BUILDING A EUROPEAN CONTRACT LAW: Five Fallacies and two castles in pain Wouter Snijders Readers are reminded that this work is protected by copyright. While they are free to use the ideas expressed in it, they may not copy, distribute or publish the work or part of it, in any form, printed, electronic or othenvise, except for reasonable quoting clearly indicating th source. Readers are permitted to make copies, electronically or printed, for personal and sroom use Introduction I begin with a citation from Atiyah When laws and institutions grow organically in the English way, it is dangerous to tamper with the different bits which may seem useless and outdated The proof of this that the system works as a whole even if we cannot say why it works and what rational purpose the different bits may serve. Each part of the total edifice may well have its purpose, even where we cannot understand it. 2 Law is compared here with an edifice, obviously a very old edifice with parts the purpose of which has been forgotten. This view on common law reminds me of another citation by one of the great legal scholars of this university, Paul Scholten, who in a famous paper of 1938 explained why he was not in favour of a recodification of the Dutch civil code of 1838.He wrote others have been torn down . some rooms have been modernized.. l ed repair The civil code is a quiet possession. It is like a big old house. Some parts ne inhabitants long to improve it and complain of its defects, but they know very well that there will be no change.,. It is cosy and familiar, and the inhabitants feel at Again the metaphor of law as an old build ing is used The tone of both citations is one of resignation in view of the outdated parts of law. Both citations show the attachment of the authors to their own legal system, but they also suggest that their general attitude to their gal system is not very different. As we know, Scholtens view was disregarded by the Dutch legislature; Atiyah's ed if ice has hardly changed Presentation at the lus commune congress 28 Novem ber 2002. Amsterdam Ma e ps. Atiyah, Pragmatism and Theory in English Law, London 1987, p. 34, cited by J. Smits, The of European Private Law, Antwerp/Oxford/New York 2002, p. 100 P. Scholten, Verzamelde geschriften, vol 3, Zwolle 1951, p. 29
BUILDING A EUROPEAN CONTRACT LAW: Five Fallacies and Two Castles in Spain1 Wouter Snijders Readers are reminded that this work is protected by copyright. While they are free to use the ideas expressed in it, they may not copy, distribute or publish the work or part of it, in any form, printed, electronic or otherwise, except for reasonable quoting, clearly indicating the source. Readers are permitted to make copies, electronically or printed, for personal and classroom use. Introduction I begin with a citation from Atiyah: When laws and institutions grow organically in the English way, it is dangerous to tamper with the different bits which may seem useless and outdated. The proof of this is that the system works as a whole even if we cannot say why it works and what rational purpose the different bits may serve. Each part of the total edifice may well have its purpose, even where we cannot understand it.2 Law is compared here with an edifice, obviously a very old edifice with parts the purpose of which has been forgotten. This view on common law reminds me of another citation by one of the great legal scholars of this university, Paul Scholten, who in a famous paper of 1938 explained why he was not in favour of a recodification of the Dutch civil code of 1838. He wrote: The civil code is a quiet possession. It is like a big old house. Some parts need repair, others have been torn down . . . some rooms have been modernized . . . The inhabitants long to improve it and complain of its defects, but they know very well that there will be no change . . . It is cosy and familiar, and the inhabitants feel at home.3 Again the metaphor of law as an old building is used. The tone of both citations is one of resignation in view of the outdated parts of law. Both citations show the attachment of the authors to their own legal system, but they also suggest that their general attitude to their legal system is not very different. As we know, Scholten’s view was disregarded by the Dutch legislature; Atiyah’s edifice has hardly changed. 1 Presentation at the Ius Commune Congress, 28 November 2002, Amsterdam. 2 P.S. Atiyah, Pragmatism and Theory in English Law, London 1987, p. 34, cited by J. Smits, The Making of European Private Law, Antwerp/Oxford/New York 2002, p. 100. 3 P. Scholten, Verzamelde geschriften, vol. 3, Zwolle 1951, p. 29
