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DIRECTORATE GENERAL FOR INTERNAL POLICIES

POLICY DEPARTMENT C: CITIZENS' RIGHTS AND

CONSTITUTIONAL AFFAIRS

LEGAL AFFAIRS

The Common Frame of Reference: an

optional instrument?

NOTE

Abstract

This note addresses whether the (D)CFR could serve as an optional

instrument for contract law. The note identifies the advantages and

disadvantages of an optional contract law instrument and some problems

that must be overcome. It also discusses its possible content of such an

instrument and finally addresses the question of the legal basis.

PE 425.611 EN

This document was requested by the European Parliament's Committee on Legal Affairs.

AUTHOR

Evelyne Terryn, Professor at K.U.Leuven University

RESPONSIBLE ADMINISTRATOR

Roberta PANIZZA

Policy Department C: Citizens' Rights and Constitutional Affairs

European Parliament

B-1047 Brussels

E-mail: [email protected]

LINGUISTIC VERSION

Original: EN

ABOUT THE EDITOR

To contact the Policy Department or to subscribe to its monthly newsletter please write to:

poldep-citizen[email protected]

Manuscript completed in April 2010

This document is available on the Internet at:

http://www.europarl.europa.eu/studies

DISCLAIMER

The opinions expressed in this document are the sole responsibility of the author and do

not necessarily represent the official position of the European Parliament.

Reproduction and translation for non-commercial purposes are authorised, provided the

source is acknowledged and the publisher is given prior notice and sent a copy.

The CFR: an optional instrument?

____________________________________________________________________________________________

CONTENTS

CONTENTS 3

LIST OF ABBREVIATIONS 4

EXECUTIVE SUMMARY 5

1. BACKGROUND 6

2. OPTIONAL INSTRUMENT: ADVANTAGES 7

2.1. Limits of harmonization of private law through directives have been

reached 7

2.2. No further fragmentation of national law 8

2.3. Social and economic cost of harmonization avoided 8

2.4. Advantages in comparison to internal market clause 9

2.5. Possibilities of spontaneous convergence of national law 9

3. OPTIONAL INSTRUMENT : DISADVANTAGES AND PROBLEMS TO

OVERCOME 10

3.1. Conflicts of law 10

3.2. Protection of weaker parties 11

3.3. Complexity through the proliferation of optional instruments – a step by

step approach 12

3.4. Link with CISG 12

3.5. Timing 13

4. OPTIONAL INSTRUMENT : CHOICES TO MAKE 14

4.1. Based on (D)CFR or on other instruments? ACQP? 14

4.2. Sales /services / specific services – one or more? 15

4.3. Cross border only? 15

4.4. Personal scope of application 16

4.5. Opt-in or opt-out? 17

4.6. Regulation 17

5. OPTIONAL INSTRUMENT : LEGAL BASIS 17

REFERENCES 20



Policy Department C: Citizens' Rights and Constitutional Affairs

____________________________________________________________________________________________

LIST OF ABBREVIATIONS

CFR Common Frame of Reference

DCFR Draft Common Frame of Reference

ESC Economic and Social Committee

EC Treaty establishing the European Community

TFEU Treaty on the Functioning of the European Union

The CFR: an optional instrument?

____________________________________________________________________________________________

EXECUTIVE SUMMARY

The final version of the academic Draft Common Frame of Reference (DCFR) was delivered

to the Commission by the end of 2008. The Commission is currently carrying out an

internal selection process with the aim of identifying which parts of the DCFR will be

integrated into a political Common Frame of Reference.

Against this background this note addresses whether the CFR could serve as an optional

instrument for contract law. The note identifies the advantages and disadvantages of an

optional contract law instrument and some problems that must be overcome. It also

discusses its possible content of such an instrument and addresses the question of the legal

basis.

Policy Department C: Citizens' Rights and Constitutional Affairs

____________________________________________________________________________________________

1. BACKGROUND

The creation of an optional instrument of European contract law is at the moment very

actively debated in academia and more importantly it is at the forefront of the European

political agenda. The possibility is seriously being considered by the European institutions

and also several national legislators have indicated that they see important merits in an

optional instrument

An optional instrument of European contract law is characterized by the fact that its

application depends on a choice by the parties to the contracts

. It does not replace

national contract law but provides parties to a contract with an alternative

. The optional

instruments discussed in this note are instruments parties can choose as the applicable law

and not merely as contractual conditions.

This note addresses the possibility to use the Draft Common Frame of Reference / Common

Frame of Reference as a possible source for such an optional instrument. The DCFR is an

academic work the final version which was delivered to the Commission by the end of

2008

The Commission is currently carrying out an internal selection process with the aim

of identifying which parts of the DCFR will be integrated into a forthcoming document, e.g.

a Commission White Paper on a Common Frame of Reference (CFR).

This note will set out the advantages of an optional instrument (chapter II), as well as the

disadvantages and problems to be overcome (chapter III). It will set out some choices that

need to be made in the process of developing an optional instrument (chapter IV) and it

will finally will briefly look at the legal basis for such an instrument (chapter V).

For the European Commission, see most recently, the speech of Commissioner for Justice Viviane Reding of 23

February 2010 placing the development of an optional instrument on the forefront; the possibility of an optional

instrument has of course already been on the agenda for much longer, see especially the Communication from the

Commission to the European Parliament and the Council – A more coherent European contract law – An action

plan, [2004] OJ C 76E/95. The European Parliament has early on already pleaded for sector specific optional

instruments (see the Resolution of the European Parliament on the Communication from the Commission to the

European Parliament and the Council – A more coherent European contract law – An action plan, [2004] OJ C

76E/95). See also recently the European Parliament Resolution of 3 September 2008 on the common frame of

reference for European contract law (2009/C 295 E/09).

