Richard Stephen James Mumford [*]
On the fortieth anniversary of his rediscovery of the lex mercatoria  it is peculiarly appropriate that we should commemorate the immense contribution of Clive Schmitthoff to the study of law. Along with a group of other distinguished scholars, Professor Schmitthoff laid the ground for the systematic study of the phenomenon of 'transnational law' -- the law grounded in the sovereign power of nation states yet transcending those boundaries to meet the needs of international trade. A proponent of the emergence of transnational norms tailored to the needs of business, Professor Schmitthoff early recognised the drawbacks of complex systems of conflict of laws and saw the comparative study of law as part of the resolution to the problems posed.
Among Professor Schmitthoff's many formidable achievements was his contribution to the foundation in 1966 of a commission under the auspices of the United Nations to promote harmonisation and unification of international trade law: UNCITRAL. The achievements of that body in rationalising this fundamental area are well known and are rightly seen as a solid foundation on which to build for the future.
My concern in this paper is on the emergence of a new 'formulating agency' engaged in giving expression to principles of transnational law. At the time he wrote of the division between the intergovernmental and non-governmental bodies striving to delineate such principles, Professor Schmitthoff could be forgiven for leaving out of the equation the European Union (or EEC as was). It has nevertheless become clear in recent years that the European Commission sees itself as well-placed to assume at least a co-ordinating role in this area of law. It is the permissible and desirable extent of this role which is the basic subject of this paper.
Much like the work of Professor Schmitthoff, this subject does not admit of easy categorisation. On the one hand, the harmonisation of contract law is firmly rooted in the traditions of Comparative law -- how alike are the legal solutions to various problems; are differences reconcilable; is there, or should there be, a 'learning' process between legal systems? Indeed, it is the professors of Comparative law who have pioneered the consideration of the subject, inspiring the comment that, like a tree surgeon who saws off the branch on which he is sitting, they are doing themselves out of a job -- what is there left to compare when differences are reconciled?
On the other hand, harmonisation of contract law is a subject whose 'ownership' is increasingly being claimed by the EU lawyers, raising as it does issues of who does what in the Union and by what means. Does the Union already "do" private law? Should it? If it already does, is it any good at it? To fully understand the problems posed by harmonisation of contract law one must always, in a schizophrenic sort of way, hold these two (sometimes contradictory) modes of thought in one's mind simultaneously and hope that some sort of productive synthesis results.
May I take this opportunity to express my gratitude to those who have supported me in the research and preparation of this paper, both at the EUI, where Professor Fabrizio Cafaggi and Dr Christoph Schmid in particular have provided much helpful guidance and useful advice, and at Cambridge where Professor John Bell was of immense support in embarking on the project. Many others have been of great influence (consciously or not) and my thanks extend to them also. The usual disclaimer applies.
Lincoln's Inn, June 2004
That the two great tectonic plates of national private law and European Union law rub up against one another is perhaps nothing new, but the frequency of resultant eruptions is palpably increasing. Legislatively, the number of more or less explicit forays of European Union law into the private law of Member States is on the rise. Outside of the many Directives touching on subjects once exclusively within the ambit of the Member States, the friction caused between national private law and seemingly autonomous areas of European regulatory activity, in particular competition law, is becoming increasingly obvious. On the back of these phenomena, the calls for Brussels to take action in some way to rationalise the situation have become both more frequent and widespread.
Within the institutions alone these calls have come from all quarters. Starting at the 'top', the European Council has expressed interest in a general codification of private law initiative at a meeting of Heads of Government in Cologne in early 1999 and of Justice Ministers in Tampere in autumn 1999. The Parliament has been vocal in its backing for such a move, by Resolutions of 1989 and 1994, its Directorate General for Research commissioning a Working Paper  under the direction of Christian von Bar, published in November 1999, prompting a third resolution of November 2001. Five Directorates General of the Commission were involved in the drafting of the 'Communication from the Commission to the Council and the European Parliament on European Contract Law' and the establishment of a forum for responses from all 'stakeholders' -- academics, practising lawyers, business and consumer organisations. This last initiative has in some sense 'culminated' in the Commission's Action Plan on European Contract Law  of 2003, the main plank of which -- the working towards an Optional Instrument in the area of European contract law -- is the subject of this paper.
It is to the features of this "Optional Instrument in the area of European contract law" which I wish to devote some attention at this stage, in order to lay the groundwork for the subsequent discussion.
The first feature to note is that the instrument is clearly intended to be non-sector specific, that is to say its provisions will prima facie be applicable across all types of contracts, not merely to specific types of contract or contracts binding particular kinds of parties. This would mark a significant break with the Community's style of intervention to date which has focussed rather on specific areas of contracting, more often than not those which relate to the consumer. The importance of this shift in thinking about where the power to regulate contract in general should lie will be considered more fully below but gives us a foretaste of the possible constitutional issues involved and in particular the issue matching the idea of general regulation with the specificity of Treaty provisions.
Secondly, one must consider the idea of an "optional" instrument. This, the Commission notes, can mean one of two things -- "it could either apply to all contracts, which concern cross-border transactions or only to those which parties decide to subject to it through a choice of law clause." The grammar is peculiar but the message is reasonably clear -- that it could be an 'opt-in' or an 'opt-out' instrument. The Commission itself at this stage favours the latter scenario, considering that it would "give parties the greatest degree of contractual freedom. They would only choose the new instrument if it suited their economic or legal needs better than the national law which would have been determined by private international law rules as the law applicable to the contract." Is this a case of the Commission being keen to tread very softly in this area and using the idea of contractual freedom to save face in doing so? Or could it be seen to denote a reluctance to follow through the logic of its own proposals? Is it efficient in terms of transaction costs for a party to have to go through the process of comparing the possible outcome of opting-in to the instrument to the possible outcome of the operation of the applicable national law? Surely it is for the legislator to ensure the best possible framework of rules for a given type of transaction and save the parties the trouble. Also, the idea of choosing between the applicable national law and an Optional Instrument does not sit very easily with one of the justifications for Community intervention in cross-border contracting, namely that the average consumer has neither the requisite legal knowledge nor sufficient bargaining power in order to be able to enforce his or her informed choice of applicable law on the transaction and thus from a consumer protection point of view it is for the Community to safeguard his interests. Whilst the Commission includes rules designed to protect the consumer in those which it thinks should be mandatory once the instrument has been opted into, it is questionable whether this would compensate for the difficulty in ensuring it applied in the first place.
The obvious corollary of the optional character of such an instrument is that it would "exist in parallel with, rather than instead of national contract laws." Viewed from this perspective, significant questions are raised over whether such an instrument can properly be described as one of harmonisation in the traditional sense and, even if it can, what effect this has on the form which the instrument takes.
These two features (that it should be 'non-sector-specific' and 'optional' whatever these terms turn out to mean in the long run) are the only two fixed points in relation to the Optional Instrument. The Action Plan deliberately (and probably wisely) leaves open a large number of crucial issues as to its possible scope and contents. For example, while the Commission envisages that the instrument will be "a modern body of rules particularly adapted to cross-border contracts in the internal market," the idea of the instrument eventually extending to domestic transactions is neither ruled in nor ruled out at this stage. Nor is there complete clarity on which types of contract are to be dealt with in the Optional Instrument and which, lying outside its scope, will continue to be governed by national law. The contents, of course, at this stage remain a mystery, or perhaps 'open secret' would be a better term, given the thinly veiled approval of the Commission for the Principles of European Contract Law developed by the Lando Commission. In terms of acceptability of the final product, a sensitive question is left open as to whether the Optional Instrument, once engaged by the parties, will oust national mandatory rules of contract law or whether these will continue to apply. Crucially for this paper, we are also invited to consider what form the Optional Instrument might take as a Community legislative act.
As well as considering the ramifications of the answers to the above questions, I hope also to address some issues which are studiously avoided by the Commission in its Action Plan, namely those of the constitutional mechanics of the Optional Instrument - where does it fit in terms of Community (or Union) competence? How will it steer around the boundaries set by the general principles of Community law?
A word on the structure of this paper. Christian Joerges writes that "the Europeanisation of private law has to base its legitimacy on the quality of the processes through which it comes about; we have to juridify these processes; we must [...] juridify the changes and innovations that the Europeanisation process brings about; we need a procedural law of Europeanisation." He is, I believe, appealing for some degree of rationality and predictability in the Europeanisation process -- some sort of pre-determined criteria against which to gauge the suitability of different measures, criteria which it is the task of the law to provide. In this paper I hope to go some way, not necessarily towards the establishment of new criteria, but towards an examination of how the existing safeguards and approaches would cope with a legislative intervention of the type intimated in the Action Plan. Essentially, throughout this paper I will be asking whether the tools currently available to us are sufficient to cope with the challenges posed by such a measure. In doing so, I have adopted the tripartite distinction between legal basis, subsidiarity and proportionality which is typified by the most important 'constitutional' decision of the ECJ to date -- the Tobacco Advertising judgment. In some senses this paper is an imaginary trial of the Optional Instrument against these criteria. As a preliminary point, I think it is necessary to point out that such an exercise would only be of any value whatsoever if those existing criteria were not only those employed by the judiciary but also by the policy-makers when determining the content of legislative intervention. As will be seen from this paper, this is largely the case, though, of course, different actors may apply the same criteria in radically different ways. What's more, I hope I am justified in making a preliminary finding that these three criteria do, by and large, give sufficient scope for all relevant policy arguments concerning the adoption of the Optional Instrument to be considered, though, again, the determination of the different weight to be attached to the different arguments is somewhat dependent on the context -- courtroom or cabinet -- in which they are made. The dry logic of the Treaty scheme so rigorously followed by the Court -- is there a competence, is it exclusive, is subsidiarity satisfied, is the measure proportionate and necessary? -- may not coincide with the more organic thought processes behind a code of contract.
As is clear from the Commission Action Plan of 2003, we are still some way from the publication of a fixed proposal for comprehensive legislation (Dr. Dirk Staudenmayer, the chair of the Commission inter-services working group which prepared the 2001 Communication and the Action Plan, opines that any concrete results of a further reflection on an Optional Instrument cannot be expected before 2007/2008), still less from the date when a text of an Optional Instrument in the area of European contract law (with which this paper is concerned) could be voted upon by the appropriate Community institutions. Indeed, the Action Plan leaves open the possibility of stopping short of any adoption of such an instrument at Community level. It does however invite comment on the feasibility, desirability and possible content of such an instrument. It is in the context of this call for debate that this paper should be seen.
I. LEGAL BASIS
The aim of having a requirement that all pieces of Community legislation have a legal basis for their adoption in the Treaty (and that, as a rule, the specific Article of the Treaty on which a given piece of legislation is based should be explicitly stated in the preamble to that legislation) is reasonably plain. In purely contractual terms, it is a matter of enforcing the 'federal bargain', the deal struck between the Member States and the institutions of the Community according to which the Member States have "limited their sovereign rights, albeit within limited fields" in return for the benefits of membership of the Community.
This common sense approach to bargaining finds expression in the Treaty itself under Article 5 which enjoins the Community to "act within the limits of the powers conferred upon it by this Treaty and of the objectives assigned to it therein". So the requirement of legal basis may be seen as a safeguard against 'competence creep' on the part of the Community. In essence, the system of attributed or enumerated competences in the Treaty, requiring that each binding decision of the institutions must find its basis, directly or indirectly, in one or more specific provisions of the Treaty is the cornerstone of the division of powers between the Community and the Member States. It is what Barents  refers to as the 'guarantee function' of legal basis; in the absence of a substantial democratic control, the requirement that the choice of legal basis may only be founded on objective elements susceptible to judicial review constitutes a vital element of the rule of law. The enforcement of this guarantee is, of course, far from straightforward. A classic statement of the Court's approach is given in Joined cases 188-190/80 France, Italy and UK v Commission  where it is stated that "the limits of the powers conferred...by a specific provision of the Treaty are to be inferred...from an interpretation of the particular wording of the provision in question...analysed in the light of its purpose and place in the scheme of the Treaty."
The Court must be alive to the fabricated "capacité juridique" of institutions to 'find' appropriate legal bases for a proposed measures and the dangers this holds for the quality of legal reasoning.
Barents  considers as factors which have increased or will increase the number of conflicts over the correct choice of legal basis the increased importance of the European Parliament in the legislative process, the stronger role of the Community legislature in the process of integration in general (i.e. more secondary legislation on more important topics), the addition of new powers, the expansion of locus standi and the rise of preliminary rulings. These conflicts have the potential to destabilise the Community legal order by decreasing the legal certainty over a given measure. It also increases the role of the ECJ as a constitutional court, enforcing institutional equilibrium.
Given these factors, one might have expected the requirement of legal basis to be a prime consideration for the drafters of the Action Plan. Though not entirely ignored, this requirement seems to have been to some extent recast in subsidiarity terms. This approach of leaving the legal/technical problems to 'sort themselves out' in relation to the eventual implementation of a possible Optional Instrument is perfectly understandable, even admirable in its pragmatism. It seems to heed Winfried Tilmann's advice to "leave the matter of implementation to European legal policy and to go ahead with drafting, with articles and with useful books such as those which have recently been published or are under preparation."
Nevertheless, the requirement to ground any Community legislative intervention in some tangible Treaty article is a very real hurdle to overcome as far as any Optional Instrument is concerned, not least because of the dangerous precedent that could be set by skirting round this requirement.
The multiple legal basis problem
Before considering the individual legal bases at play, we must first address the question of whether it is desirable or indeed possible for two or more legal bases to be cited as the basis for a single measure. The desirability of so doing depends largely on what the repercussions of using a particular legal basis are, which itself is a question of to what extent the courts, domestic or European, use the legal basis of a measure as a touchstone for a purposive or teleological interpretation of a particular measure. The use of several legal bases would encourage a court to balance the different policy objectives of a measure against each other when interpreting its provisions. For a measure as potentially wide-ranging as the Optional Instrument which of its nature cuts across many different policy fields it would seem advantageous to make it clear that all those objectives should be taken into account when interpreting its provisions. From a presentational point of view the use of multiple legal bases could also be advantageous in that it might create the impression of abundance of authority for the measure.
