Common European Sales Law - The Law Society International ...

Common European Sales Law
April 2013
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I. Introduction
1. This paper outlines the position of the Law Society and the Bar Council in relation to the
proposal for a Common European Sales Law (CESL) 1 and is structured to respond to the
recently-published draft papers of the Legal Affairs (JURI) and Internal Market and
Consumer Protection (IMCO) Committees of the European Parliament and, in particular, to
respond to the points set out in the Explanatory Memorandum of JURI's draft report.
2. The Law Society and the Bar Council support efforts to improve the functioning of the
Single Market but do not agree that a need for the CESL has been shown. We believe that
there are more important factors in determining whether individuals and businesses enter
into cross-border trade, such as access to effective redress, differing advertising rules, tax,
etc.
3. We are concerned that this initiative would cause uncertainty, not only in the interpretation
of the new instrument but also in its scope of application, in its relationship to existing law
and whether there is a legal basis under the treaties to create it. We also consider that the
introduction of the instrument is likely to create additional costs ultimately to be borne by
businesses and consumers.
4. From a business-to-consumer (B2C) perspective, we believe that, until the Consumer
Rights Directive (CRD) 2 has been implemented, there is no need for a further B2C
instrument, nor would a broad contract law instrument (in contrast to the CRD‟s focus on
consumer protection) assist in increasing trade. 3
5. Any further harmonisation of consumer protection rules need not be bound up with a broadranging
contract law instrument. In this regard we note with interest the proposal by some
policymakers to 'focus on the harmonisation of certain aspects of the obligation relating to
the guarantee of conformity...' 4 in consumer transactions, rather than a new contract law
instrument.
6. However, if a broader instrument is to go ahead, it would be better for the instrument to be
tailored to specific areas of trade in order that it could be developed to fit the needs of
businesses and consumers - and our preference would be for a limitation to B2C online
contracts.
1 Proposal for a Regulation on a Common European Sales Law, COM(2011) 635 final, 2011/0284 (COD), 11 October
2011.
2 Directive 2011/83/EC of 25 October 2011 on consumer rights amending Council Directive 93/13/EC and Directive
1999/44/EC and repealing Council Directive 85/577/EEC and Directive 97/7/EC.
3 The suggestion that it would do so being based on the assumption that suppliers will be more ready to supply consumers in other
member states if they can do so according to a newly devised, untested system of contract law.
4 See Amendment 16 et seq. tabled by Evelyne Gebhardt MEP for the opinion of IMCO.

7. We believe that including B2C and business-to-business (B2B) contract law in one
instrument would cause confusion due to the differing characteristics and approaches of
these areas of contract law. Taking into account the instrument's development, based
largely on B2C contractual principles, practitioners are concerned that the approach
proposed is not suited to B2B transactions.
8. As an alternative approach, we continue to support the idea to develop some EU standard
terms and conditions that could be used to assist parties in drafting cross-border contracts
in a B2C context. We are not convinced that the current approach of drafting standard
forms to be used in conjunction with the CESL will be helpful as there will be no
jurisprudence relating to the CESL underlying such contracts and so less clarity for
contracting parties.
II. Issues
9. The Law Society and the Bar Council have carefully considered the changes proposed in
the draft report and recognise that a number of improvements have been made. These are
welcome.
1. Structure
10. We welcome the change to integrate the definitions section with the CESL articles in the
same consolidated document.
2. Scope
Distance/online contracts
11. We welcome the restriction of the scope to distance-contracts. We would prefer any
eventual instrument to be restricted to B2C on-line contracts. This would allow the
instrument to be tailored and simplified as, in general, online contracts do not allow for precontractual
negotiations. Distance-contracts can take many forms, including telephone
sales and hybrid arrangements: these are more complex to provide for.