See early on the Estonian Delegation, DOC 15124/07ADD3 LIMITE JUSTCIV 306/CONSOM 127, dated 19 Nov.

2007, at 1-2, but also Germany has recently expressed its support.

H Heiss, “The CFR of European Insurance Contract Law”, European Journal of Commercial Contract Law (2009)

1, 7.

Ibidem, 7.

The full edition with comments was published in 2009: Principles, Definitions and Model Rules of European

Private Law Draft Common Frame of Reference (DCFR). Full Edition, Edited by Study Group on a European Civil

Code/Research Group on EC Private Law (Acquis Group), München, Sellier.

The CFR: an optional instrument?

____________________________________________________________________________________________

2. OPTIONAL INSTRUMENT: ADVANTAGES

KEY FINDINGS

• The limits of harmonization of private law through directives have been reached.

• An optional instrument avoids further fragmentation of national law.

• An optional instrument avoids the social and economic cost of harmonization.

• An optional instrument can allow traders operating cross border to comply with only

one single set of contract law rules.

2.1. Limits of harmonization of private law through directives have

been reached

There is little doubt that the existence of 27 different national legal systems creates

problems for the internal market especially as the rules of international private law do not

give parties the complete freedom to choose the applicable law. The Rome I Regulation

(

Regulation (EC) No 593/2008) does not allow consumers contracting with a foreign trader

to be deprived of the protection of mandatory provisions of their home country (art. 6);

also for insurance contracts the Rome I Regulation will often lead to the application of the

law of the State in which the policyholder has its habitual residence (art.7). This is reflected

in limited cross-border trade as adapting contracts to different national regimes does pose

problems, especially for SMES. It should however be mentioned that the different

contractual regimes are not the only factor to explain the limited cross border trade. There

are other factors that play a role such as language, culture, difficulties in pursuing a

complaint, past experience etc.

Until now, the European institutions have mainly tried to overcome the barriers, which the

different national laws create by harmonization measures, mainly in the form of directives.

These directives did, however, not bring about the effects hoped for

. Cross border trade is

still limited

. Minimum harmonization is identified by the European Commission as one of

the main causes and in recent legislative instruments maximum harmonization has

therefore been proposed

. It has, however, rightly been questioned by legal scholars

whether maximum harmonization of only parts of private law can indeed bring about the

single set of rules businesses would need

. Private law does not allow to carve out specific

parts. Private law rules interact and only get their meaning and effect in a broader set of

rules and through interaction with these other rules (see also below point 4.1).

Harmonizing only parts of private law will therefore simply never lead to the single set of

rules proclaimed.

6 See in this regard the Consumer Law Compendium.

7 See eg the Explanatory Memorandum to the Proposal for a Directive on Consumer Rights (COM (2008) 614, 2.

The shift towards maximum harmonization first became apparent in the sector of financial services, with the

Distance Selling of Financial Services Directive 2002/65/EC and the Consumer Credit Directive 2008/48/EC, and

also in the field of unfair commercial practices, with Directive 2005/29/EC on Unfair Business-to-Consumer

Commercial Practices. See furthermore the Green Paper on the Review of the Consumer Acquis and the Proposal

for a Directive on Consumer Rights (COM (2008) 614 def.).

9 See eg F Zoll, “The Remedies for Non Performance in the Proposed Directive on Consumer Rights and the

Europeanisation of Private Law” in G Howells, R Schulze, Modernising and consumer contract law, München,

Sellier, 2009; H. Micklitz, N. Reich, «Crónica de una muerte anunciada: The Commission proposal for a «Directive

on consumer rights», CML Rev (2009) 46; P. Rott, E. Terryn, «The Proposal for a Directive on Consumer Rights:

No Single Set of Rules», ZEuP (2009)3, 456-488; M. Hesselink, M. Loos (ed.), Het voorstel voor een Europese

richtlijn consumentenrechten, Den Haag, BJu, 2009, 258 p.

Policy Department C: Citizens' Rights and Constitutional Affairs

____________________________________________________________________________________________

Maximum harmonization in addition has other important drawbacks. It creates difficult

problems of delineation (to what extent is national regulation precluded, how far does the

pre-emptive effect of a maximum harmonization directive reach?)

and therefore legal

uncertainty. Maximum harmonization furthermore no longer allows for national legal

experimentation, that has in the past often been a source of inspiration for the European

legislator. Maximum harmonization also makes law making difficult as Member states are

often reluctant to abandon the achievements of their own national law, which makes it

difficult to reach an agreement

Implementation of directives finally in an event fragments national law and endangers the

coherence of national law. It makes private law excessively complex.

Several authors have therefore already pleaded to abandon the path of harmonization

through directives

. An optional instrument is an alternative that in our opinion offers the

advantages maximum harmonization tries to achieve (one single set of rules) without its

disadvantages.

2.2. No further fragmentation of national law

An optional private law instrument does not fragment or disintegrate national law. It has no

direct effect on national law. It does not ask for the often difficult reconciliation of Union

law concepts with national law concepts. It does not require the abolishment of national

achievements. This also has an advantage that there seem to be better chances to obtain

political approval than for a non-optional instrument. National law is not afflicted. National

contract law is not replaced.

It should be mentioned that it is not totally new for the EU to create a system that comes

as an addition to existing national law. The Community trade mark regulation has eg

created the Community trade mark

that does not replace the laws of the Member States

on trade marks

;

the SCE – European Cooperative Society Regulation

and the European

Company (SE) Regulation

i.a. created European forms of a company that augmented the

numerus clausus of national company forms

2.3. Social and economic cost of harmonization avoided

An optional instrument avoids the cost of changes to national law. It does not force local

actors to adapt their traditional way of doing business. It only offers the possibility to take

advantage of such an instrument to those actors that have an interest in it. These are most

likely to be traders engaging in cross border selling, but it is not excluded that also local

actors see an advantage in an optional instrument

. There is however no obligation to

amend contracts if the parties do not see an advantage in opting for the optional

instrument.