But these interpretative and presentational advantages must be weighed against the very real difficulties posed by the existence of different legislative procedures attached to the various legal bases, a phenomenon which we will consider in detail below. The Court has long had to face the problem of Community legislators founding a measure on two bases offering different procedures but adopting it according to that which is found to be more politically expedient. In the Tobacco Control Directive  case, one of the most recent considerations of this problem, the ECJ has shown itself astute to avoid any issue of procedural conflict arising. Concluding that the use of Article 95 as a legal basis was justified in that case, the Court goes on to consider the issues raised by the use in tandem of Article 133 (the common commercial policy basis). Citing Case C-42/97 Parliament v Council  and Case C-36/98 Spain v Council  the Court states that
"If examination of a Community act shows that it has a twofold purpose or twofold component and if one of these is identifiable as main or predominant, whereas the other is merely incidental, the act must be founded on a sole legal basis, that is, the one required by the main or predominant purpose or component".
Only in exceptional cases where an act "simultaneously pursues a number of objectives, indissociably linked, without one being secondary and indirect in relation to the other" is it permissible for the act to be founded on more than one legal basis. Since the internal market aim was predominant in the case of the Tobacco Control Directive (at least as against the pursuit of a common commercial policy), the use of Article 133 in tandem was condemned as being a defect, albeit only a formal one not affecting the eventual validity of the measure given the compatibility of the two procedures in that case. What is surprising is that any condemnation of such a practice was made at all when the two procedures were compatible. Why, it may be asked, was it not open to the legislator to make it clear on the face of the Directive that the measure was at least in part aimed at something outside the ordinary bounds of the internal market, particularly when no procedural conflict exists? Surely this is preferable to requiring the Court to consider reams of often inconclusive material about the legislative history and telos of the act in question, an exercise which has increasingly plagued national courts on both sides of the Atlantic in recent years.
In conclusion, it is possible to state that the ECJ has up till now been understandably more concerned with preventing any side-stepping of the procedural safeguards of the Treaty than it has with the interpretative side of legal basis. In the context of a project on the scale of the Optional Instrument it may be forced to qualify its jurisprudence on this point.
1: Aiming for 'best fit' in legal basis -- a policy oriented approach
The predominant variable in determining the 'correct' legal basis for legislation is, perhaps unsurprisingly, the policy objective which it purports to serve. It requires the legislator or eventually the ECJ in its reviewing capacity, to ask the question 'is this legislation intended to serve the aims of Article X?'. It is also unsurprising that in the vast majority of cases this is a question requiring little thought to answer. However, on certain dramatic occasions it may be found that the answer is not as straightforward as it at first seemed. The Tobacco Advertising  judgment is without doubt the most important example of this aspect of the ECJ's reviewing capacity to date, the crux of which was the ECJ's determination that the Directive in question contained measures which did not serve the internal market objectives of Article 100a (now Article 95). This approach has to some extent been qualified by the more recent Tobacco Control Directive  judgment which formulates the question as being whether the measure in question 'genuinely has as its object' the achievement of the aims set out in the relevant article (in this case the aim of improving the functioning of the internal market, taken to be the aim of Article 95).
In essence therefore, the ECJ's review is aimed at testing the legislator's genuineness of intention in using a particular legal basis. The questions which we must then ask are: what objective(s) is the eventual Optional Instrument claimed to serve and do these objectives match those of any Treaty article?
What are the policy objectives of the Optional Instrument?
Improved efficiency in transactions
There is a widespread tendency among commentators to prioritise the importance of economic arguments in favour of an approximation in European contract law. Indeed, Ole Lando argues, "the arguments in favour of a Europeanisation of contract law are down-to-earth. They are mainly economic." At the forefront of this economic analysis is the renowned Law and Economics scholar Ugo Mattei who approaches the question of the desirability of a putative European Civil Code from the stance of reducing transaction cost. Transaction costs are, he explains, "all those costs which preclude or reduce the possibility of smooth market transactions" and mean that "resources that could be invested in productive, wealth maximizing activities are absorbed by transaction costs and consequently diverted from their purpose." Hence, Mattei argues, if a measure such as a European Civil Code "is a cost-justified device to reduce the transaction costs of the European market, it should be adopted."
Information transaction costs
For Mattei, one of the main achievements of a functioning legal system is to reduce or even eliminate inefficient forms of behaviour, one of which is the obtaining of information about the law governing a particular transaction. He argues that in the Union several legal systems may be involved in a single transaction, causing unpredictability, with the result that "a significant share of business resources must be devoted to paying specialized practitioners to give transactional and litigation assistance, rather than being invested in wealth maximizing activities." Translating this reasoning into the language of the Treaty of Rome, Lando has consistently argued that the tendency of the costs involved in the preparation, performance and enforcement of cross-border contracts in Europe to dissuade economic actors (particularly those with more modest resources) from entering into such transactions means that "the existing variety of contract laws in Europe may be regarded as a non-tariff barrier to trade."
The Joint Response of the Lando Commission and the Pavia Group to the Commission Communication on European Contract Law  makes a similar analysis of the costs involved in maintaining the status quo of a multiplicity of contract laws in Europe. Responding to the Commission's request for information on how the current situation might be seen as an impediment to the functioning of the Internal Market, the Joint Response identifies four such categories of impediment, three of which might be included in the umbrella term 'information costs'.
Firstly it argues that the need to find out about foreign law may significantly add to costs for business which will, of course, be passed on to the consumer eventually. The scale of such costs might even dissuade businesses from undertaking cross-border commercial activity.
Secondly, given the complexity of such a system, there is a risk that businesses may be "taken by surprise" when entering into such transactions, or blindly stumble into contracts on the basis of a deficient understanding of the applicable law.
Thirdly, the very fear of legal surprises itself, even if unfounded, may dissuade businesses, particularly small- and medium-sized enterprises (SMEs) from entering into foreign trade as the Joint Response puts it, "the fact that substantially the same legal wine may be found in different shaped bottles as business activity moves from jurisdiction to jurisdiction is not enough to create the right environment for business in a continental market; apparent differences can be as damaging to confidence as real ones."
The Commission Action Plan takes up the theme of information costs in its analysis of the implications for the internal market of the identified 'problem areas' in contract law, stating that in areas of divergence on fundamental issues of contract law such as the rules on recognition of foreign companies "the only way to obtain legal certainty is to take local legal advice to ensure, for example, the validity of documents and the power to bind another, which is seen as an expensive and inconvenient solution for an everyday management act." Further, in the financial services sector, the Commission had received some indications that "the analysis of the validity of the cross-border transfer of securities necessitates costly in-depth legal expertise, which discourages from or impedes such cross-border transactions" and that the delay involved in obtaining such advice may stymie the whole transaction with such dire consequences as insolvency. The Commission also links high information costs to the deficiencies of private international law in providing a means of coping with the implications of diversity in contract law, stating that where a party is unable to impose its choice of law on the negotiations, "taking advice on the unknown applicable law will involve considerable legal costs and commercial risks for this party to the contract without necessarily giving the most economically favourable solution."
Missed economies of scale
There is a further argument that the existence of a number of different regimes of contract law within the European Union can have the effect of preventing businesses (and, in theory, consequently consumers) from benefiting from economies of scale which would exist were those differences no longer to exist. Essentially, the argument goes, businesses are being prevented from treating the European Union as a single market and instead are forced to adopt their marketing strategies and terms and conditions to the irreconcilable mandatory rules in each of the Member States. The Joint Response makes this point forcefully, arguing that it applies in a number of areas of business activity such as factoring (the buying of trade debts) and, in particular in the insurance industry where it cites example of the inability of a Swiss insurer to draft a 'one size fits all' motor insurance policy to be sold along with a particular manufacturer's cars in all Member States.
While it is not my intention to 'fight fire with fire' and resoundingly refute the economic arguments put forward on favour of approximation of contract law in purely economic terms, it would be wrong to fail to point out some obvious deficiencies in the case which has been presented so far.
First, while the argument is persistently made that the current situation requires huge expenditure on the gathering of information on the legal implications of transactions, it seems very plausible that the adoption of a new 'bare' instrument, devoid of any judicial interpretation, will cause a flood of litigation and consultation of specialist lawyers to determine its correct interpretation. Further, this voyage of discovery is likely to be a particularly expensive one in itself as the expansion of the territorial jurisdiction of the instrument would multiply the amount of case law to be trawled in order to research a particular point. Works such as the proposed 'Common Frame of Reference', designed to prepare the ground for such interpretation, may provide guidance but can never replace the need for judicial decision on a point. Rather than eliminating a situation where "wicked lawyers [...] have the opportunity to sell their legal secrets and thereby to extort and maltreat the poor foreigners" it is likely that many international trade law practitioners would be the first ones in favour of a legislative shake-up in order to stimulate their business. Has any large-scale legislative intervention, for example the BGB and the more recent Dutch Civil Code, ever reduced the amount of litigation and consultation of lawyers in a particular jurisdiction?
To the legal practitioner costs one must also add the inevitable expense of the creation of a court structure suitable to cope with the task of providing authoritative interpretation of the instrument. More is required than Mattei's academia-centric idea of having "informal institutions to lubricate it" in the shape of the rather nebulous "European interpretative community". As Mattei's collaborator on the Common Core of European Private Law project, Mauro Bussani, points out,
"any legal integration implies producing rules which are new for all, or at least some, of the legal actors in the systems concerned. Implementation of such rules requires a class of interpreters -- judges, practitioners, scholars -- acquainted with the new rules and with their rationales. The absence of this knowledge in the short term, as well as (in the long term) the strength of deeply rooted traditions in respect of different concepts, notions and their interrelations, may lead every 'integrative' effort, not to mention a codification, to a dead end."
This, if anything, is the 'shadow on the horizon' of any move to turn contract law from a matter for fifteen (or twenty-four, or however many) jurisdictions into a matter for one centralized jurisdiction. The European Court of Justice is already creaking with the strain of being an anti-trust, administrative and constitutional court of last resort; the addition of a flood of private law litigation to this would finally cause it to cave in. Transfer of jurisdiction on these matters would require some radical reforms to the European legal infrastructure; such reforms tend to require the signing of a blank cheque.
One cannot help but notice as well the anecdotal quality of much of the supposed evidence that the current variations in contract law in Europe have a deleterious effect on the functioning of the internal market. The Joint Response admits as much when it says, "Groups have not undertaken any empirical studies to assess the magnitude of any of these costs, but we consider it to be a safe assumption, supported by anecdotal evidence that significant cost factors are involved and that these cost factors are operative in practically all sectors of the market economy." One has to question what exactly is meant by "significant cost factors" and what evidence there is for these costs operating "in practically all sectors of the market economy." We shall see below how crucial this sort of assumption can be, but suffice it for the moment to say that the case for legislative action is weakened by the absence of any figures, no matter how rough and ready, as to what the financial outcome of intervention would be compared to absence of intervention. On the pivotal question of whether an instrument should be non sector-specific, it is also important to determine, rather than assume, whether these costs are borne evenly across all types of transactions or rather limited to certain sectors which might be dealt with by special legislation. Though the Communication and the Action Plan show that the Commission is aware of these questions, they do not as yet provide an answer.
Tying in with this point, it is perhaps revealing that Schmid mentions as one of the arguments in favour of harmonisation that "a common market requires a uniform infrastructure to stand up in competition with US law." It would seem that Schmid here is not making a point about the relative attractiveness of legal systems for choice of law clauses (since for those purposes there is no such thing as US law) but rather that without a uniform infrastructure European business will always lag behind American business owing to the handicap imposed on it of greater transaction costs. Whilst it is true that a greater degree of uniformity exists between the 50 jurisdictions of the US thanks to a shared foundation on common law (Louisiana excepted) and the introduction of the Uniform Commercial Code (UCC) in particular, differences as between the laws of various states do exist of which the US practitioner must take account. Any relative underperformance due to greater diversity of contract law would surely be vastly outweighed by considerations of taxation and labour law differentials.
Consumer Protection / Promotion of consumer interests
It is important at this stage and particularly in the light of the subsequent discussion of legal basis, to establish exactly what is meant in this context by 'consumer protection' and how an optional code might contribute to that goal. A first distinction is to be made of course between the meaning of the term in the context of tort law and its meaning in the realm of contract. The former is perhaps closer to the layman's idea of protection in that legislation such as the UK Consumer Protection Act 1987, implementing Directive 85/374/EEC, aims to reduce the instances of actual physical harm being caused either to the person of a consumer or his property or, failing that, to give him a right of action when such damage occurs. In the field of contract, the idea is somewhat different, 'consumer protection' being used to denote obligations placed on those dealing with consumers to for example ensure they are informed of the content of the contract into which they are entering, backed up by rights afforded to the consumer to avoid the contract if they were not so informed or merely if they changed their mind within a reasonable period (the classic example of this being the Unfair Terms in Consumer Contracts Directive). The justification for such special treatment in the contractual context is well-known and needs no explanation here. Suffice it to say that within the Community vision of the internal market, the consumer holds a special place as the embodiment on the economic level of what the voter (or, more recently the European citizen) is on the political level. To put it bluntly, affording special protection to the consumer can be seen as a strategy to garner grass-roots support for the European project as a whole. Though some may object to being seen merely in terms of their ability to consume,  there can be little objection to the idea that in the process of deregulation and re-regulation which constitutes the establishment of the common market, a guaranteed baseline at least of consumer protection is no bad thing.
How then might the Optional Instrument benefit the consumer in real terms? Like any other code of contract it would of course be open to the drafters of the instrument to afford the consumer special rights in contracting. But one might respond to this that a very high degree of protection already exists or that the delicate balance between the rights of the consumer and those of businesses should not lightly be overturned merely in order to curry favour with the electorate. However, it does not seem to be seriously argued that the Optional Instrument would treat the consumer significantly differently from any of the existing European jurisdictions, though it may combine the best elements of each jurisdiction. Rather, the Action Plan argues that for the functioning of the internal market the consumer needs a contract code with which he is familiar when making his cross-border purchases. It argues that the present situation is one where consumers are put off from fully exploiting the benefits of the internal market by a fear that the applicable contract law (with whose provisions they are not, and cannot be expected to be, familiar) affords them a lower level of protection than they would get at home. In essence, the claim is not so much that consumers as a whole are being hard done by in the present system but that the fact that foreign consumers think they might be (and cannot afford the legal advice to find out if they would be) is acting as a brake on the free movement of goods and services.