The metaphor is appropriate indeed. It has become even a kind of common place. If you are conscious of it, you meet it everywhere. A curious side of this is that law buildings, other than real buildings, are moving all the time. Walls are toppling in slow motion sometimes they remain slanted for some time. Two or more build ings may develop into a new one. This metaphor fascinates me, and I will return to it several times Having said this, I come to my real subject: What to expect of European contract law against the background of the famous communication of the European Commission of 11 July 2001? This communication proposes four options for further action: option 1: doing nothing, option 2: soft restatement of general principles; option 3: improvement of legislation already in place; option 4: binding new legislation. The reactions concerning these options have been summarized by the Commission in a subsequent paper. My contribution to this discussion will consist of drawing your attention to some of the fallacies that should be avoided here 1. The fallacy of ignoring the problem The simplest way of tackling a new problem is often to deny it. This seems to be the prevailing attitude in the Netherlands. On the website of the Commission, I found no reactions from the Dutch government, nor from Dutch governmental organisations, nor from Dutch business or consumers organisations, nor from Dutch legal practitioners and their organisations. Only three academics gave their opinions. 4 The Belgian attitude is quite d ifferent. Reactions were received from the ministries of Justice. Finance and economic Affairs. The Ministry of Justice coordinated these reactions, including some reactions from business and consumer organisations. The entire reaction is substantial and positive. It seems to me that the dutch attitude should be the first and perhaps the most important of the fallacies to expose here Why is it a fallacy? Annex I to the communication of the Commission makes it perfectly clear that important, though scattered, fields of private law are already covered by European directives. They not only concern consumer protection but also matters such as late payments in commercial transactions, electronic money, cross-border cred it transfers commercial agents, electronic commerce and financial services, intellectual property financial collateral arrangements and, last but not least, the monetary rules concerning the is one of the projects under way. The European integration process in fact entails ay ayments euro, touching private law on many points. a true internal market for all individual p increasing flow of European legislation, including legislation on private law issues But this is not the only gateway through which European law is penetrating our national law systems. European concepts may have a disintegrative, disturbing effect on the national system. This means that the national authorities have to adapt their national rules preferably by interpreting or by incorporating European rules in their general standards, like good faith or negligence. The result is a kind of creeping Europeanisation of national law. Mr Joerges has written extensively on the subject a third gateway consists in the obligation of Five mem bers of Dutch law faculties, but two of them are in fact belgians C Joerges, "Interactive Adjudication in the Europeanisation Process? A Demanding Perspective and a Modest Example, ERPL 2000, p. 1 ff
The metaphor is appropriate indeed. It has become even a kind of common place. If you are conscious of it, you meet it everywhere. A curious side of this is that law buildings, other than real buildings, are moving all the time. Walls are toppling in slow motion, sometimes they remain slanted for some time. Two or more buildings may develop into a new one. This metaphor fascinates me, and I will return to it several times. Having said this, I come to my real subject: What to expect of European contract law against the background of the famous communication of the European Commission of 11 July 2001? This communication proposes four options for further action: option 1: doing nothing; option 2: soft restatement of general principles; option 3: improvement of legislation already in place; option 4: binding new legislation. The reactions concerning these options have been summarized by the Commission in a subsequent paper. My contribution to this discussion will consist of drawing your attention to some of the fallacies that should be avoided here. 1. The fallacy of ignoring the problem The simplest way of tackling a new problem is often to deny it. This seems to be the prevailing attitude in the Netherlands. On the website of the Commission, I found no reactions from the Dutch government, nor from Dutch governmental organisations, nor from Dutch business or consumers organisations, nor from Dutch legal practitioners and their organisations. Only three academics gave their opinions.4 The Belgian attitude is quite different. Reactions were received from the Ministries of Justice, Finance and Economic Affairs. The Ministry of Justice coordinated these reactions, including some reactions from business and consumer organisations. The entire reaction is substantial and positive. It seems to me that the Dutch attitude should be the first and perhaps the most important of the fallacies to expose here. Why is it a fallacy? Annex I to the communication of the Commission makes it perfectly clear that important, though scattered, fields of private law are already covered by European directives. They not only concern consumer protection but also matters such as late payments in commercial transactions, electronic money, cross-border credit transfers, commercial agents, electronic commerce and financial services, intellectual property, financial collateral arrangements and, last but not least, the monetary rules concerning the euro, touching private law on many points. A true internal market for all individual payments is one of the projects under way. The European integration process in fact entails an increasing flow of European legislation, including legislation on private law issues. But this is not the only gateway through which European law is penetrating our national law systems. European concepts may have a disintegrative, disturbing effect on the national system. This means that the national authorities have to adapt their national rules, preferably by interpreting or by incorporating European rules in their general standards, like good faith or negligence. The result is a kind of creeping Europeanisation of national law. Mr Joerges has written extensively on the subject.5 A third gateway consists in the obligation of 4 Five members of Dutch law faculties, but two of them are in fact Belgians. 5 C. Joerges, ‘Interactive Adjudication in the Europeanisation Process? A Demanding Perspective and a Modest Example’, ERPL 2000, p. 1 ff
