Common European Sales Law

In October 2011, the European Commission published a proposal for a Common European Sales Law (CESL) which could have a huge impact on small and medium-sized enterprises (SMEs) in the UK.

The aim of CESL is to create a harmonised contract law that will remove obstacles to trade between businesses based in different member states. Although voluntary, and therefore less radical than was initially envisaged, the law could still cause major upheaval as it is set to be implemented by the end of 2012.

The proposed regulation applies only to cross-border contracts where the parties choose the CESL to govern their contract and at least one of them is based in a member state. Significantly, member states will have the option to extend the law to domestic transactions and those that do not involve SMEs, which means its scope is likely to increase in the future. Although this may be seen as unlikely to happen any time soon in the UK, David Cameron has voiced concerns that economic growth is being affected by the existence of so many conflicting laws of contract within the single market. Kenneth Clarke memorably dubbed the proposal as an “Esperanto fallacy” but the Law Society has put forward more grave concerns, most notably the lack of any clear guidance on how courts are to interpret CESL. This uncertainty will remain until cases have reached either the national courts or the European Court of Justice.

A fundamental principle of the regulation is that parties to a contract have a duty to act in “good faith and fair dealing”. While most businesses may assume this is a given in any contractual arrangement, no such obligation exists in sales contracts under English law. Therefore, actions of parties to a contract which may be considered acceptable in England will not be so in member states.

Businesses should be aware of the existence of CESL before dealing with any EU-based company because it is designed to be a comprehensive contract law and not something merely to be taken into consideration by the courts. Change is most certainly coming – it could bring benefits such as increased expansion in new markets but could also lead to unexpected litigation and disputes.

As always, if you need commercial and pragmatic legal advice, we’re here to help so please get in touch.

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