What is not apparent from the Action Plan or indeed any of the responses to the original Communication is the exact scale of this problem of consumers being dissuaded from cross-border contracting. This is understandable in the sense that we are not dealing here with the concrete proposition that consumers in cross-border contracts have been prejudiced as a result of their lack of awareness of the provisions of the relevant contract law but rather the proposition that consumers fear that they might be so prejudiced and that if this fear were removed an improvement in the functioning of the internal market would result. In this circumstance it is difficult to make any real assessment of the proportionality or necessity of a measure aimed at tackling such a problem. Nevertheless, it is possible to raise the point that a fear of prejudice owing to possible differences in contract law is likely to be far lower down the list of reasons why consumers do not take full advantage of the internal market than for example differences in language, convenience, geographical requirements of being within a reasonable distance of the supplier in order to effect possible repairs (given the frequent requirement that a product be returned to its place of purchase for repair), the time consumed by a Europe-wide search for the best deal or even continued patriotism in purchasing. It is also true that under the Regulation on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters  the consumer already benefits from being able to determine the forum of any litigation on the contract.
The Action Plan argues  that not only does the current situation of diversity in contract laws between Member States act as a barrier to the free movement of goods but also that it leads to distortions of competition owing to the greater difficulty faced by smaller companies (SMEs) in absorbing the costs associated with legal advice. This is another assertion which is difficult to verify, and there is even some evidence to suggest that SMEs cope perfectly well with legal diversity and do not see harmonisation as necessary to correct any distortion as between themselves and the 'big boys' who are able to afford either to get specialised legal advice or operate through national subsidiaries.
Even as between contracting parties of equal resources, it is argued that differences in default rules of contract can have a distorting effect on competition in that such differences affect the respective bargaining power of the parties.
A more subtle implication of the current division of regulatory competence between the Member States and the European Community is highlighted by Joerges in his discussion of the existence of so-called "diagonal conflicts" where a rule of national law in one field comes into conflict with a 'higher' European norm dealing with at first sight quite another field of activity. Joerges describes the current topography in the following terms:
"Whereas the European Community's economic and social regulatory framework form part of a limited supranational -- albeit non-statal -- autonomous legal order, national private law remains embedded in the comprehensive -- albeit diverse - legal orders of constitutional nation-states. This discrepancy implies a paradox, if not a normative scandalum."
This scandalum is most apparent in the conflict which arose in the Pronuptia case  (in fact a long series of appeals and references for preliminary rulings) between the dictates of the German law of contract and the principles of competition law expounded by the ECJ. Briefly, a German national entered into a franchising agreement which contained a common form of territorial restriction held to be in breach of the rules of competition. When the franchisee failed to come up with the contractual sum, this point was raised in her defence in order to invalidate the contract as a whole. Whilst eventually the offending clauses were held not to invalidate the agreement as a whole and so did not absolve the franchisee of her duty to pay the agreed sum, the saga did bring into sharp focus the dangers for the integrity of national private law where competition issues come into play.
The question for us here is what are the implications of such 'diagonal conflicts' between competition and contract law for the adoption of a measure of harmonisation such as the Optional Instrument? How strong a justification for such a measure is the possibility of such a conflict arising? The first point to note is that it depends on the likelihood of such conflicts arising in the future. But even assuming that such conflicts are to be a constant and significant source of annoyance for national courts (and source of income for national lawyers), does this automatically justify the wholesale elevation of the regulation of contract law to the European plane? Joerges argues that whilst the principles of the uniform application and full effectiveness of European law dictate that 'vertical' conflicts (such as between national and European competition law) must be resolved in favour of the European norm, the answer is not so clear in relation to this sort of diagonal conflict. As he points out,
"The EC cannot simply claim jurisdiction in contract law matters. Equally, however, its Member States may not be allowed to camouflage their disrespect for European law through resort to some other legal label. In short, they may not continue to administer their national contract law as if they had retained full autonomy over its institutional environment."
We are left with a fundamental dilemma. Either national contract law is held to be automatically pre-empted by European competition law with the disintegrative results visible in Pronuptia or, if this broad view of pre-emption is rejected, European competition law must, to put it figuratively, descend from its ivory tower and do battle with a range of legal doctrines which affect its once-pure regulatory function and do so without the guarantee of victory that the pre-emption doctrine provides. Is it arguable that harmonisation of contract law might help resolve this dilemma? One response would be to say that it would do no more than turn these 'diagonal' conflicts into 'horizontal' ones without doing anything to actually resolve them. The crucial point is whether the very 'horizontality' of the problem makes it any easier to solve, which itself is perhaps a question of the quality of regulation at the European level on which views legitimately differ. Whilst it may be true that "if we start from the assumption that the Europeanisation of competition policy is a sound and legitimate project, the defence of national autonomy in contract law must be limited," it is not clear whether this limitation should manifest itself in a general conflicts rule such as pre-emption or in a project like the optional code. One thing is certain -- that the Optional Instrument as suggested in the Action Plan would have little effect on the resolution of such conflicts for the simple reason that it is proposed to apply only to cross-border transactions and possibly not even to the sort of 'special' contract like the franchise in Pronuptia. The Optional Instrument in this sense would be no more than a very tentative first step towards an eventual solution which would have to take the form of a comprehensive code regulating all forms of contracting, domestic and cross-border, which might have competition law implications -- a potentially vast field encompassing both business to business (Article 81 type anti-competitive agreements) and business to consumer (Article 82 type abuse of dominant position) contracts.
European integration for its own sake
My purpose here is to uncover some of the arguments and assumptions which may underlie the more visible economics-based arguments outlined above. European integration is of course an aim quite different in scope from the limited sectoral aims outlined above. It may even be misleading to describe it as a policy objective in the same way as, for example, consumer protection. But in another way it could be seen as the real policy objective behind all the 'instrumental' objectives of improved efficiency in transactions and the exploitation of the benefits of the internal market. The elaboration of the Optional Instrument is perhaps the archetype of the 'Monnet method', "the strategy of promoting spillovers from one economic sector to another and eventually from market integration to political integration". This strategy was (and still is) based on the idea that measures of economic integration will inevitably, though incrementally, lead to greater political integration and supranational influence. The Optional Instrument fits comfortably into this strategy, as shown by the internal market terminology in which most of the debate is couched. The internal market project is the paragon of the Monnet method, launched as it was to give new life to the process of political integration which had sunk into the doldrums in the years prior to 1986. The question I wish to address here is to what extent the Optional Instrument has implications for European integration which go beyond the Monnet method, in other words, whether it could be seen as a measure promoting integration on its own terms, rather than simply through the medium of the internal market.
To answer this question we must first lay to rest an old misconception, that, broadly put, private law and European integration are two disconnected entities, existing on separate planes without ever interacting with one another. It is a conception which insists firmly on the public/private divide and the mutual independence of these two legal branches. Much has been done to dispel this myth in recent years and develop convincing theories to suggest that private law not only has a clear constitutional dimension but also that this dimension extends to the European sphere, forcing it to be taken into consideration when embarking on any 'constitutional' type endeavour such as the further integration of the Member States of the European Union. Leading the field of such models of the constitutional dimension of private law is Joerges's approach based on the Multi-level Governance model of the European Union. Joerges explains  that in the past political scientists tended to relate their analyses of integration to one of two schools: intergovernmentalism and neo-functionalism, the latter broadly corresponding to the thinking behind the Monnet method -- that political integration is achieved through the regulation of increasing areas of the economic sphere at the supranational level. The multi-level governance analysis takes a more flexible approach which, whilst highlighting the erosion of the individual nation states, at the same time denies the neo-functionalist perception of their inevitably merging into a single European super-state. It attempts to capture features of the emerging European polity such as its lack of internal hierarchy whilst leaving open the question of where on the supposed spectrum between the traditional nation state and international organisations the EU might lie.
How does this analysis fit private law in the Union? First, it captures the patch-work of Community interventions which punctuate though do not undermine the core areas of national private law. Secondly, the 'governance' aspect of the analysis allows a broader view of private law regulation to be taken than one intimately wedded to the traditional forms of national or even Community legal structures. Thirdly, it enables one to understand that integration and disintegration are two compatible and simultaneous processes -- the building of Community markets and the cutting of ties between national markets and their national institutional environment. Using this analysis, Joerges is able to draw a detailed picture of the impact of European integration on national legal systems:
"It inserts new individual freedoms into them and so strengthens the realm of private autonomy. It is disintegrative, alienating markets form their traditional institutional environments. It imposes new duties upon traders and assigns inalienable minimum rights to consumers. It establishes transnational regulatory frameworks to which institutions of private law must adapt themselves."
Hence, we are left with a picture where national systems of private law may appear to retain their coherence (as Joerges puts it, their 'internal grammar') but which can only truly be understood by looking at the institutional environment created for them at the European level. The notion of 'diagonal conflicts' (see above in relation to the competition law aim of the Optional Instrument) is one demonstration of the need to contextualise national private law.
Once this constitutional dimension of private law is acknowledged, we are able to move on to the question of how private law should be regulated in order to cope with the process of integration pursued at the European level. On this point Joerges urges a level of caution which is quite in contrast with the ambitious projects of codifying groups such as the Lando Commission. He argues that:
"The complex and contingent nature of both the current and future state of private law within the EU appears to be decisive, determining that lawyers should not at the outset attempt to develop or promote comprehensive and systematic responses to the integration challenge. European integration forces us to re-evaluate the societal links of our legal systems in general, and to reconsider the normative tasks of private law in particular. Since this is an extraordinarily complex task and because future European evolution is contingent in so many ways, the design of new ready-made systems does not seem feasible, and it would appear to be more constructive to restrict oneself to the analysis of patterns of exemplary importance and to generalise only in relation to methodological considerations."
Whilst this advice would at first sight seem to rule out any resort to the sort of measures described in Option IV of the Commission Communication, it may be argued that the Optional Instrument is sufficiently cautious to avoid the dangers of pre-empting the natural playing-out of the integration process. It may also be the case that having correctly identified the nexus between integration and national private law, Joerges does not carry through the logic of this finding. The picture he paints is one of national private law responding to the political and institutional changes around it. Might a less cautious approach be advisable if it could be shown that national private law was not merely passive and responsive but could have an active participatory role in determining the level of integration within the Union? We have seen above how the Optional Instrument is to a large extent intended to bolster the functioning of the internal market. It is well-known that the internal market project itself was devised as a means of relaunching the process of integration which had sunk into the doldrums prior to 1986. But is it possible that a measure such as the Optional Instrument could promote integration independently of its internal market role? The answer has to be that it could, under certain conditions. If the Optional Instrument is to make us 'feel more European' as Alpa opines a European Civil Code would, then, most crucially, it must be a public act. By this I mean that its integrationist influence would be negligible if only a few specialised international trade lawyers and academics were aware of its existence. Not only must the public know of its existence, they must also care. The advantages of the use of the Optional Instrument to the citizen must be made apparent. For the Optional Instrument to enter into the public consciousness it must also be accessible and simply worded. One can hardly hope for the lyricism of language which in the Code Civil inspired Voltaire to poetry, particularly in a document which must be authoritatively translated into all Community languages, but a few pithy formulations might be helpful.
These considerations might strike one as mundane or even insignificant but it would be wise to learn form the experience of the constitutional lawyers who are currently struggling to get even the idea, let alone the practicality, of a European Constitutional Treaty to take root in the public consciousness. If it is argued that the regulation of private law and contract law in particular is an exercise which is exempt from the need for a little showmanship, then one might do well to remember that as a public relations exercise the Code Civil did far more to secure Napoleon Bonaparte long-term esteem than any number of victories in battle, and he knew it.
One particular issue which now arises in relation to contract law harmonisation is that of its impact on the most recent motor of European integration (which some commentators see as having replaced the completion of the internal market at the top of the Commission's 'wish list') -- enlargement. Two opposed views are possible as to what that impact would be. One view insists that contract law harmonisation, to the extent that it presents a coherent and up to date model of a 'communitarian' contract law, is a boon for the candidate countries seeking to adapt their economies to the demands of Union membership. For those countries, many of which are still in the process of emerging from the collapse of communism, a 'model code' (towards which the Optional Instrument would undeniably be a step) would facilitate this process. Of the Czech Republic Zimmermann stated in 1995 that
"The transition from a socialist system to one that is based on freedom and the rule of law has entailed such a significant change of the ethical foundations of society that courts and legal doctrine alone cannot achieve the necessary adjustment of private law. New legislation is required, and it should be in the nature of a re-codification rather than a piecemeal reform."
Zimmermann proffered the recently overhauled Dutch Civil Code as a possible model on the basis of its modernity and basis in comparative research but considered that linguistic reasons might make the Austrian or German codes more suitable. Even better than any of these options would be an instrument whose content has (at least the appearance) of Europe-wide support, specifically designed to fit into the European regulatory framework into which countries such as the Czech Republic are trying to integrate themselves.
The opposite view would argue that the candidate states already have enough on their plates with attempting to absorb the enormous volume of Community acquis before being accepted as full members. To pile on top a fundamental reform of the system of at least contract law would be to make this burden intolerable, particularly given the sense among some candidate countries that a more rigid adherence to those acquis is required of them than of the 'old guard'. This brings us on to the second issue as regards the application of such a European instrument in those prospective Member States. Whilst an instrument with the supposed backing of the entire Union would at first seem neutral, from a political perspective it may face the problem of being seen as a form of lego-cultural imperialism. In the field of constitutional law it is often noted that candidate countries recently having gained their independence from 'foreign' control as part of the Soviet sphere of influence are reluctant to in any way jeopardise that hard-won freedom. Any surrender of sovereignty, real or apparent, is capable of creating political cleavages as profound as any of those existing in the current Union. Is it possible that a similar fierce nationalism could apply in the field of private law, resulting in the process of integration being hindered rather than helped? Two reasons would perhaps suggest that this is unlikely. Firstly, despite all its constitutional dimensions, no one could seriously claim that the minutiae of contract law are as politically sensitive as the rights, freedoms and political processes guaranteed in national constitutions. This is not to place a value judgment on their importance but rather to make an observation as to the sort of subjects which occupy the majority of political discourse. Secondly, even if private law were to be on a political par with constitutional rights and freedoms, the constitutions of the candidate countries are new and their own whereas the civil law systems are old and are representative of an unpopular chapter in those countries' political histories. To give those systems up (even if it means surrendering the ability to regulate one's own private law in the future) would be far less of a wrench than surrendering those iconic new constitutions.
Which legal bases are most suitable for achieving these policy objectives?
