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Common European Sales Law

My hon. and learned Friend was unhappily absent at the beginning of my remarks, when I reported to the House that the Bundestag gave a unanimous opinion last week that this proposal was contrary to the principle of subsidiarity. I am not aware of any other parliamentary chambers that have undertaken to do so. To illustrate the difficulty of achieving the level of one third of chambers taking a view and reporting a reasoned opinion, the Bundesrat has not taken a view. Therefore, of the two German Chambers, only one, the Bundestag, has taken a view. Only half of the German Chambers have taken a view, whereas the hurdle that has to be achieved is a third of national parliamentary chambers. My hon. and learned Friend will understand that it is quite a hurdle in those circumstances. Of course, it is a matter for the other place whether it takes a view on this matter. You will be aware, Mr Speaker, from reading the Government's explanatory memorandum on this proposal that, provided that it is demonstrated that the difference in national contract laws is a genuine obstacle to cross-border trade, the Government's view is that the subsidiarity test is likely to be met. The Government do, however, share the European Scrutiny Committee's concerns about the necessity for this proposal in the first place. We question whether an optional common European sales law or one with such a wide scope is the right way to address this issue. These matters will form part of the consultation that the Government plan to hold. I shall therefore listen to Members' views with great interest. I will now turn to the substance of the proposed regulation. This proposal has a long history. The European Commission and the European Council have been engaged in the general issue of contract law for a decade or so. I believe that the European Parliament's involvement stretches back even further. The European Union contract law project lay dormant for some time, but gained momentum again in July 2010 with the publication of a Commission green paper on options for progress towards an EU contract law for business and consumers. The green paper set out various options for reform, including to continue with the development of a legislators' toolbox. That would provide a common frame of reference, drawing together the most common concepts and terms used in contract law, which would be the commonly agreed basis to be used by the authors of future European Union laws relating to contract law. The aim of that would be to reduce or remove the current differences and the difficulties that they cause. The green paper invited views on seven options, from a specific directive or a regulation providing an optional European Union-level regime, right through to a mandatory black letter European code of contract law. The conclusion of the Commission green paper's analysis, and of views received on a feasibility study published by the expert group in May, have culminated in the proposed regulation for a common European sales law. More recently, the Commission's proposal was published on 11 October. It contains a set of uniform contract law rules that parties to a contract could choose to govern their contract. The use of such rules would be optional, but that optional law would form part of the national law of each member state and could be used as an alternative to what is currently offered under national law. That alternative regime would be available for cross-border business-to-consumer and business-to-business contracts when at least one party was a small or medium-sized enterprise. Although the Government intend to consult widely on the detailed policy implications of the proposed regulation, our initial assessment indicates that it would be neither simple nor easy to use. Although it is designed to be free-standing, it remains unclear what relationship it would have with other Union laws such as the Rome I regulation. It also seems that a range of matters that could affect the legal relationship between the parties have not been addressed in the proposed regulation. That has the potential to undermine the aim of removing the need for businesses to incur transaction costs on legal advice on another country's law. The scope of the proposal could prove difficult, with its wide application to business-to-business and business-to-consumer contracts whether they are concluded by distance, away from business premises or on the premises. The Government are not sure whether such an all- encompassing regulation is the correct way to address the different problems that traders and consumers may experience. In addition, current arrangements already provide that any state's law can be chosen as the law of contract. In that sense, a trader could already choose which law to apply to his or her contract, and in most cases that is likely to be their own. The anticipated net value of the regulation remains to be tested and quantified against the costs of introducing a new law. The Government are also concerned about the treaty base used in bringing the regulation forward. The proposed legal basis is article 114 of the treaty on the functioning of the European Union. That basis is normally used for harmonising laws in order to further the establishment of the internal market. The Government have doubts about the appropriateness of that, particularly as most other optional instruments that operate in parallel to domestic law are brought forward on other legal bases. The Government have been working closely with interested parties through the process leading to the proposed regulation. Indications so far are that opinion is divided. Some interested parties see an optional contract law for cross-border sales as a potentially useful tool for aiding the internal market, but others see such a new law as risky, over-complex and unnecessary. The Government intend shortly to consult United Kingdom interests on the proposed regulation. The views received will be used to develop and inform the Government's position on the likely impacts of such a regulation, as well as on any benefits or disadvantages that are likely to occur for the various sectors that it could affect. We will not form a concluded view on our approach to the proposal until after the consultation has been concluded and there has been proper time to analyse the results. For today, I am of course grateful for the chance offered by the debate to hear the specific concerns that Members may have.