EC text (Art 5(1) Reg)
The Common European Sales
Law may be used for:
AM 55: Current JURI text
The Common European Sales
Law may be used for distance
contracts, including online
contracts, which are:
Our suggested text
The Common European Sales
Law may be used exclusively
between traders and
consumers for online
contracts, which are:
12. In addition, it is clear that there are some 'loopholes' to the scope, which are likely to give
rise to uncertainty. For example, Amendment 56 provides that "[t]he Common European
Sales Law may also be used for contracts [sales contracts, contracts for the supply of
digital content or related service contracts]... where the parties conducted negotiations or
took other preparatory steps with a view to the conclusion of the contract, using for all those
steps exclusively means of distance communication, but where the contract itself was not
concluded by distance communication". This provision should be deleted. We believe that
any such extension as this is undesirable, and that the instrument, if it is to go ahead,
should be limited with certainty to B2C contracts concluded online.

Limitation to cross-border contracts
13. We support the decision of the rapporteurs to leave in place the restriction to cross-border
contracts.
14. We believe that the most appropriate approach may be to see first whether any final
instrument is able to operate successfully in a cross-border context and, if so, for Member
States to then be able to consider introducing it into their domestic systems. The aim of
increasing trade across borders has been the key justification for the initiative: extending
the initiative to domestic contracts, at least in the first instance, would overreach this and
raise questions in relation to competence and proportionality.
B2C and B2B contracts
15. The current scope proposed is for an instrument covering both B2C and B2B contracts. In
our view, commercial contract law and consumer contract law have diverged so
significantly in recent decades, in large part as a result of EU initiatives in the consumer
protection field, that it is not appropriate to include both B2C and B2B transactions in the
same instrument. We believe that, if the CESL proceeds, B2B contracts should be
removed.
16. B2B contract law focuses on freedom of contract and certainty; B2C contract law focuses
on fairness, that fairness being determined by the law. The merging of consumer and
business law in the same instrument tends to push what is appropriate for consumers in the
direction of business and vice versa. Whilst B2C contracts need to offer protection to the
consumer as the weaker bargaining party, B2B contracts should be facilitative enabling
commercial parties to strike a bargain based on free choice. 5
Alternative approach in relation to consumer legislation
17. In contrast to the CESL, the CRD proposal took a much narrower approach in relation to
contract law rules. There seems no clear justification for the broad scope of the current
proposal, which covers a range of general contract law components (for example, formation
of contract and rules on interpretation) given that it is possible to incorporate standardised
consumer protection rules into the different systems. As outlined above, any further
harmonisation of consumer protection rules need not be bound up with a broad-ranging
contract law instrument. We encourage policymakers to consider an approach based on
this.
Focus on sale of goods and mixed/linked contracts
18. The CESL is designed for sale of goods and some related services contracts. We would
favour a limitation of the scope to sale of goods contracts (which have different
characteristics and remedies than those appropriate for services contracts). At the very
least, if related services are to remain within scope, in order for transactions to fall within
the scope of the CESL, they should relate predominantly to the sale of goods.
5 From a B2B perspective, whilst we support initiatives to stimulate greater cross-border trade involving SMEs, we have concerns that
the justification used for the proposal, that smaller businesses require protection, is too simplistic. Firstly, it is not true that small
business entities are always in a weaker position. Some are and some are not, depending on a range of different factors including who
they are negotiating with, the experience of the parties concerned, the type of business, the level of need of the buyer, etc. Secondly,
the protective rules in the text are not confined to SMEs (see for example Article 51 of the CESL on unfair exploitation). We further do
not believe that weakness on its own in a commercial context is a ground for requiring protection. Surely an additional justification is
required before protection is granted to one party in a B2B context because most contracts will have a weaker and a stronger bargaining
party (and who this is may change during the course of negotiations).

19. We note the extension to mixed/linked contracts with a credit element. Practitioners have
warned, in this regard, that there should be a thorough consideration of the interaction
between the CESL and the current EU and domestic consumer credit regimes. It is
possible that this addition could give rise to unnecessary legal uncertainty.
