Two contract laws restated

Andrew Burrows has followed up his excellent Restatement of the English Law of Unjust Enrichment with an equally impressive Restatement of the English Law of Contract. This is a sort of draft code and commentary on English contract law which successfully resists all temptation to tweak the law into an improved form even in areas, such as the rules on consideration, where most people would say this was obviously desirable.

In his introduction Andrew points out that many lawyers outside England need to understand English contract law and expresses the hope that the book may attract readers in civil law systems. “One of the aims is for the reader to see quickly and easily how the different elements of this area of English law fit together. Civil lawyers, who are used to a statutory code, often find English law difficult for that reason.”

As a lawyer from a mixed jurisdiction who has worked with civil lawyers and other lawyers on contract law projects I would say that the book admirably achieves that aim. It would have been very useful, for example, in the work on the DCFR and the CESL. Let us hope that there will be similar opportunities for it to be useful in the future.

It is interesting to follow up the reference to civil codes by comparing the Restatement with the recent reform of the provisions of the French civil code on contract law (due to come into force on 1 October 2016). I suspect most contracting parties would find one system just as good in substance as the other. Both emphasise freedom of contract, with qualifications. But the tone is rather different. The French code seems more pedagogical. It distinguishes, for example, between contracts which are:- synallagmatic/unilateral; onerous/gratuitous; commutative/aleatory; consensual/solemn/real; framework/application; for one performance/for successive performances (see arts 1106 to 1111). The Restatement finds such distinctions unnecessary. Its tone is less “learned”. It can even seem a bit chatty and informal. For example section 12, on promissory estoppel, says in subsection (4) “Sometimes the reliance on the promise by B is required to be to B’s detriment”. This sort of thing is possible in a non-legislative restatement, where the commentary can fill out gaps and leave things hanging if necessary, but would not be possible in legislation.

So we have two “restatements”, one legislative and one non-legislative. They are different in nature and style but both are magnificent achievements.

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Unwinding failed contracts

The Wilson Memorial Lecture was given yesterday by Sonja Meier of the University of Freiburg on the theme of “Unwinding failed contracts – new European developments”. It was a brilliant performance, beautifully delivered, perfectly timed and, above all, cogently argued.

Taking the Swiss draft Obligationrecht 2020 and the recent reform of the French law of obligations as her starting points the speaker explored in a historical, comparative and analytical way the question of whether it was better to have a uniform regime for the unwinding of failed contracts – whether the reason for the unwinding was nullity, voidability, termination for fundamental non-performance or frustration – or to have two different regimes. This is a particularly interesting question at present because, as the speaker noted, different soft-law instruments have adopted different approaches. The PECL, the PICC and the DCFR adopted a split approach. The Gandolfi code and the proposed CESL adopted a uniform approach, as did the draft rules on unjustified enrichment in the Appendix to the Scottish Law Commission’s Discussion Paper No. 99 in 1994.

The speaker noted that both the Swiss draft and the French reform adopted a uniform approach, although differing in details. She analysed the issues which had to be resolved from a functional perspective and concluded that there was no need to have a split approach.

If there is no need to have a split approach then clearly it is more efficient and more sensible to have a uniform set of rules. Functional considerations should prevail over doctrinal ones.

There was a great deal in this lecture. It will repay careful reading when it is published. In its elegant and rigorous analysis it was a most fitting tribute to the late Bill Wilson.

 

 

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Farewell to unjustified enrichment?

“That was a surprisingly civilised discussion” said Eric Descheemaeker as he brought to a close the workshop on unjustified enrichment at 7 pm last Friday. The remark was understandable. The main speaker, Nils Jansen, had been arguing that it was time to abandon the idea of a unified law of unjustified enrichment. Several people in the audience had devoted time and effort to developing and promoting just such an idea.

The discussion, in the Raeburn room, was indeed civilised. But why should this be surprising? Fine intellectual effort is always to be respected and this was manifestly on display. People were keen to learn from what the speaker had to say and were looking for good ideas in his presentation. There were plenty of these too.

First there was a fascinating account of the doctrinal development of the current German law on unjustified enrichment. The speaker explained that the modern rules are derived not so much from Roman law as from a period of intense discussion between 1840 and 1880. The attempt to create a unitary law led to an integration of different notions and different problem situations some of which, like gains derived from infringements of rights and three-party situations, had not been the primary focus of the 19th century debates. The attempted integration did not work. More recently there had been a progressive disintegration.

The speaker’s conclusion was indeed that it was time to say farewell to the idea of unjustified enrichment as a separate integrated branch of the law. Parts of it, including the parts dealing with enrichment by transfers and, in particular, with the unwinding of failed contracts and the notoriously complicated three-party situations, should be dealt with in contract law. Parts dealing with enrichment by infringement of another’s rights should be dealt with in a sort of new branch of the law on non-contractual obligations which would include the traditional law of delict but go beyond it to cover claims based on the obtaining, by an infringement of a right, of a benefit which was another’s to dispose of.