See as an illustration the several references to the Court of Justice of the European Union for a preliminary

ruling on the scope on the Unfair Commercial Practices Directive 2005/29/EC.

There are again numerous examples, we only refer to the difficulties in the adoption of the Consumer Credit

Directive 2008/48/EC that was in the end far more limited in scope than the original proposal.

See recently H Schulte-Nölke, “The way forward in European consumer contract law: optional instrument

instead of further deconstruction of national private laws”, in The Cambridge companion to European private law,

2010, 131-146.

Council Regulation (EC) No 40/94 of 20 December 1993 on the Community trade mark.

Preamble 5 of the Council Regulation.

Council Regulation (EC) No 1435/2003 of 22 July 2003 on the Statute for a European Cooperative Society

(SCE).

Council Regulation (EC) No 2157/2001 of 8 October 2001 on the Statute for a European company (SE).

H Heiss “The CFR of European Insurance Contract Law”, European Journal of Commercial Contract Law (2009)

1, 10; S Leible, “Was tun mit de GRR für das Europäischen Vertragsrecht – Plädoyer für ein optionales Instrument”

BB (2008), 1472

H Heiss “The CFR of European Insurance Contract Law”, European Journal of Commercial Contract Law (2009)

1, 8.

The CFR: an optional instrument?

____________________________________________________________________________________________

2.4. Advantages in comparison to internal market clause

The country of origin principle in combination with the principle of mutual recognition has

been advocated as an alternative for (full) harmonization (a so-called internal market

clause) or for an optional instrument. This would however involve that courts would in

many cases have to apply the law of the trader’s place of business. Courts would then have

to apply 27 different foreign law systems. The application of international private law rules

can also lead to the application of foreign law but this result is rather the exception than

the rule

. Application of many different foreign systems is costly and difficult. Such choice

also deviates, especially in a consumer context, from the choices that have been made in

the recent Rome I Regulation

An optional instrument would also imply the possible application of an extra set of rules,

but not 27 and the optional instrument should be made available in all national languages

which is not the case for national law rules.

2.5. Possibilities of spontaneous convergence of national law

An optional instrument may create some kind of regulatory competition. An optional

instrument of high quality could inspire national legislators to bring their national laws –

although as such untouched by the optional instrument – in line with it. We already see

that the PECL and DCFR are referred to as sources of inspiration, an optional instrument,

possibly based on a CFR could have the same effect. Much will of course depend on the

quality of such an optional instrument. It should however be mentioned that this aspect is

sometimes seen a threat. Thus, in the House of Lords European Union Committee’s

Report

the concern was expressed that an optional instrument ‘might lead to

harmonization without our intending it’

An optional instrument could finally provide a common legal language for Europe.

H Schulte-Nölke, “The way forward in European consumer contract law: optional instrument instead of further

deconstruction of national private law”, in The Cambridge companion to European private law, 2010, 131-146.

See the Explanatory Memorandum to the Proposal for a Directive on Consumer Rights (COM (2008) 614, 6. The

problem is not limited to consumer contracts, see eg also art 7 Rome I Regulation for insurance contracts.

Report of Session 2008-09 European Contract Law : the Draft Common Frame of Reference – 10 June

2009, http://www.publications.parliament.uk/pa/ld200809/ldselect/ldeucom/95/95.pdf.

At nr. 59 of the report.

H Heiss, “The CFR of European Insurance Contract Law”, European Journal of Commercial Contract Law

(2009)1, 2.

Policy Department C: Citizens' Rights and Constitutional Affairs

____________________________________________________________________________________________

3. OPTIONAL INSTRUMENT : DISADVANTAGES AND

PROBLEMS TO OVERCOME

KEY FINDINGS

• The current conflicts of law rules do not allow parties to choose non binding rules as

the law applicable. An EU instrument is one of the options to solve this problem.

• An optional instrument that allows to set aside national mandatory provisions should

include mandatory rules that adopt a high standard of protection.

• The standard of protection in an optional instrument should be higher than the

minimum standards in the acquis.

• A step by step approach can be taken in the adoption of optional instruments.

3.1. Conflicts of law

The current conflict of law rules do not seem to allow parties to choose for non binding

rules as the law applicable instead of the national legal regime applicable in the absence of

a choice. It is well-known that the European Commission’s proposals for article 3(2) Rome I

intended to allow a choice of general principles of law. Rome I, as adopted, does no longer

contain such a provision

;

neither does Rome II contain such a provision

. The existing

regulations Rome I (and Rome II) therefore do not seem to make it possible to choose for

non national law as the applicable law

This does not mean that the conflict of law rules

make it totally impossible to choose an optional instrument as the applicable law.

Changes to these conflict of law rules are possible. That is the first option. The second

option is the implementation of Recital 14 Rome I, that states: ‘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 such rules’. These two options require action at EU level.

A third option is a national law solution.

National law could provide for the possibility for

parties to opt for a different set of rules than those normally applicable. Needless to say

that it will be far more difficult to involve a large number of Member States than through an

EU instrument.

In any event, in order to achieve the above mentioned advantages of an optional

instrument, it must be possible to opt out of national mandatory provisions. This is

currently not possible. In purely domestic cases, national mandatory provisions cannot be

derogated from (Art. 3(3) Rome I Regulation). The choice of law is furthermore restricted

for consumer contracts (art. 6(2) Rome I), labour contracts (Art. 8 Rome I) and insurance

contracts (art. 7 Rome I). In addition, there is the problem of internationally mandatory

laws (article 9 Rome I Regulation).

These are, however not insurmountable problems. The

Community instrument that adopts substantive contract law rules and allows parties to

Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law

applicable to contractual obligations (Rome I).

