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What will the Common European Sales Law (CESL) mean for businesses?

I am English.

I am also British.

But being a lawyer, I am very definitely English. And Welsh.

No, this is nothing to do with the Scottish reference on independence, but a little-publicised vote of the European Parliament.

We are used to seeing, at the end of trading agreements, the clause stating that the agreement is subject to the laws of England and Wales, or of Scotland, or of France or any other relevant country. It is often the subject of much discussion in the early stages of negotiation of cross-border contracts – each party, understandably, wants the law of their own country to apply to the contract, but it is not possible for each party to get their own way.

There is no such thing as UK law, or British law, and hence businesses in England and Wales will use the laws of England and Wales. Each of Scotland and Northern Ireland have their own laws, similar but different in some respects.

And until now, there has been no such thing as EU law.

But that’s exactly what the European Parliament approved, by a huge majority, when it voted in favour of the Common European Sales Law (“CESL”).

Perhaps not surprisingly, the law is based on the civil legal systems of mainland Europe, rather than the traditional common law of the British Isles. For this reason, the CESL has not met with much approval here. There are fears that the City of London, the jewel in UK PLC’s balance sheet, will lose out to the USA if cross-border contracts become subject to EU law rather than the laws of England and Wales.

The CESL proposes that businesses and consumers, when transacting across EU borders, can choose to apply EU law to their dealings rather than choosing the law of the country in which the business or the consumer is based.

Curiously, the European Commission vice-president claimed that the CESL “will cut transaction costs for small businesses while giving Europe’s 507 million consumers greater choice at cheaper prices when shopping across borders”.

And in that one small sentence, we gain an understanding of where the EU is going … the CESL is being introduced to allow consumers across the EU to benefit from a single set of laws. And who believes, in their heart of hearts, that this isn’t only the start, and that the CESL will, in time, become a mandatory requirement when dealing with consumers in the EU?

But any suggestion that this will reduce business costs is, quite frankly, questionable. Imagine the small business, whose sales to the EU are minimal, but which has operated for many years without problem using terms and conditions of sale written under English law. Or French law. Or whatever their local law may be. Those terms and conditions will have to be reviewed, and rewritten, to comply with the new CESL so that the business can continue to trade when EU law is the chosen jurisdiction. How is this reducing costs?

Indeed, some more sceptical than I may ask when any suggestion coming from Brussels or Strasbourg has ever reduced the costs faced by small businesses. Distance Selling Regulations? Working Time Regulations? Flexible Working Regulations? I’m not suggesting these Regulations are ‘bad’ for business, but they certainly haven’t reduced operating costs.

And neither will the introduction of the CESL.

It hurts me to say this, it genuinely does, but I fear there will only be two winners – European consumers, and lawyers.

The CESL has not yet become law – there is still now EU jurisdiction today. The CESL must still be approved by the EU’s Council of Ministers … but who would expect them to go against the European Parliament?

It is, I suspect, only a matter of time.

But at least an EU law may help those outside the single market. I still have memory of sending a contract to a lawyer in Mid-West America that permitted our client to sell products in the “Territory of the United Kingdom”. The contract was returned to me with just a single amendment – it now read “Territory of the United Kingdom, but excluding Germany”.

Sometimes, words are not enough.

 

These notes have been prepared for the purpose of an article only. They should not be regarded as a substitute for taking legal advice.

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