Drafting a CFR: the aims and approach of the Expert Group
Hugh Beale
The DCFR
The Draft Common Frame of Reference (DCFR) draws on two sources. One is the
work of the Study Group on a European Civil Code. The Study Group has published,
in the series known as the Principles of European Law, what is effectively a
restatement of a large part of private law. Its work is based on thorough comparative
study of the laws of the different Member States, and of the various international
instruments that already exist. In part its articles represent what the Study Group
considers to be the “common core” of private law across the EU. In other words, they
represent the shared principles that you can discover if you take the functional
approach, going behind all the differences of terminology and concepts and looking at
what concrete results are reached in each law. For the rest, the articles represent what
the Group considered to be the “best solutions”, the most suitable rules for a modern
European law. The other source is the work of the so-called Acquis Group, which has
tried to find and state the principles which underlie the existing European Acquis. The
DCFR combines these two into a coherent whole. As far as consumer contracts are
concerned, the rules stated sometimes give somewhat more protection than the
consumer acquis currently requires under its minimum harmonisation provisions. At
other points the provisions of the DCFR simply reflect the existing acquis.
Coverage of the DCFR: obligations
The DCFR covers a wide range of topics. Thus in Books I-III it cover what I would
call general rules of contract law, but in Books I and III extending these rules so that
they apply also to other kinds of obligation. Book IV deals with a variety of specific
contracts, including sales, lease of goods and supply of services. Books V-VII deal
with non-contractual liability: unjust enrichment, benevolent intervention and liability
for damage (i.e. “tort” or “delict”).
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Coverage of the DCFR: property
The remaining books cover proprietary issues: acquisition and loss of ownership in
goods, proprietary security over moveables and trusts.
The “Academic” CFR
The DCFR was produced for the European Commission, which in its Action Plan for
a European Contract Law called for a Common Frame of Reference that might fulfil
two distinct purposes. The first was to act as a legislator’s guide or tool-box, setting
out “fundamental principles, definitions and model rules”. These would be used
immediately to assist in a revision of eight consumer directives, and later might be
used for the drafting of any further EU legislation on contract. The second was to
provide the basis of a possible Optional Instrument on contract law. The idea was to
overcome the barriers to cross-border trade, or at least to reduce the costs of crossborder-trade, caused by differences between the laws of contract in the various
Member States (MS), by providing a system of contract rules that could be used in
place of any of the national laws. It might be used for contracts between businesses
(B2B) and/or contracts between a business and a consumer (B2C).
Now it soon became obvious that the DCFR contained far more than might be needed
for these purposes. To function as a toolbox, the CFR would really only need to
provide model rules on topics that are likely to be the subject of further Directives on
contract law, and to provide definitions of concepts to which Directives are likely to
refer. In fact that might include a considerable number of topics: for example,
Directives quite frequently refer to, or assume that MS will have, rules of unjust
enrichment (e.g. to govern the consequences of a consumer’s withdrawal from a
contract) or tort law (e.g. they assume that MS have laws imposing liability for fraud).
A CFR that was only to form the basis of an optional instrument would probably be
even narrower, since it seems very unlikely that the EU would adopt an Optional
Instrument covering more than certain common types of contract. So during the
conferences and stakeholders’ meetings that took place while the DCFR was being
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drawn up, it became common to refer to the DCFR as an “academic draft” and to
accept that ultimately the “political CFR” would be narrower in coverage.
Consumer Rights Directive
Meanwhile, however, the plan was affected by politics. The Commissioner
responsible decided that he could not wait for the DCFR to be completed before
starting to improve the consumer directives. So work on the consumer acquis was
given priority. The result was the proposed Consumer Rights Directive (pCRD) of
October 2008. This drew on some ideas presented by “the researchers” to stakeholder
meetings, but did not even attempt to draw on the drafts of the DCFR that were by
then available to provide detailed model rules or definitions.
The pCRD sought to revise only four Directives: The main thrust was to combine
these into a single so-called horizontal directive which would treat the subject-matter
more consistently – though as the selected Directives were those on distance selling,
doorstep selling, consumer sales and unfair terms, the result is not horizontal in the
sense of all the articles applying to all kinds of consumer contracts. At the same time
the pCRD made a limited number of changes to strengthen consumer protection – for
example, a consumer supplied with non-conforming goods would have a right to
damages rather than just a right to a price reduction or to rescission if the goods have
not been repaired or replaced by the seller.
