Common European Sales Law

Robert Flello Excerpts

Wednesday 7th December 2011 Commons Chamber

[Robert Flello (Stoke-on-Trent South) (Lab)]

This is not a new matter. In European Committee B, which met on 24 May, the Under-Secretary of State for Justice, the hon. Member for Huntingdon (Mr Djanogly) noted that European contract law had been more than 10 years in its formation. Indeed the Minister has referred to that again today. Despite the length of that period, the actual draft law has been put together in some haste.

In the Committee, I raised a number of concerns and expressed the view that the Commission had not come up with any reliable evidence for its proposals; that many other barriers to trade need to be addressed as more of a priority than this issue; and that adopting another set of contract rules was unnecessary and possibly harmful.

The Committee was supportive of the toolbox approach, but not more. According to the Hansard report of that Committee, I said that I was concerned that the exercise on the Commission’s part, namely the green paper and the whole thrust of things, seemed to be a way of trying to push through option 4 instead of doing what it should be doing, which was putting together the toolbox. I therefore urged the Under-Secretary of State to go back to the Commission and make representations in the strongest terms to get things back on track and promote the toolbox and not the draft contract law. What has changed since May? Sadly, I think nothing positive has changed and so the Opposition agree that a reasoned opinion should be sent to the presidents of the European institutions, in effect, to reject the draft regulation.

The draft European sales law has caused a great deal of concern for many individuals and organisations and little support appears forthcoming from any quarter. Let me be gently mischievous here and suggest that other than the Lord Chancellor—whose generally Europhile stance accords with that of his party—I am not aware of any quarter where this particular proposal has received any positive comments at all.

The aim of the proposed regulation seems laudable enough. It is to reduce what the EU perceives as barriers to cross-border trade and thereby improve the ability of traders to exploit the common market and help consumers gain access to products across member states. That is all very laudable in theory, but let me explore that aim.

The evidence base from the European Union seems flimsy to say the least. Evidence from UK representative organisations shows just how weak the EU research appears to be. The survey of the Federation of Small Businesses demonstrated that just 18% of its members thought that a European Union sales law would make their life easier, but that seems to me to be a very low figure given the aims of the regulation.

The consumer organisation Which? opposes the regulation, saying that the proposed law would not contain a satisfactory level of consumer protection, that there would be a risk to consumer protection both cross-border and domestically, and that there would not be a resultant increase in cross-border trade to benefit consumers.

That view is supported by various Eurobarometer and Flash Eurobarometer surveys that show fairly comprehensively that the problem is not the absence of a common EU sales contract. Consumer Focus does not support the Commission’s proposals because of insufficient evidence of need, legal uncertainty and cost. We know, therefore, that there is no proven case for bringing in this regulation.

Let me now turn to the issue that has vexed many commentators and is the basis of the reasoned opinion—subsidiarity. Subsidiarity is crucial, and I will not repeat the Minister’s explanation of this term, which was very good. As I have said, the evidence from the Commission is poor, and that lack of evidence in itself breaches the requirements of article 5 of protocol 2 of the treaty on the functioning of the European Union. As well as breaching the procedural requirements, the proposed regulation breaches the principle of subsidiarity. We are clearly on unsound foundations when looking at this proposed regulation and we all know what happens, especially in a European context, when things are built on insufficient foundations.

I hope that other Parliaments take a similar view and that they hear the views expressed today. Will the Minister assure the House that the Government will actively seek to persuade other European Union member Parliaments that they too should approach this matter in a similar way?

I could explore the issues around legal complexity and legal uncertainty. I could elaborate on the impact on domestic contract law where cross-border trading puts domestic traders at a competitive disadvantage. I could raise the damage that may arise to consumer rights from bringing in this proposed EU sales law, which would actually set back the improvements that we have seen. However, given that the House seems to be unanimous in wishing to see this draft regulation sent back to the European institutions with the reasoned opinion opposing it, I am content to draw my remarks to a conclusion.

In closing, may I commend those who have served on European Committee B and urge the Government to apply pressure at a European level—perhaps with the support of others in Europe—to ensure that we do not have to consider poorly evidenced proposals again? On that basis, let me say I do not wish to delay the House any further or object to this motion.

[The Parliamentary Under-Secretary of State for Justice (Mr Crispin Blunt)]

With the leave of the House, Mr Deputy Speaker, let me reply to the points raised in the course of this debate. I have taken careful note of all the points raised and they will of course further guide our work as we consult on this proposal in the next phase. As the House is aware we will have a proper public consultation on the proposed regulation in the new year. I know, however, that our general approach to this dossier has to date been supported by the scrutiny Committees in both Houses.

Let me pick up the particular points that have been made this afternoon. I commend my hon. Friend the Member for Stone (Mr Cash) and his Committee for the work that they have done on this instrument. I particularly welcome his contribution to the debate today. He drew attention to the contributions that have already been made by Consumer Focus, the Federation of Small Businesses and the Law Society. I want to answer the Opposition spokesman’s characterisation of the position—he said that absolutely no one out there thinks there is any merit in this measure apart from the Lord Chancellor—which is wrong on both counts. However, I will return to that and correct him.