Hector MacQueen, in response, explained the very different development of the Scottish law on unjustified enrichment and was not so convinced that the idea of a unified law on unjustified enrichment could or should be jettisoned. He pointed out that the areas of law into which Nils Jansen wanted to decant large areas of enrichment law had not always proved up to the task of handling the relevant problems. In Scotland, for example, restitutio in integrum had been regarded, absurdly, as both a condition for and a consequence of avoiding a voidable contract. He even seemed to cast doubt on the wisdom of dealing with the economic consequences of failed cohabitations by statute rather than by the non-statutory law on unjustified enrichment.

In the ensuing discussion John Blackie made a telling intervention when he queried whether other branches of the law had the conceptual resources to take over large parts of the law on unjustified enrichment, particularly in a small jurisdiction like Scotland where the opportunities for judicial development were few and far between. He thought that it was difficult to see how an expanded law on non-contractual obligations of the type suggested by Nils Jansen could ever be developed in practice. At a later stage in the debate there was clearly enormous doubt as to whether the law on negotiorum gestio could reasonably be used as a basis for any part of such a new law. Nor did people seem to be keen on using the law on constructive trusts for this purpose.

My own view is that there is great value in a unified law on unjustified enrichment based on the general idea that a person who obtains an unjustified enrichment which is attributable to another’s disadvantage is obliged to reverse the enrichment. It is a simple, easily remembered starting point. Each element in the formula can be elaborated later and qualifications introduced for different situations, as is done in the Draft Common Frame of Reference (DCFR). There is less risk of gaps than there is in a disintegrated approach. It would hardly be possible to decant everything into other branches of private law. For example, the law on undue transfers is not limited to contractual situations. A transfer which is not legally due may be made because a will or a court order or a statute is void. There may be no contract within sight.

The trouble with a unified approach is that the unitary idea takes you only so far before things become unpleasantly complicated. The question, as I see it, is not whether the law on unjustified enrichment should be abandoned. That would be a massive step backwards. The question is rather how the law on unjustified enrichment can be made simpler and kept within reasonable bounds. Here it is undoubtedly useful to ask whether certain aspects (such as three party situations) could not be better dealt with elsewhere. It is also desirable to deal by specific legislation with areas where there are strong policy considerations peculiar to those areas. Family law is one example. John Blackie mentioned intellectual property law as another. There could also be value in leaving some very residual matters to judicial discretion although, as Nils Jansen pointed out, the danger in a bigger jurisdiction is that cases involving the use of the discretion would accumulate and become precedents. Here he mentioned the intriguing idea, prompted by French law, of providing that decisions based on the use of such a residual discretion should be regarded in law as decisions of fact not capable of being used as legal precedents. I liked that idea! Another way of keeping unjustified enrichment law within reasonable bounds is to regard enrichment remedies as subsidiary, so that a claim based on unjustified enrichment is not available if another remedy is available.

The most creative idea in the presentation was the idea of a sort of new “infringement of rights law”. This has great intellectual appeal. Any thinking person encountering the category of enrichment by wrongs is bound to ask whether that is not the proper field of the law of delict. Roy Goode raised this very point at a meeting of the Study Group on a European Civil Code held in Oxford in December 2001 but it did not get any further. In the context of the DCFR it could not get any further because Book VI is confined to non-contractual liability arising out of damage caused to another: it does not cover liability arising out of gains derived from infringing the rights or interests of another. It would be very interesting to see a properly worked up “infringement of rights or interests law” which would have both compensatory and anti-enrichment remedies, carefully adapted to different circumstances, including the degree of fault on the part of the infringer. It would be particularly interesting if such a developed law included, or at least took full account of, public law elements such as preventative regulation, penal sanctions (including the forfeiture to the state of the proceeds of certain infringements) and state-based insurance schemes or no-fault compensation schemes. A private law scheme on its own is unlikely to solve all the problems in a satisfactory way. Shifting problems from a badly-integrated private law on unjustified enrichment into a badly-integrated private law on the infringement of rights or interests would not be the answer.

Farewell to unjustified enrichment? No thanks. Radical thinking designed to keep unjustified enrichment law within reasonable bounds? Yes please.

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The new UK law on penalty clauses and European private law

Recent decisions by the UK Supreme Court on penalty clauses are of some interest from the point of view of European private law.

The decisions were in the conjoined cases ofCavendish Square Holding BV v Talal El Makdessi and ParkingEye Limited v Beavis[2015] UKSC 67. They have been admirably discussed by Martin Hogg in his Obligations blog on this website. It suffices here to say that the court disapproved of using the distinction between penalty clauses and liquidated damages clauses, incorporating a genuine pre-estimate of loss, as a determinative test, although it may still be a factor to be taken into account in applying the new tests outlined below. The court also disapproved of any test based on whether a clause was intended to operate in terrorem. Under the law as now explained, after a re-assessment of the old cases, a clause providing for the payment of an agreed sum for non-performance of a contractual obligation will be enforceable if the person seeking to enforce it has a legitimate interest in doing so and if the agreed sum is not, in the words of Lord Neuberger at paragraph 32, “out of all proportion to any legitimate interest of the innocent party in the enforcement of the primary obligation.” So the two new tests could be said to be (1) legitimate interest and (2) proportionality. Other judges described the second test slightly differently. Lord Mance said the question was whether the charge was “extravagant, exorbitant or unconscionable” (para.152). Lord Hodge referred to the test of “exorbitance or manifest excess compared with the innocent party’s commercial interests” (para. 248). But all were expressing the same idea of a charge which is grossly excessive in the circumstances.

