On October 11th 2011, the European Commission submitted its proposal for a Regulation of the European Parliament and of the Council on a Common European Sales Law (CESL). As a legislative act under art. 288(1) of the Treaty of the Functioning of the European Union (TFEU), the regulation proposed by the Commission requires a legal basis under the principle of conferral enshrined in art. 5 of the Treaty on European Union (TEU). The Commission has based its proposal on art. 114 TFEU, which constitutes the main Treaty article used to enact harmonisation measures. According to art. 114(1) TFEU, the Union may adopt ‘measures for the approximation of the provisions laid down by law, regulation or administrative action in Member States which have as their object the establishment and functioning of the internal market’. Since the publication of the proposal, however, many scholars have been questioning this legal basis and have proposed that the regulation be based on art. 352 TFEU. This provision, the so-called ‘flexibility clause’, empowers the adoption of measures where ‘action by the Union should prove necessary (…) to attain one of the objectives set out in the Treaties, and the Treaties have not provided the necessary powers’.
Opponents of art. 114 TFEU often argue that the proposed optional sales law does not fall within the meaning of the term ‘approximation’ of article 114(1) TFEU. Article 114(1) empowers the Union to harmonise national legal provisions by way of a directive or to replace national law by way of a regulation, but it does not authorise the Union to introduce a legal regime of Union law that supplements national law without harmonising or replacing it. The CESL is a second regime that should be identical throughout the EU and exist alongside the pre-existing rules of national contract law. According to case law of the ECJ, measures of approximation under art. 114 TFEU do not include optional legal regimes as the CESL. Former regulations creating an optional regime such as the Council Regulation on the Statute for a European company (SE) were not based on art. 95 EC (now art. 114 TFEU) but on art. 308 EC (now art. 352 TFEU).
Supporters of art. 144 TFEU believe that the CESL, even though it leaves pre-existing sales law rules intact, still constitutes an ‘approximation’ of national laws. When interpreting the term ‘approximation’, the ECJ grants the EU legislator a discretion, depending on the general context and the specific circumstances of the matter to be harmonised, as regards the method of approximation most appropriate for achieving the desired result.
In the present case, national legislators will not be able to maintain or introduce national provisions which prevent parties from choosing the CESL. In addition, within all national laws contracting parties will be able to choose an identical second regime. Scholars have also argued that the proposed measure under art. 114 TFEU must be seen as originating from a mixture of provisions and practices of different origin and therefore resulting in the approximation of contract law provisions existing in the Member States in a dynamic sense.
The choice of the correct legal basis is important, as it determines the procedure for adopting the CESL. First, measures based on article 114 TFEU are subject to the ordinary legal procedure. If the CESL were to be adopted on that legal basis, it would be applicable to all Member States and individual Member States could not rely on any special position or block the adoption of the measure, since unanimity in the Council is not required. For the Commission, article 114 TFEU is an attractive legal basis, as it allows the resistance of a minority of opponents of the proposal, such as the United Kingdom, to be overridden. If based on art. 352 TFEU, the CESL requires unanimity in the Council and the consent of the European Parliament. Secondly, if the wrong basis is chosen, the CESL runs the risk of annulment if the EU-competence issue is brought before the Court of Justice of the European Union.
At a Justice Council press conference on 8 June 2012, EU-Commissioner Reding tried to bring the exciting competence debate – Gary Low calls it A Numbers Game – to an end, by declaring: ‘Now that the Council’s Legal Service confirmed that the Internal Market legal base (Article 114 TFEU) is the correct one, we can start working on the “meat of the matter” – the details of the proposals and move forward swiftly'. We do not believe this is the policy to follow. It seems much more logical to free the Union of this “competence creep” before continuing the analysis of the concrete provisions of the CESL. The Commission should therefore put an end to the Numbers Game and elucidate the competence matter before engaging in a substantive discussion on the proposal.