Article 95 of the Treaty seems to emerge from the Action Plan as quite clearly the front-runner in the competition for legal basis for the Optional Instrument. Whilst the question of specific legal basis is left open, the idea of multifarious development of national contract law being an impediment to the functioning of the internal market (both in terms of the exercise of the four freedoms and in terms of distortions of competition) is a recurrent theme of the Commission Communication, the published Responses and the Action Plan itself. Empirically, it is the legal basis for most of the Community legislation impacting on private law and contract law in particular (even if this has been almost exclusively in the form of Directives related to consumer contracts). At the forefront of these is the EC Directive on Unfair Terms in Consumer Contracts (93/13/EEC) whose preamble states:
"Whereas in order to facilitate the establishment of a single market and to safeguard the citizen in his role as consumer when buying goods and services by contracts which are governed by the laws of other Member States than his own, it is essential to remove unfair terms from those contracts."
Strong parallels can be seen between this passage and the policy objectives for the Optional Instrument outlined in the Action Plan. However, whether or not such justifications have been raised in the past, the crucial question is what sort of measures may be validly adopted under Article 95.
At least two different readings of Article 95 are possible. The first, stricter, reading would say that Article 95 permits only approximation measures where the national provisions of the Member States themselves "have as their object the establishment or functioning of the internal market". This reading is supported by Van Gerven  who argues that it is justified by reading Article 95 in contradistinction to Article 94 which talks in terms of national provisions which "directly affect the establishment or functioning of the common market". Since the category of national provisions which "directly affect" the establishment or functioning of the common market is wider than the category of those which "have as their object the establishment or functioning of the internal market", this justifies the requirement of unanimity in Article 94 as opposed to QMV in Article 95. In effect, greater consensus is required for the approximation of the wider category of laws. Van Gerven further points out that whilst national laws of contract may conceivably be thought to directly affect the common market, it would be an anachronism and a falsehood to claim that they had, when introduced, the establishment of the internal market as their object. For this reason, harmonisation of contract law could in principle be effected under Article 94 but not under Article 95.
However, this purely textual approach to the relationship between Articles 94 and 95 has been rejected by the ECJ. Instead, as can be seen from the Tobacco Advertising judgment  (and the accompanying Opinion of Advocate-General Fennelly), the test for whether a measure has been correctly adopted under Article 95 depends not on the characteristics of the underlying national measures being harmonised but rather on the relationship of the harmonising measure itself to the establishment and functioning of the internal market. Therefore the question asked by the Court in Tobacco Advertising (to which a negative response was given) was 'does every provision of this measure contribute to either the establishment or the functioning of the internal market?' It can be seen from both the Commission's Communication and the Action Plan that a great deal of effort has been expended on ensuring a positive answer to this question in relation to the Optional Instrument. The Court reasoned that if a measure can be shown to have strongly negative effects on the internal market then it can be inferred from this that it lacked the requisite intention of improving the functioning of the internal market. In this sense, the objections based on the shakiness of the evidence of need for an Optional Instrument are unlikely to weigh heavily with the Court but must nevertheless be taken into account in policy-making.
If Article 95 is to be used to enact an Optional Instrument in the area of European contract law, a potential problem raised by the ECJ's Opinion 1/94 concerning Community accession to TRIPs (Agreement on Trade-Related Aspects of Intellectual Property Rights) and GATS (General Agreement on Trade in Services) must be overcome. Schmid  has argued that it is a precedent for the idea that Article 95 allows only the shaping of national legal institutions, but not the creation of new titles overlaying old ones. He refers to point 59 of the Opinion in particular, which states that
"at the level of internal legislation, the Community is competent, in the field of intellectual property, to harmonize national laws pursuant to Articles 100 and 100a and may use Article 235 as the basis for creating new rights superimposed on national rights, as it did in Council Regulation (EC) No 40/94 of 20 December 1993 on the Community trade mark."
Whilst this passage does indeed draw a distinction between the creation of superimposed rights and the harmonization of national laws, it does not seem to explicitly say that these two ideas are mutually exclusive. In fact, at point 58 the opposite seems to be the case where it says that
"The Commission has itself conceded that, since TRIPs lays down rules in fields in which there are no Community harmonization measures, its conclusion would make it possible at the same time to achieve harmonization within the Community and thereby to contribute to the establishment and functioning of the common market."
This would seem to suggest that the Court thinks that the creation of a superimposed system of rights and obligations independent of the laws of the Member States (such as TRIPs or, for that matter, the Optional Instrument in the area of European contract law) would have a (admittedly indirect) harmonizing effect on the laws of the Member States. It is specifically the finding that such an indirect harmonizing effect exists which persuades the Court that to allow TRIPs to be adopted under the commercial policy basis would permit an impermissible procedural shortcut to take place. Whilst Schmid's reading is consistent with the outcome of the case as well as a common sense reading of Article 95 focusing on the national measures to be harmonised not on the effect of the Community measure, it is by no means obvious where the Court explicitly prohibits superimposed regulation being adopted under the harmonization articles. In the absence of such a watertight self-imposed prohibition, it is submitted that the Court would adopt a line more sympathetic to the Community institutions' policy aims (as it has done in rejecting the narrow reading of Article 95) and allow the introduction of a measure in parallel to national contract laws under the harmonisation provisions. One must consider as well whether, even if the Court did take against the introduction of another 'tier' of regulation under the harmonisation articles, would an Optional Instrument constitute such an extra tier? There may be a qualitative difference between the Community's accession to a set of international norms to be applicable in the Member States (which the Court seemed to set itself against in Opinion 1/94 although it is not part of the ratio of the case) and the introduction of a set of norms on the same notional level as those already existing in national law.
Article 153 aims at "protecting the health, safety and economic interests of consumers, as well as promoting their right to information" and so may be thought to have a role in providing a legal basis for the Optional Instrument which is argued, as we have seen above, to impact on those economic interests. But two points must be raised.
Firstly, it is clear from the wording of Article 153 itself that it was not intended to sanction unlimited Community intervention to promote the rights and interests of the consumer. Rather it enables the Community to enact "measures which support, supplement and monitor the policy pursued by the Member States". Aside from this, Article 153 makes reference to the role of consumer protection as a consideration to be borne in mind in the context of the completion of the internal market effected under the auspices of Article 95. In practice, this cross-referencing has meant that Article 95 has more or less taken over from Article 153 as the legal basis for consumer protection measures, sometimes with only the merest pretence of internal market aims. In essence, Article 153 does not make consumer protection an independent aim to be pursued as the Community sees fit. This is underlined by the fact that Article 153(5) expressly maintains the role of the Member States in enacting more stringent protective measures should they so wish.
Secondly, as we have seen above, the consumer protection element to an eventual Optional Instrument is likely to be relatively unspectacular and probably no greater than already exists in some European jurisdictions. More central to the Action Plan is the extension of the benefits of the internal market to the consumer or, put another way, to add impetus to the internal market by the increased participation of the consumer.
Bearing these two points in mind, we can see that Article 153 is only a relevant legal basis to the extent that it can be said that the Optional Instrument is a measure which supports, supplements or monitors the policy pursued by the Member States. Such an argument could indeed be made in that measures contained in the Optional Instrument will serve at least the first two of these aims, offering protection to consumers which is not provided by the contract law of their own states since in cross-border situations their domestic contract law may not be the law applicable.
Article 293 EC
The para-Community provision of Article 293 allows for closer co-operation between Member States but only with a view to securing benefits for their nationals in a number of specific areas (protection of persons and enjoyment of rights, abolition of double taxation, mutual recognition of companies and simplification of formalities in the enforcement of judgements). This has, from a legitimacy point of view, the advantage of not forcing the participation of unwilling Member States. However, it seems clear that the adoption of the Optional Instrument is too far removed from any of the matters mentioned in Article 293 to be included.
Article 43 TEU
A more intensive para-Community measure of closer co-operation which is less restrictive in terms of the subjects on which that co-operation may be reached, is that of Article 43 TEU. This article effectively allows for the patriation of inter se agreements by the Community, enabling participating Member States to "make use of the institutions, procedures and mechanisms laid down by the Treaties". However, a number of requirements are imposed which do not relate to the subject matter of the measure itself but rather the way in which it is reached. Of particular note are the requirement that Article 43 be used only as a last resort "where the objectives of the said Treaties could not be attained by applying the relevant procedures laid down therein", the measure must not affect the acquis communautaire (as an 'integrative' Optional Instrument, rationalising the interpretation of existing Community legislation, surely must do) and does not affect the interests of Member States who choose not to participate in the exercise. Reference is also made to Article 11 EC requiring that such a measure "remains within the limits of the powers conferred upon the Community by this Treaty". This effectively limits the operation of Article 43 TEU to the context of an existing legal basis elsewhere in the TEU or the EC Treaty. Overall, the Article 43 TEU procedure has advantages in terms of legitimacy but poses several hurdles which reduce its attractiveness. Its main practical advantage from the Commission's point of view would be to allow the establishment of the ECJ as arbiter of the Optional Instrument's provisions.
Article 61 EC
Article 61(c) EC allows for the adoption of "measures in the field of judicial co-operation as provided for in Article 65", which itself refers to "measures in the field of judicial co-operation in civil matters having cross-border effects", and makes specific mention of the need for the proper functioning of the internal market. However, the adoption of the Optional Instrument under this basis would be stretching the meaning of 'judicial co-operation' beyond its limits and more specifically would be qualitatively different from the sorts of fields (recognition of judgments, conflict of laws, civil procedure) mentioned in the (admittedly non-exhaustive) list of Article 65.
Article 308 EC
Of potential significance is Article 308, allowing for the taking of appropriate measures "in the course of the operation of the common market" to attain a Community objective. The extent of the power conferred by this provision is hotly debated, not only in relation to contract law harmonisation. Though often assumed to be no more than an explicit statement of the 'implied powers' doctrine common to many federal systems, it has potentially wide-ranging effects, as can be seen by its use in the implementation of the exchange rate mechanism. Its deleterious effect on the legitimacy of Community action by sanctioning the arrogation of plein pouvoir is to some extent limited only by the requirement of unanimity in Council. Despite the constitutional danger this poses, it is proposed to retain the provision more or less word for word in the Draft Constitution, with a rider stating that it may not be used to evade prohibition on the harmonisation of Member State laws in certain specific areas (such as protection of public health). From a legitimacy point of view, it would nevertheless seem that the optional code is too large and noticeable a project to be adopted on the basis of this constitutional flexibility clause. As Van Gerven also points out, the ECJ itself has discouraged such a use of Article 308 (ex Article 235), by saying in its Opinion 2/94 of 28 March 1996 that the imposition on the Member States which have a constitutional dimension exceeds the limits of Article 308 (ex Article 235). Van Gerven argues that "It would seem that the imposition of a Civil Code upon the 'common law' Member States (even if their governments were to agree) should be regarded as having such a constitutional dimension)." That the same may be said of the Optional Instrument (even though it is not 'imposed' in the way that Van Gerven envisages here), is a central theme of this paper. At its most basic, it is the 'constitutional' question of 'at what level are certain types of transaction to be regulated?'. At its highest, it is the question of what sort vision we have of the future of the European Union.
Article 94 EC
As mentioned above on relation to its fellow approximation of laws basis Article 95, Article 94 is arguably more suitable as a basis for harmonisation in the area of contract law as national laws of contract could be seen as "directly affecting" the functioning of the internal market. However, as we have seen, this approach to the interpretation of the scope of the internal market provisions has been rejected, meaning that in practice the scope of Article 94 is significantly narrower than that of Article 95 since it contains no reference to the social welfare goals of health, safety, environmental protection and consumer protection.
The only policy objective which would seem not to be covered by Article 95 either explicitly or implicitly is that of the wider aim of European integration, which, like the metaphorical elephant in the drawing room, tends to be skirted round and ignored rather than addressed on its own terms. The problem posed in relation to integration is of course very different from that in relation to the other policy objectives. Integration, as a long-term goal is not so much a Community competence as the very raison d'être of the European institutions. Consequently, the legal basis debate, which is essentially an argument about sovereignty, can be viewed as part of a wider argument about what the demands of integration are and how they can best be achieved. The strain put on the legal basis debate by the political pressures of the ongoing integration discussion has the effect of distorting the clean straight lines of legal argument. Hence the rejection of a textual approach to the interpretation of Article 95 and the subsequent debacle. Majone  elegantly captures this phenomenon in his analysis of the 'Community Method' of legislation which he describes as founded on the two tenets of Commission monopoly of the initiative and the use of "institutional balance" as a substitute for a clear separation of powers. The result of this combination of factors is that
"The Commission will never propose a policy which does not contribute, directly or indirectly, to an expansion of Community, and its own, competence -- the 'common interest' as perceived in Brussels. Likewise, neither the member states not the European Parliament will support a proposal which is unfavourable to their national or institutional interests, regardless of the contribution which the proposal could make to the aggregate welfare of the Union."
The elaboration of the Optional Instrument is perhaps the archetype of the 'Monnet method' which, though it guarantees an incremental achievement of the ultimate political goal of European integration, results in the application of sub-optimal regulatory policies. Majone is of the view that:
"the integration process is sufficiently advanced that supranational policies -- to the extent that they are needed -- can and should be designed to achieve the best feasible solution of concrete problems, not as proxies for European integration. By the same logic, integration objectives should be openly stated and pursued through appropriate, political, channels rather than under the disguise of policymaking."
We must be certain that the Optional Instrument constitutes the optimal strategy for the regulation of transnational contracts before we lend it our support. Any integrationist or 'rent-seeking' aim on the part of the Commission or others must be kept as strictly secondary to this objective.
2: Choosing the right procedure -- a consensus based approach
When considering which legal basis is objectively the 'best' for the adoption of the Optional Instrument, we must consider the second, and highly important, variable at play -- the voting procedure which attaches to each legal basis. The reasons for this are in the main obvious: from the Commission's point of view it would rather that a legislative measure proposed by it was adopted than rejected. But we must consider also the nature of the measure in question -- would it lack credibility if adopted with less than one hundred percent backing from all concerned? And who exactly is 'all concerned'? Is the Optional Instrument a measure on which all the institutions - Commission, Council, European Parliament, Economic and Social Committee, should have a say? If so, what weight should be given to each of their stances?
