Optional commercial contract law: Global Experiences – European Perspectives
Conference Brussels 26 November 2009
Working paper
Not published version
19-9-2009
To be published in: European Journal of Commercial Contract Law 2009/4
Jac.G.J. Rinkes
Professor of Private Law, Netherlands Open University, Professor of European Consumer Law, Maastricht University
1. Introduction: optional commercial contract law
Recent developments in the process of the harmonization and unification of European contract law in general have raised many interesting theoretical and practical questions. At the threshold of further (hard and soft) legislation, a variety of solutions govern the debate regarding actual implementation of – e.g. – the (Draft) Common Frame of Reference and other legal instruments designed to facilitate and enhance cross-border trade. Regarding the development of European consumer law Schulte-Nölke has described the perspectives:
Schulte-Nölke: [1]
“The exciting question concerns the conclusions which can be drawn from this (the rather unsatisfactory success of integration of European consumer law, JGJR). This is exactly the topic of the
three mentioned Communications of the Commission from 2001, 2003 and 2004 regarding European contract law. If one tries to oversee these documents and the overflowing literature from a bird’s-eye view, five baselines appear that are considered as possible solutions:
– reducing the existing volume of Community law;
– to stop, but do nothing further;
– ‘improving’ the Community law (this is probably meant to develop its legislative quality, its density and its functional deficits);
– soft law solutions, for instance the elaboration of Community-wide applicable standard terms; and
– the preparation of a general law of obligations including the law of movables, the ‘Common Frame of Reference’, which incorporates the present directives, and which can then at least serve as a guideline for further legislative development. It could also be
possibly later developed into a codification of European civil law, the ‘Optional Instrument’, which the parties can choose as their applicable law.”
In more specific areas of European private law, similar discussions now also focus on the optional instrument as mentioned by Schulte-Nölke.
Heiss has described the options for a harmonized European Insurance Contract Law, taking into account specific legal difficulties in this area of law (including questions regarding private international law in the EU):
Heiss: [2]
“Since it (PEICL, JGJR) will only provide non-binding rules, the CFR will not be available to the parties, as the choice of the applicable insurance law and insurance contracts will still be submitted to national law. The obstacles to the functioning of the internal insurance market
presented by the diversity of national mandatory insurance contract law will not be removed and cross border sales will remain the exception. For this reason, it has been argued that a functioning internal insurance market will require more, i.e. an optional instrument of
European insurance contract law.”
These citations reveal the necessity of a further assessment of the instrument mentioned, against the background of Europeanization and/or globalization of law. Especially in the area of commercial law, such developments are clearly based on the desire to establish transnational communities, ruled on the basis of global governance.
International commercial contract and international trade law provide an excellent basis for such developments; for many years it has been the advance guard of internationalization on the basis of the lex mercatoria. The rules governing international contracts and international trade comprise a variety of legal instruments, comprising organizations (WTO, ICC), treaties, dispute settlement mechanisms, principles (Unidroit, Lando), economic rules (trade agreements), and multi-, uni- and bilateral rules of great variety, including harmonizing treaties such as the Vienna Convention (CISG) and (inter-)national rules of private international law.[3]
The structure of transnational commercial law has been described more precisely: see
Amissah:[4]
“Briefly viewing the wider picture, several institutions are involved as independent actors in systems modelling of the transnational legal infrastructure. Their roles and mandates and the issues they address are conceptually different. These include certain United Nations organs and affiliates such as the United Nations Commission on International Trade Law (UNCITRAL), the World Intellectual Property Organisation (WIPO) and recently the World Trade Organisation (WTO), along with other institutions such as the International Institute for the Unification of Private Law (UNIDROIT), the International Chamber of Commerce (ICC), and the Hague Conference on Private International Law. They identify areas that would benefit from an international or transnational regime and use various tools at their disposal, (including: treaties; model laws; conventions; rules and/or principles; standard
contracts), to develop legislative “solutions” that they hope will be subscribed to.
