations of the CISG. The survey found that 70 percent of businesses would choose the CESL if it were available. This rationale has been the driving force behind this new optional regulation8.
In order to assess the need for this instrument, in our opinion, a distinction ought to be made between B2B and B2C transactions. The next two subsections will review the CESL as to how it relates to B2B and B2C transactions.
In B2B transactions, the explanatory note of the optional instrument overstates some issues, a position that is reinforced when reading the scope of the Eurobarometer survey, as well as the stated list of questions and answers9. This material lodged in support of the CESL evades an important fact – the CISG is the domestic law of most of the EU member states. In this regard, the continued adoption of the CISG by other countries and the possible future applications and uses of the CISG is a better “eurobarometer” of the unification of sales law in Europe than an adoption of an optional regional law, such as the CESL10.
The differences between contract laws in different countries do not constitute a major obstacle to cross-border trade, and it is not entirely correct to state that the search for the applicable law is a barrier to trade. Although some problems might exist in certain areas of the law, most traders use standard terms drafted by their trade organizations, while others rely on the application of international instruments either by direct application or by the choice of the rules of law. This coupled with the choice of arbitration as the dominate means of commercial dispute resolution makes any variations in national contract laws less important than in the area of consumer contracts.
The need for an optional instrument is unconvincing given the variety of options available to businesses, such as the recently updated UNIDROIT Principles for International Commercial Contracts (UPIC) and the European Principles of Contract Law (PECL)11. Furthermore, the CISG is the applicable law in business transactions between 23 of the 27 EU states and businesses from the remaining four states are free to opt-in into the CISG. The CESL may in fact make the optional use of the CISG more attractive given the mandatory provisions found in the CESL, such as Articles 29's extension of the consumer protection rules to small to medium sized business (SMEs), as well as the mandatory rules relating to late payment.
The Explanatory Memorandum deals summarily with the CISG12. It fails to acknowledge the CISG's role in harmonizing international sales law and fails to recognize the fact that the CISG served as a model for many of the rules found within CESL. Finally, it fails to note EU antecedents in this area like PECL or DCFR13.
Also, the assertions made that the CESL is more comprehensive than the CISG is not totally accurate. For example, the CISG has been applied to such areas as defects in consent, unfair contract terms, and prescription. Defects in consent rarely occur in B2B contracts; unfair contract terms are indirectly regulated by the application of the good faith principle and the standard of reasonableness; and the UN Limitation Convention covers prescription. Criticism is also lodged that the CISG has no mechanism to ensure uniform interpretation. However, if the interpretive methodology of CISG Art. 7 is properly followed then uniformity of application is possible. It should be noted that the CESL copies this interpretive methodology14. The CESL also fails to acknowledge that most trans-border B2B contracts are resolved through arbitration where uniformity of interpretation is not a major concern.
Since the legal framework provided for by existing instruments is very similar to the optional instrument and the fact that the optional instrument reflects many of the rules found in the CISG, UPIC and PECL, the need for another legal instrument is not readily apparent. In light of such proliferation of regional regimes, the time has come for UNCITRAL to work on a more universal text in the field of contracts. A more comprehensive international convention for B2B contracts would be a more appealing idea for the business community than a regional instrument15. As a first step, the EU should issue a recommendation for member states to ratify the Convention on the limitation period in the international sale of goods. Adoption of the CISG by Portugal, Ireland, Malta and the UK would diminish the need for the CESL.
The usefulness of the opting in mechanism: the “opt in” mechanism was the one chosen for international sales law like the ULF and ULIS16 and were adopted by the UK. To the best of our knowledge, there are no reported cases in the UK that has applied the ULF or the ULIS. This may be the future outcome for the CESL. It blurs the distinction between B2C and B2B contracts and the mass of rules for consumers make the text not very user friendly for traders17. There remains a concern that not separating B2C and B2B rules more clearly risks the extension by analogy of consumer rules to B2B transactions.
The distinction between larger and small and medium sized businesses is problematic. There is no conceptual or rational reason from a substantive law point of view to extend consumer-like protections to SMEs and interfere with the principle of freedom of contract18. Additionally, there is no solid rationale for not applying the CESL to all B2B transactions19, as well as limiting its coverage to international, but not domestic transactions. It would also be useful in the CESL provide a model arbitration clause for B2B transaction to promote a fast and specialized method for solving disputes.
The CESL may play an important role in regard to B2C contracts in cross-border situations particularly in the area of distant selling since the trader currently has to adapt its contracts to the requirements of the consumer's national law20. EU Law is to a certain extent harmonized, but difficulties exist because of the different standards (mandatory rules) of protection adopted within EU countries21. To increase the impact of the CESL, it should be extended to cover contracts with consumers domiciled in third countries, as foreseen in Recital 14, as well as to extend the regime to domestic consumer contracts, an option noted in Recital 1522.
Art. 2(e) of the CESL...