Regulations (EC) No 864/2007 of the European Parliament and of the Council of 11 July 2007 on the law

applicable to non-contractual obligations (Rome II).

Recital 13 Rome I only refers to incorporation by reference into the contract of non State law.

M E Storme, “The (Draft) Common Frame of Reference as a toolbox and as a basis for an optional instrument”,

Stockholm conference paper 23 October 2009.

The CFR: an optional instrument?

____________________________________________________________________________________________

choose to apply such rules can derogate in this regard from the existing conflict of law rules

by determining its own scope of application

. Setting national mandatory rules aside of

course entails certain risks for the weaker parties protected by these mandatory provisions,

this is dealt with in 3.2.

3.2. Protection of weaker parties

Consumer organizations seem to fear an optional instrument

There are indeed potential

dangers in an optional instrument that allows to set aside the protection of the mandatory

provisions of the consumer’s country of habitual residence. The same applies for insurance

contracts. If parties choose for the application of the instrument - and consumer

organizations are right that in a B2C context this choice will de facto be the choice of the

business - the maximum level of protection is the level of protection the optional

instrument provides for.

An optional instrument applicable to B2C contracts / insurance contracts would therefore

need to contain semi-mandatory rules, ie rules that only allow derogation if this is

favourable to the consumer / policyholder. Avoiding the application of these semi-

mandatory rules through a partial choice would have to be excluded.

In addition, the level of protection should be a high level of protection, in any event a

higher level of protection than eg chosen in the Proposal for a Directive on Consumer

Rights (COM(2008)614 final). The advantages business have in the form of the use of a

single set of rules / a single model contract throughout Europe can come with a price in the

form of a higher level of protection than currently exists in certain Member States. An

optional instrument ought to be advantageous for both businesses and consumers /

policyholders. Again, it should be easier to reach agreement on a high level of protection in

an optional instrument that does not replace national law than in a directive. There is

moreover little to lose for traders: if traders really think the level of protection to comply

with does not outweigh the advantages of the optional instrument, they can still comply

with national law. The level of protection is an aspect that should be very carefully

monitored during the process of creating an optional instrument. The level should be high

indeed, but should be thus set that it does not have a prohibitive effect.

An optional instrument based on the DCFR already provides certain guarantees that

consumer protection provisions are included. The DCFR, mainly through the incorporation

of the ACQP, also reflects to a major extent the current state of play of EU consumer

protection regulation

. However, this may not be sufficient to protect consumers. Although

DCFR at times goes beyond the level of protection of the current acquis,

it still reflects a

consumer acquis communautaire that was partly based on minimum harmonization

directives. National consumer protection legislation may well provide for better protection.

It is the national level of protection that should be taken into account when using the CFR

as an optional instrument also for B2C contracts that can set aside this national law.

Consumer organization have in addition criticized the complexity optional instruments could

bring about for consumers. Indeed, a consumer will not only be confronted with the

application of his own national law, but a second system may apply, potentially also in a

purely internal

situation (cf below point 4.3). However, it is currently the case that

businesses sometimes refuse to contract with consumers from other states. An optional

instrument could take away one of the barriers traders face and open up more possibilities

See S Leible, o.c., p 1473 – see also Art 23 Rome I and art 27 Rome II.

Presentation of Ursula Pachl (BEUC) at the Leuven Consumer Day on 2 March 2010, presentation of Nuria

Rodrigues (BEUC) at the March 2010 ERA conference.

S Leible, “Was tun mit dem Gemeinsamen Referenzramen für das Europpäische Vertragsrecht?”, BB 2008,

1474.

Just to give one example – in the DCFR / ACQP the consumer also has a right of withdrawal in a doorstep

situation in case he solicited the visit of the business.

Policy Department C: Citizens' Rights and Constitutional Affairs

____________________________________________________________________________________________

for consumers to buy cross-border. There are therefore also potential benefits for

consumers, be they more limited than for businesses. In a first stage, one could therefore

be inclined to limite the possibility to set aside national mandatory law to cross-border

contracts. This can be reconsidered when the use of the optional instrument is judged

beneficial by both consumers and businesses. Indeed, ideally it should also be possible to

choose for the optional instrument in purely national cases (see below point 4.3). Only that

would make it possible for businesses to use one model contract throughout Europe and it

would create an even greater regulatory competition.

3.3. Complexity through the proliferation of optional instruments –

a step by step approach

Consumer organizations have argued that the existence of several instruments may be

confusing. At this point in time both general contract law instruments are being considered

as well as specific instruments for sales, services or specific service contracts like

insurances. It is conceivable to deal with all contracts in one optional instrument

and the

proliferation of optional instruments should as much as possible be avoided. However, the

complexity of the optional instrument increases with the number of specific contracts

included and given the complexity of the matter and the limited resources, a step by step

approach might therefore be a valuable solution in this regard. At the moment the different

national contract laws seem especially problematic for business to consumer contracts and

for insurance contracts. The work on an optional instrument for insurance contracts is

moreover is an advanced state (PEICL). The latter principles have thus been drafted that

they only deal with insurance contracts and not with general contract law aspects. An

optional instrument for insurance contracts therefore needs to be complemented by a

general contract law instrument. One could therefore in a first stage consider to adopt:

1. A ‘general’ contract law instrument with general contract law provisions but

including sales law (including the proprietary effects of sales). This instrument could

be used as a comprehensive instrument for all sales contracts (see below point 4.4)

and as a lex generalis for insurance contracts. As a comprehensive instrument for

sales law, it could also function as the ‘blue button’ for sales contracts, that has

been advocated by Hans Schulte-Nölke

allowing a client buying goods in an e-shop

to choose the application of the optional instrument by clicking on a ‘blue button’ to

show his acceptance of the optional instrument;

2. And a specific instrument for insurance contracts. The choice for this specific

instrument would imply the choice for the general contract law instrument to the

extent the specific instrument does not deviate from the general optional

instrument.

