A new Common European Sales Law (CESL)
As an update to the report we provided on some draft provisions being proposed to develop a European contract law (see July 2011), the European Commission received some considerable negative reactions to its Green Paper setting out the policy options for such a law. It has, however, now published a draft Regulation proposing an optional Common European Sales Law (CESL), which will create a voluntary ‘28th’ contract law for the sale of goods and ancillary services. This will be in addition to the existing 27 laws of the current EU Member States so that parties can chose for the CESL to govern their contract over their own national laws.
Limitation of scope:
The CESL is limited in scope – importantly, it is optional but its application is also restricted:
- one of the parties must be from a Member State and the contract must be cross-border (although Member States will have the option to make the law available for use in purely domestic agreements);
- the transaction must be business-to-consumer, or business-to-business where at least one party is an SME. ‘SME’ is defined as a business employing less than 250 people and having an annual turnover of €50m or less or a balance sheet of €43m or less;
- the contract must be for the sale of moveable tangible goods or digital content, and related services. It would not apply to contracts solely for the supply of services;
- both parties must expressly agree that the CESL will apply in its entirety. It is not possible to elect that certain provisions will apply and exclude others.
Contract law principles:
The main contract law principles are covered by the CESL (but some areas are not dealt with such as intellectual property rights). Those set out in the CESL include:
- pre-contractual information duties;
- formation of a binding contract, including formal requirements;
- right to cancel and its consequences;
- consequences of mistake, fraud or unfair exploitation;
- interpretation of a contract;
- assessment and the consequences of unfair contract terms;
- seller's obligations including implied terms such as fitness for purpose;
- buyer's remedies for non-performance;
- compensation; and
- termination and limitation periods.
Points to Note:
- The effect on UK businesses is difficult to assess as the Regulation for the CESL is still only in proposal form. Nevertheless, as it is a voluntary code and many of the contract law principles mentioned above appear to make a supplier’s obligations more onerous than might otherwise be the case, suppliers may simply choose not to adopt it. They may, however, come under pressure from customers to use the CESL.
- The scope of the proposed law regarding digital content means this includes downloadable software or software supplied on disc (query what about software supplied ‘as a service’?). Related services such as maintenance and support could also be subject to the CESL. There is no measure of materiality, so the goods element could be a very small part of the overall transaction.
- The aim of having one system of contract law is to lessen the cost and uncertainty of doing business internationally although whether it would actually achieve that aim remains to be seen.
- The CESL, although currently limited in scope, could be extended at some future point by further legislation, so that it applies, for example, to all contracts, all parties, domestic as well as cross-border transactions and on a mandatory basis. Of course, presumably there is nothing to prevent its adoption by agreement in other situations although we suspect that many lawyers will simply opt for what they know, particularly given that the CESL will have no ‘legal history’ of being interpreted and applied which may, at least in the short term, increase uncertainty.
- For more details, go to European Commission’s CESL FAQs.