20. As a general comment, in both a B2C and B2B context, mixed and linked contracts can be
complex. There is also an infinite variety of such contracts, since the current draft does not
limit in any way the types of contract which may be linked to contracts for sale of goods, for
the supply of digital content or a related service contract. Greater clarity of drafting would
be required We would be happy to assist with such drafting if, contrary to our primary
view, it is thought desirable to include any mixed purpose contracts.
3. Relationship with the Rome I Regulation 6
21. Following the publication of the JURI Working Document, 7 the Law Society agreed with the
rapporteurs that the relationship between the CESL and Rome I required clarification.
Whilst we appreciate the effort that has been made in this regard, neither of us think that
the additions proposed in the JURI draft report to the recitals to the instrument are sufficient
to achieve this. We believe that the legal uncertainty regarding the relationship will either
need to be resolved by a change to Rome I itself or through a ruling of the Court of Justice
of the European Union.
22. A key justification for the CESL appears to be the requirement under Article 6(2) of Rome I
for businesses, when selling (and directing activities) to a consumer in another Member
State, to comply with the mandatory rules of consumer protection in the Member State
where the consumer is habitually resident. There are differing views on how much of a
problem this in fact poses.
23. The key attraction of the B2C CESL instrument therefore appears to be its perceived ability
to insert into each Member State's law an optional identical set of mandatory consumer
protection rules that businesses could choose to comply with thus circumventing the current
perceived difficulty with Article 6(2) of Rome I. The approach is complicated, novel and
untested and there is uncertainty among legal practitioners as to whether this approach
succeeds. Indeed, it is not clear to some practitioners how the CESL would even become
the second national contract law for these purposes.
24. The Law Society has previously given the example of a German retailer, wishing to sell to a
consumer in England within the scope of Article 6(2) of Rome I, who provides that the
contract is governed by German law and the CESL. A court would first need to decide what
the governing law is and would conclude that it was German law according to the parties'
choice of law under Article 6(2) of Rome I. As a result, the consumer would retain the
protection of English mandatory consumer protection law also provided for under Article
6(2) of Rome I. The CESL is chosen as a part of a national governing law (in this example,
German law). If that governing law is not the law of the consumer's state of habitual
residence, Article 6(2) of Rome I requires that the consumer should continue to benefit from
the mandatory protection of the rules of the state where he or she is habitually resident. In
these circumstances, it is unclear to some practitioners why the protection provided by
Article 6(2) of Rome I would be the protection given by the CESL. It seems to depend upon
the parties having chosen not only German law and the CESL that exists as part of German
law, but also having opted through their choice of German law for the CESL that exists in
English law.
6 Regulation (EC) No 593:2008 of 17 June 2008on the law applicable to contractual obligations (Rome I).
7 Working Document on the proposal for a Regulation of the European Parliament and of the Council on a Common European Sales
Law (COM(2011)0635 – C7-0329/2011– 2011/0284(COD)), 8.10.2012.

25. It is also not clear whether ultimately the CESL will be viewed as EU law or national law
and what its relationship will be with existing instruments including Rome I and the CISG.
There is much debate on how parties could effectively choose CESL in the light of Article
6(2) of Rome I in a B2C context and the existence already of an opt-out regime under the
CISG in a B2B context.
4. References to national law
26. The Law Society and the Bar Council welcome the initiative of the rapporteurs to outline the
key areas that are within and outside the scope of the CESL. (See JURI Amendments 69
and 70.) The CESL is not self-standing. Although the legal issues outside the scope of the
CESL may not arise in every case, each of them is potentially of significant practical
importance, with issues of set-off, agency, capacity to contract, assignment, property law,
tort (especially product liability claims) and concurrent liability regularly arising in sale of
goods transactions and litigated cases. While the draft may be largely sufficient for basic
cross-border sale of goods contracts, it may not be possible to determine in advance when
issues outside of the scope of the CESL will arise.
27. In the event of a dispute, the outstanding issues would need to be resolved by the default
governing rule identified in accordance with Rome I or other conflicts rules. The
uncertainties about this would be a further disincentive to using the instrument.