Other provisions eg on services other than insurance services could later on be added to

the general contract law instrument that already includes sales.

3.4. Link with CISG

The existence of the Convention of International Sale of Goods does not make an optional

instrument for sales superfluous. CISG only deals with certain sales contracts (sales

between parties whose places of business are in different states)

and it does not regulate

The preferred option of eg Von Bar (C Von Bar, What can we expect from an optional instrument?, Paper for the

ERA conference on 19 March 2010) and Leible

H Schulte-Nölke, “EC Law on the Formation of Contract – from the Common Frame of Reference to the ‘Blue

Button’’ ERCL (2007) 3, 348-349.

Cf H Heiss, l.c.

Se article 1 CISG.

The CFR: an optional instrument?

____________________________________________________________________________________________

all aspects of these contracts (validity, the effect which the contract may have on the

property in the goods sold, etc)

. CISG is also an optional instrument, be it an opt-out

instrument

37.

CISG does not help businesses selling to consumers cross border for which an

optional instrument for sales would be a welcome tool

An optional instrument does not harm businesses concluding international business

contracts. It only gives them an additional option. CISG applies unless they decide

differently. Businesses should also get the opportunity to opt for a still to be developed

optional instrument is they see advantage in it. This would just provide for regulatory

competition, also with CISG

3.5. Timing

The timing is not so much a problem but rather a concern. Drafting a coherent set of rules

of high quality takes time as some national codification projects have illustrated. The DCFR

has been produced under great time constraints, the same can be said for the recent

Directive on Consumer Rights. These time constraints make it difficult to always guarantee

the highest standards and for the Directive on Consumer Rights they did indeed lead to

technical shortcomings that could have been avoided. These time constraints seem dictated

by the period of office of the responsible Commissioner. This should be avoided. It should

be possible to work over a longer period to guarantee the quality needed in a project of

such importance for European businesses and consumers

40.

Parties should only be allowed

to set aside national law by choosing an optional instrument of the highest quality.

Confidence of consumers and businesses and their respective organizations in optional

instruments should not be lost by introducing a low quality optional instrument in a first

stage. The chance to repair the damage thus done may not come around quickly.

See article 4 and 5 CISG.

See article 6 CISG.

See also H Schulte-Nölke, “The way forward in European consumer contract law: optional instrument instead of

further deconstruction of national private law”, in The Cambridge companion to European private law, 2010, 131-

146.

See in the same sense, S Leible, “Was tun mit dem Gemeinsamen Referenzramen für das Europpäische

Vertragsrecht?”, BB 2008, 1474.

See H Schulte-Nölke, “The way forward in European consumer contract law: optional instrument instead of

further deconstruction of national private law”, in The Cambridge companion to European private law, 2010, 131-

146.

Policy Department C: Citizens' Rights and Constitutional Affairs

____________________________________________________________________________________________

4. OPTIONAL INSTRUMENT : CHOICES TO MAKE

KEY FINDINGS

• The DCFR can be used as a source for a contract law optional instrument. Not all

DCFR books are relevant for a contract law optional instrument and certain books

need ‘recontractualisation’. Additional sources like the ACQP can be taken into

account.

• Ideally, parties can also choose for an optional instrument in a domestic situation. In

a first stage and for business to consumer contracts it is conceivable to limit this

possibility to cross-border contracts.

• An opt-in optional instrument is better in line with contractual freedom than an opt-

out instrument.

• B2B and B2C contracts can be dealt with in the same optional instrument.

• A regulation seems an appropriate EU instrument to adopt an optional instrument.

4.1. Based on (D)CFR or on other instruments? ACQP?

At the moment the DCFR cannot be ignored as a source for an optional instrument. It is not

clear yet which parts will be included in a political CFR. The DCFR encompasses much more

than contract law and not all parts of the DCFR are therefore needed to develop an optional

instrument (eg the books on Trusts (Book X) and Proprietary Security in Movable Assets

(Book IX)) seem to be candidates to be left out, there is certainly less ius commune for

these books than for others).

Books V (Benevolent Intervention in Another’s Affairs) and

VI (Non contractual liability arising out of damage caused to another) are other candidates

for exclusion.

Of the remaining books, especially Book III was drafted in terms of a law of

obligations rather than of contract law and may need to be ‘recontractualised’, possibly for

inclusion in a CFR, certainly for use in an optional contract law instrument.

In order to be able to build a CFR for an optional contract law instrument, some general

remarks can be made.

1. When considering further exclusions of parts of the DCFR for a CFR, it should be kept in

mind that a broad CFR would allow an informed decision an what to take on board in an

optional instrument.

In addition, the CFR cannot only serve as a basis to develop an

optional instrument. It also has an important potential role to play as a tool or frame of

reference for better law making. For both tasks, it is important to keep in mind when

selecting parts of the DCFR to go into the CFR that private law rules do not stand alone but

function in a whole body of private law. Specific rules can only be understood in a broader

system of private law; one can only determine their exact effects if the context in which

See M E Storme “The (Draft) Common Frame of Reference as a toolbox and as a basis for an optional

instrument”, Stockholm Conference paper 23 October 2009.

See also R Schulze, “The Academic Draft of the CFR and the EC Contract Law” in R Schulze (ed.) The CFR and

existing EC contract law, München, Sellier, 2008.

R Schulze, “The Academic Draft of the CFR and the EC Contract Law” in R Schulze (ed.) The CFR and existing EC

contract law, München, Sellier, 2008.

H Schulte-Nölke, “EC Law on the Formation of Contract – from the Common Frame of Reference to the ‘Blue

Button’”, ERCL (2007)3, 349.

The CFR: an optional instrument?

