European Legal Policy

by Norbert Reich

1. The relationship between competence and policy in private law

The EU does not have a general competence in the area of legal policy nor, in particular, in private law matters. This still holds true under the Lisbon Treaty. Therefore, legislation of the Union is based on the specific policy fields it may and wants to pursue. This explains the somewhat selective and instrumental character of Union private law which, as a result, has given rise to frequent criticism. The selectivity is the result of the regulation of certain policy areas, which include private law matters, for instance, in consumer contract law, liability rules, financial services and company law. The instrumental character follows from the premise that private law does not have an autonomous existence in the EU, for instance to promote contractual freedom, to organize legal personality, to create a comprehensive property regime, or to set up efficient liability provisions as is typically the task of Member State private law. Quite to the contrary, private law of the Union has mostly auxiliary functions that limit its autonomy.

From a Union law point of view, it is a matter for the Member States to implement these selective-instrumental measures, which thus have a differentiated impact on each private law system, unless the EU legislature adopts regulations with direct effect under Art 288(2) TFEU/249(2) EC. It is often the case that Union law leaves a great margin of discretion to the Member States as to whether they want to implement a certain provision by rules of private or public law, eg in the area of anti-discrimination, unfair trade practices and consumer law. The most important requirements of Union law for correct implementation of directives are the principle of non-discrimination (discrimination (general)), of transparency (ECJ Case C-144/99 – Commission v Netherlands [2001] ECR I-3541) and effectiveness (principle of effectiveness) (ECJ Case 14/93 – von Colson [1984] ECR I-1891), with Member States retaining a certain autonomy with regard to the choice of form and methods.

2. Prerogative of the Commission to define the basis of EU legislative procedure

Within the framework of the EU competences in the area of private law policy as described above, it is the primary task of the European Commission to make proposals for ‘measures’ or other acts at the Union level according to Art 17(2) TEU/211 EC, which must then undergo the specific legislative procedures. This ‘exclusive right’ of the Commission to make legislative proposals, which thus far was to some extent limited by the right of Member States to make proposals in the area of judicial cooperation in civil matters according to Art 67(2) EC (repealed), is extended to all civil law matters in Art 81(2) TFEU/65 EC. According to Art 225 TFEU/192(2) EC, the European Parliament may request the Commission to make proposals for legislation (indirect right to legislative initiative). A similar ‘right’ is contained in Art 241 TFEU/208 EC for the Council. These ‘rights’ are not subject to judicial control because the ECJ cannot rule on the legislative discretion of the Commission unless the strict conditions for an action for failure to act under Art 265 TFEU/232 EC are fulfilled; they therefore do not interfere with the prerogative of the Commission.

In making legislative proposals, the Commission acts as a collective entity according to Art 250 TFEU/219 EC. The competent Directorates General usually prepare the necessary legislative proposals (a directive or, more rarely, a regulation) by way of an informal consultation procedure with the Member States and with representatives of ‘stakeholders’ (interest and lobby groups, NGOs). There is the following distribution of competences within the Commission, to be somewhat modified by the new Commission established under the regime of the Lisbon Treaty at the beginning of 2011:

–- Directorate General ‘Internal Market and Services’ (DG Markt): Goods and services in general, financial services, public procurement, company law, intellectual property;

– Directorate General ‘Health and Consumers’ (DG Sanco): originally consumer law, including review of the ‘consumer acquis’;

– Directorate General for Justice (DG Justice): competence under Title V TFEU, particularly in the field of judicial cooperation in civil matters, including questions of private international law (PIL) and judicial competence;

– The competences for contract law have been redistributed from 2010 on: The Consumer Contract and Marketing Law SANCO B.2 moved from DG Sanco to DG Justice;

– Directorate General ‘Employment and Social Policy’ (DG Empl): labour and non-discrimination law; it will be renamed ‘Employment, Social Affairs and Equal Opportunities’;

– Directorate General ‘Competition’ (DG Comp): consequences of restrictions of competition by undertakings and of illegal state aid.

The division of competences is organized ‘vertically’ according to policy fields, not horizontally according to legal concepts such as contract or liability law. Through this division, different ‘philosophies’ of the Directorates General can be identified that are relevant to the structure, content and consistency of legislative proposals. This will be briefly discussed in certain selective areas relating to private law. It remains to be seen whether the change in the distribution of competences in the area of contract law will lead to more coherence and consistency in the Commission’s coming proposals concerning European contract law.

3. Contradictions within Commission action in the field of European legal policy

The limited powers of and different competences within the Commission have led to a number of inconsistencies both with regard to the structure as well as to the content of European policy in the area of private law, notwithstanding the remarkable ‘output’. They can to some extent be critically characterized as problems of ‘overlapping’, ‘doubling’, ‘contradictions’, ‘gaps’ and ‘confusions’.