5. Good faith and fair dealing
28. The Law Society and the Bar Council recognise that the rapporteurs have sought to engage
with the concerns expressed by us in the past on the inclusion of a principle of good faith
and fair dealing if the instrument were to extend to B2B contracts. However, we remain
unconvinced of the necessity to incorporate an overriding principle of good faith and fair
dealing. This concept is highly subjective and how it is interpreted would depend on the
approach of individual courts. Its inclusion would inevitably create uncertainty and be in
contrast to the approach in a B2B context of providing specific rules which address
demonstrated examples of contractual unfairness or other specific objectionable practices.
We do not think it is necessary and its inclusion creates significant uncertainty from the
perspective of contracting parties.
29. In the attached annex, the Law Society had outlined some of the concerns concerning the
European Commission's proposed wording, in particular, the requirement for "consideration
for the interests of the other party" which could create difficulties in a commercial context.
We do not think, however, that the inclusion of wording that "excludes an intention the only
purpose of which is to harm" addresses the concerns because in this case a party would be
able to argue that, even if their principal purpose was to harm, they also had another,
subsidiary, motivation. An alternative approach would be to address this as a specific
objectionable practice.
30. We note the proposal that the concept of good faith and fair dealing could be limited to the
function of a shield (i.e. "precluding a party in breach from exercising or relying on a right,
remedy or defence"). Whilst it may be said that this limits the objections that may be raised
to the use of such a concept, since it lessens the importance of the concept in practice, we
question the utility of this approach. Where there has been a lack of good faith, then there
are often remedies given by other areas of the law; a degree of overlap will create
uncertainty. Moreover, the width of the concept, which appears to be a free standing one,
will give rise to further uncertainty. The discretion which is inherent in the draft (“breach
may preclude a party from relying”) means that a party will be unsure of its contractual
rights, and will mean that definitive advice will be more difficult to give to parties.

31. From a B2C perspective, we believe that the inclusion of this principle without further
understanding of what is meant beyond the very generic terms of the definition may
discourage businesses from adopting the instrument, as it gives both parties to an
agreement a very broad scope to argue that a party has breached this duty and as such
should be prevented from exercising a right or remedy under the contract. It is very difficult
for traders to show, let alone prove, bad faith on the part of the consumer, particularly in an
online context. 8
6. Remedies of the buyer
32. The Law Society and the Bar Council note that the rapporteurs propose three alternative
approaches for the perceived problem in relation to remedies, namely an imbalance
between the rights of consumer buyers and business sellers. These are (i) "one could
introduce a deadline of 6 months after the risk has passed to the buyer, after the expiry of
which the buyer would have to accept cure..."; (ii) "a requirement could be introduced that
the consumer must give notice of termination within a reasonable time after he first
became aware of non-performance..."; or (iii) "an obligation could be introduced for the
consumer to pay for use in cases where he terminates the contract".
33. Whilst we recognise that significant thought has gone into the alternative approaches, we
are not convinced that any of the options would be fully suitable. However, we welcome
the approach of the rapporteurs in seeking to initiate debate based on the proposed
alternatives, and the pros and cons of each.
34. In the case of remedies, if despite our concerns (see section 8. below) digital content
remains in scope, we would see digital content as a separate category for which different
remedies should be able to apply due to the different nature of the product. For example,
we would not wish to support immediate termination in the case of digital content. The
consumer should be required to first demand repair/replacement before being allowed to
request termination and a refund. Some practitioners have also expressed concern that
providing the current choice of remedies, in the case of digital content for which only a
micro-payment (or even no payment at all) is exchanged, could be potentially onerous for
businesses to provide for.
7. Restitution
35. Please see the Law Society's previous comments in the attached annex (final page).
8. Digital content and cloud computing
Digital content
36. At a conceptual level, it may be logical to include digital content within the CESL.
Nevertheless, we can see a number of problems with incorporating digital content into the
instrument. The approach to digital content cannot be considered in isolation from a host of
interrelated factors, which include copyright law, data protection, payment methods,
technological changes, online security and marketing rules as well as the issue of definition
and categorisation. We are not convinced that digital content should be included at this
stage. One important concern is the distinction between “digital content” and “goods”. At
times the approach appears confused. It is strongly arguable that concepts relating to the
sale of goods are not apt for the sale of digital content (which normally takes the form of a
copyright licence).