____________________________________________________________________________________________

they operate and the rules with which they interrelate are determined.

Indeed, rules on

sales are hard to formulate ignoring the rules that regulate the transfer of property and

risk.

This has been and remains a problem with directives that single out specific parts of

private law so that the effect of the rules of the directive depends on the national private

law rules that complement the provisions of the directive (eg directives providing for a right

of withdrawal without determining the effects of withdrawal; directives providing for

information obligations but not for remedies; a directive on consumer sales that does not

determine when property or risk passes etc.). True harmonization can thus not be

achieved, not even with maximum harmonization directives.

It is understandable that private law directives cannot harmonize all of private law as

national private law would thus be fully replaced, but the same mistake should not be made

with the CFR as a non binding frame of reference for better law making and as a source for

an optional instrument. Both functions of the CFR should be kept in mind when carrying out

the selection process and should lead to a broad CFR.

2. The DCFR should however not be considered as a static source for the CFR – the authors

are aware that there is always room for improvement and have been open to the criticism

that has been uttered. Also, the ACQP, that were only partly incorporated into the DCFR

represent an additional source of inspiration and include more acquis on certain specific

contracts than the DCFR. These principles also provide a different and more open structure

on how to include and combine specific contracts provisions with general contract law

rules.

3. Finally, in certain Council documents, declarations have been made on a CFR, not so

much as a set of precise rules but as a set of principles, key concepts and definitions

. If

this line of thinking were to be followed, it will be impossible to develop an optional

instrument, if anything, from such a CFR and the whole exercise may as well be stopped. If

the CFR is to be used as a source for an optional instrument but also as a frame of

reference for better legislation, a set of well drafted rules is needed, that is the result

indeed of a balancing exercise of underlying principles but the principles themselves will not

be sufficient.

This does not mean that the rules of the DCFR cannot be improved or should

necessarily be copied into a CFR, it only means that the further the CFR departs from a set

of well-drafted rules that stem from a balancing of underlying principles (whereby the

balancing exercise may well lead to different results than in the DCFR) the less use a CFR

will have for an optional instrument and the more an optional instrument will need to

diverge from a CFR.

4.2. Sales /services / specific services – one or more?

Choices will also need to be made on the content of an optional instrument. A proposal in

this regard was formulated above under 3.3.

4.3. Cross border only?

Opinions differ on this question whether parties should also be allowed to choose for the

application of an optional instrument in a purely domestic context or whether this should be

limited to cross-border situations only.

In the same sense M E Storme, “The (Draft) Common Frame of Reference as a toolbox and as a basis for an

optional instrument”, Stockholm Conference paper 23 October 2009.

M E Storme, “The (Draft) Common Frame of Reference as a toolbox and as a basis for an optional instrument”,

Stockholm Conference paper 23 October 2009.

See Principles of the Existing EC Contract Law (Acquis Principles) – Contract II: General Provisions, Delivery of

Goods, Package Travel and Payment Services”, edited by the Research Group on the Existing EC Private Law

(Acquis Group), Munich 2009. The author of this paper is a member of the Acquis group.

See eg Council Document 8397/08 of 18April 2008.

See ME Storme, “The (Draft) Common Frame of Reference as a toolbox and as a basis for an optional

instrument”, paper for the Stockholm conference 23 October 2009.

Similar S Leible, o.c., 1474.

Policy Department C: Citizens' Rights and Constitutional Affairs

____________________________________________________________________________________________

Ideally, an optional instrument should not be limited to cross border contracts

Parties

should also have this option for purely domestic contracts. Indeed, only this possibility will

create a real competition between regulatory systems. Only this possibility will allow

traders to only to use one model contract for the whole EU

. Specifically for insurance

contracts Heiss points out that purely domestic contracts still represent the biggest share of

an insurer’s business. Absent an optional instrument for domestic contracts, these

contracts would still have to be designed and calculated according to national law, only for

cross border contracts the optional instrument could apply. The pooling of risks would then

become more burdensome and therefore it would still be unlikely that insurers would

engage in cross-border transactions

However, there are also drawbacks in allowing parties to opt for an optional instrument in

purely domestic cases. For consumer contracts and also for insurance contracts, the choice

will de facto be made by the trader/insurer and not by the consumer/policyholder. More

protective national rules can thus be set aside and even traders that do not engage in cross

border trader at all could avoid national law. Again, this danger can be overcome by

adopting a high level of protection in an optional instrument.

One could therefore be inclined to limit the scope of application in a first stage and certainly

for business to consumer contracts to cross-border contracts. After evaluation, the scope of

an optional instrument could be broadened also to encompass purely domestic situations.

In any event, allowing parties to set aside mandatory provisions through a choice of law in

purely domestic cases would again require a Community instrument to provide for a

derogation from article 3 Rome I.

4.4. Personal scope of application

There is no need for separate optional private law instruments for B2B and B2C contracts.

Moreover these two categories do not cover all contracts (thus eg P2P contracts). To avoid

the proliferation of optional instruments, it is perfectly possible to draft an optional

instrument with a general scope of application ratione personae. B2C contracts should

definitely not be left out.

The conflict of law rules make it especially difficult for these

contracts to work on a cross-border basis.

It has been illustrated in the DCFR and the

ACQP that it is possible to incorporate consumer law provisions into a general private law

instrument, and that private law should not be distinguished into two separated sets of

rules – ‘ordinary’ private law and consumer protection law.

However, this does not mean

that an optional instrument can and should not have certain provisions that only apply to

certain categories of contracts (cf what is also the case in the ACQP or the DCFR) or that

certain provisions may only need to be (semi) mandatory in a B2C context. Such

distinctions can perfectly well be made but they do not demand separate instruments. M.E.

Storme has illustrated how this could work by working out a draft ‘optional instrument for

sales’ and an ‘optional instrument for services’ based on the DCFR.