An example of overlapping and at the same time contradictions in regulatory philosophies can be demonstrated by Dir 97/7 on Distance Selling (distance contracts), proposed by DG Sanco, and Dir 2000/31 on e-commerce, initiated by DG Markt. Both concern similar regulatory issues, namely aspects of marketing via distance communication, including the internet. Directive 97/7 is mostly concerned with protecting the consumer against risks in contracting when parties are not in face-to-face contact with each other. Directive 2000/31 seeks to encourage the use of the internet to accomplish the European internal market; it is not limited to consumer transactions. The information obligations of both Directives overlap, but the instruments of regulation are completely different: Art 14 of Dir 97/7 contains a so-called ‘minimum harmonization clause’, and therefore allows Member States to provide for stronger consumer protection rules within the general limits of primary law (for a case limiting the powers of Member States, see ECJ Case C-205/07 – Gysbrechts [2008] ECR I-9947). In contrast, Art 3 of Dir 2000/31 has introduced an internal market provision which follows the country of origin principle: once a product or a service is placed on the market in one country, it should be able to circulate in the entire Union without further restrictions, provided it comes within the scope of application of the Directive (for a restrictive reading see ECJ Case C-244/06 – Dynamic Medien [2008] ECR I-505). A right of withdrawal is provided for only in Dir 97/7, not in Dir 2000/31. Article 12(2) of Dir 97/7 contains a clause concerning distance contracts entered into by consumers with providers of third countries which aims to ensure that consumers do not lose protection because of the applicability of a foreign law when the contract nonetheless has a close connection with the territory of one or more Member States; conversely, Art 1(4) of Dir 2000/31 expressly excludes rules on PIL from its scope of application.

Even more obvious are contradictions in Commission initiatives as seen, on the one hand, in the first draft of the Service Directive 2006/123 and, on the other, in the proposal for the Rome I Regulation (Reg 593/2008) on the Law Applicable to Contractual Obligations. The Service Directive was prepared by the DG Markt, Rome I by DG Justice. Article 16 of the first proposal of the Service Directive (COM(2004) 2 final) sought—with some exceptions—to introduce the country of origin principle also for contractual obligations, but limited to EU providers. The Commission proposal for Rome I (COM(2005) 650 final) had opted for the consumer country principle which was to have general application, including contracts with third country suppliers, provided their activity was ‘directed’ at the country of residence of the consumer. In complex legislative proceedings in the European Parliament and the Council, both proposals underwent substantial changes with the aim of reducing the contradictions: Art 16 of Dir 2006/123 now contains only a very limited country of origin principle excluding conflict provisions, while Art 6 Rome I has abandoned the consumer country principle in cases of choice of law and only provides for the protection of the consumer’s more favourable home-state law if the activity of the trader is directed at his county of residence.

A much more fundamental contradiction can be shown to exist in the area of non-discrimination law (discrimination (general)). It goes beyond internal market aspects insofar as it relates to discriminatory practices beyond citizenship, eg because of gender, race, ethnicity, age, disability and sexual orientation. It is based on Art 19 TFEU/13 EC, for which DG Empl had competence. The fundamental question arises of how to coordinate the concept of a prohibition on discrimination with the guarantee of private autonomy that is presupposed in the internal market (European internal market). This conflict was before the ECJ: in its judgment of 1 March 2011 the Court determined that Art 5(2) of Dir 2004/113 impermissibly allows the consideration of gender in setting insurance policy tariffs. (Case C-236/09 Test Achats, [2011] ECR I-0000). Even more complex is the problem of whether the limited scope of the non-discrimination directives in private law, namely concerning race and ethnicity in Dir 2000/43 and gender in Dir 2004/113, can be extended to discrimination in other areas regarding the access to and supply of goods or services available to the public; a new Commission proposal (COM(2008) 426 final) seeks to extend this principle and has met strong opposition in Member States.

A doubling of policies can be seen in questions of the applicable law in case of cross-border transactions. DG Justice is competent for questions of PIL and, as mentioned above, its first proposal of a Rome I Regulation favoured the ‘consumer country principle’ which, as a consequence, would have excluded choice of law in consumer contracts. On the other hand, the Consumer Credit Directive 2008/48 prepared by DG Markt contains a PIL clause in Art 22(4) which has not been coordinated with Art 6 of Reg 593/ 2008. An earlier draft even proposed a country of origin principle in non-harmonized areas but was later eliminated during the legislative process.

