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English lawyers worried at EU contract proposals

7 January 2011

European Commission proposals to reform contract law across the EU "could hinder international trade by weakening the strength of English law", according to concerns in the profession in England & Wales as reported by the Law Society there (LSEW).

A current EU green paper on policy options towards a European contract law for consumers and businesses invites comments on a range of options, including an EU regulation replacing existing national contract laws, and an optional instrument that parties could choose to adopt in place of the law of a national system. The latter would be based on the "Draft Common Frame of Reference", prepared by a research group including Scotland's Professor Eric Clive.

LSEW says that England & Wales legal professionals fear that EU legislation could result in contracting parties switching to another non-EU common law system (e.g. New York law), with the consequent loss of economic activity and export earnings for the EU as a whole. There is also uncertainty regarding the scope of a new instrument, which could also include consumer protection provisions and issues relating to e-commerce.

In response to the concerns, LSEW yesterday hosted a contract law forum for practitioners, representatives from industry, and the judiciary, for concerns to be shared and a co-ordinated response prepared to the European Commission.

Chief executive Desmond Hudson said that the initiative for a non-binding “toolbox” could serve as a guide for use by European legislators to improve the quality, coherence and consistency of contract law across the EU.

"However," he added, "there is an urgent need for an impact assessment of the key options in the green paper. England & Wales practitioners would like to be included in the discussions and drafting processes taking place in the European institutions. The profession has great experience working with other jurisdictions and on cross-border contracts and could offer valuable expertise. [LSEW] is concerned that the expert group, established to advise in this process, is mainly comprised of academics and some practitioners from civil law systems and would welcome the direct involvement of common law practitioners in the drafting process: after all they are the people who will draft the contracts."

The Law Society of Scotland also recently hosted a seminar on the subject, jointly with the Scottish Government, a report on which will appear in the January Journal. It recognises potential advantages from an optional, neutral code, and less of a threat to Scots law, which acknowledging other concerns such as how to advise on interpretation of any new code, and the potential delay if questions have to be decided by the European Court of Justice.

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