I will now concentrate on the ParkingEye case because it illustrates in a simpler way than the Cavendish case how the new tests apply and because it raises more points of interest for European private law. This is because it discussed not only the penalty clause doctrine but also the rules derived from Council Directive 93/13/EEC on unfair terms in consumer contracts.

ParkingEye Ltd managed car park schemes for supermarkets and retail parks. The contract with the user in this case provided for two hours of free parking. If the user was in breach of the obligation not to overstay a penalty of £85 was payable. Here Mr Beavis had overstayed by almost an hour and had been charged £85. It was held that ParkingEye had a legitimate interest in imposing this charge (because otherwise the whole parking management scheme would not have worked) and that the sum was not out of proportion to its interests or grossly excessive having regard to comparable sums charged elsewhere. So the charge survived the penalty clause rule as now reformulated. It would not have survived the rule as it used to be formulated because it was not based on a genuine pre-estimate of loss: ParkingEye suffered no actual loss from the overstay.

The first point of interest from the point of view of this blog is the use made by the judges of European and international soft law instruments. It had been argued by counsel that the penalty clause doctrine ought to be abolished entirely, so that penalty clauses would be enforceable just like any other contractual terms. The judges disagreed and in support of their view referred not only to the views of the Law Commissions and to a number of foreign laws but also to the fact that rules on agreed payments for damages were retained in various European and international soft-law instruments, including the Principles of European Contract Law (PECL), the Principles of International Commercial Contracts (PICC) and the Draft Common Frame of Reference (DCFR). See lord Neuberger at paragraph 37, Lord Mance at paragraph 164 and Lord Hodge at paragraph 265.

One difference between the approach taken in these instruments and the reformulated UK law is that the instruments allow a court to modify an excessive penalty. For example, under article III. – 3:712 of the DCFR a stipulated payment for non-performance of an obligation “may be reduced to a reasonable amount where it is grossly excessive in relation to the loss resulting from the non-performance and the other circumstances.” The need for the reference to “other circumstances” is demonstrated by the ParkingEye case. In UK law there is no power to modify: an excessive penalty will be wholly unenforceable. It would take legislation to introduce a power to modify.On the other hand, the instruments and UK law are alike in that they distinguish between an agreed charge for non-performance of an obligation and a variable pricing structure, with options for the performing party and different payments being due depending on which option is exercised. The distinction can be criticised as artificial. Clearly it leaves room for drafting round the penalty clause rule. However, as Lord Mance pointed out (at paragraph 130), “in most cases parties know and reflect in their contracts a real distinction, legal and psychological, between what, on the one hand, a party can permissibly do and what, on the other hand, constitutes a breach and may attract a liability to damages for – or even to an injunction to restrain – the breach”.

A second noteworthy point in the ParkingEye case is the way in which the court approached the question of whether the £85 charge was unenforceable because of the rules in the Unfair Terms in Consumer Contracts Regulations 1999, which transposed the 1993 Directive into UK law. Under regulation 5(1), a contractual term which has not been individually negotiated “shall be regarded as unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties’ rights and obligations arising under the contract, to the detriment of the consumer.” One type of term which may be regarded as unfair is a term which has “the object or effect of requiring any consumer who fails to fulfil his obligation to pay a disproportionately high sum in compensation”. The court mentioned the UK Regulations and the fact that there was a House of Lords case on them but then went straight to the European Court of Justice’s decision in Aziz v Caixa d’Estalvis de Catalunya, Tarragona i Manresa (Case C-415/11) [2013] 3 CMLR 89, which was concerned with an allegedly high rate of interest charged on the debtor’s default. The court found the observations of the Advocate General in that case particularly helpful and concluded that the term imposing the charge of £85 was not unfair. In the words of Lord Neuberger (at paragraph 107)

… there was an imbalance in the parties’ rights. But it did not arise “contrary to the requirement of good faith”, because ParkingEye and the landlord to whom ParkingEye was providing the service had a legitimate interest in imposing a liability on Mr Beavis in excess of the damages that would have been recoverable at common law. ParkingEye had an interest in inducing him to observe the two-hour limit in order to enable customers of the retail outlets and other members of the public to use the available parking space. To echo the observations of the Advocate General at para AG94 of her opinion, charging overstayers £85 underpinned a business model which enabled members of the public to park free of charge for two hours. This was fundamental to the contractual relationship created by Mr Beavis’s acceptance of the terms of the notice, whose whole object was the efficient management of the car park. It was an interest of exactly the kind envisaged by the Advocate General at para AG87 of her opinion and by the Court of Justice at para 74 of the judgment. There is no reason to regard the amount of the charge as any higher than was necessary to achieve that objective.

The court also considered that the term was one which a reasonable motorist would have agreed to, given the availability of convenient free parking for two hours and the fact that the risk of overstaying was within his or her control.