the national authorities to ensure an effective application and enforcement of Community law through domestic legal instruments. This is mainly, though not only a matter of procedural law 6 A recent example of this is related to the dutch scandal concerning by the abuse of the subsidies given by the European Social Fund. Such subsid ies are bound to strict rules, which were violated grossly by the Dutch authorities. Accord ing to European law, the Netherlands are obliged to force the institutions which received these subsidies to return them But the only instrument available is national Dutch law on undue payment or unjust enrichment. This gives problems especially in cases where the subsidy was transferred to a third party, who in fact spent the money. In such cases, the subsidy should be claimed from the third party, whose advantage distorted the market. In the laws of many countries includ ing the Netherlands, enrichment cases involving third parties are notoriously difficult and uncertain. This means that European law forces us to develop rules to meet this difficulty The conclusion must be that there is already a considerable amount of European private law and that we should expect that it will increase. There is, however, consensus about the fact that this European law up to now is badly coordinated and shows many inconsistencies. The expanding ed ifice of European law, intertwined with national law as it is is extremely unsafe indeed. Nevertheless, we can be sure that the flow of European regulations will continue, irrespective of the trustworthiness of the build ing. For that reason, the issue of coord ination of this increasing flow of rules cannot well be avoided Coord ination is not really possible if we concentrate only on option 3, limited to existing European law(acquis communautaire). You cannot solve a puzzle if new pieces are added all the time. The only solution is to combine options 2, 3 and 4. The river should have a bed, in which it can run on smoothly and without inconsistencies. The question of unifying European private law is basically a question of accelerating and improving a process that is in itself inevitable. If you cannot stop a process, you better join it, which enables you to influence it The only choice is: Are we going to take a reluctant or an eager attitude? 2. The fallacy of fearing emotional obstacles Having explained my basic position, I now come to the obstacles opposing it. Many of them are of an emotional or irrational nature. I will not go deep into them, because I think they should not stop us, exactly because they seem not rational. I mention some of these arguments: a) National legal cultures are irreconcilable, especially where civil law and common law are involved; b) The richness of many law systems, each with its own features A good overview of the problems of this gateway, focused on procedural law is given by T. Heukels and. Tib, Towards Homogeneity in the Field of Legal Remedies: Convergence and Divergence, in P Beaumont, C. Lyons and N. Walker(eds ) Convergence and Divergence in European Public Law, Oxford 2002, p. 111 ff. For a recent case concerning tort law, see ECJ 17 September 2002, Munoz v Frumar, C-253-00 profess his allegation is contradicted clearly by the phenomenon of legal transplants In my experience, legal nals understand each other very well, even if they come from quite different legal systems(UK, US Russia, China). Probably they understand each other much better than they are understood by the lay people of their own country
the national authorities to ensure an effective application and enforcement of Community law through domestic legal instruments. This is mainly, though not only a matter of procedural law.6 A recent example of this is related to the Dutch scandal concerning by the abuse of the subsidies given by the European Social Fund. Such subsidies are bound to strict rules, which were violated grossly by the Dutch authorities. According to European law, the Netherlands are obliged to force the institutions which received these subsidies to return them. But the only instrument available is national Dutch law on undue payment or unjust enrichment. This gives problems especially in cases where the subsidy was transferred to a third party, who in fact spent the money. In such cases, the subsidy should be claimed from the third party, whose advantage distorted the market. In the laws of many countries, including the Netherlands, enrichment cases involving third parties are notoriously difficult and uncertain. This means that European law forces us to develop rules to meet this difficulty. The conclusion must be that there is already a considerable amount of European private law and that we should