Within the six legal bases we have examined so far, a range of procedures is evident. Four require a unanimous vote in Council for the adoption of the measure (Articles 61, 94 & 308 EC and Article 43 TEU) whilst two require only a qualified majority vote (Articles 95 & 153 EC). One does not involve the European Parliament at all (Article 43 TEU), three require its consultation (Articles 61, 94 & 308 EC) and two effectively give the European Parliament the power to veto measures which have the Council's approval (Articles 95 & 153 EC). The legal bases are split evenly between those which require ECOSOC to be consulted (Articles 94, 95 and 153 EC) and those which do not (Article 43 TEU and Articles 61 & 308 EC). My purpose at the present stage is not to provide an exhaustive account of the numerous legislative procedures used for the adoption of Community legislation but rather to ask the superficially straightforward question of who should be involved in the decision of whether to adopt the Optional Instrument (and if so, its form and content) and what their individual influence should be. But like all normative questions, who 'should' be involved in the Optional Instrument project is a subject of debate. On one level the question involves a straight choice between legal bases on the grounds of political expediency -- whichever procedure is most likely to result in the adoption of the instrument is the one which 'ought' to be followed. This however obviously presupposes support for the project and does not address the real question behind the issue of which procedure ought to be followed, that of the legitimacy of the measure. Barents  provides a handy overview of the three-way inter-institutional battle involving the Commission, the Parliament and the Council when it comes to choice of procedure. Given that under QMV the measure proposed is in theory more likely to get through and importantly can only be amended against the Commission's will by a unanimous Council (see Article 251(3)) the Commission prefers this route, whereas the unanimity procedure gives the Member States the ability to defend their position to a maximum and so is sometimes, but not always, preferred by the Council as a whole. The exception to this occurs where there is one (or more) 'rogue' Member State(s) who wish to regulate a particular activity unilaterally. The European Parliament of course prefers bases maximising its influence. In Titanium Dioxide  also the Council made no bones about its choice of Art 130S (now Art 175 under Title XIX Environment) rather than Art 100A being motivated by a desire to minimise the influence of the European Parliament in this area.
In order to provide some sort of objective criteria on which the necessary participation of the various institutions could be decided I propose to take the perspective of various theories of the legitimacy of Community action in turn, examining which mix of participation each would advocate in the case of the Optional Instrument.
This reading of the EU focuses on the central role of the sovereign nation state within the decision-making process, arguing that Community action is only legitimate to the extent that it accords with the will of participating Member States. The Community and its institutions are consigned to a technical role of co-operation in carrying out the will of the Member States, the true source of authority. This view was most fiercely advocated by the likes of President de Gaulle whose empty chair policy and subsequent Luxembourg agreement established (for a time) the principle of unanimity in Council.
As is obvious from this brief description, a realist perspective on the Optional Instrument would appear to demand at the very least that such a measure receive the unanimous assent of the Council of the European Union, the representatives of the sovereign nation-states, if it is to come into existence. Such a perspective would also reduce the importance of the European Parliament's role, denying that its supposed democratic mandate gave it any standing in this intergovernmental arena. As is often pointed out, this realist perspective has both analytical and normative failings. Analytically, it fails satisfactorily to capture how European integration did in fact progress -- not simply through intergovernmental accords but through the elaboration of the key constitutional principles of direct effect and supremacy by the ECJ. It also fails to explain the centrality of the Commission to legislative activity through its monopoly of the initiative and co-ordinating role. Normatively, a state-centric conception of the Community, as was put forward in the German Constitutional Court's Brunner  judgment would reduce its ability to co-ordinate transnational solutions to problems which go beyond the nation states acting in their own interests. Without wishing to prejudice the discussion of subsidiarity below, it is possible to state that the Optional Instrument appears to address the very sort of problem whose solution evades the national legislator acting individually. On the other hand, a broader view of the Optional Instrument's impact (for example, as a possible stepping stone to an eventual binding European Civil Code) would support the realist's call for strong scrutiny of the measure at the intergovernmental level.
The neo-functionalist reading of the European Union bases its legitimacy on its superior problem-solving capacities. It argues that there are areas of regulatory activity which can be safely and legitimately delegated to a technocratic cadre of experts on the basis that their authority rests on their superior understanding of the functional demands of the field.
Majone is perhaps the primary interpreter of this theory in relation to the European Union, with his conception of "Europe as a regulatory State." He proposes an efficiency-oriented approach to regulatory policy, renouncing distributory activities and confining itself to the correction of market failures. This task, he suggests, should be carried out by non-majoritarian expert bodies along the lines of the American federal agencies. The decisions made by such bodies are held more likely to be optimal than those of democratically-elected bodies along the lines of the traditional national parliamentary democracy owing firstly to the greater technical expertise possessed but also to the absence of weakness deriving from a pre-occupation with re-election or manipulation by interest groups. Further, traditional intergovernmental bargaining is thought potentially sub-optimal on the grounds of a tendency for governments to fixate on national interests rather than those of all affected.
This reading of the EU obviously places at the forefront of decision-making the Commission and its attendant advisory committees, loosely grouped under the heading 'comitology'. Its 'new approach' to market regulation involves a network of bodies which together implement regulatory policies of which only the broad lines are sketched out by the Council. The European Parliament too must take a back seat and leave the elaboration of regulation to those who know best.
Various objections can be raised against the functionalist thesis the first of which relates to the supposed invulnerability of technocratic bodies to the vices of political activity. The idea that there is any activity at all which is devoid of political considerations, no matter how 'technical', is highly dubious. Further, while the theory might apply very well in the United States where federal agencies have genuine regulatory 'bite', the fact that no such power has been placed in the hands of the existing European agencies would seem to confirm the feeling that governance in the Union is more political than the functionalists would have us believe. The attempt to save functionalism from the charge of being undemocratic by distinguishing "input legitimacy" (i.e. participatory democracy) from "output legitimacy" (i.e. the rightness of giving people what they need, whether they want it or not) fails for the same reason -- it is impossible to hive off certain questions as 'purely technical' even though they may be very technical indeed. This is particularly obvious in relation to the Optional Instrument which, though it may well be very technical, carries with it the possibility of varying the level of consumer protection within the Community with regard to certain transactions. That is to say nothing of the political considerations involved in the potential knock-on effects of such an instrument with regard to the legal culture in the Member States, of which more below.
This theory of why legislation at the Community level is legitimate tries to combine the best parts of the two theories outlined above, whilst at the same time resolving their deficiencies. A Multi-level governance analysis takes a flexible approach which, whilst highlighting the erosion of the individual nation states, at the same time denies the neo-functionalist perception of their inevitably merging into a single European super-state. It attempts to capture features of the emerging European polity such as its lack of internal hierarchy whilst leaving open the question of where on the supposed spectrum between the traditional nation state and international organisations the EU might lie.
This analysis operates around the two basic criteria for legitimacy which we have already uncovered above -- institutional capacity (the ability to do) and democratic accountability (the ability to listen). The first criterion means that importance is attached to the 'network' aspect of governance which expresses the requirement for co-operation and interdependence between actors, to the point in some cases of decentralisation and even self-regulation. The second criterion forces one always to bear in mind the political nature of governance and the falsity of claims that regulation can be achieved through a purely legal-technical process.
It is hard to capture the essence of the multi-level governance analysis in such a short description, perhaps for the very reason that it is successful: it eschews easy dogmatic positions, both analytically and normatively and seeks to explain phenomena of Community integration whilst also attempting to provide guidance for the future.
The case for applying a multi-level governance-based approach to the choice of actors involved in the Optional Instrument project is strengthened by reason of Multi-level governance's convincing construction of the process of interaction between national private law and European norms in the Union. First, it captures the patch-work of Community interventions which punctuate though do not undermine the core areas of national private law. Secondly, the 'governance' aspect of the analysis allows a broader view of private law regulation to be taken than one intimately wedded to the traditional forms of national or even Community legal structures. Thirdly, it enables one to understand that integration and disintegration are two compatible and simultaneous processes -- the building of Community markets and the cutting of ties between national markets and their national institutional environment. Using this analysis, Joerges is able to draw a detailed picture of the impact of European integration on national legal systems:
"It inserts new individual freedoms into them and so strengthens the realm of private autonomy. It is disintegrative, alienating markets from their traditional institutional environments. It imposes new duties upon traders and assigns inalienable minimum rights to consumers. It establishes transnational regulatory frameworks to which institutions of private law must adapt themselves."
Hence, we are left with a picture where national systems of private law may appear to retain their coherence (as Joerges puts it, their 'internal grammar') but which can only truly be understood by looking at the institutional environment created for them at the European level.
In relation to the Optional Instrument, the twin criteria of institutional capacity and democratic accountability demand that a balance be struck between the institutions. The technical expertise of the Commission and advisory bodies such as ECOSOC must be acknowledged but placed within its limits. The representative institutions of the Council and the European Parliament must both have their say.
Combining Unanimity and Co-decision for maximum procedural legitimacy
Of the legal bases we have considered, it is arguable that each falls short in some way of combining the appropriate levels of involvement of each of the institutions. Article 94 requires unanimity in Council but gives only a consultative role to the Parliament. Articles 95 and 153 follow the 'co-decision' route of Article 251 which, whilst it requires the support of Parliament for a measure, requires only a qualified majority in Council. Article 43 gives the Parliament no role at all. It is therefore difficult to choose between each of these sub-optimal permutations. One might state that a unanimity requirement in Council is something which both supporters and detractors of further European intervention in contract law should be in favour of, the former because it means that any measure which results is more likely to get the enthusiastic backing of the Member States and the latter on the basis that it makes it more likely that a Commission proposal will be scuppered.
Without going so far as to imagine a totally clean slate, how might the procedures available to us be improved? There is a small class of legal bases (4 in total, 3 with the coming into force of the Treaty of Nice) which combine the unanimity voting procedure in Council and the co-decision arrangement with the European Parliament. These legal bases, in the areas of free movement of citizens (Article 18(2) EC, changing to QMV with Treaty of Nice), social security measures for Community migrant workers (Article 42 EC), certain provisions on mutual recognition of qualifications and training (Article 47 EC) and culture (Article 151 EC), could be seen to ensure a form of super-legitimacy of measures adopted under those articles. The common theme, if there is one, seems to be that of particular political sensitivity in the areas receiving such special treatment, requiring the Community to tread very carefully.
For reasons which will be more fully explained below, it is possible to see a parallel between the sort of political sensitivity which justifies this special procedure in relation to culture (where the Community can only enact 'incentive measures' with harmonisation specifically excluded) and the area of contract law. Suffice it at this stage to say that Community intervention in contract law, particularly on such a broad basis as is proposed with the use of an Optional Instrument, would have cultural implications for the Member States.
Adding to this an advisory role for ECOSOC, this procedure would seem best to fit the twin requirements of institutional competence and democratic input set out by the Multi-level governance theory.
3: Aiming for 'best product' in legal basis -- the Form of Instrument
Another curious feature of the choice of legal basis is that of how it limits the type of legal instrument open to the legislator. Article 249 names five the different instruments of Community secondary legislation (Directive, Regulation, Decision, Recommendation and Opinion), each with its own individual legal effect. However, this classification is set to be replaced by in some senses a more traditional scheme of legal instruments in the Constitutional Treaty, whose proposals in this field are largely based on the travails of Working Group IX of the Convention. That Working Group proposed a more rational differentiation between instruments primarily on their 'legislative' or 'executive' purpose, a division based primarily on the notion of basic policy choice (choix politique de base). This idea distinguishes between the making of a policy choice (a legislative act) and the implementation of that policy choice (an executive act). For the present discussion it is important to note that rarely do Treaty articles themselves go so far as to take this basic policy choice but rather structure objectives to be achieved by whatever policy is eventually chosen. Using Article 95 as an example, the Article itself sets out the objective to be achieved by reference to Article 14 -- "progressively establishing the internal market" -- and structures the means by which this is to be done -- the harmonisation of Member States' laws. The basic policy choice remains to be made by deciding which Member State laws to harmonise.
Which legal instrument suits the Optional Instrument best?
To answer this question we must turn to some basic features of the proposed Optional Instrument.
The Optional Instrument is clearly a legislative rather than an executive act on either of the two alternative criteria for making this distinction (general application or the making of a choix politique de base). On the traditional 'general application' criterion it is essential that the Optional Instrument is potentially applicable to a general, unlimited class of persons rather than certain named individuals. The description of the decision as being "binding in its entirety upon those to whom it is addressed" indicates that Decisions in Community law are individual acts only.
The Optional Instrument is, despite its non-binding nature, envisaged as a norm-setting exercise. Opinions, on the other hand seem designed only to either express an institution's view on the application of existing norms  or as an intermediate stage in the development of new norms.
Perhaps most importantly, the Optional Instrument is intended to achieve a degree of uniformity in the rules applicable to a certain class of transactions. It is commonly argued that a Directive might fail to do this because of it lack of direct applicability i.e. the requirement that Member States 'patriate' it into national law by the adoption of national legislation whose details may vary from one Member State to another. Whilst past experience has indeed shown that Directives do not of themselves create a uniform regulatory regime, it has to be asked whether this is the necessary result of the Directive form itself or whether other factors come into play. It is true that the Directive form allows Member States a certain leeway in the determination of the substantive rules to be implemented, usually because of 'minimum harmonisation' clauses  (a feature of the 'New Approach' of Community regulation) which mean that within the confines of the general purpose of the measure a Member State is at liberty to impose more stringent standards than those set out. But case law has shown that when it comes to fundamental or structural provisions of Directives, the ECJ will not permit a Member State to vary its terms, even to the benefit of the consumer. The possibility of Member States implementing different sets of rules from one another under the guise of implementing an Optional Instrument Directive could be avoided by simply ring-fencing these rules within the structure of the Directive itself. The objective to be achieved by implementation of the Directive could be defined as making recourse to these rules available in a particular set of circumstances (parties involved in trans-border contracting of a particular type) and the Member States, when told to 'make it so' would not be able to alter them. The real issue here in terms of uniformity is one of uniform interpretation rather than uniform implementation. Can it be said that having the instrument as a Regulation rather than a Directive is more likely to offer this uniformity? On the one hand there is no need for implementing legislation, on the other hand most of the interpretation work is still done by national courts whose opinions may differ. The question then becomes one of putting in place a judicial structure which is capable of providing a definitive interpretation of the instrument's provisions. Such a question is, in my view, unaffected by the form of the instrument itself. The ECJ is in an equally good position to say what a Directive means as what a Regulation means. An extensive definitions section such as envisaged in the Common Frame of Reference proposed in the Action Plan would of course be a valuable help in achieving this, for either a Directive or a Regulation. The real distinction here between the Directive and the Regulation as appropriate forms for the Optional Instrument is one of presentation rather than legal effect and for that reason is bound up with questions of subsidiarity and proportionality which we will deal with at length below. The objection that the Regulation form would come "at the cost of robbing national systems of any choice as to how best to fit the EC rules into the existing national mould" seems, with respect, to miss the point. On any interpretation, the Optional Instrument creates an autonomous framework of rules. There can be no more question of fitting its rules into the national mould than there is of fitting the contract law of any other jurisdiction which might be named as the choice of law into the national mould.