Full harmonisation
The most striking innovation of the pCRD, however, was that it was to be a full
harmonisation Directive. The Commission’s view is that one reason that there is only
limited cross-border selling to consumers is that legal differences are a barrier. Under
article 6 of the Rome I Regulation, a consumer who contracts with a business in
another MS after being subjected to advertising by the business is entitled to the
protection of the consumer protection rules of his country of residence. This means
that a business advertising its goods across Europe, for instance via a website “e-
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shop”, must be prepared to deal with the consumer protection rules of at least 28
different jurisdiction (28 because Scotland has a separate legal system from that of the
rest of the UK). Full harmonisation sought to solve this problem by preventing MS
from giving their consumers any more rights than the Directive required - so that
within the scope of the Directive, the law of all MS would be the same at least in
substance.
I think even the Commission now acknowledges that this full harmonisation idea is a
failure. One reason is that it would inevitably lead to a reduction of protection in MS
that currently provide a higher level of consumer protection than would be required
by the pCRD. This would be unacceptable to many MS, let alone to their consumer
associations. Another reason is that there would be uniformity only on those topics
that would be covered by the pCRD. Either large areas of contract law would be left
unharmonised, or it would mean that the CRD would have to widened to cover far
more topics – something few MS would agree to. In other words, as a tool of
encouraging cross-border selling, full harmonisation simply would not do what had
been hoped. So instead the Commission is now thinking of targeting full
harmonisation at narrow topics such as the length of withdrawal periods. To solve the
problems of the Internal market, it is looking to the Optional Instrument. The
argument is that if businesses can sell to consumers right across Europe on the basis
of a single legal system, their costs will be lower. This will encourage cross-border
selling, and so bring consumers the benefits of greater choice, increased competition
and possibly improved quality.
The Green Paper
However, the Commission has not yet decided that an Optional Instrument is the way
forward. In July 2010 it published a Green Paper setting out various options. These
range from doing nothing, through creating a CFR toolbox in various forms, a
Recommendation to MS on contract law, or an Optional Instrument to, at the extreme,
a harmonising Directive on European contract law and even a full-blown European
Civil Code. I do not believe that all the options are serious candidates – my own
government would never agree, for example, to full harmonisation of contract law, let
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alone a European Civil Code. The front runners seem to be the CFR as a tool box and
the Optional Instrument – which could both be created.
The Expert Group
Meanwhile in one of those topsy-turvy moves so typical of at least European Union
politics, the Commission had already decided in April 2010 to establish a group of
experts who would be charged to turn the DCFR – or some of it – into a CFR. As the
Commission did not know what the CFR would be, the group was asked to draft on an
“as if” basis – which some of us took to mean that we should try to draw up a
document that could form either a toolbox or an Optional Instrument. But last month,
following the arrival of a new Director-General and a new Head of Unit, the brief was
narrowed. We are not to worry about a toolbox. What we are asked to do is to draft a
workable optional instrument that would apply to B2B and/or B2C cross-border
contracts. Initially it should apply only to cross-border sales, though the general part
should be drafted in terms that it can be applied to other kinds of contract if in the
future it is decided to expand the scope of the OI to cover other types of contracts, for
example for the supply of services.
The OI and Private International Law
What would a “workable” OI entail? An obvious question is how this would fit with
private international law and in particular with the Rome I regulation. This is a matter
that the Commission itself will be responsible for, and no decision has yet been made.
However, they have explained their current thinking. This is that they will not seek a
private international law solution but one of “substantive law.” In other words, they
envisage a regulation which would create in the law of every member state a separate
set of contract rules which would apply to cross-border sales of the relevant type, if
the parties opted for it. In other words, it would operate in the same way as does the
Vienna Convention in International Sales of Goods (CISG), save that it would be an
opt-in regime - and it would be provided that if the parties to a B2B sale opted for the
OI, that would constitute an option out of the CISG. The OI would displace the
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national law that would otherwise apply, including its mandatory rules - but the OI
would contain its own mandatory rules. This approach would mean that article 6 of
the Rome I regulation would never come into play. The OI might also provide that
courts could not treat the consumer protection rules of domestic law as internationally
mandatory rules to be applied under art 9 despite the choice of law.