What is interesting about the overall result of these cases is that the new approach adopted in relation to the penalty clause rule is rather similar to the approach of European private law under the Unfair Contract Terms Directive.

The puzzle which remains is what is meant by “legitimate interest”. It can hardly be confined to “commercial interest” because a public body or a charity might well have legitimate non-commercial interests in imposing a penalty for non-performance. What, it might be asked, would be a non-legitimate interest? Would, for example, a religious interest be a legitimate interest? Suppose that a religious body is contracting for construction work on one of its religious buildings. It says to the contractor “This is a holy site and we do not want it to be defiled. So would you agree to an obligation to ensure that there is no blasphemy or use of foul language by any of your employees on the site during the work? And would you agree to pay a penalty of £50 for each infringement?” If the contractor, keen to get the work, agreed to this and if the obligation was sufficiently defined (e.g. by a schedule of offending words or phrases) could the penalties be enforced? And how would proportionality be assessed? The religious interest and the financial penalty are not of a comparable nature. The religious body might feel that death was the appropriate penalty for blasphemy on a holy site and therefore that no merely financial penalty could be regarded as disproportionately high. There seems to be no reason why such a clause, freely agreed to, should not be enforceable. And perhaps, in the light of such examples, a test of grossly excessive in the circumstances might be more flexible than any test based on proportionality.

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The proposed new digital single market contract law Directives

Introduction

I would expect an honest EUphobe (pronounced You phobe) to be prepared to admit that there were merits in an EU proposal which had merits. Similarly an honest EUphile should be prepared to admit that there are demerits in an EU proposal which has demerits. So I must reluctantly confess that I find the proposed new digital single market contract law Directives to be disappointing, problematic and badly drafted.

Disappointing

When the proposal for an optional Common European Sales Law (CESL) was abandoned in late 2014 some slight hope was held out that a replacement would be re-introduced in modified form under the umbrella of the digital single market strategy. The proposed new Directives are nothing like an adequate replacement.

The CESL had provisions on general contract law – formation, validity, interpretation, obligations of the parties, remedies for non-performance, prescription and so on. The proposed new Directives have nothing like that. They are more or less confined to the questions of conformity with the contract and the consumer’s remedies for non-conformity. In addition the digital content Directive has rules on the right to terminate a long term contract and the modification of the digital content and the distance sales Directive has rules on commercial guarantees. They are both extremely limited in scope.

The proposed Directive on certain aspects concerning contracts for the supply of digital content (COM/2015/0634) aims to introduce standard rules, via maximum harmonisation, on the rights and remedies of consumers when, in a B2C contract, digital content fails to conform to contract. An innovative feature in the rules on conformity is that when the digital content is supplied over a period of time, it must be in conformity with the contract throughout the duration of the contract (art. 6(3)). Another is that the version of digital content supplied to the consumer must be the most recent version available at the time of the conclusion of contract (art. 6(4). Another is that the burden of proof of conformity rests with the supplier (art. 9). The provisions giving the supplier a right to modify the contract, on certain sensible conditions, and giving the consumer the right to terminate a long-term contract, on certain sensible conditions, are also interesting (arts 15 and 16). This Directive could be very useful but it is highly specific and in no sense a substitute for CESL.

The proposed Directive on certain aspects concerning contracts for the online and distance sales of goods ((COM/2015/0635), which is also a maximum harmonisation Directive, could have been a vehicle for something more like the CESL. It contains some provisions derived from the CESL but, as noted above, it is virtually confined to conformity and the remedies for lack of conformity.

From the point of view of anyone interested in the development of a more principled and coherent European contract law these proposed Directives are profoundly disappointing. It is back to the bad old days of itsy-bitsy rules on particular topics.

Whether the proposals are disappointing from the point of view of those who deplore any Europeanisation of contract law, and who hoped to see nothing at all derived from the CESL ever resurfacing, is for them to say. What is clear is that the proposals are in one respect more invasive than the CESL would have been. The CESL would have been an optional instrument, applying only where the parties opted to use it. It would have left Member States’ general contract laws otherwise untouched. The proposed Directives will require changes to Member States’ laws (not a very appealing prospect in the UK where a new and complicated Consumer Rights Act has only recently come into force) and, because they go for full harmonisation, will restrict the powers of Member States to provide different remedies for non-conformity.

Problematic

There are various points of difficulty in these proposed Directives. For example, must replacement under the distance sales Directive be “new for old” or could it, as would seem reasonable, be “old for old” so that a one-year old computer could be replaced by a reconditioned one-year old computer? What is meant by the underlined words in the following passage in article 4 of the Directive:

fit for any particular purpose for which the consumer requires them and which the consumer made known to the seller at the time of conclusion of the contract and which the seller has accepted”?

It is not clear what the seller must have accepted, and what is meant by “accepted”. Such doubts can be sorted out in discussions. They are not fundamental. The most fundamentally problematic feature of the new proposals is the nature of the consumer’s remedies for non-conformity coupled with the decision to go for maximum harmonisation. It is worth setting out article 9 of the distance sales Directive in full.