A host of other institutions are involved in providing regional solutions. Specialised areas are also addressed by appropriately specialised institutions. A result of globalisation is increased competition (also) amongst States, which are active players in the process, identifying and addressing the needs of their business communities over a wide range of areas and managing the suitability to the global economy of their domestic legal, economic, technological and educational infrastructures. The role of States remains to identify what domestic structural support they must provide to be integrated and competitive in the global economy. In addition to “traditional” contributors, the technology/commerce/law confluence provides new challenges and opportunities, allowing, the emergence of important new players within the commercial field, such as Bolero, which, with the backing of international banks and ship-owners, offers electronic replacements for traditional paper transactions, acting as transaction agents for the electronic substitute on behalf of the trading parties. The acceptance of the possibility of applying an institutionally offered lex has opened the door further for other actors including ad hoc groupings of the business community and/or universities to find ways to be engaged and actively participate in providing services for themselves and/or others in this domain.”
Conclusive facts and data regarding the use (and success) of existing institutionally designed lex, as described by Amissah, are lacking. However, the emergence in European law of the optional instrument requires careful examination of its underlying intentions and (optional) effects on commercial law against the background of harmonization and globalization of legal rules and the concept of law in general. Present and past considerations regarding the use of optional instruments may be quite useful in that respect, and are described in some detail in the present paper.[5]
2. Optional instruments in European law
In 2005, the Private Law Division of the German Association of Comparative Law devoted its bi-annual meeting to the 25th anniversary of the CISG. Prior to that meeting, several other aspects of the CISG had been dealt with, e.g. the question how the courts in different countries applied the CISG with regard to specific notions, divergencies in the interpretation of the CISG and the impact of the CISG on national legislation. As Zimmermann[6] describes in his introduction to RabelsZ January 2007 there was another reason to bring ‘CISG into the limelight within the process of harmonization of Private Law in Europe’: the Action Plan for a more coherent European Contract Law raised the possibility of creating an ‘ optional instrument’ in this field. Zimmermann notes that the Action Plan was not very specific as to what the optional instrument should look like, which areas it should cover, and what form it should take (and its relationship with the CISG). Meanwhile, as Zimmermann states, the Commission ‘concentrated its efforts on the somewhat less ambitious attempt (JGJR) to establish a ‘Common Frame of Reference’, aiming at improving the quality of legislation and the coherence of the existing and future EC law in the field of contract law’(p. 10).
The Commission has recognized this problem. In establishing a European judicial area the legal traditions and systems of the Member States will not be challenged or effected. This approach is based on the proportionality and subsidiarity principles (also stated by the Draft Constitutional Treaty). In civil and commercial matters a juridical area will be established in order to facilitate cooperation and access to justice, based on the mutual recognition programme, the enforcement of judgments and further implementation of Community Legislation (e.g. the European Judicial Network in Civil Matters). Turning to substantive law, the Commission is fully engaged in enhancing the consistency in the acquis communauaire and in improving its quality in the field of contract law via the drafting of a Common Reference Framework. Explicitly, the Commission notes ‘ this Common Reference Framework might serve in the longer term as the basis for an optional instrument on the law of contracts that the parties could freely choose to use as the law applicable to their contract, thus enhancing certainty as to the law in cross-border transactions’.[7]
These reflections immediately reveal the importance of the optional instrument in European contract law: basically, it is designed to enhance not only the quality and coherence of European law, but explicitly aims at Europeanization (globalization) of legal rules. In this respect, the EU encounters further difficulties. As such, the creation of an optional instrument raises important legal questions regarding (i.a.) democracy and the concept of law in general. Smits has raised the more general question what should be the exact relationship between private law and (national) democracy[8]; Cotterrell has suggested that the concept of law should be reconsidered in the light of processes associated with globalization[9] and Calliess & Renner have described the evolution of new forms of legal regulation beyond the nation-state, with the intention of drawing some preliminary conclusions on the role of law in the context of globalization (and at the same time showing their views on the direction of further empirical research).[10]