In this sense, see amongst others C Von Bar, “What we can expect from an optional instrument”, paper for the

ERA conference March 2010.

S Leible, o.c., 1473.

H Heiss, “The CFR of European Insurance Contract Law”, European Journal of Commercial Contract Law (2009)

1, 9.

Cf also the position of the Commission in the 2004 Communication (Communication from the Commission to the

Council and the European Parliament on European Contract Law and the Revision of the Acquis: The Way Forward,

COM (2004) 651 final Annex II, point 5, third-fourth paras).

In the same sense S Leible, o.c.,1474.

See C Von Bar, “What we can expect from an optional instrument”, paper for the ERA conference March 2010.

Both instruments which are meant for discussion are available on his website

http://webh01.ua.ac.be/storme/OptionalInstrumentforServices.pdf

;

http://webh01.ua.ac.be/storme/OptionalInstrumentforSales.pdf.

The CFR: an optional instrument?

____________________________________________________________________________________________

4.5. Opt-in or opt-out?

The CISG system is an opt-out system: CISG applies to (certain) international business

sales contracts unless parties exclude application of the Convention.

However, it seems at

the moment too far reaching to choose for such a system for optional instruments with a

broader scope of application and outside a B2B context. An opt-in system indeed provides

better guarantees for contractual freedom

This was also the position favoured by the

Commission in the 2004 Communication

4.6. Regulation

In order allow parties to set aside national mandatory law – an EU instrument seems the

best solution. Such instrument should adopt substantive rules and provide for the

possibility to set aside national mandatory rules and thus solve the conflicts of law problem.

The most appropriate form for such an EU instrument is therefore a directly applicable

regulation that does not need implementation in national law.

This is indeed also the

instrument that has been chosen for previous EU optional instruments (eg the Community

Trade Mark, the SE, the SCE). A non binding recommendation or other non binding EU

instrument cannot achieve the result aimed for: ie the possibility for parties to set aside

national mandatory law

5. OPTIONAL INSTRUMENT : LEGAL BASIS

KEY FINDINGS

• Article 352 TFEU (ex article 308 EC) can be relied on to adopt an optional

instrument on contract law that runs alongside existing national contract law

provisions.

A last problem to be tackled is the problem of the legal basis

. Several possibilities have

been uttered, both in academic literature and in official documents of the European

institutions. There has been a lot of debate on a possible legal basis before the Lisbon

Treaty has been adopted, and some of the Treaty articles concerned have been at the core

of the debate leading to the Lisbon Treaty. For our discussion the changes that were made

to the articles discussed below do not seem to change the Pre-Lisbon analysis.

As a preliminary remark, it should be mentioned that a discussion on the legal basis

requires an understanding of what will be included in an optional instrument and how it

would affect national laws. The analysis below presumes an optional instrument would not

replace national contract laws and create a system alongside existing national law. This is

also the position taken in the 2004 Commission communication: as an additional regime,

running alongside national contract regimes, with a view to facilitating cross-border

Cf Art. 1 and 6 CISG.

S Leible, o.c., 1473.

Communication from the Commission to the Council and the European Parliament on European Contract Law

and the Revision of the Acquis: The Way Forward, COM (2004) 651 final

In the same sense H Heiss, “The CFR of European Insurance Contract Law”, European Journal of Commercial

Contract Law (2009)1.

In the same sense, H Cousy, “Over de ‘Principles of European insurance contract law’. Een bloemlezing” in Liber

Amicorum Hubert Bocken, Brugge, Die Keure, 2009, 236.

See in this regard the profound analysis in the PhD Thesis of K Gutman, The Constitutionality of European

Contract Law. Comparative Reflections with the United States, thesis, Kuleuven, 2010.

Policy Department C: Citizens' Rights and Constitutional Affairs

____________________________________________________________________________________________

transactions in the internal market

. The analysis would be different if the instrument

would take a compulsory character and approximate national laws but that seems to

contradict the essence of an optional instrument and is therefore not discussed in this

paper. For a detailed and thorough analysis of the different scenarios one can refer to the

Ph D thesis of K Gutman

The case for Article 114 TFEU (ex article 95) as a legal basis for an instrument that runs

alongside national laws seems weak (see below the analysis on article 352 TFEU)

. The

article allows the European Parliament and the Council ‘acting in accordance with the

ordinary legislative procedure and after consulting the Economic and Social Committee,

adopt the measures for the approximation of the provisions laid down by law, regulation or

administrative action in Member States which have as their object the establishment and

functioning of the internal market’. Although an optional instrument does have as an aim to

improve the functioning of the internal market, and although the Court of Justice of the

European Union has accepted in recent cases that also the

use of approximation

mechanisms that indirectly and not just directly approximated the laws of the Member

States can be based on article 114 TFEU (ex article 95 EC),

an optional instrument that

does not affect national laws does not seem to qualify as an approximating measure.

Article 115 TFEU (ex article 94 EC) – is not a very good candidate as it requires unanimity

and only allows the adoption of directives, an instrument that does not seem appropriate

for an optional instrument. Article 115 TFEU in any event plays a residual role vis-à-vis

article 114 TFEU (something that has now also been made clear by the reversed order in

which the articles appear since the TFEU)

Article 352 TFEU (ex article 308 EC) has been the favoured option in literature although

there have been authors claiming that the article 114 TFEU is not excluded as a legal basis

for an optional instrument

. The case law of the Court of Justice in relation to other

European legal forms that exist in parallel with national legal orders confirms this

. Other

Community regulations providing for optional instruments have also been based on this

article

. It is also therefore institutional practice. In European cooperative society, the

Court of Justice held that even though a Community measure has as its aim to improve the

conditions for the establishment and functioning of the internal market, the creation of a

European legal form that exists in parallel with the national legal orders falls outside the

ambit of approximation under Article 95 EC and is properly adopted under Article 308 EC.