Gaps in private law can be observed most notably in the absence of liability rules in directives concerning private law. The Service Directive 2006/123 contains provisions on information and quality, but no rules on the (contractual) liability of the service provider. The applicable law envisioned a country of origin principle which would have deprived the targeted consumer of the protection of rules of his country of residence as provided in the Rome Convention of 1980 and later Rome I. A chance was missed to harmonize liability rules in the area of service and to create a Union-wide minimum standard.

A somewhat confusing situation exists in the area of (collective) redress in competition and consumer law. The case law of the ECJ (ECJ Case C-453/99 – Courage [2001] ECR I-6297; ECJ Case C-295 298/05 – Manfredi [2006] ECR I-6619) has insisted on the importance of private rules on liability for the enforcement of the competition rules. It has encouraged Union action in this area. Accordingly, a White Paper on ‘Damages Actions for Breach of the Competition Rules’ (COM (2008) 165 final of 2 April 2008) has been published by the DG Competition. An internal draft proposal for a ‘Council Directive on rules governing actions for damages for infringements of Art 81/82 EC’ of September 2009 was, however, not officially adopted by the Commission nor published due to resistance by industry and some Member States like Germany against a collective action for compensation under an opt-out scheme.

With regard to consumer protection, enforcement has been regarded as a major problem. DG Sanco therefore has published a White Paper on ‘Consumer Collective Redress’ (COM(2008) 794 final of 27 November 2008). It is not yet clear how these initiatives will be coordinated and whether they will be consistent with general liability rules. Specific Commission proposals in this regard are lacking, and the problem is left to national law, which differs considerably.

4. Future: improving European legal policy in the area of private law

This entry could only give an overview of several different actions of the Commission that relate to private law; starting from diverging legal philosophies, up to the legislative process to remedy resulting problems. Usually, the Commission proposals have been more or less accepted despite certain modifications, in particular with regard to the country of origin principle that was met with much hostility in the Member States. The prerogative of the Commission to define legislative priorities and to initiate legislation via adequate proposals has been maintained. Therefore, it is of utmost importance that the proposals remain coherent and try to eliminate the above-mentioned overlaps, doublings, contradictions, gaps and confusion in order to avoid further inconsistencies in EU private law.

These inconsistencies are particularly obvious in classical areas of private law such as contract, liability and conflict of laws. It seems important for future action that within the Commission itself coordination is improved, for instance by establishing a ‘horizontal coordination point’ that checks the proposals of the Commission on their consistency according to Art 7 TFEU/2 EC, or by delivering and publishing an opinion that also refers to subsidiarity and proportionality within the area of shared competences in the sense of Art 4(2) TFEU/2 EC, thus satisfying the requirements of the protocol on subsidiarity.

A new initiative of the Commission following the review of consumer acquis by DG Sanco resulted in a proposal for a Directive on Consumer Rights of 8 October 2008 (COM(2008) 614 final) which proposes full harmonization within its scope of application and would eliminate the minimum protection principle in most consumer contract directives, including the above-mentioned Dir 97/7 on distance selling. It is not yet clear whether this new approach will lead to less or—as some observers fear—even more inconsistencies in EU private law. A new green paper of 1 July 2010 (COM (2010) 348 final) seems to favour a different approach, namely an optional instrument for European contract law.

Literature

Ulrich Magnus and Hans-W Micklitz, Liability for the Safety of Services (2006); Jürgen Basedow, ‘Der Grundsatz der Nichtdiskriminierung im europäischen Privatrecht’ (2008) 16 ZEuP 230; Hans-W Micklitz and Norbert Reich, ‘Cronica de una muerte anunciada—The Commission proposal of 8.10.2008 on a “Directive of Consumer Rights”’ [2009] CMLR 471; Fabrizo Cafaggi and Hans-W Micklitz (eds), New Frontiers of Consumer Protection (2009); Jules Stuyck, ‘Class Actions in Europe? To Opt-In or to Opt-Out, that is the question’ (2009) EBLR 483; Matthias Casper (ed), Auf dem Weg zu einer europäischen Sammelklage? (2009); Hans-W Micklitz, Norbert Reich and Peter Rott, Understanding EU Consumer Law (2009); Norbert Reich, ‘The Interrelation between Rights and Duties: Reflections on the state of liability law in the multilevel governance system of the Union: Is there a need for a more coherent approach?’ (2010) 29 Yearbook of European Law 112; Norbert Reich, Understanding EU Law (3rd edn, 2011); Max Planck Institute for Comparative and International Private Law (Hamburg), ‘Policy Options for Progress Towards a European Contract Law’ (2011) 75 RabelsZ 371; Rainer Schulze and Hans Schulte-Nölke (eds), European Private Law― Current Status and Perspectives, 2011.