Whilst wishing to avoid tautology, it is also crucial that the Optional Instrument be optional. Parties must be able to choose whether the rules apply or not. It is this requirement that brings to mind in many commentators the sole 'soft law' instrument existing in Community law -- the Recommendation. Weatherill  for example contemplates the use of the Recommendation form, so long as parties are offered the choice of whether to submit their contract to the provisions of the Optional Instrument (the obvious point being that the Recommendation, as a non-binding instrument is not capable of requiring parties to follow its rules). The Action Plan also envisages a straight choice between the Regulation and the Recommendation. I would submit that the idea that the non-bindingness of the Recommendation somehow 'matches' the non-bindingness of the Optional Instrument is misconceived. To begin with, we are talking about non-bindingness with regard to two completely separate entities. The addressees of the Optional Instrument are the contracting public at large. The addressees of Recommendations are Member States who may choose to act on their advice or not, as they see fit. There may be other reasons for preferring the soft law instrument of the Recommendation (as we shall see below) but it is too simplistic to state that it 'fits' because it is non-binding. A subtler form of this confusion is present in the objection that if a Regulation were to be adopted as the form of the Optional Instrument, this would bean unprecedented move in that it would be the first occasion on which individuals could choose whether or not to comply with its provisions. In my view, the primary obligation which a Regulation would impose would be to choose whether or not to submit one's contract to its rules. In choosing not to, one is complying with the Regulation just as much as if one had chosen to. The obligation is to choose rather than to arrive at a particular choice. In that sense therefore the a Regulation can be perfectly binding on individuals yet leave them the requisite choice.
What then can we draw from the above discussion? It seems, predictably, that no single legal basis is capable of simultaneously optimising all three aims -- accurately reflecting the objectives of the Optional Instrument, securing an ideal level of participation of all the interested political actors and enabling the employment of the most effective instrument of Community law available. It is therefore a question of compromise between these various aims, requiring the assignment of different weights to each.
From the point of view of the potential success of any Optional Instrument, particularly if it is seen in the context of a gradual shift towards the regulation of contract at the European level, it would seem essential to secure the maximum consensus among the Member States, no matter how modest the end product. Whilst the unanimity procedure guarantees (at least in theory) this universal support, it is of course feasible to employ a legal basis, such as Article 95, which requires only a qualified majority vote but to do so on the understanding that unanimous support will in practice be required.
The use of Article 95 would also allow the greatest flexibility in terms of the legal instruments available, allowing the legislator to 'change horses' midstream, as it were, should it seem expedient. It may also facilitate the development of a European contract law in the long-run to 'set a precedent' by the use of this more flexible legal basis.
As for achieving the 'best fit' in legal basis, it seems clear that the Commission has geared the discussion firmly towards the completion of the internal market, into which the protection of the consumer has been almost entirely subsumed. From a textual point of view we have seen that Article 94 is indisputably more precise in capturing the relationship between national rules of contract law and the internal market (one of 'directly affecting' rather than 'having as their object' the establishment and functioning of the internal market) but that in the absence of the consumer protection refinement which is present in Article 95(3) an element of the proclaimed policy behind the Optional Instrument is lost. An attempt, Canute-like, to turn back the tide of ECJ jurisprudence on this interpretative issue would seem pointless and so one must be resigned to the idea that Article 94 has fallen into desuetude.
In summary, it seems that the very real objections which exist to the use of Article 95 as the legal basis for the adoption of legislation to harmonise contract law in whatever way are simply not strong enough in practice to prevent it. As Emiliou comments,
"[The Court] will decide whether the measure falls within the area in which the Community has competence; it will formulate the objectives of the measure, and it will decide whether the legal basis of the measure corresponds to its objectives. All these questions involve so many imponderables that it will almost always be possible for the Court, if it wishes, to find grounds for upholding the measure."
Knowing this, the Commission loses incentive to restrict itself to the proposal of only measures which clearly fall within the Community's competence. The result -- a fluidity of legal basis doctrine to the extent that political expedience is easily accommodated.
Background to subsidiarity
A great deal has been written on the subject of the principle of subsidiarity in the European Union, mainly from what one might term an abstract, constitutional perspective of analysing the principle's potential to provide a useful criterion for allocating power to the various levels of a democratic, federal-style polity. It is not my intention in this paper to attempt to comprehensively summarise the immense amount of scholarship which surrounds the theory and practice of this principle. Instead, I hope to offer some observations on its utility in the context of the discussion on the harmonisation of contract law in general and the adoption of the Optional Instrument specifically.
At this stage it is perhaps important to distinguish this discussion from the foregoing analysis of the legal basis for the Optional Instrument. There is no doubt that the questions of the existence of Community competence to legislate in a particular field and the desirability of it exercising that competence are closely related. In his commentary on the Commission Green Paper of 2001 Weatherill observes that it is unsurprising that the constitutional implications of the harmonisation of contract law are framed in terms of subsidiarity rather than legal basis since the two questions "cover very largely the same ground and demand the gathering of the same type of material," and that "both are tied to the same issue -- the fixing of the limits of Community competence to act under the Treaty and therefore, by inevitable corollary, the residual scope of competence reserved to the Member States". However, to my mind, the questions are radically different in type, if not in terms of purpose. The question of legal basis is, as we have seen above, largely a positivistic legal-technical exercise, despite the pressure placed on it by the requirements of political expedience.
The subsidiarity question is much more a normative one of the fundamental idea of what the European Union is about. Legal competences may come and go but the questions raised by the idea that power, when shared, should be exercised by the lower tier of government will never cease to provoke speculation and debate. Perhaps this is the reason why, despite widespread dissatisfaction with the implementation of the principle there are few who would assign it to the scrap-heap just yet.
Before launching into the examination of how the legislative output of the harmonisation process would fare in relation to the subsidiarity principle, it is worth noting that the Commission has already made some moves towards fulfilling its conception of the demands of subsidiarity. The Amsterdam Protocol on Subsidiarity and Proportionality, requires it to "consult widely before proposing legislation and, whenever appropriate, publish consultation documents," obligations which were not lost on the Commission in drafting the Communication of 2001. That document began a wide-ranging consultation procedure, encouraging participation by Community institutions (European Parliament and ECOSOC in particular), national governments and a broad category of 'stakeholders' encompassing all those with an interest in the future of contract law in Europe including legal practitioners, academics and business (both large and SMEs).
1: Fearing subsidiarity's failure (in this context)
The uncertainty surrounding the application of the principle of subsidiarity is in some ways inevitable given the problematic formulation of the principle in Article 5 of the Treaty:
"In areas which do not fall within its exclusive competence, the Community shall take action only if and in so far as the objectives of the proposed action cannot be sufficiently achieved by the Member States and can therefore, by reason of the scale or effects of the proposed action, be better achieved by the Community."
Even at first glance this formulation raises a number of crucial problems. What are the areas within the Community's exclusive competence? Are the objectives of the proposed action limited to the stated objectives of the legal basis on which the measure is adopted or can they include all permissible Community objectives or, still wider, can they include anything which the measure itself states is its objective? Is there a logical link between Member States not being able to achieve an objective and the Community being better able to achieve it, as is suggested by the word 'therefore'? Some of these questions are answered in part by the Amsterdam Protocol but the application of the principle is far from clear.
It is submitted that the principle, as currently applied by the ECJ, would not pose a barrier to the introduction under Article 95 of an Optional Instrument in the area of European contract law. In the recent Tobacco Control Directive  case, the Court acknowledged that the regulation of the internal market was not an "exclusive competence" of the Community (N.B. the notion of exclusive and shared competence which some considered a vestige of pre-Maastricht negotiations now looks set to be formally entrenched as part of the law of the European Union in the event of the Draft Constitution being approved at an Inter-Governmental Conference beginning on the 4th October 2003 in Rome). However, its formulation of the 'comparative efficiency' test in relation to Article 95 (could the objective be equally well achieved by the Member States acting alone?) meant that no measure which had validly used Article 95 as its legal basis could be found in breach of the subsidiarity principle. As Advocate General Fennelly in the Tobacco Advertising  case realised, the ostensible aim of Article 95 measures is always to eliminate barriers to the internal market existing because of un-harmonised laws and this will always be better achieved at the Community level so the subsidiarity test will always be satisfied. A test which cannot be failed may as well not apply at all. So, to all intents and purposes, AG Fennelly's statement that subsidiarity does not apply to Article 95 remains true.
It is not clear that the principle would have any more bite in relation to the adoption of the Optional Instrument under any of the other legal bases examined above. Its application can be immediately excluded as regards Articles 43-45 TEU and Article 293 EC as neither of these fits the pattern of Community exercise of a shared competence. The application of the principle to Article 94 and 153 is likely to be closely analogous to that in relation to Article 95. The power to take measures in the field of judicial co-operation in civil matters under Article 61 EC seems more obviously to fit the shared competence template and so might invite a more restrictive application of the subsidiarity principle.
A further deficiency in the operation of the principle in this context is the often observed problem that, as far as the Treaty is concerned, subsidiarity operates only as between the Community and the Member States. Usually this is raised in the context of a desire to release the potential of the principle to empower subnational entities such as local government and in particular the German Länder. However, there is a concern here that, were an intergovernmental solution outside the framework of the European Union to present itself, the subsidiarity principle would be powerless to prevent a disruptive rival plan being pursued in the Union. De Witte, writing on the practice of inter se agreements between Member States notes the existence of a Commission document of 1992 which states that "subsidiarity surely also means not legislating at Community level when action is already being taken at international level and proving just as effective as Community action" but that this implication of subsidiarity had disappeared by the time of the TEU and the drafting of the Amsterdam Protocol. It is worth considering whether one could go even further and say that the principle should apply to exclude Community legislation where a planned (but not yet operational) international agreement would be more suited to dealing with the problem. Against this, De Witte considers that the 'equal effectiveness' requirement of subsidiarity should take into account the comparatively open and democratic procedures offered by the EU mechanism which do not exist in the context of traditionally-concluded international agreements.
2: Rethinking subsidiarity as an agglomeration of substantive values
It is submitted that rather than stick to a rigid interpretation of the boundaries of the principle of subsidiarity in the style of the ECJ or to a mechanistic, formal fulfilment of the guidelines set out in the Amsterdam Protocol, the Community institutions should look instead to the substantive values which the principle aims to protect and see how these would be affected by the adoption of an Optional Instrument. Bermann  usefully provides a list of such values (to which one could of course add one's own formulations): self-determination and accountability, political liberty, flexibility, preservation of identities, diversity and respect for internal divisions of component states. Such a list inevitably involves a great number of overlaps and contentious classifications but does provide a useful framework for the concretisation of exactly what is at stake in the process of shifting the locus of authority to regulate contract law (whether as a whole or only in certain aspects).
Self-determination and accountability
These two features are essentially the two sides of the policy-making process: the initial creation of the policy and then the possibility of expressing one's level of satisfaction with that policy once implemented.
In relation to contract law, it must be considered what level of government is best suited to fulfilling both these requirements. Might it be the case that the relevant actors (or 'stakeholders' in Commission parlance) have a greater voice at the Member State level than they do at the Community level? Is it also the case that national governments are able to be more (and more democratically) responsive than the Community institutions? These are obviously very far-reaching questions which are largely beyond the scope of this paper. However, it is worth bearing in mind Wagner's wonderfully cynical reality-check on this point:
"to suggest that 'the people' would vote a government out of office for the reason of it inaugurating an inefficient contract law or leaving such inferior law in place, is simply absurd. People care about other things, if they care at all, and politicians behave accordingly."
At the most, I think we can say that an Optional Instrument could arouse some sentiment among those who are predisposed towards thinking ill of all things to come out of Brussels but that it would be a relatively minor consideration compared to the bogeymen of the European Defence Force and the Euro (to choose two British preoccupations at random). In terms of accountability, one must concede that the regulation of cross-border contracts is not generally a topic on which members of any parliament receive hundreds of mailbags. It seems difficult to sustain any objection from that specific point of view to transfer of authority to Brussels.
Bermann considers this value to be served by preventing the undue concentration of power in the same governing hands. The subsidiarity principle aims at contributing to the diffusion of authority among different levels of government within the European Community and may in this way serve as a check against political oppression and tyranny.
Whilst this concern may seem far removed from the usual considerations surrounding the regulation of contract, one might take into account the possibility of further intervention in private law using the Optional Instrument as a precedent or foothold for the Community (driven by the Commission) to assert regulatory authority in this area. It is not difficult to imagine a scenario where failings in the operation of the Optional Instrument are attributed to conflicts with remaining national private law. Some commentators have explicitly made arguments based on a potential 'discrimination' aspect of a code limited to cross-border transactions and hinted that to ensure real equality of treatment of parties of different nationality in contracting, not only must substantive rules of contract be regulated at the European level but procedural rules also. If such arguments are followed through to their logical conclusion, the dangers of extreme centralisation become very real.
Subsidiarity permits a community to reflect more closely the unique combination of circumstances -- physical, economic, social, moral and cultural -- that obtain at any given moment. In this way it is predicated on the notion that such differences exist and that they are relevant to the way in which people are governed. In the area of contract law, the project of harmonisation seems to be based on exactly the opposite notion - that differences, even if they do exist, should not affect the rules of contract applicable to different groups of people. This ideology may be restated as the universalism of law: the idea that it is possible to draft, on the basis of Reason, a system of laws which will be fair and equally suited across a range of peoples and indeed a range of times. This idea is best expressed in an article featuring in a draft version of the Code Civil (but later dropped), stating that:
« Il existe un droit universel et immuable, source de toutes les lois positives; il n'est que la raison naturelle en tant qu'elle gouverne tous les hommes ».
This may be considered along with Voltaire's criticism in the Encyclopédie of existing codifications:
« Il n'y a aucun bon code dans aucun pays. La raison en est évidente; les lois ont été faites à mesure, selon les temps, les lieux, les besoins. »
It is beyond doubt that this Enlightenment philosophy was at the heart of the codification movement of the nineteenth century. The question is whether it is suited to the modern circumstances of a pluralistic European Community which, though it has done much to try to integrate itself into a cohesive whole, is obliged practically, politically and morally to allow for regional variations. It would seem to go against the grain of Community policy to prevent these variations having any impact on the content of law.
