A European Contract Law: Responses from London

1. A European Contract Law: Responses from London Prof Dr. Anthony Lavers Counsel, White & Case LLP Visiting Professor of Law, Oxford Brookes University Former Chairman, UK Society of Construction Law European Society of Construction Law Deutsche Gesellschaft für Baurecht Frankfurt 11 Nov 2011

2. Sources Responses: • Law Society of England & Wales • Represents 140,000 Solicitors • Dec 2010 evidence on Consultation • Jan 2011 on Policy Options • July 2011 on feasibility study • Bar Council of England & Wales • Represents 15,000 Barristers • Jan 2011 • Technology and Construction Solicitors Association • Solicitors practising construction and engineering • Jan 2011 • City of London Law Society • 14,000 lawyers in some of the world's biggest law firms • Jan 2011 • Commercial Bar Association • 37 sets of Commercial Barristers' Chambers, mainly in London • Jan 2011

3. "The Commission is currently tackling bottlenecks in the internal market to drive economic recovery…. The Commission wants businesses and consumers to reap the full benefits of the internal market which is why it has taken the initiative to examine several options on how to ease cross-border transactions by making contract law more coherent across the EU." Results of the feasibility study carried out by the Expert Group on European Contract Law

4. "The Society does not agree that a need for legal instrument of European contract law has yet been demonstrated." (Dec 2010) "The Society does not agree that a need for an 'optional instrument' of European contract law has been demonstrated and consequently opposes its introduction." (Jan 2011) "The Society does not believe that a need for an 'optional instrument' of European contract law has been demonstrated for B2C or B2B transactions." (July 2011) The Case for Change Need:

5. "TeCSA must register its surprise that this initiative is being pursued long before there is any real evidence that could be said to provide a mandate for action in the first place." "While the CLLS are happy for the Results of the Expert Group to be published, they do not believe that any of the other options put forward by The Green Paper are useful, appropriate or justified, given the paucity of statistical evidence and analysis identifying any problems or any need for action." The Case for Change Need:

6. "The Green Paper assumes, but provides no evidence for, the difficulties that it is said the policy options might address." "The problem which the Green Paper proposals seek to address is not sufficiently defined." The Case for Change Need:

7. "We are not aware of a comprehensive study (at least from a B2B perspective) ascertaining whether there really is a need for a change to the current system of governing laws." • "Whilst the Society is supportive of the aim to improve the functioning of the internal market, it has concerns that the current initiative may result in greater difficulty and complication for businesses and consumers in cross-border trade and therefore does not accept that a need has been demonstrated for an optional instrument." Reasoning on Need

8. "The Bar Council remains far from convinced that the Commission has proved its case, either that there is a significant problem for businesses generally or for consumers and SMEs in particular, in their cross-border contractual dealings, or that, if there is, it is caused by differences in contract law as such, or could be fixed by any EU measure in the contract law field." "The evidence base on which the suggestion that there is in fact a problem, and that that problem might be caused by the lack of uniformity in legal provisions, is wholly insufficient. …in relation to the business disputes with which we are concerned, there is no evidence to support either the existence of a problem, or to support the suggestion that any problem is the result of a lack of contract harmonisation." Reasoning on Need

9. "Whatever the position may be in other sectors, TeCSA does not believe that the divergence of national laws in the area of contract law represents a significant barrier to cross-border trade or transactions within the construction and engineering sectors. TeCSA has certainly seen no evidence of such a problem in either the material that has been advanced as supporting an initiative in this regard or elsewhere." "FIDIC or FIEC (Federation of International Contractors) 'would no doubt express on behalf of their members concerns about such a problem if they or their members thought that such a problem existed…" "There has been neither call for action to be taken by such bodies, or even any suggestion that barriers to trade are being experienced by their members." Reasoning on Need

10. Green Paper referred to Special Eurobarometer 292 Survey (2008) as evidence of support: Question only asked whether respondent would prefer a harmonised European law or theotherparty's national law. Contrast Flash barometer 128 (2002) Only 26% of respondents had less confidence in cross-border transactions. Their reasoning did not include lack of a harmonised contract law. "It is not clear that the current regulation of contract law or any divergence of national laws present a significant barrier to trade as suggested by the Green Paper." The Green Paper actually says that "differences between national contract laws may entail additional transaction costs" and that consumers/SMEs "may be reluctant to engage in cross-border transactions." Reasoning on Need

11. House of Lords EU Committee Report 2009 "There is still little hard evidence on the fundamental question whether and how far differences in substantive law are a source of extensive problems which require addressing at the European level. The Committee noted that the Draft Common Frame of Reference for The Green Paper "was not the result of any survey or impact assessment identifying or investigating the scope of any problem or problems." "There is no evidence of any need for such a measure in commercial transactions." Reasoning on Need

