On 10 November 2011, the Law Commission and the Scottish Law Commission ("Commissions") published their advice on the European Commission's proposed "Common European Sales Law" ("CESL"), which covers the sale of goods, the supply of digital content and some related services. If the CESL is implemented, traders may choose the provisions of the CESL to govern their cross-border contracts. More recently, on 8 December 2011, the House of Commons have challenged the legitimacy of the CESL.
What does the CESL do?
The CESL is an optional code intended to sit alongside a Member State's domestic contract law. It can be used by parties to govern cross-border transactions where:
- at least one party is based in the EU
- both parties expressly agree to its application.
One of the suggested benefits of the CESL is that it could clarify the contractual position for businesses selling to consumers online. Businesses currently risk falling into the category of "directing their activities" to consumers in other jurisdictions. This could potentially result in the business' contractual provisions being subject to the mandatory provisions of the consumer's jurisdiction. The CESL would effectively be a separate legal regime which, if the parties agree, would take precedence over the mandatory rules of domestic law. The House of Commons has, on 8 December 2011, challenged the legitimacy of the CESL.
The Law Commissions' advice
The Commissions found that the CESL covers basic contractual provisions but does not adequately address the issues presented by online sales and sales at a distance. More could be done to clarify when the contract is formed, the effect of a change of circumstances and unfair terms protection.
Whilst recognising the need for a new optional code to cover cross border sales, the Commissions consider that efforts would be better spent in developing a European code for on-line consumer sales. They argue there is stronger evidence that the current systems in place are inadequate and misleading for both consumers and businesses
Key issues with the CESL
The Commissions found that the CESL in its current form:
- lacks clarity and would be easier to understand if it had:
- separate codes for business-to-consumer contracts and business-to-business contracts
- notes and internal references
- an authoritative guide to accompany it
- is limited from the trader's perspective in that:
- it is cumbersome to use for telephone sales, causing problems where traders use both online and telephone methods alongside each other
- traders must still find out about and comply with the linguistic requirements of the Member State they are selling into
- the consumer's extended right to reject for up to two years from the date of being expected to be aware of the fault, may discourage traders from using the CESL
- does not adequately protect consumers in that:
- uncertainty in the provisions regarding when the parties agree to be subject to the CESL may lead to difficult arguments which could disadvantage consumers
- the lack of damages for distress and inconvenience may also reduce the level of consumer protection.
Concerns over a two tiered system
The Commissions advised that if the CESL is confined to cross-border sales, traders will need to use two systems of law, one for domestic sales and one for cross-border. The Commissions give the example of a trader based in Luxembourg doing a lot of business in the UK could use the CESL, but a trader based in Leicester could not.
This would have the unintended result of clouding the cross-border regulatory framework even further than it currently is. A further issue is that, in practice, businesses will not seek consumer agreement to contract on CESL terms, but rather leave the consumer with the choice of purchasing from the business on the CESL terms or not purchasing from the business at all. Again this could have an unintended effect of potentially lessening the rights currently afforded to consumers.
Challenge by the House of Commons
The House of Commons' formal objection to the legitimacy of the legislation appears to be a holding measure. The concern is that the CESL is at risk of being rushed through without liaising with the appropriate stakeholders to ensure that the concerns identified by the Law Commissions are fully considered.