expect that it will increase. There is, however, consensus about the fact that this European law up to now is badly coordinated and shows many inconsistencies. The expanding edifice of European law, intertwined with national law as it is, is extremely unsafe indeed. Nevertheless, we can be sure that the flow of European regulations will continue, irrespective of the trustworthiness of the building. For that reason, the issue of coordination of this increasing flow of rules cannot well be avoided. Coordination is not really possible if we concentrate only on option 3, limited to existing European law (acquis communautaire). You cannot solve a puzzle if new pieces are added all the time. The only solution is to combine options 2, 3 and 4. The river should have a bed, in which it can run on smoothly and without inconsistencies. The question of unifying European private law is basically a question of accelerating and improving a process that is in itself inevitable. If you cannot stop a process, you better join it, which enables you to influence it. The only choice is: Are we going to take a reluctant or an eager attitude? 2. The fallacy of fearing emotional obstacles Having explained my basic position, I now come to the obstacles opposing it. Many of them are of an emotional or irrational nature. I will not go deep into them, because I think they should not stop us, exactly because they seem not rational. I mention some of these arguments: a) National legal cultures are irreconcilable, especially where civil law and common law are involved;7 b) The richness of many law systems, each with its own features, 6 A good overview of the problems of this gateway, focused on procedural law is given by T. Heukels and J. Tib, ‘Towards Homogeneity in the Field of Legal Remedies: Convergence and Divergence’, in P. Beaumont, C. Lyons and N. Walker (eds.), Convergence and Divergence in European Public Law, Oxford 2002, p. 111 ff. For a recent case concerning tort law, see ECJ 17 September 2002, Muñoz v Frumar, C-253-00. 7 This allegation is contradicted clearly by the phenomenon of legal transplants. In my experience, legal professionals understand each other very well, even if they come from quite different legal systems (UK, US, Russia, China). Probably they understand each other much better than they are understood by the lay people of their own country
is an asset which should not be lost in a multicultural Europe c) Codification as such is an outdated concept, popular in the nineteenth century, but ignoring the needs of modern society; d)We should fear the influence of a"European Union bureaucracy, consisting largely of uprooted civil servants often entertaining an ambivalent relationship with their national legal culture. o All these fears and worries seem unfounded or grossly exaggerated to me. They resemble an emotional crossfire, characteristic of rearguard actions of the same kind as i had to fight working on the dutch civil code But this does not mean that they are irrelevant. For, roughly speaking, they may boil down to a very real obstacle that is probably the hidden force behind those emotions. to explain this, I should begin by showing you the enigmatic keyword QWERTY, well known by all of you, even if you are not aware of it I have in mind a well-known article by P.A. David in the American Economic Review of 1985, called: 'Clio and the Economics of QWErTY, clio is the muse of history QWERTY are the first six letters on the keyboard of your computer, as they also were the first six letters of the typewriter at the beginning of the previous century. They have been maintained on the keyboards of all our computers and survived the developments of hardware software, the internet and what not. In fact, they certainly do not represent the most effective order of letters for users of a keyboard, even if their language is English. Nevertheless, the combination will probably be maintained for a long time because it would be a disaster if everybody were to be forced to learn a new letter order. Davids article departed from the notion of hysterese, which is Greek for retardation, a term used in physics as well as in economics. David replaced it by the term pathdependence', well known by the specialists of law and economics. In my view, the importance of this phenomenon in the field of law is greatly underestimated. Sudden changes in a law system will always provoke resistance Legal scholars as well as legal practitioners will think that the advantages of innovation are not worthwhile compared to the loss of knowledge and skill entailed by it. They feel safe in the well-known surroundings of law's familiar edifice. I remind you of the citations from Atiyah and Scholten This is not matter of having a conservative attitude. What is behind it is the thought that the development of law should go by small steps, striking the right balance between innovation and continuity. In the case of codification or recod ification, find ing this balance will become a major issue. The new Dutch civil code is in many respects a continuation of the case law developed under the old one. Even the new Russian civil code, though it had see the advantage of this richness, which is obviously a serious obstacle to the transparency of this market especially after the ten candidate new Member States have entered Every unification has to start with a binding black-letter instrument, call it a codification or not. The argument seems to exclude any such instrument and, as a consequence, any unification. This is clearly contra to international practice. It should be noted that many national codes were in fact unifications( the German HGB and BgB, the Swiss ZGB, the US UCC) P. Legrand, Against a European Civil Code, MLR 1997, P. 44 ff, esp p. 51. This argument neglects that a European contract law, drafted by leading experts in this field and based on sufficient consensus within the European Union, will limit considerably the power of the European civil servants whose future regulations will have to fit within the framework of this legislation See also J Pen, ESB 1994.p 998