Questions of a more fundamental nature could be raised regarding the process of drafting an optional instrument laying down the (exclusive map of the) rights and obligations of the parties to a contract: Samuel has argued[11] that, in the practice and science of classification (even assuming that legal knowledge is (now) focused around the notion of a right) a society that emphasizes a variety of different kind of rights (social, economic, political) should take as its starting point that a persona is constructed differently depending upon the legal regime in play. In the (huge) area of economic or patrimonial law the foundation should be the individual as an economic animal. Samuel departs from the epistemological concept that law is as much about the construction of facts – the construction of its own scientific object – as about the fine-tuning of some conceptually closed system allowing solutions to be arrived at through deductive logic. Events do not just trigger ‘rights’ since rights also trigger ‘events’. This point of view affirms the necessity of further debate regarding the nature of an optional instrument as part of a (European) ‘ius commune’ or ‘common law’ and its relationship to national legal traditions and diverging legal cultures. Ultimately, an optional instrument is designed to enter into competition with existing (national) legal traditions and, as such, the process of drafting such an optional instrument is indeed extremely ambitious.[12]
3. The European perspective: what are the basic requirements for an optional instrument (experiences and expectations)
On the basis of existing European experiences, legislation and policy considerations present and past, a catalogue of prerequisites for an optional instrument can be drafted.
Rome I
The benefits of an optional instrument have been considered by the EU in a variety of legal documents. In the proposal for the present Rome I Regulation[13], argued that the adoption of uniform rules on the law applicable to contractual obligations would make judicial decisions more easily foreseeable, and – considering that this objective cannot be adequately attained by the Member States, who cannot lay down uniform Community rules – proposed the present Regulation, thus increasing certainty in the law (p. 4). Regarding the concept of freedom of choice (article 3), the impact of the parties’ (true tacit) will, they are authorized – as in the Convention – to choose as the applicable law a non-State body of law. The Commission states: ‘the form of words used would authorize the choice of the UNIDROIT principles, the Principles of European Contract Law or a possible future optional Community instrument, while excluding the lex mercatoria, which is not precise enough, or private codifications not adequately recognized by the international community.’ (p. 5) When certain aspects of the law of contract are not expressly settled by the relevant body of non-State law, existing mandatory rules shall prevail. In the final text of the Regulation:[14] ‘(13) This Regulation does not preclude parties from incorporating by reference into their contract a non-State body of law or an international convention, and (14) Should the Community adopt, in an appropriate legal instrument, rules of substantive contract law, including standard terms and conditions, such instrument may provide that the parties may choose to apply those rules.’
These considerations reflect that any optional instrument should – at least in the view of the Commission – (a) increase uniformity, (b) be precise, (c) make judicial decisions more easily foreseeable, (d) be recognized by the international community, (e) increase certainty in the law and, as much as possible, (f) expressly settle the law of the (specific) contract, taking into account (g) existing mandatory rules in the Member States.
Better lawmaking
In its opinion regarding ‘Better lawmaking’, the European Parliament [15] lays down its views (on the basis of the general the principles of subsidiarity and proportionality). The EP
‘(3.)Promotes legislation based on principles and focused on quality rather than quantity; sees the "better regulation" debate as an occasion for reflection on legislation as a process designed to achieve clearly defined policy goals by committing and involving all stakeholders during all phases of the process, from preparation to enforcement;
(6.)Notes the need for every legislative proposal to be accompanied by an impact assessment, which is defined in its above-mentioned resolution of 20 April 2004 as a straightforward mapping-out of the consequences in social, economic and environmental terms, as well as a mapping-out of the policy alternatives that are available to the legislature in that scenario;
(8.)Believes that it is also essential for impact assessments to consider the interaction and consistency with existing legislation of every new legislative proposal and the overall cost to the economic sector concerned in terms of its cumulative effects;