Article 9

Consumer’s remedies for the lack of conformity with the contract

  1. In the case of a lack of conformity with the contract, the consumer shall be entitled to have the goods brought into conformity by the seller, free of charge, by repair or replacement in accordance with Article 11.

  2. A repair or replacement shall be completed within a reasonable time and without any significant inconvenience to the consumer, taking account of the nature of the goods and the purpose for which the consumer required the goods.

  3. The consumer shall be entitled to a proportionate reduction of the price in accordance with Article 12 or to terminate the contract in accordance with Article 13 where:

        1. a repair or replacement are impossible or unlawful;
        2. the seller has not completed repair or replacement within a reasonable time;
        3. a repair or replacement would cause significant inconvenience to the consumer; or
        4. the seller has declared, or it is equally clear from the circumstances, that the seller will not bring the goods in conformity with the contract within a reasonable time.The consumer shall be entitled to withhold the payment of any outstanding part of the price, until the seller has brought the goods into conformity with the contract.
  1. The consumer shall not be entitled to a remedy to the extent that the consumer has contributed to the lack of conformity with the contract or its effects.

These remedies are available where the lack of conformity becomes apparent within two years from (normally) the time of delivery of the goods (art. 14). There is a presumption that a non-conformity which becomes apparent within the two year period existed at the time of delivery (art. 8).

What will immediately strike the UK reader is that there is no mention of damages and no immediate right to termination plus money back (the famous but ineptly named “right to reject” of UK law). Instead the Directive provides a sort of 2 year “legal guarantee” which corresponds to the sort of manufacturer’s guarantee which offers repair or replacement in the first instance. Such a 2 year legal guarantee for all consumers buying goods online under the law of any Member State would be great for consumers as a minimum, and might go a long way towards realising the objective of boosting consumer confidence in online shopping across the EU, but as a maximum it seems fundamentally problematic.

The remedies under the digital content Directive are similar but there is a right to damages for any economic loss caused by damage to the consumer’s hardware or software caused by the defective digital content (art. 14). The very limited nature of this right merely points up the absence of any more general right to damages.

Badly drafted

The English version of these proposed Directives is rather badly drafted. The use of definite and indefinite articles is not always correct. In article 1 of the distance sales Directive, for example, we have a reference to “the consumer” although no consumer has yet been mentioned. The language is often old-fashioned and of a type not used in modern legislatures (“therein”, “thereof” and so on). There is a pervasive use of the pompous “shall”, which does not correspond to ordinary usage and can be potentially misleading. Why, for example, say “the following definitions shall apply” when it would be normal and sufficient to say “the following definitions apply”? Why say “The consumer shall exercise the right to terminate” (suggestive of an obligation) in a provision setting out how the right to terminate is exercised. Although the drafting is largely gender-neutral we still have a reference to a legal person and those acting on “his behalf, for purposes relating to his trade” (art. 2(c) of the distance sales Directive). Definitions are not always followed through in the later text. For example, in the distance sales Directive, “contract” is defined as “an agreement intended to give rise to obligations or other legal effects”. That is fine but why then refer in article 18 to any “contractual agreement”? Why not just “contract”? And what is meant by “termination of the contract” (art. 9)? Is an agreement terminated? Or is it the contractual relationship, or the main obligations under the contract, which is or are terminated? And what is meant by “terminated”? In reality a contractual relationship is not always wholly terminated: winding-up aspects of it may survive. In the digital content Directive, “durable medium” is defined as a type of “instrument” but seems to be used later to cover things like discs which would not normally be regarded as instruments.

Why two Directives?

There is overlap and duplication in these two proposed Directives? Why have two? The cynic in me wonders whether it is so that one of them can be more easily thrown to the wolves. And that one would be the distance sales Directive.

 

 

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Rebirth of EU contract law proposal

The European Commission has published some more information on its comprehensive digital single market strategy. This will include measures to make e-commerce easier. A passage in the fact-sheet which accompanies the latest announcement (6 May 2015) says this:-

The Commission will put forward clear contractual rules for online sales of both physical goods like shoes or furniture and digital content, like e-books or apps. It will fill in the existing legislative gap at EU level regarding digital content and will harmonise a key set of rules for physical goods. This will create a level-playing field for businesses, allow them to take full advantage of the Digital Single Market and sell with confidence across borders. At the same time, it will boost consumer trust in online purchases. Consumers will have even more solid and effective rights. For example, if the e-book you just bought is defective, it will be easier for you to obtain a remedy against the trader. Europeans will be able to shop in other EU countries as easily as in their home countries and get the best products at the best price.

It will be interesting to see these “clear contractual rules for online sales” and to see what form harmonisation will take. This does not sound like an optional instrument solution.

Another important part of the digital market strategy will be the modernisation of EU copyright rules.

See http://europa.eu/rapid/press-release_MEMO-15-4920_en.htm.

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Proposal for a Common European Sales Law withdrawn

On 16 December 2014 the EU Commission presented its Work Programme for 2015 to the European Parliament. The general theme was a thinning down of initiatives and a concentration on those most likely to succeed and to have a positive impact.