B2C sales
How would this scheme work for B2C sales? The OI would contain not only special
rules on consumer sales, but also the general parts of sales law and general contract
law, since much of this applies also to consumer sales. In terms of consumer
protection, the OI would of course have to offer at least as much consumer protection
as is required by the consumer acquis - the proposed Consumer Rights Directive and
also the Consumer Credit Directive of 2008, since sales under which the buyer pays
by instalments fall within the latter. It would also need to copy more-or-less word-forword those parts of the directives that require full harmonisation.
A “high level of consumer protection”
The Expert Group and the Commission both seem to take the view that it would not
suffice if the OI only required the level of consumer protection that is required by EU
legislation. In MS where consumers have only the minimum protection required by
EU law, choosing the OI, e.g. for an on-line purchase by clicking on a “Blue Button”,
would not reduce the consumer’s rights. However, in the many MS where the level of
protection is higher, it would result in a reduction of protection. In theory, of course,
the consumer may decline to push the Blue Button; he or she may thereby try to
protect his or her rights under local law, as a result of article 6 of the Rome I
Regulation. But in practice, it seems unlikely that the business will offer that choice.
At least those businesses which at the moment are discouraged from selling across
borders because of uncertainty about the applicable law seem unlikely to offer a
choice: with them it will be the Blue Button or nothing. So to make the OI sufficiently
attractive to be viable, it will need to contain a higher level of consumer protection
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that is required by the EU. On the other hand, it will not contain every possible
consumer protection device, because then no business would ever agree to it.
A “consumer sub-group” of the Expert Group
To try to work out what to do, the Expert Group has decided to set up a consumer law
sub-group. This will firstly work out where the DCFR already provides more
protection than EU law requires. Then the sub-group will ask what provisions beyond
the EU requirements are found in the laws of MS. These protections may be ones that
are within the scope of the consumer acquis, for example where standard terms are
black-listed. They may also be protections which are not addressed at all by the
consumer acquis, for example rules on lesion, which are found still in the laws of
some MS, and general controls like those of the Nordic Contracts Act, s 36. Then as
assessment will need to be made of which rules to include in the OI if, in the view of
the Expert Group, it is to contain a sufficiently high level of consumer protection.
B2B: who might use it?
How would the OI work for B2B contracts? The first question is, who might use it?
In principle, any business might benefit from being able to use a single, neutral law
available in many languages, for all its contracts across Europe – the OI might operate
like a single “operating system” or “platform” for European business. But in practice I
suspect that the OI may not be of great interest to large firms. There are a number of
reasons. First, they often operate through subsidiaries in the different countries rather
than selling cross-border as such. Secondly, they often have enough expertise to deal
with foreign law – or, if they do not, their contracts are sufficiently large and valuable
that the cost of taking legal advice becomes proportionately minor. Moreover, many
of them are involved with risky transactions where it is important to know exactly
what the law is. I think - and here I am expressing only my own view, though I
believe it is widely shared in the Expert Group and possibly in the Commission – that
it is SMEs at which the OI should be targeted.
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What do SMEs want?
I suspect that SMEs are generally risk averse. They would probably like to know that
if they make a mistake – if, for example, they make a contract without knowing some
critical fact; or if they are caught out by a harsh clause in the other party’s standard
conditions of contract; or if the other party behaves badly in some way that the SME
had not expected – in these situations, I think that SMEs would welcome the court
having some power to protect them, by giving relief for mistake or making the other
party liable for non-disclosure, by striking down the harsh term, etc.
Now we might achieve protection for SMEs by an EU “Small Business Contracts”
Directive, requiring MSs to provide the necessary rules. But then we would have great
difficulty in defining which business and contracts it should apply to. It seems better
to let the businesses that want protection to self-select, to choose protection by
seeking to get their contracts on the terms of an OI which contains the necessary rules.
An OI for SMEs
So I hope to see an OI that covers B2B contracts – sales contracts first, then later to be
extended to, for example, other contracts for the supply of goods and to contracts for
the supply of services. And, as I say, it should be targeted at SMEs, for them to use
when they are dealing with either another SME or a larger business. It would give
them a kind of insurance. It might cost a bit more: if one party bears less risk, then the
other necessarily bears more and might want an adjustment in price. But it is my
hunch that the SME will often be prepared to pay the premium.