is an asset which should not be lost in a multicultural Europe;8 c) Codification as such is an outdated concept, popular in the nineteenth century, but ignoring the needs of modern society;9 d) We should fear the influence of a ‘European Union bureaucracy, consisting largely of uprooted civil servants often entertaining an ambivalent relationship with their national legal culture’.10 All these fears and worries seem unfounded or grossly exaggerated to me. They resemble an emotional crossfire, characteristic of rearguard actions of the same kind as I had to fight working on the Dutch civil code. But this does not mean that they are irrelevant. For, roughly speaking, they may boil down to a very real obstacle that is probably the hidden force behind those emotions. To explain this, I should begin by showing you the enigmatic keyword ‘QWERTY’, well known by all of you, even if you are not aware of it. I have in mind a well-known article by P.A. David in the American Economic Review of 1985, called: ‘Clio and the Economics of QWERTY’.11 Clio is the muse of history. ‘QWERTY’ are the first six letters on the keyboard of your computer, as they also were the first six letters of the typewriter at the beginning of the previous century. They have been maintained on the keyboards of all our computers and survived the developments of hardware, software, the internet and what not. In fact, they certainly do not represent the most effective order of letters for users of a keyboard, even if their language is English. Nevertheless, the combination will probably be maintained for a long time because it would be a disaster if everybody were to be forced to learn a new letter order. David’s article departed from the notion of ‘hysterese’, which is Greek for retardation, a term used in physics as well as in economics. David replaced it by the term ‘pathdependence’, well known by the specialists of law and economics. In my view, the importance of this phenomenon in the field of law is greatly underestimated. Sudden changes in a law system will always provoke resistance. Legal scholars as well as legal practitioners will think that the advantages of innovation are not worthwhile compared to the loss of knowledge and skill entailed by it. They feel safe in the well-known surroundings of law’s familiar edifice. I remind you of the citations from Atiyah and Scholten. This is not matter of having a conservative attitude. What is behind it is the thought that the development of law should go by small steps, striking the right balance between innovation and continuity. In the case of codification or recodification, finding this balance will become a major issue. The new Dutch civil code is in many respects a continuation of the case law developed under the old one. Even the new Russian civil code, though it had to 8 Contract law is essentially linked to economic issues relating to the Common Market. It is difficult to see the advantage of this ‘richness’, which is obviously a serious obstacle to the transparency of this market , especially after the ten candidate new Member States have entered. 9 Every unification has to start with a binding black-letter instrument, call it a codification or not. The argument seems to exclude any such instrument and, as a consequence, any unification. This is clearly contrary to international practice. It should be noted that many national codes were in fact unifications (the German HGB and BGB, the Swiss ZGB, the US UCC). 10 P. Legrand, Against a European Civil Code, MLR 1997, p. 44 ff, esp. p. 51. This argument neglects that a European contract law, drafted by leading experts in this field and based on sufficient consensus within the European Union, will limit considerably the power of the European civil servants whose future regulations will have to fit within the framework of this legislation. 11 See also J. Pen, ESB 1994, p. 998
take into account major economic, political and social changes, was built on the foundations of the old one. It was thought to be unwise to force the judiciary to abandon familiar rules even where they fitted quite well into the new situation. 