Sadly, given all the work which has gone into it and the positive and liberating effect it could have for small businesses trying to trade online across Europe, the existing proposal for a Common European Sales Law (CESL) is listed as item 60 in the Annex of withdrawn proposals. However, the reason given for the withdrawal is “Modified proposal in order to fully unleash the potential of e-commerce in the Digital Single Market”. This new emphasis was stressed in the speech by the First Vice-President Frans Timmermans who said that one of the Commission’s priorities for 2015 would be an ambitious digital single market package which would, among other things, modernise copyright laws and simplify rules for consumers making online digital purchases.

It remains to be seen what the modified proposal will look like. Presumably it will take into account amendments proposed by the European Parliament in a new and well-integrated way. The opportunity will be there to make other changes. For example, if it is designed to make online purchases by consumers easier then the rules on opting into the instrument should be very much simpler. The name should also be reconsidered. The name “Common European Sales Law” invites the misconception that this is a law which would replace national sales laws. This misconception is used by opponents of most EU initiatives who can say that they consider existing national laws to be good enough. The name of the new instrument should reflect the fact that it would (if this is indeed the case) be an optional instrument which would not replace existing national laws.

 

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Should the law on donation be bigger or smaller?

The question is prompted by a workshop on the law of donation held on 1st December under the auspices of the Edinburgh Centre for Private Law. Laura Macgregor, chairing the meeting, explained that its purpose was partly to bring property lawyers and obligations lawyers together on this issue and partly to respond to practical concerns raised by those who had encountered problems in the lower courts. Martin Hogg and Hector MacQueen gave presentations from the point of view of the law of obligations. George Gretton gave a property law perspective and Lars van Vliet gave a comparative perspective.

Scotland currently has a very small body of law on donations inter vivos. There is a presumption against donation. There is a rule (not confined to donations) which makes it easier to set aside a transaction for uninduced unilateral error if it is a gratuitous transaction. There is a requirement of writing (again not confined to donations) for the constitution of a gratuitous unilateral obligation other than one undertaken in the course of business. There is an interpretative guideline (again not confined to donations) that, if there is a choice between two possible interpretations, a provision imposing an obligation should be interpreted in the way less burdensome to the debtor. There is an old rule, of no importance in practice, that the donor has an obligation not to do anything to defeat the donee’s right in future (“simple warrandice”). And that is about it. As George Gretton explained, there is no point in including donation in a law of property course because the general rules on the transfer of property apply: it is sale of goods which is by statute an exception. So far as the law on obligations is concerned the law is equally light. An obligation to donate can be created by contract or unilateral promise and the normal rules on formation apply. No special formalities are required (other than the  limited requirement of writing noted above) and, once the donation has been made, no continuing obligations are imposed by law on either donor or donee (other than the simple warrandice noted above). Obligations resulting from a contract or promise to donate are subject to the normal rules on performance and non-performance and the normal remedies are available. Donations are now irrevocable, although in the time of Stair (17th century) they were revocable for ingratitude and until 1920 gifts between husband and wife were revocable.

Many systems have more extensive laws on donation. We can see an example of such a bigger law in Book IV.H. of the Draft Common Frame of Reference (DCFR). This deals primarily with contracts for the donation of goods but applies “with appropriate adaptations” to contracts for the donation of money and certain other intangible assets (but not immovable property or rights in it). It also applies “with appropriate adaptations” to unilateral promises to donate and to cases where the donor immediately transfers ownership to the done without there being any prior obligation to donate. Cases of this latter type probably account for the vast majority of donations in ordinary life – Christmas presents, birthday presents, donations of unwanted goods to charity shops and recycling outlets, small monetary donations to charity collectors in the street or at the door, coffees bought for friends, etc.

The length of the provisions in the DCFR is explained by two sets of rules. One is on the obligations and remedies of the parties and the other is on revocability for ingratitude of the donee, impoverishment of the donor or, subject to strict limitations, material change of circumstances.

I suspect that there would be little if any demand in Scotland for the re-introduction of rules allowing donations to be revoked. The view that the security of donees should be protected was an important reason for the UK’s opposition to the “clawback” provisions in the EU Succession Regulation and hence for the failure of the UK to opt in to a law which could otherwise have been of benefit to some of its citizens.

The DCFR’s rules on the obligations and remedies of donor and donee are another matter. The basic approach is to impose much lighter obligations on donors than on sellers and to give donees more restricted remedies than buyers. For example, if the goods do not conform to contract the donee cannot require replacement or repair, and the measure of damages for non-performance is based on the reliance interest rather than the expectation interest.  At first reading these rules seem reasonable enough. But I suspect that most Scottish lawyers would consider that it is even more reasonable to impose no obligations on donors other than those voluntarily assumed by contract or promise and to allow the normal remedies for non-performance of those obligations which have been voluntarily assumed. It would seem to be highly anomalous and unjustifiable to restrict remedies against those undertaking an obligation to donate but not to restrict remedies against those undertaking other gratuitous obligations, such as one to provide services or to lend something free of charge.

