27th June 2011

Easier Cross-Border European Contracts?

The European Commission has undertaken a consultation into how contract law could be harmonised within the EU.  This is aimed at removing the barriers of cost and legal uncertainty which presently impede cross-border trade within the EU.  This is of particular concern to small and medium sized businesses who either cannot afford advice on the legal implications of cross-border contracts and expose themselves to risk as a result, or incur unwanted costs getting appropriate advice.  In July 2010, the Commission identified seven options for harmonisation. These ranged from creating legislative ‘tool boxes’ for Member State governments to draw upon when drafting their own laws through to establishing a single mandatory system of European contract law.

The Commission’s preference is for an ‘optional instrument’, a comprehensive, stand-alone body of rules which parties could nominate to govern their contract in place of the laws of any one Member State.  On the surface, such an idea could be attractive: the same rules could apply wherever you do business – which would go some way towards the law catching up with internal market in which we operate.  However there would be massive upheaval required to implement this. For instance, some basic principles of contract law vary between Member States, so questions on pre-contractual issues or on the very existence of a contract could well stray into difficult gray areas without extensive legislation.

The Commission is not expected to formally table their proposal until autumn, so actual legislation is not likely to surface for some years.  Many questions on both the technical and practical aspects of the proposal remain to be answered, yet events are in motion and the way in which business is conducted within the EU might well change substantially, and for the better, in the years to come.

Stewart Dunbar
Trainee Solicitor

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