My hon. Friend the Member for Stone made a substantive point in an intervention on my hon. and learned Friend the Member for Sleaford and North Hykeham (Stephen Phillips), who confirmed that he was entirely right to say that if article 352 were used, the European Union Act 2011 would require an Act of Parliament before a Minister could agree to it. The legal base is therefore important, and I have made clear the Government’s views, including our doubts about whether article 114 applies, which is an entirely open question.

My right hon. Friend the Member for Carshalton and Wallington (Tom Brake) asked whether the Government had assessed whether the new law would be more complex than that which currently exists, whether businesses could choose to opt into the process and whether that would leave them in a better position. There is a concern that having two alternative regimes could lead to confusion. It might also be too complex for many consumer transactions. The existing common law emphasises certainty—a point made by my hon. and learned Friend the Member for Sleaford and North Hykeham—but the law proposed in this case does not appear to have that emphasis. Again, this is an area where we need detailed legal analysis, which is ongoing. We will consider the views of interested parties, many of whom have significant expertise in this area.

That is an appropriate note on which to turn to my hon. and learned Friend. He drew on the remarks of the remembrancer of the City of London, who has suggested that the proposed measure might be the thin end of a wedge intended to introduce European contract law, thereby undermining the universality of English contract law. It is important to draw attention today—when Her Majesty is opening the Rolls building, a new and impressive commercial court—to the extremely extensive service that the legal profession in London provides to the entire world of commerce. That point ought to be given importance in our consideration of this matter.

As to whether this measure is the thin end of the contract wedge, I should point out that the scope of the draft regulation has been narrowed since the initial discussions began some years ago. The proposal that we are discussing covers the sale of goods and does not extend more widely into contract law. We would have to address any such proposals carefully, and will watch extremely closely if any proposals are made to widen the scope. Each will be considered on its merits. I can also reassure the hon. Member for Stoke-on-Trent South (Robert Flello), who spoke for the Opposition, that my right hon. and learned Friend the Lord Chancellor and I—and, indeed, the whole of Her Majesty’s Government—see no need for a general system of European contract law.

The tenor of the argument produced by my hon. and learned Friend the Member for Sleaford and North Hykeham was extremely clear, as was the expertise that he used to make it. He made a powerful point about the potential for increased transactional costs, not least because lawyers would face considerable difficulties in giving clear advice to small and medium-sized enterprises. He very properly pointed out to the House that if the measure were introduced, the cost of growing case law in this area to provide the necessary certainty would lead to a process that might take decades. The businesses using this form of law would bear the costs, as they would find out—either to their cost or otherwise—through the legal process of testing its bounds.

Finally, let me repeat, so as to make it perfectly clear, that the hon. Member for Stoke-on-Trent South wholly misrepresented the views of the Lord Chancellor. [Interruption.] I am grateful to hear the hon. Gentleman’s sedentary reassurances on that point, but it would be a service to the House if in future he did not seek to misrepresent positions that he plainly does not appreciate or understand. He then said that absolutely nobody was in any way positive about this measure. He was wrong about that as well.

[Robert Flello]

I am sure that the Minister normally follows every word I say very closely, but sadly he must have been distracted when I said that there was very little support outside. I did not say that there was no support, because the Federation of Small Businesses has said that it supports the measure. However, I reiterate the point that only 18% of people think that it would make a difference.

[Mr Blunt]

I am grateful for that intervention, because I had misheard the hon. Gentleman and would not want to mischaracterise his arguments. He makes the point that I was coming to, which is that the Federation of Small Businesses says in its submission that it sees an argument in principle for the measure, a point that was reflected in what my hon. Friend the Member for Stone said. In a sense, it is axiomatic that, at the European level, there would be a case for such a measure. The FSB has made it clear that its support for a common European sales law is dependent on its being clear and simple for small and medium-sized enterprises to use, without placing unreasonable burdens on business. We will look closely at those details in the consultation.

I can assure right hon. and hon. Members that any development in the Government’s position on the dossier will be made on the basis of good evidence of need and a robust analysis of the impacts. The Government will pay particular consideration to whether the proposed regulation is a proportionate response to the problems envisaged by the Commission, whether that response complies with subsidiarity and whether the treaty base is appropriate for the measures proposed. We will work with all those most affected by the change, engaging with business and consumer groups in particular. I hope and expect that we will incorporate contributions from Governments in other member states and from the European Parliament.

Let me answer the point made by the hon. Member for Stoke-on-Trent South, who suggested that Her Majesty’s Government should go around trying to encourage Parliaments in other member states to take an interest. We do not think it proper for Her Majesty’s Government to do that. Indeed, he will have heard the suggestion in my opening remarks to the effect that parliamentary groups and authorities should take up the challenge that he has thrown down to them. Given the law of unintended consequences, I fear that if the Government tried to do that, it might be less convincing than fellow parliamentarians trying to act on other national Parliaments, which might be rather more effective.