In short there seems to be no convincing reason to make the Scottish law on donations bigger. Should it be smaller? In particular, should the presumption against donation be abolished? It seems to be this presumption which is causing difficulties in practice. Lars van Vliet explained in his presentation that in Dutch, German and French law the presumption against donation disappeared early in the 19th century. Abolishing the presumption would simplify the law and might discourage some donors from trying to reclaim what had been given by alleging that it was a loan or was transferred to be held in trust for the transferor but would probably not make much difference to outcomes. It must be a rare case which is decided solely on the basis of the presumption. If a tie-breaker turned out to be indispensable the answer would be that it is up to the claimant to establish his or her claim.

Those who are interested in reading more about the Scottish law on donation will find an excellent article by Hector MacQueen and Martin Hogg in the Juridical Review (2012 at page 1) and a comparative survey (covering the law of Scotland, Louisiana, South Africa, France, Germany and England) by Martin Hogg in the Tulane European and Civil Law Forum (2011 at page 171).

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European family law at the Ius Commune Conference at Edinburgh

It was impossible for any one person to savour the full richness of contributions on offer at the Ius Commune Conference in Edinburgh on 27 and 28 November. This is a disadvantage of the workshop system adopted. The advantage is that people can have a full discussion of topics of particular interest to them. Spoilt for choice, I decided on the first day to attend the workshop on family law.

The family law workshop was actually more of a law of persons workshop because two of the contributions were on “Statelessness in comparative perspective” (Olivier Vonk, Maastricht) and “Nationality and European citizenship consequences of the independence of a part of a member state” (Guayasen Marrero Gonzales, Maastricht). The latter dealt with questions which were hotly debated during the referendum on Scottish independence. Would some Scottish residents lose their EU citizenship if Scotland voted to leave the UK and hence the EU? The question, for obvious reasons, was addressed by the speaker more from the point of view of Catalonia but the difficulties involved made me profoundly glad that Scotland had voted No in the referendum.

Also at this session there was an interesting presentation by Katharina Boele-Woelki on the Principles of European Family Law. The next volume will be on informal relationships. It will deal with relationships between couples which are not formalised and will exclude (for pragmatic reasons) multiparty relationships and relationships between siblings and parent and child. National reports will be assembled between January and June next year.

The second half of the workshop had an interesting and informative contribution from Marit Tomassen-Van der Lans (Amsterdam) on the use of parenting agreements and similar techniques in the context of divorce in the Netherlands and the USA. It seems that the Dutch law making a parenting agreement (normally) a pre-requisite for divorce is not proving effective in reducing post-divorce conflict. The basic idea of linking child-care arrangements with divorce also came under fire from several contributors to the discussion. The topic of residential co-parenting when parents are living apart was addressed from a comparative law point of view by Natalie Nikolina (Utrecht). Her definition of residential co-parenting was an arrangement which involved at least 30% of the week being spent with one of the two parents. This type of co-parenting arrangement has increased in recent years, more in the Netherlands (27 – 38%) and Belgium (21%) than in the UK (9- 12 % in E & W). Public opinion seems to favour it. A Belgian law of 2006 provides that residential co-parenting must be considered first by the court if one of the parents requests it. Contributions during the discussion showed, however, that there could be concerns over the impact on the child. In practice, such an arrangement would only rarely be appropriate if the parents lived some distance apart and the child was at school.

The most thought-provoking contribution (for me, at least) was by Silvia Pfeiff (Liége/Brussels) on “Human rights and the portability of status in Europe”. She pointed out, by reference to several leading cases, that human rights law (in particular article 8 of the European Convention on Human Rights) could trump the solutions reached by traditional private international law so that a status acquired in fact might have to be recognised even though it would be denied by applying the traditional rules. This was a convincing analysis, which gave due attention to qualifications and limitations. She went further, however, and argued that a human rights approach would actually be easier and better that an approach which began with the traditional rules. I was less sure about this part of the argument, at least if it is to be applied beyond a fairly narrow category of cases involving refusals of recognition by States.

Altogether this was a most stimulating workshop. All the papers were skilfully and impressively delivered.

 

 

 

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On restatements and judicial law reform

At the symposium last Friday where Hugh Beale was presented with a fine book of essays in his honour (see preceding post) Andrew Burrows spoke on “Alternatives to Legislation: Restatements and Judicial Law Reform”. He rather favoured such alternatives. I would like to suggest that they are very inadequate alternatives to legislation as law reforming tools.

What is meant by a restatement of an area of the law? “Restatement” is an ordinary word of the English language and tells you nothing about form, method of production or orientation. It just tells you that the law is being stated again. It can be restated in narrative form or in the form of rules and commentary. It can be restated by a single author (with or without an advisory group) or by a team of authors (with or without an advisory group). None of these is a new technique. It can have a regressive orientation, deploring every attempt to change an established rule or classical doctrine, or a progressive orientation, favouring a reformist interpretation whenever possible. It was clear from Andrew’s presentation that the type of restatement he had in mind was one consisting of rules and commentary, produced by an academic lawyer with the aid of an advisory committee including judges and practitioners and with a progressive orientation. He has produced one such restatement – A Restatement of the English Law of Unjust Enrichment (2012) – and he is working on another, on the English law of contract. He described the orientation as follows.