Why would the other party agree?
Why would the other party, especially if the other party is a larger business, ever
agree? The answer is that if the SME is prepared to pay a premium that covers the
extra, the larger business will find it worth offering to contract on the OI. If the lager
business refuses, at least the SME will know that they are about to make a riskier
contract and perhaps they should take advice. And if the OI is simply unsuitable for
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the kind of business- even SMEs sometimes are involved in speculative, high risk
transactions - they simply will not choose it.
An OI for domestic use?
What we all wonder is whether the OI needs to be reserved for cross-border contracts.
If businesses would prefer to use the OI even for domestic contracts, whether B2B or
B2C, why prevent them? But that is really a question for national legislators, not for
the EU or the Expert group.
The OI compared to the DCFR
In terms of the subjects it covers, the OI will be much narrower than the DCFR. The
draft that the Expert Group has been asked to produce will cover only the general part
of contract law and sales. It will not cover non-contractual obligations except as these
impinge directly on contracts. Thus, like the Principles of European Contract Law
(PECL), it will cover liability for fraud and for incorrect information even though in
many systems these would both be classed as non-contractual. It is yet to be decided
whether it will cover any aspects of restitution; if it does, it will almost certainly do
so by having a few sections dealing with the effects of avoidance or of termination –
again like the PECL. Thus what was Book III of the DCFR will deal only with
obligations related to contract, and to that extent the OI will be “re-contractualised”.
The Expert Group has also been asked to make the draft as clear and “user-friendly”
as possible. Thus we will be going through the texts looking for any possible
simplifications. Much of this work has yet to be done, but it is possible that we will
end up with a draft that is closer in style to PECL, which aimed to be understandable
to the businessperson, than to the DCFR.
I wish I could say that the OI will resemble PECL closely in all respects.
Unfortunately that seems unlikely to be the case, for one simple reason. The
Commissioner who is driving the project forward, Mrs Reding, said at one point that
what is required is an OI of about 150 articles. Unfortunately, this figure seems to be
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taken by the Commission not as just an indication that the OI should be short
compared to the DCFR but as a fixed limit. Nor are we allowed to cheat by simply
combining articles. Where this figure of 150 came from I do not know, but it is quite
unrealistic and we are doing our very best to persuade the Commission to remove the
limit. If the limit stays, it will be very difficult to produce an OI that covers even the
principal issues of general contract law. Agency and most of the contents of PECL
Book III - assignment and transfer of contracts, conditional contracts, plurality of
parties, prescription and set-off would all have to be omitted. That might not be fatal –
it would be possible to add such discrete topics later. However, there would also have
to be a very severe pruning of the remainder. We have yet to work out whether this
can be done without weakening the whole fatally.
A dialogue
I believe that all the members of the Expert Group feel this to be the most serious
single problem with the project. What I hope is that others will support us. We are not
working on our own. In fact there is a five-way dialogue, between us, the
Commission’s CFR Team, the separate team in JLS working on the CRD, the
Parliament (MEPs like Mr Klaus-Heiner Lehne and Ms Diana Wallis have been
showing keen interest in our work and have come to meetings) and the “sounding
board” of stakeholders established by the Commission. Perhaps even the Council will
join in the discussions.
Summary and conclusion
In summary: the Expert Group is being asked to produce a short OI which is to cover
cross-border sales, though in a form which could later be extended to other contracts
such as for the supply of goods or services. It should apply to both B2B and B2C
contracts. For B2C contracts it must provide a high level if consumer protection. For
B2B contracts, it will probably be targeted at SMEs. Where this can be done within a
size limit acceptable to the Commission, and in the very short time available, remains
to be seen.
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I believe that if we can create such an OI, I believe it would be very useful. However,
it is only one of the steps that we should take. First, I still want to see improvements
in the consumer directives, including very limited full harmonisation. We would need
these harmonising measures to deal with consumer contracts that will remain outside
the scope of the OI. And I also want to see the “toolbox” CFR, to provide definitions
of the many legal concepts that are used in European law without being defined, but
which nonetheless are to be given an autonomous European legal meaning.
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