The crucial question is of course whether and to what extent differences in the circumstances of Member States militate in favour of, or even require, differences in their laws of contract. Of particular relevance here are the mandatory rules of contract, such as those on illegality/immorality and bargaining in good faith which may be said to reflect different ideas of acceptable standards of social behaviour and business practice.
Preservation of Identities
It is argued that promoting the creation of legislation at a level as close as possible to the citizen enables local populations to preserve their sense of social and cultural identity. If it is accepted that the way in which contract law is regulated forms at least some part of this overall sense of identity particular to the peoples who go to make up the European Union, then one must at least have this in mind when innovating in this field.
The general feeling of those who argue that the way in which contracts are regulated (and the regulation of private law in general) bears a direct relation to a community's cultural identity is that given the avowed policy of the Union to maintain the diversity of the many ethnic and social groups which go to make up the Union, any move to somehow 'homogenise' these groups should prima facie be avoided. One of the most outspoken academics at the heart of this 'law as culture' movement is Pierre Legrand who has written extensively to criticise any moves towards obliterating the difference which exists between, in particular, the Common law countries of the European Union on the one hand, and the Continental jurisdictions in the Civilian tradition. The central theme of his writing is that the different 'mentalités' at the heart of these different traditions are not only incompatible but also so deeply rooted in the national characters of these nations that any attempt to alter them would be nonsensical and fruitless. In particular, he argues that the introduction of codified elements into the private law of Common law countries would be to give way to the unsustainable assertion of superiority of one mentalité over the other and would be to ask judges, barristers, solicitors and academics "to surrender cultural authority and to accept unprecedented marginalization within their own culture."
Several more moderate commentators also share Legrand's concerns. Hugh Collins for example characterises the spectrum of opinion as at one extreme equating private law with language in terms of cultural importance and at the other seeing private law as like a train timetable, "a set of cultural rules which could be replaced by its functional equivalent without any challenge to the cultural identity of the Member States," placing himself somewhere near the former end. Collins doubts whether a single workable code common to the Member States is a realistic prospect, owing to the existence of fundamental conceptual differences between systems "which reflect different justifications for the imposition of legal obligations and the creation of rights" which themselves "reflect differences between the moral and political foundations of different private law systems". For Collins,
"it is a mistake to regard the law as an autonomous institution, which can be reformed and reconstructed merely by reference to rational choice. It is connected both to moral values in the community and to economic institutional arrangements."
He is not however altogether gloomy for the prospects of 'resolving the tension at the heart of the Treaty of European Union' between market-building and cultural diversity  but thinks that "harmonisation can only be achieved by Europe itself developing independent supra-national cultural norms which will inform and guide the rules governing economic transactions between citizens." Given that the it is at least purportedly founded upon such a norm -- the protection of the consumer -- the Optional Instrument may be thought to fulfil this condition. Joerges however, drawing parallels with the current constitutionalist debate raging in the Union, seems to argue for something even more tangible than the propagation of shared cultural norms when he argues against the codification of private law in the absence of a state.
On a more concrete level, it is argued that the national codifications themselves have achieved a sort of fetishistic status as cultural icons in their own right. Schmid  raises, though does not explicitly endorse, this argument, pointing to the longevity and durability of these works and their status in the eyes of some as 'cultural monuments'. Drobnig, whilst also wary of how far the argument can be taken, acknowledges the strength of this sentiment among both academics and the wider community.
This idea that private law is an integral part of national or personal cultural identity is not however universally shared. When considering the elimination of legal pluralism inherent in the harmonisation of private law, Alpa considers that
"[T]he elimination is not so important. Certainly, the rules contained in individual codes will no longer be applied individually, but they will continue to survive in the historical culture of the individual countries. It is of course true that the legal system is one of the fundamental characteristics of a country, but it is also true that one can easily renounce this and that its existence and importance is obvious only to jurists. Realistically speaking it is not considered an identifying characteristic by the ordinary citizen".
Here we have a direct conflict between the two camps -- Alpa views legal systems as capable of being renounced, interchangeable (the train timetable view of law) whereas writers such as Legrand flatly deny even the possibility of such an alteration in mentalité.
Alpa does to some extent seem to be trying to have his cake and eat it when he assigns a cultural significance to a project such as a European Civil Code by saying that "Each one of us ... by studying, interpreting and applying the unified Civil Code will be and feel more European." It seems inconsistent to claim that a European Civil Code would represent a boost for European identity and yet deny a strong link between national identity and the national regulation of private law.
But where does all this leave us in relation to the Optional Instrument specifically? It is perhaps in this area which one is most likely to come unstuck through generalisation and vague polemic. The arguments against a comprehensive, binding, highly visible codification of private law at the level of the Union designed to oust the authority of the Member States and wipe away hundreds of years of jurisprudence and development do not necessarily have any bearing on the relatively narrow aim of a non-binding codification of only contract law and only then applicable to transactions with a cross-border element. Collins observes that "If we cannot disentangle the market, as a suitable field for harmonisation, from aspects of cultural identity, to be preserved for local determination, then the tension at the heart of the Treaty of European Union cannot be resolved." But does the Optional Instrument as just described not go a great way to achieving this disentanglement? The limitation of scope to transactions which do not inherently have any 'nationality' as such must be seen as a major concession to cultural sensibilities.
For my own part, I accept a limited notion of the relationship between private law and cultural identity. My reservations derive from scepticism of any fixed and shared notion of national cultural identity in any form, of 'ties that bind' one Englishman to another, irrespective of class, education, background, experience etc. To squeeze 'a Common law approach to the regulation of contract' somewhere below a love of fish and chips and obsession with the weather would seem to be frivolous in the extreme. In terms of personal cultural identity the argument holds up better -- that lawyers at least have a very definite sense of themselves and their own role in society which can be largely shaped by the type of legal system in which they operate. But it is important to see such arguments in context. Alpa is right in the sense that for most people the exact form of contract law is largely irrelevant. The broad lines may have some general significance, such as the idea that a promise one has been misled into making should not be enforced or that in some circumstances a consumer should be given special treatment in order to make up for his disadvantage when faced with rapacious tradesmen. But we should not be fooled into thinking that every Frenchman will take up arms against any initiative which dents the authority of their beloved Code.
At least two different positive attributes of diversity can be identified in this context. The first, which one might describe as 'instrumental' diversity, argues that public problems are sufficiently complex, and policy-makers' judgment is sufficiently fallible, that rarely is the one right answer obvious -- even in the rare case where a single solution, once discovered, turns out to suit every Member State. In such circumstances it is advisable to permit the continued existence of a number of 'experimental laboratories' (in this case contract law jurisdictions) so that the experience of each will inform not just their own policy choices but those of other Member States also. This idea of protecting autonomous policy innovations is central to the notion of competition between legal systems which expresses the view that in certain circumstances a 'market' in legal rules can develop whereby capital moves to the jurisdiction which is seen to have the most favourable set of legal rules.
However, in the contract law context, this sort of competition, based on a geographical movement into the favourable jurisdiction seems of little application. As Wagner says, "voting with one's feet is not an option for most European citizens and firms" meaning that the fear of substantial relocation of people or businesses is not realistically an incentive to adapt national contract laws. Nor, it may be said, is there the same immediate positive incentive involved in contract law, i.e. highly visible tax revenue, which went towards producing the 'Delaware effect'. Inevitable linguistic differences also reduce the possibility of regulatory competition through choice of law clauses.
However, even if those more tangible effects of regulatory competition are absent in the case of contract law it is nevertheless arguable that the existence of a number of jurisdictions within Europe has enabled judges and legislators to draw on tried and tested solutions to problems in order to provide answers in novel situations. Again, Wagner encapsulates this in the view that "In most cases...the beneficial legal interplay between one jurisdiction and another has not been the work of an invisible hand but rather of the very visible writings of great scholars who were impressed by the blessings of a foreign legal rule."
Detractors from this argument in favour of 'instrumental diversity' are keen to point out that so-called 'borrowings' between legal systems are relatively few and far between and their benefit uncertain. Lando, for example, argues that the maintenance of the many 'gardens' of European private law, with the occasional peer over the fence at what neighbouring jurisdictions are doing, is a waste of effort and that better things could be achieved if only resources were pooled.
This brings us quite neatly on to what I would term the 'non-instrumental' aspect of diversity -- the idea that difference is in itself a virtue and has an inherent value which we should be slow to throw away. It is perhaps more fundamental (and hence more difficult to express) than the instrumental form of diversity and is closely linked to aspects of preservation of identity and flexibility. In some cases it requires turning the question of uniformity on its head -- why is it thought that there should exist a single best solution to any given problem? The idea of the 'single right answer' in law is not universally accepted. Most notably, its rejection may be seen as being at the heart of common law reasoning and the intellectual honesty of the individualised opinion in the higher courts. In a wider context, those who promote diversity are often implicitly attacking what they see as an unjustified prejudice in favour of uniformity. At the heart of what is seen by some as a mania for uniformity  is, in my view, a subconscious equation of uniformity and order, the manifestations of which in the outside world are endless and potentially cataclysmic. It is worth remembering that chaos is not the state of infinite difference but of infinite sameness -- order is the state of differentiating between entities rather than combining them into one single, uniform, shapeless mass. Any argument that the achievement of uniformity is equivalent to the achievement of order should therefore be viewed with suspicion. But overall, the concept of diversity is perhaps more concerned with the question of what is lost (rather than what is gained) when differences between people, cultures and legal systems are removed. Such things include tolerance (when everyone is the same, there is no-one to be tolerant of) and the plain fact that uniformity tends to be simply less interesting than diversity. Many academic lawyers seem to have forgotten this, or rather have selflessly sacrificed their own function -- to compare -- for the good of Europe. To return to the Joint Response of the Commission on European Contract Law and the Study Group on a European Civil Code, is there not something profoundly chilling in the metaphor chosen when it is argued that "the fact that substantially the same legal wine may be found in different shaped bottles as business activity moves from jurisdiction to jurisdiction is not enough to create the right environment for business in a continental market"? Who can wish to see not only the same wine consumed across Europe but for it to come in the same shaped bottles? It is heartening to realise that some acknowledgement of the virtues of plurality is to be found in the Treaty with the commitment in Article 152(4) EC that:
"The Community shall take cultural aspects into account in its action under other provisions of this Treaty, in particular in order to respect and to promote the diversity of its cultures."
This 'cultural integration clause' entrusts to the EC institutions the task of strengthening the cultural dimension of EC law (i.e. integrating cultural considerations into EC law). Measures that may have a cultural impact give due weight to the respect and promotion of cultural diversity.
The difficulty lies in determining to what extent this argument is applicable to the adoption of the Optional Instrument. It is true that of itself it would register very low in the 'cultural impact' Richter scale but one may be justified in assessing it in terms of its wider effect of establishing precedent or foothold in an overall strategy of harmonisation. If that approach is taken then its impact on the diversity of the Union is potentially boundless.
Respect for Internal Divisions of Component States
As mentioned above, the subsidiarity principle has often been vaunted as the protector of the interests of sub-national entities and is therefore championed by the Committee of the Regions in particular. The German Länder have also been directly concerned with the application of the principle, largely because of the phenomenon by which power formerly allocated to them in the Grundgesetz has been mysteriously accrued to the European institutions. A vigorous application of the subsidiarity principle is thought to be a useful tool in halting or at least slowing down this process.
It may be thought that this consideration has little bearing on the matter of contract law given the fact that it is typically regulated at Member State level. However, as is frequently the case, the United Kingdom provides something of an exception to this rule. The United Kingdom alone (excluding dominions and dependent territories and anomalies such as the Isle of Man) comprises three distinct jurisdictions: England (and Wales), Scotland and Northern Ireland. For our current purposes it is only necessary to point out the differences between the first two of these -- England and Scotland. The peculiarities of Scots private law, usually classified as a 'mixed system' or 'hybrid' of the common law and civilian traditions, are well known  and so we need only note here that the doctrines of consideration and privity are wholly absent in Scots law (though they are gradually losing their grip on English law also) and the system of remedies, in particular the circumstances in which specific performance (termed 'specific implement' in Scotland) may be granted are radically different. Nor does it bode well for the Optional Instrument that a project under the auspices of the English and Scottish Law Commissions (two quite separate law reform bodies) to develop a common code of contract for the two jurisdictions was caused to be abandoned in 1973 in the light of the Scottish partner being "increasingly concerned at the areas of disagreement that still existed on fundamental issues".
What concerns us here is the extent to which the differences in contract law which exist at a subnational level are important for the protection of some of the values which we have outlined above, in particular cultural diversity and the preservation of identities. The Scots perhaps more than most identify their national character by what it is not, in particular that it is most definitely not English. There seems some force in the argument that this ability to define one's character by opposition would be dented by the unification of the contract law of the two countries, particularly, as we have noted above, for those in the legal profession. The recent devolution of Scotland and the consequent accretion of powers to the Scottish Parliament emphasises further this problem and brings it into line with the German experience. If Scotland loses the ability to regulate its own contract law independently, then what use was it to secede from Westminster control in the first place?
However, it must be stated that these concerns are much reduced by the nature of the Optional Instrument, in particular its application to cross-border contracts only. The differences between the two regimes of contract law will (at least for the moment) be permitted to remain, and along with them the capacity to assert one's own national or regional identity through the individuality of one's law.
What we have repeatedly seen above is that there do exist quite tangible concerns in relation to what effect the general harmonisation of contract law could have on the values protected under the subsidiarity principle, particularly the 'soft' values of diversity and preservation of identities, whose value is impossible to determine in monetary terms. However, we have also seen that those concerns are more or less alleviated by the cautious scope of the Optional Instrument as it is currently understood. What remains to be seen is whether the Optional Instrument itself is seen as the end or merely a new beginning in the annals of European Union intervention in private law, the answer to which one can merely speculate upon.
Whereas the subsidiarity test asks the question 'should the Community exercise its power in this instance?' the proportionality investigation is aimed at determining whether the legislative action proposed goes further than can be justified by the problem addressed. The most commonly referred to statement of the proportionality principle in the Treaty is contained alongside that of subsidiarity in Article 5 EC where it is stated that:
"Any action by the Community shall not go beyond what is necessary to achieve the objectives of this Treaty."