What is being aimed for is the best interpretation of the present law. In some limited circumstances (perhaps less limited in the law of unjust enrichment than the law of contract because the latter is more settled), one may require a decision of the Supreme Court to lay down the law as set out in the Restatement. In other words, on some matters the Restatement takes a principled interpretation of the law that may be regarded as going further than the existing cases. The commentary makes clear where this is so.

This is a most worthy enterprise – a great thing to do and a great contribution to legal thinking – but can it be regarded as an adequate alternative to legislation? I do not think so. Such a restatement (with or without a capital R) cannot of its very nature change the law. It can just point – no doubt in a very informed, well-reasoned and persuasive way – to what might be desirable reforms. And even the role of a sort of support for progressive and principled judicial interpretations of the law can be usefully played, as Andrew concedes, only in those areas of the law which are not largely statute-based. The reforms suggested have to lie “within the interpretative reach of the courts”.

On judicial law reform Andrew confessed “to not being a great fan of legislative reform of the non-criminal common law”. His main arguments were first that it can be very difficult for time to be found for law reform legislation and, secondly, that legislation “may freeze the law in a way that makes desirable change, and the correcting of mistakes, difficult”. Neither argument is convincing. It is true that it can be very difficult to find time for legislation designed to reform areas, or even small points, of traditional private law but this is a fault of the political system which could be remedied. It has nothing to do with the inherent merits or demerits of legislation as a law reform technique. And legislation to correct mistakes can be passed when the government wants it to be passed. Correction of mistakes by judicial means (if possible at all) has to wait until a suitable case comes up and gets, at considerable expense, to a suitable level. This is even more of a problem in a small jurisdiction than in a big one. Legislation has other obvious advantages over judicial law reform. It can do more: it can repeal statutes, abolish settled rules of law, set up regulatory and administrative structures and provide for sanctions of all types: it can restructure whole areas of the law: it can make consequential changes in related areas, whereas a court by contrast is confined to the issue before it. It can be better informed on the wider, non-legal context: it can take more background considerations into account: it can proceed on the basis of scientific research, public consultation and debate: it can take account of the points of view of different interest groups. It can proceed on overtly policy-based grounds: it does not need to pretend to be interpreting or selecting from what has gone before. And it is almost always prospective in effect, very often, indeed, setting some future date as the date of commencement of the new law: a court in theory is just declaring what the law has always been.

Perhaps, however, I am assuming too much hostility to legislation on Andrew’s part. After all, he confines his remarks expressly to the non-criminal common law – a comparatively small part of the law which actually governs people’s lives on a day to day basis. Indeed his main point was that if judges have a chance to move the law forward in a way which they think is desirable they should seize the opportunity and not say that the matter is one for the legislature: it should not be assumed that legislation will be easy to obtain. I would agree with that, although the scope for this sort of judicial law reform is limited and caution is needed because there is always the danger of unintended consequences. A reform which seems useful in the narrow context of the case being argued could have implications in a wider social context of which the court is unaware and cannot be expected to be aware. There is also the problem of retrospectivity noted above..

In fact the last part of Andrew’s stimulating contribution dealt with the converse situation: where a legislative agency has the chance to recommend moving the law forward but fails to seize the opportunity and says that the matter can be left to the courts. This happened in relation to the reform of the English law on the defence of illegality. The Law Commission in a consultation paper on this subject had provisionally favoured legislation to give the courts a “structured discretion” to decide on the effect of illegality on a claim based on contract, unjust enrichment or trust. This would have enabled the courts to take various factors into account in order to ensure that the illegality defence only applied where it was a just and proportionate response to the illegality involved in the light of the policy considerations underlying it. Later, in their report, they concluded that, with one limited exception, reform could be left to the courts.

Andrew Burrows himself was initially doubtful whether reform of this nature was in fact within the interpretative reach of the courts but, when he wrote his contribution to the book, was greatly reassured by two decisions of the English Court of Appeal which followed the Law Commission’s recommended approach. Unfortunately for his thesis that this was “a great example of what can be achieved by judicial law reform” he had to inform the symposium, with some wry amusement, that the Supreme Court had given a judgment on one of those cases on 29 October 2014, only nine days before the symposium. See Les Laboratoires Servier v Apotex Inc [2014] UKSC 55. The Court reached the same result as the Court of Appeal but did so on the ground that the conduct in question (the infringement of a Canadian patent) did not amount to an illegality as that word was understood in this context and not by saying that it was an illegality but that its effects could be modified in the exercise of a policy-based discretion. Lord Sumption, with whom Lord Neuberger and Lord Clarke agreed, went out of his way to pour cold water on the discretion-based approach recommended by the Law Commission and used by the Court of Appeal.

This decision is a fine example of a clever application of the law to produce a reasonable result and of a useful clarification of the meaning of “illegality” for the purpose of the illegality defence but it is certainly not a vindication of the Law Commission’s decision to leave comprehensive reform to the courts. It reinforces my view that legislation is the tool of preference for law reform.

 

 

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