Background

Green Paper

The report

The report covers both business-to-business contracts and business-to-consumer contracts. The Expert Group has proposed, in particular, provisions to protect SMEs in a business to business context, including against unfair contract terms. For example, it is thought that an unfair term in a standard contract with an SME will be void if the SME had not anticipated the existence of such a term.  

The study also describes various scenarios illustrating why a European contract law is needed. 

The draft text includes the following sections:

·         Introductory provisions including definitions, for example of "consumer" and "durable medium", and general principles of contract law.

·         Rules on the formation of contracts and rights to withdraw from, or avoid, distance or off-premises contracts. ·         General provisions for interpreting contracts, including guidance on which contract terms may be considered unfair and are therefore invalid.

·         Obligations of the seller (for example, to provide goods that conform to the description of goods set out in the contract) and the buyer (for example, to pay the price set out in the contract) and includes remedies for non-performance. For example, in business-to-business transactions, businesses will have a right to remedy any defective performance of a contract before the other party is able to call upon more serious remedies such as terminating the contract or demanding a price reduction. In business-to-consumer contracts, where faulty goods have been supplied, the text foresees that consumers will be able to choose between having the right to have faulty goods repaired or replaced, the right to withhold their own performance or terminate the contract, and the right to have the price reduced or claim damages for non-performance.

·         Rules that are applicable the provision of services (such as installation, repair or maintenance) in close connection to a contract for the sale of goods.

·         Rules on damages for contractual breach and interest applicable to late payments. It also explains the rules which apply on what must be returned when a contract fails and on the effects of the lapse of time on the exercise of contractual rights.

The Expert Group is seeking feedback on a number of questions, including:

·         Should the controls on unfair terms in consumer contracts be extended to cover terms that are individually negotiated as well as standard terms.

·         Should a European contract law instrument cover digital content (whether it is delivered in a durable medium or directly downloaded from the internet). 

Next steps

The European Commission now seeks feedback on the draft text by 1 July 2011. The European Commission is expected to put forward a formal proposal for an optional European contract law instrument this autumn. So watch this space!