8 Though some in-house counsel have also pointed out that the supplier having to assert bad faith is not a good approach for the
consumer's perception of a brand and many traders will therefore operate a rule that the 'customer is right'.

37. Digital content is often viewed as sui generis in its legal character while cloud computing is
often offered as a service. There is a concern that an instrument designed to cater for sale
of goods would be not suitable for the rapidly-evolving fields of digital content and cloud
computing. In addition, some practitioners have raised concerns that any approach
adopted in CESL is likely to be followed by other EU instruments in the future when a more
innovative approach could be adopted from the outset.
38. If there are problems with online sales of digital content they seem to mostly emanate from
consumers not being able to access the right information about what and who they are
purchasing from and whether they will be able to get a problem resolved if one arises. In
other words, the main issues are ones of transparency, good customer complaint handling
and a lack of enforcement of existing regulations. The CESL will not be able to resolve
these perceived problems.
39. The Law Society and the Bar Council would support further consideration of the various
alternative approaches which could be adopted vis-à-vis digital content (and cloud
computing). 9
40. Finally, clarification is needed over the relationship between the proposed change to enable
remedies to be available in the case where "...digital content is not paid for with money, but
e.g. with personal data" and the proposed Data Protection Directive, which we understand
provides for a right to be forgotten. A monetary remedy when the consumer has
exchanged personal data is problematic and reinforces the sui generis nature of much of
the consumer activity in this area and the inappropriateness of applying goods laws to
digital purchases. (Therefore a limited consumer remedy like the „the right to be forgotten‟
proposed in the Data Protection Directive may be the most appropriate alongside rights to
repair and replace any content the consumer received through the contract they entered
into.)
Additional thoughts on cloud computing 10
41. The Law Society and the Bar Council view the provision of cloud computing space and
related services to be distinct from other services. Cloud computing should not be treated
in the same way as digital content (and we believe that neither of these categories are
appropriate to be included within the CESL instrument, designed pre-dominantly for the
sale of goods). It is sensible to separate digital content from the provision of storage in a
cloud (a service). Cloud computing would attract the same remedies as for a service,
whereas digital content might require a different approach.
42. Moreover, we note the uncertainty as to what is meant by “cloud computing”. If, despite our
concerns, it remains in scope, we consider it very important for a definition to be included.
The provision of related services, such as maintenance and repair is conceptually different
to the concept of storage (i.e. within a cloud). (See Amendment 41.)
43. We also note that other initiatives are under way to promote cloud computing; for example,
the European Commission‟s data protection initiative partially aims to do this. We would
like greater clarity on the overall approach of the European institutions to cloud computing.
9. Prescription
44. Please see the Law Society's previous comments in the attached annex (final page).
9 One possible approach might be to have a Directive.
10 Some practitioners have also questioned whether it would be better to introduce some amendments to the E-commerce Directive
relating to online contracts, rather than address cloud computing in this instrument.

10. Flanking measures
Database
45. With regards to interpretation, it is clear from the opening provisions that no domestic legal
concepts or principles should be read into the CESL text. Such an aspiration is more easily
stated than achieved as all judges and legal practitioners are inevitably the product of their
education and experience, making divergences in interpretation, with the resulting
uncertainty, likely. The proposal for the development of a database of case-law from the
different Member States has been viewed by practitioners as interesting, though it has
raised concerns regarding cost and would rely on judges and lawyers having sufficient time
and resource to consult it and ensure it is up-to-date. Such a practice would be more
valuable if authoritative digests of case-law were produced. Nevertheless, such an initiative
would not be a substitute for greater certainty in the CESL wording and a court in a Member
State would not be bound by the judgment of a court situated in another Member State.