12. "The Bar Council has considerable doubts … that the Lisbon Treaty provides a workable legal basis for the Commission to proceed with any of the options 4-7." • "Legal certainty is … a general principle of Community law … Option 4 would be more likely to create legal uncertainty." • "The Bar Council has also reached the clear conclusion that there is no competence for the EU to legislate in the manner contemplated by Option 4 … It must offend against the fundamental EU principle of proportionality to introduce such a measure, without the clearest evidence of need and a clear model demonstrating how Option 4 would ameliorate the situation. • In the absence of either of those essential elements being demonstrated, the EU cannot be competent to act." Legal Basis for Reform

13. "The very competence of the EU to act on this matter is doubtful. Even if divergent national laws could be shown to deter trade, it would be difficult to show that any of the options in the Green Paper would actually reduce such effect. This means that Article 114 of the Treaty (on the functionality of the European Union) cannot be relied upon to provide a legal basis for enacting any of the options put forward by The Green Paper." Legal Basis for Reform

14. "There is a very real risk that an additional and very substantial layer of complexity will inevitably flow from the inconsistent approach that the courts of the various Member States are likely to adopt and apply in reaching decisions on the substance of the instrument and on its interrelationship with other national laws and rules." • "Creating a new legal instrument would involve significant costs and cause great legal uncertainty in three areas: • an optional instrument would, rather than reducing any such deterrent effect, increase it by adding yet another possibility to the equation; • that which is inherent in a completely new legal system that lacks any established and consistent jurisprudence to enable parties to structure their transactions or draft contracts with any confidence; • there is likely to be more litigation than under national law because of parties' lack of familiarity with a new instrument." Effects

15. "It is highly unlikely to think that consumers will forego a higher level of domestic protection, for a reduced level offered by an Optional Instrument. The situation would equally certainly be the inverse in Member States where the level of consumer protection is currently relatively low. But that establishes the point: a patchwork quilt of differing applicable standards and measures will remain, with no benefit to businesses, large or small." • "If the Optional Instrument were to look anything like the draft Common Frame of Reference … the Optional Instrument will accord a great measure of latitude and discretion to judges." • "… a considerable expansion of uncontrolled judicial power." • "The likelihood of the Option Instrument being construed and applied consistently across Member States is remote." Effects

16. Cost Implications: • Lawyers and judges would need to learn an entirely new system – a potential 28th system of law" … "no consideration of cost seems to have been made" • Those who might wish to use the Optional Instrument will also face increased transaction costs • Dispute resolution costs will increase in determining applicability and meaning of Optional Instrument. Effects

17. "There would be substantial increased costs, both in educating clients and lawyers and in determining in any case the interrelationship between this instrument and other provisions of mandatory law." "There is room for substantial uncertainty, since the new Code would have to be interpreted by the Courts." "There would be room for differences between different countries, since the courts of different countries might interpret the code in different ways – leading to a lack of harmonisation." Effects

18. Conclusions Summary of grounds for objection to Green Paper and Specifically Option 4: • No proof of existence of problem • No proof of effectiveness of proposal to deal with problem if it exists • Likelihood of great uncertainty and complication • Probability of inconsistency of interpretation between difference jurisdictions • Likelihood of increased cost to business and in administration of justice • No assessment of impact of proposal on business or administration of justice

19. Supports Option 1 Supports Concept of Option 2 (but sceptical of proposal) Rejects Options 3 – 7 Rejects Option 4 • Supports Option 1 Urges further work on Option 2 • Rejects Options 3-7 Rejects Option 4 Supports Option 1 Supports Concept of Option 2 (but not as proposed) Rejects Option 3-7 Rejects Option 4 Supports Option 1 Rejects Option 2 Rejects Option 3 "Strongly rejects" Option 4 "Very strongly rejects" Options 5-7 Supports Option 1 Supports Concept of Option 2 (but doubtful of proposal) "Commission should not go beyond these options" Rejects Option 4 Summary of Positions

20. "current initiative may result in greater difficulty and complication for businesses and consumers" • "does not accept that a need has been demonstrated for Optional Instrument" "If the evidence, once it has been obtained, demonstrates a need and a demand for further steps … such need would be best addressed by utilising the FIDIC model beyond merely the engineering sector, for example in areas such as building and construction." "do not believe that in times of austerity scarce resources should be devoted to this issue until a proper study has been made" "it is also imperative that in addition to academic lawyers, practising lawyers with extensive international contract experience be involved" Last Words

21. "The Bar Council is concerned that, instead of a measured approach, political expediency appears to be influencing abrupt changes of thinking and direction. This is no way to proceed." "We are concerned with the procedure that is being adopted … we are also seriously concerned as to the possibility of adverse results flowing from an instrument that is produced without adequate thought or stakeholder input. On 11th December 2009, the European Council reaffirmed that the common frame of reference should be non-binding and comprise a set of fundamental principles, definitions and model rules to be used by lawmakers at EU level. This is in essence Option 2 … yet the Expert Group are already doing work designed to implement a different option – Option 4." Last Words