The Court also held that subsidiary references to national law did not alter that analysis.

This could be relevant in case the optional instrument would not exhaustively cover all

fields of contract law but would only establish a set

of rules considered most relevant to

facilitate cross-border transactions, which could result in references to the contract laws of

the Member States in the instrument

Communication from the Commission to the Council and the European Parliament on European Contract Law

and the Revision of the Acquis: The Way Forward, COM (2004) 651 final.

Cited above.

Although this legal basis was proposed in the Opinion of the European Economic and Social Committee on “The

European Insurance Contract”, [2005] OJ C 157/1 for an optional insurance contract instrument – see point 8.8, a

point of view that in my opinion is questionable.

See Case C-66/04 UK v. European Parliament and Council (“Smoke Flavourings”) [2005] ECR I-10553; Case C-

217/04 UK v. European Parliament and Council (“ENISA”) [2006] ECR I-3771. See the analysis by K Gutman in

Chapter 9 of her Ph D.

See K Gutman, o.c., Chapter 9.

See eg S Leible, “Was tun mit dem Gemeinsamen Referenzramen für das Europpäische Vertragsrecht?”, BB

2008, 1469.

See in particular Case C-436/03 European Parliament v. Council (“European cooperative society”) [2006] ECR I-

3733.

Eg the Community trade mark, the SE, the SCE (mentioned above).

K Gutman, o.c., Chapter 9.

The CFR: an optional instrument?

____________________________________________________________________________________________

In comparison to ex article 308 EC, article 352 TFEU has been improved in terms of

democratic legitimacy and involvement of Parliament. The article requires unanimity in the

Council, but the consent of the European Parliament is now also required. In addition, the

European Commission is under the obligation to draw national Parliaments' attention to

proposals based on this article (art. 352 (2) TFEU).

For the sake of completeness, some other candidate legal bases that are sometimes

included in the discussion are mentioned below.

First, article 81 TFEU (ex article 65 EC) is sometimes also mentioned as a candidate. This

article is generally seen as relating to procedural law, private international law, and

transnational litigation, but not substantive private law.

Most authors seem to agree that

it cannot serve as a legal basis for a European contract law instrument.

The changes the

Lisbon Treaty made to this article do not change this analysis. It is still concerned mainly

with procedural law and private international law issues and does not provide a sufficiently

broad legal basis for an optional contract law instrument that would also encompass

substantive rules.

Finally, Article 169 TFEU (ex article 153 EC) is in any event a too narrow legal basis for on

optional instrument that is not limited to business to consumer contracts and it is

advocated above that these contracts should not be regulated in a separate instrument.

The article requires measures which support the activities of the Member States in the field

of consumer protection. There is little institutional practice or case law on the use of article

153 EC as a legal basis which explains the considerable debate that still exists on the exact

scope of the article as a legal basis both for instruments approximating national law and for

instruments offering an alternative for national law.

See, eg J Basedow, “The Communitarization of the Conflict of Laws under the Treaty of Amsterdam”, 37

Common Market Law Review 687, 702 (2000); G Betlem and E Hondius, “European Private Law after the Treaty of

Amsterdam”, 9 European Review of Private Law 3, 4 (2001).

M.W. Hesselink et al., “The legal basis for an optional instrument on European contract law”, Centre for the

Study of European Contract Law Working Paper Series No. 2007/04, available at

http://ssrn.com/abstract=1091119

, at 43; P-C. Müller-Graff, “Closer Cooperation in European Community

Contract Law”, in The Future of European Contract Law – Essays in honour of Ewoud Hondius 91, 99-100 (K.

Boele-Woelki and W. Grosheide eds, Kluwer, 2007); J. Ziller, “The Legitimacy of the Codification of Contract Law

in View of the Allocation of Competences between the European Union and its Member States”, in The Politics of a

European Civil Code 89, 101 (M.W. Hesselink ed., Kluwer, 2006; S Leible “Was tun mit dem Gemeinsamen

Referenzramen für das Europpäische Vertragsrecht?”, BB 2008, 1469.

For different views see amongst others C Twigg-Flesner, “Time to do the job properly” – the case for a new

approach to EU consumer legislation, http://ssrn.com/abstract=1562728

; N Reich, “A European contract law or a

EU Contract Law Regulation for Consumers?”; N. Reich, “Economic Law, Consumer Interests and EU Integration”,

in Understanding EU Consumer Law, in H-W. Micklitz et al. eds, Intersentia, 2009; K Gutman, o.c., Chapter 10.

Policy Department C: Citizens' Rights and Constitutional Affairs

____________________________________________________________________________________________

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Sellier.

• H Cousy, “Over de ‘Principles of European insurance contract law’. Een bloemlezing” in

Liber Amicorum Hubert Bocken, Brugge, Die Keure, 2009, 227-274.

• K Gutman, The Constitutionality of European Contract Law. Comparative Reflections

with the United States, Ph D thesis, Kuleuven, 2010

• H Heiss, “The CFR of European Insurance Contract Law”, European Journal of

Commercial Contract Law (2009)1.

• M Hesselink, J Rutgers, T de Booys, The legal basis for an optional instrument on

European contract law, Working paper series. Centre for the Study of European

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http://www.publications.parliament.uk/pa/ld200809/ldselect/ldeucom/95/95.pdf

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Reference to the ‘Blue Button’, ERCL (2007) 332-349.

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companion to European private law, 2010, 131-146.

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The CFR and existing EC contract law, München, Sellier, 2008.

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optional instrument”, paper for the Stockholm conference October 2009

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consumer legislation, http://ssrn.com/abstract=1562728

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conference on 19 March 2010

• F Zoll, “The Remedies for Non Performance in the Proposed Directive on Consumer

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