46. We also previously expressed concerns as to how the Court of Justice would be able to
create jurisprudence in relation to the CESL, partly because of the limitations of its
jurisdiction and partly because of the practical demands of the caseload likely to arise from
this instrument. The cost of expanding the Court of Justice's role and workload would be
considerable. Parties would encounter long delays even with its current capacity. This
would, we believe, lead to a divergence in the application of the CESL between Member
States as many parties would not elect to appeal to the higher courts in disputes. We do not
think that the proposed case database would negate these difficulties.
Commentary
47. We understand that there are plans to produce a commentary to assist with the
interpretation of the text. While this might have its practical uses, it would also risk further
complexity and the addition of further requirements which are not part of the legislation. As
in the case of a database, a commentary would not be a substitute for greater certainty in
the CESL wording and could not bind Member State courts.
Link with alternative dispute resolution (ADR) and online dispute resolution (ODR)
48. We have strongly supported the initiative to improve access to practical redress in a B2C
context through the ADR Directive and ODR Regulation.
49. Nevertheless, we are not convinced that it would be appropriate to have a stronger link
between the CESL and the ADR initiative. Disputes over small scale transactions rarely go
to court and such disputes could be dealt with through ADR mechanisms, the development
of which we both support. However, this itself may hinder the development of a uniform
jurisprudence, which would be necessary for the effective interpretation and enforcement of
the CESL. Any contract law is closely bound up with the mechanism for its enforcement
through the courts. We agree that “in the absence of clear law to guide settlement
negotiations, there is a risk that any settlement might not be just” 11 .
Standard terms and conditions
50. In its response to the green paper, the Law Society suggested that some EU standard
terms and conditions could be developed to assist parties in drafting cross-border contracts
11 See Proposal for a Common European Sales Law : Making the Proposal simpler and more certain by Sir John Thomas. (Briefing
note to JURI, presented 27 November 2012.)

in a B2C context as an alternative to the CESL. Both the Law Society and the Bar Council
continue to support this idea. We are not convinced that the current approach of drafting
standard forms to be used with the CESL will be helpful as there will be no jurisprudence
relating to the CESL underlying such contracts and so less clarity for contracting parties.
11. Additional points
Legal basis
51. Any challenge relating to the legal basis may only be resolved by the Court of Justice. The
Law Society has previously considered the issue of legal basis, as has the Bar Council, and
is not convinced that the choice of Article 114 TFEU is appropriate for the CESL. (See, for
example, the European Co-operative Society case (C-436/03).) We believe that this
proposed legal basis will give rise to the possibility of legal challenge (with the
accompanying risk of the instrument being found to be ultra vires). Until this practical
uncertainty is resolved, the instrument will be less attractive to contracting parties
considering using it.
Optional nature
52. If the CESL is ultimately determined to be an alternative system incorporated within the
national laws of Member States, the process for opting for the CESL is understood to be a
"two step" approach of parties needing to select for their contract the governing law of a
Member State and then, within this, the CESL. If this is correct, it raises complications for
parties not familiar with negotiating contracts and also for parties from outside the EU.
What would be the outcome if they tried to select the CESL without an underlying governing
law
53. The current proposal requires that a consumer grant consent to the use of the CESL. We
do not think that consumers would be able to make an informed choice concerning the
underlying rules used to govern a contract (even if consumers were provided with
information on the protections offered in the CESL). For an instrument to work practically,
the choice of law would be for the business, with the consumer's true choice being whether
or not to buy the product; however, this would leave businesses in a position of choosing
between different sets of mandatory consumer protection rules (in areas not already fully
harmonised) which, in some cases, could be lower than or different from those already in
place in the consumer's habitual residence.
54. Some practitioners suggest that, if the instrument goes ahead, from a business perspective,
it may be more helpful if a seller could simply elect to import only the mandatory provisions
of consumer protection in the CESL and leave the rest of its contract subject to national
law. Why can the seller not choose to have its existing national law govern the description
of the product, price, method of payment, method of delivery, etc. when these can be
distinguished from the core mandatory consumer protection provisions