2 It is clear that the QWerty phenomenon constitutes a serious barrier to the development of European contract law. Only very determined efforts will be capable of well-known Commission on European Contract Law(Lando) and the Study Group on a e breaking through it. This seems only possible by trying to enlarge the areas of consensus. The European Civil Code(Von Bar)have paid much attention to this, stressing the importance of option 2. Formulating general principles, even as soft law, may serve continuity by establishing a common core of contract law and by furnishing a basis for consensus. Others have sought the solution in building castles in Spain. I will point out two of them 3. The first castle in Spain: Common historical roots Many supporters of the concept of a European civil code ask attention for our common roots in Roman law. I will not digress here on the unrealistic hope for a revival of a ius commune The time for historical interpretation is over. But I share the nostalgia for the beautiful times when we were all able to communicate in perfect Latin instead of in the barbaric vernacular in that i am using now 4. The second castle in Spain: The invisible hand It has been argued by several writers that unification of law should be left to a free movement of legal rules which will lead to competition in which only the best rules will survive. In this theory, the market mechanism is applicable to law systems and, in the view of Smits, also on individual rules of law. 3 Automatically, the parties active on the market will select the rules that they think most effective in the sense of most favouring their interests. The example is cited of the fifty states of the U. S, each having their own company law and entrepreneurs being free to incorporate their companies in the state of their choice. This will automatically attract investors to the most beneficial state which is the state with the lowest standards ( Delaware), the so-called race to the bottom. I will not go into the merits of this theory as a way of explaining certain phenomena. What interests me here is the pretension of this theory that it relieves the legislator from the task of cod ifying the most efficient rule, because it will evolve all by itself in practice The theory has been linked to Darwinist concepts, such as adaptation to the environment, natural selection and survival of the fittest. Law is seen as a living organism shaped by its environmental cond itions. As Smits states: 'A system of rules should primarily be looked at as a spontaneous order that emerges in response to the environment. In this sense the whole venture of creating a common European market automatically invokes a new, See W. Snijders, " De exportpretentie van het Nederlands Bw. De Russische ervaring, Trema 2002, October special, p. 430 ff. J. Smits, The Making of European Private Law, Antwerp/Oxford/New York 2002, pp. 59-71
take into account major economic, political and social changes, was built on the foundations of the old one. It was thought to be unwise to force the judiciary to abandon familiar rules even where they fitted quite well into the new situation.12 It is clear that the QWERTY phenomenon constitutes a serious barrier to the development of European contract law. Only very determined efforts will be capable of breaking through it. This seems only possible by trying to enlarge the areas of consensus. The well-known Commission on European Contract Law (Lando) and the Study Group on a European Civil Code (Von Bar) have paid much attention to this, stressing the importance of option 2. Formulating general principles, even as soft law, may serve continuity by establishing a common core of contract law and by furnishing a basis for consensus. Others have sought the solution in building castles in Spain. I will point out two of them. 3. The first castle in Spain: Common historical roots Many supporters of the concept of a European civil code ask attention for our common roots in Roman law. I will not digress here on the unrealistic hope for a revival of a ius commune. The time for historical interpretation is over. But I share the nostalgia for the beautiful times when we were all able to communicate in perfect Latin instead of in the barbaric vernacular in that I am using now. 4. The second castle in Spain: The invisible hand It has been argued by several writers that unification of law should be left to a free movement of legal rules which will lead to competition in which only the best rules will survive. In this theory, the market mechanism is applicable to law systems and, in the view of Smits, also on individual rules of law.13 Automatically, the parties active on the market will select the rules that they think most effective in the sense of most favouring their interests. The example is cited of the fifty states of the U.S., each having their own company law and entrepreneurs being free to incorporate their companies in the state of their choice. This will automatically attract investors to the most beneficial state, which is the state with the lowest standards (Delaware), the so-called race to the bottom. I will not go into the merits of this theory as a way of explaining certain phenomena. What interests me here is the pretension of this theory that it relieves the legislator from the task of codifying the most efficient rule, because it will evolve all by itself in practice. The theory has been linked to Darwinist concepts, such as adaptation to the environment, natural selection and survival of the fittest. Law is seen as a living organism shaped by its environmental conditions. As Smits states: ‘A system of rules should primarily be looked at as a spontaneous order that emerges in response to the environment. In this sense the whole venture of creating a common European market automatically invokes a new, 12 See W. Snijders, ‘De exportpretentie van het Nederlands BW. De Russische ervaring’, Trema 2002, October special, p. 430 ff. 13 J. Smits, The Making of European Private Law, Antwerp/Oxford/New York 2002, pp. 59-71