A certain amount of judicial interpolation was required to build a functioning proportionality principle out of this somewhat laconic statement, which was largely achieved in the BSE case.
In the BSE case the ECJ set out a three-stage test, according to which measures adopted by Community institutions should:
This three-stage test provides a useful framework for discussing the proportionality of a potential Optional Instrument.
1: Appropriate and necessary in order to attain the objectives legitimately pursued
What is clear from this verbal formulation of the first limb of the BSE test is that the Court is not engaging in an abstract test of necessity of the measure. This is understandable given the fact that in real life there is no such thing as being abstractly 'necessary'. A legislative measure may further an objective or not; it may even be a logical prerequisite of the attainment of a certain goal. What it cannot be is somehow 'necessary' in an absolute sense; there will always be questions over the desirability of pursuing a particular goal and the existence of different means of doing so. The Amsterdam Protocol does aim at avoiding such philosophical traps by concretising the proportionality principle into some workable guidelines but these themselves are less than perfect, most notably because they fail to clearly distinguish the two principles at play in Article 5 EC.
However, even if we cannot make a definitive judgment on the abstract necessity of harmonisation of contract law, we can at least state that there is concrete evidence that total uniformity of law is not required for a geographical area to function tolerably well as a single market. We have noted above the differences between the laws of Scotland and England -- two jurisdictions within a single Member State which happily co-exist. Sir Otto Kahn-Freund made a more general point when he stated that:
"The selection of areas of law to be harmonised must be dictated by practical requirements and by nothing else. The harmonisation of fundamental principles of private law, of the general principles of contract, tort or property, of family law or of the criminal law does not belong to these requirements. It is not needed for a functioning and successful economic community. It would not even be a requirement for a political community, not even for a very close federation."
Though this focuses our attention on the fundamental point -- do practical requirements necessitate the adoption of the Optional Instrument -- it does not automatically provide an answer. It may be possible to get by without such uniform law, but to decide whether it is preferable to do so we need to look at the current state of practical requirements which may have changed significantly since the writing of that passage. Indeed, Basedow  makes a deft point as to the changing perception of what is and what is not necessary for the functioning of the internal market when he points out that the Treaty of Amsterdam empowered the Community to harmonise national legislations in the field of conflict of laws on the basis that such harmonisation was "necessary for the proper functioning of the internal market" (Article 65). If that was true for national laws which merely refer a case to a competent legal system without providing for a substantive solution, then it may be thought that the substantive private laws of the Member States are even more likely to impede the functioning of the internal market and their harmonisation is hence even more necessary.
Of most obvious relevance to our current discussion is Article (6) which states:
"Regarding the nature and the extent of Community action, Community measures should leave as much scope for national decision as possible, consistent with securing the aim of the measure and observing the requirements of the Treaty. While respecting Community law, care should be taken to respect well established national arrangements and the organisation and working of Member States' legal systems."
In effect, this passage says no more than that the Community should not tie the hands of the Member States (unless it feels that it must in order to achieve the objective it has set itself) and that it should respect the status quo (unless Community law militates in favour of changing it). Whilst the regulation of contract law is surely a "well established national arrangement", the question before us is precisely how much it must be changed in order to accommodate the precepts of Community law. On this point the Protocol offers little assistance.
The ECJ's jurisprudence, in particular in the Tobacco Control Directive case  indicates that the Court favours what might be termed a 'hands-off' approach to proportionality, almost treating it as an abuse of powers safety-net, saying that:
"...the Community legislature must be allowed a broad discretion in an area such as that involved in the present case, which entails political, economic and social choices on its part, and in which it is called upon to undertake complex assessments. Consequently, the legality of a measure adopted in that sphere can be affected only if the measure is manifestly inappropriate having regard to the objective which the competent institution is seeking to pursue."
What is unclear is how in the context of harmonisation of contract law this 'hands-off' style would fit in with the principle laid down in Keck  that mere 'selling arrangements' were excluded from the ambit of Article 28 i.e. that they did not present any threat to the internal market (or at least not such a threat as to justify the striking down of national legislation which established them). Is not the regulation of contract law a form if not of 'selling arrangement' then at least an analogous circumstance of the individual regulatory environments of the Member States which, though they might restrict the overall volume of the movement of goods and services, do not do so with a discriminatory intent? Keck may not be authority for the proposition that harmonisation of contract law regulation is unnecessary but it does suggest that the question should be looked at from the reverse perspective: if it is thought necessary and appropriate to harmonise contract law, how many other forms of national regulation on 'selling arrangements' and suchlike would logically also come within the internal market ambit? Are we then left with a situation where only those areas which are specifically excluded from harmonisation (most importantly taxation but famously also public health protection, culture etc.) are outside the internal market's purview? If that were the case, then the proportionality principle would have singularly failed to make any meaningful distinction between the 'necessary' from the 'unnecessary'.
That having been said, it is clear that the Commission has taken pains to comply with the cautious approach to legislation which the proportionality principle urges. The Optional Instrument can be seen as a European Civil Code pared down to the bare minimum, or rather the maximum which is thought to be directly justifiable by reference to the stated objective of the measure, namely the improved functioning of the internal market. The Commission seems prepared to exclude from its scope business to business sales which are already provided for by the CISG, with of course the exception of the UK and Portugal. It has not however at this stage taken up Bonell's suggestion that contracts known only to some rather than all jurisdictions could on logical grounds be excluded from any attempted codification. The limitation of the instrument to cross-border contracting is logical from an internal market perspective in that it is the movement of goods, services, persons and capital across borders rather than within a domestic system with which the Treaty is primarily concerned. However, this distinction does pose problems of identifying when a contract is a 'cross-border' one, particularly in the field of online transactions, and raises the problem of at least apparent discriminatory treatment of parties based on the nationality of either themselves or their co-contractor.
The optional nature of the proposed measure can also be seen as a concession to proportionality; it seems logical to 'test the water' by legislating in a non-binding fashion rather than plunging in head-first with mandatory legislation. However, it is argued that such a move seriously undermines the effectiveness of such a measure, citing as a precedent the 1964 Hague Convention relating to a Uniform Law on the International Sale of Goods. That Convention allowed signatory states to make the application of that Uniform Law subject to a positive choice by the parties. The United Kingdom, having applied such a condition, has yet to report a single instance of a contract in which the parties have chosen the Uniform Law to govern their contract.
The form of the instrument, as well as a possible decisive factor in the choice of legal basis, is also crucial in complying with the proportionality principle. As Article (6) of the Amsterdam Protocol states,
"The form of Community action shall be as simple as possible, consistent with satisfactory achievement of the objective of the measure and the need for effective enforcement. The Community shall legislate only to the extent necessary. Other things being equal, directives should be preferred to regulations and framework directives to detailed measures."
Really only the third of the above sentences carries any significant legal meaning. The first simply expresses the idea that it is preferable if one's legislation is understandable and the second falls head first into a logical loop. The third however, stating a preference for the less intrusive measure, ceteris paribus, hits the nail on the head; would a Directive (or a Recommendation for that matter) achieve the objective of the Optional Instrument equally as well as a Regulation? As I have argued above, the typical objection to the Directive form -- that it would leave too much potential for divergence in practice -- can be avoided through careful drafting. Conversely, the perceived advantage of the Recommendation -- that its non-bindingness somehow matches the Optional Instrument -- is misconceived. Nevertheless, if it is thought that sufficient take-up of the Optional Instrument can be achieved through the Recommendation form, then it should be preferred. Like the telephone, the Optional Instrument becomes more valuable and effective the greater the number of participants. Unless the Commission is confident that a Recommendation will be acted upon to the extent necessary by all Member States (by which I mean it is sufficiently advertised and promoted in the legal community -- the ultimate choice of whether to use it or not of course remains with the parties to the contract) then a 'harder form' capable of some level of legal or political coercion, even if only a Directive, should be preferred.
One question which remains over the necessity of the measure is that concerning its non-sector-specific application. This is justified in the Joint Response on the rather thin grounds that "we consider it to be a safe assumption, supported by anecdotal evidence that significant cost factors are involved and that these cost factors are operative in practically all sectors of the market economy." Such anecdotal evidence as may exist seems to be contradicted by the fact that there are clearly some sectors, such as the financial services sector, which are hotly in favour of moves to facilitate cross-border contracting whereas other groups are indifferent or even opposed. It is of course valid for the Commission to propose a measure which will benefit some sectors more than others but if it is to be non-sector-specific then it still bears the responsibility of showing that it benefits everyone in some way. Proportionality would dictate that until it does so it will have failed to justify the move from pointillistic intervention to general legislation.
2: Recourse to the least onerous appropriate measure
In fixing the debate on an Optional Instrument limited to cross-border contracting the Commission has of course explicitly rejected at this stage the most onerous of the options originally discussed in the Communication of 2001, namely a binding codification not only of cross-border contract law but of patrimonial law, domestic and international, as a whole. Indeed, one could hardly describe the Optional Instrument as being onerous on the Member States at all -- simply making it available as a choice of law requires no more than an addition to Article 3 of the 1980 Rome Convention on the Law Applicable to Contractual Obligations.
Realistically, the only less onerous measure would be no intervention at all, i.e. Option I of the Commission Communication of 2001. This option of leaving the improvement of the functioning of the internal market to the market itself was dismissed by a large majority of respondents to the Communication of 2001 as inadequate to solve problems in relation to consumer contracting in particular. In effect, given that it has been decided that some form of legislative action is required, the Optional Instrument seems the very minimum, both from the point of view of the Member States (who will have a minimal role in its implementation) and from the point of view of the ultimate 'consumers' of the law (who are under no obligation to comply with it at all).
3: The disadvantages caused are not disproportionate to the aims pursued
This limb of the proportionality test is again less rigorous in practice than it might seem at first sight. A great deal of leeway is afforded the legislator by the weighing of the disadvantages against the aims pursued, rather than against what is likely to be achieved by the measure. A court is obviously poorly placed to engage in speculation as to the likely outcome of a measure and indeed it would perhaps be an inappropriate incursion on the legislative function for it to do so. All it can do is see if on the face of the measure there is a great discrepancy between the force of the measure and its stated aim.
The policymaker (in this case the Commission) on the other hand must take a more realistic approach and apply the somewhat stiffer test of whether the likely costs outweigh the likely benefits of a measure. In this instance the costs are diverse and difficult to quantify. They include such obvious things as the time and expense invested in the FP6 Research programme which is to be charged with the task of coming up with a draft of the instrument. One must also take into account the effort required to bring the instrument to the legislative stage, both in terms of the civil servants employed to fine-tune the document and in terms of the time spent on it by the legislative institutions at the expense of other projects. More controversial cost factors include the litigation costs necessary to 'put flesh on the bones' of a bare code and the putting in place of the necessary judicial structure to cope with such litigation. This latter question seems at this stage to have received no attention from the Commission whatsoever. It clear however that the interpretation of the meaning of a Community instrument (which after all is intended in part to act as a rationalisation of interpretations of existing Community measures) should prima facie fall to the ECJ. There is no doubt that this would require some fairly serious restructuring; the ECJ in its current state is struggling to cope with its existing caseload, despite the innovation of the CFI as a 'safety valve'. The most feasible solution seems to be the setting up of a specific private law chamber or senate, perhaps in the context of a much-needed general overhaul of the ECJ's structure.
But what are the likely benefits of the Optional Instrument? We have looked above at the transaction costs arguments around contract law harmonisation but these only really give us a 'best case scenario' of the Optional Instrument's effect. There are grave doubts about how widespread the use of the instrument would actually be, in other words, whether it would make any difference at all. The Optional Instrument must present real advantages and incentives in order to overcome the inertia in both business activity and the legal profession which either rules out cross-border contracting to begin with or advises on a national law (usually one's own) as the appropriate choice of law. That inertia is in part caused by the fact that the Optional Instrument implicitly depends on a form of competition between legal rules and, as we know, true competition is predicated on complete information -- information which is expensive to obtain, particularly for the consumer or SME. How are those groups to find out whether the Optional Instrument is preferable to their own or a foreign law, if not through potentially costly consultations with practitioners? More fundamentally, the instrument is likely to have very few positive selling points (apart from the central one of being an inherently neutral, mutually agreeable set of rules) and a whole host of significant drawbacks from the point of the consumer (uncertainty of interpretation, undiscovered lacunae, uncertain interaction with the national legal systems  -- purely and simply, its novelty). If the Optional Instrument is to prove anything other than a rather expensive and troublesome damp squib, it will need to make the transition from a clever academic exercise to a valuable tool in cross-border contracting. Whether it can remain genuinely neutral and at the same time clearly superior to any of the existing national legal systems on offer remains to be seen.
IV. CONCLUDING REMARKS
Can we conclude that the primary law conditions are in place for the adoption of the Optional Instrument? I think, tentatively, that we can. The jurisprudence on the legal basis for internal market measures is perhaps the best demonstration possible of the received wisdom that what the law is does not matter, it is what the judges say it is which is of importance. That is not to level any accusation of bad faith at the august body that is the European Court of Justice. It is simply to repeat the observation that pressure to further the ideal of integration may in some instances have led the Court to develop a jurisprudence favouring a generous interpretation of the powers of the European institutions. When the Member States acted as both the formulators and the addressees of legislation, such an interpretation was perhaps unobjectionable. But as the Union moves away from the intergovernmental approach and develops an autonomy of its own, some of the cut corners may come back to haunt us.
Nevertheless, even if the rules on legal basis may need to be 'finessed' in order to allow the passage of the Optional Instrument, one cannot deny that a great deal of effort has been expended to comply with the constitutional safeguards of subsidiarity and proportionality. The sort of legislative intervention which the Optional Instrument is likely to be -- limited in scope, only binding on those who choose so to be bound, flexible as to its interaction with national mandatory rules -- is not something which will cause a great outcry in the legal community, even less so in the public at large. However, we should not be fooled into underestimating its significance. All legislators operate on the 'give us an inch and we'll take a mile' principle so it is perhaps unfair to single the Commission out for criticism. But one cannot fail to be struck by the stratagems employed in order to further policy goals. The Tobacco cases, if nothing else, show how a policy, once it has gained momentum, can knock down all barriers before it. Not long ago, the Commission intimated that it will employ its powers in the health and safety at work sectors in order to pursue that same policy. Many will praise the Commission's dogged pursuit of its goals and disdain for merely technical obstacles but as lawyers we should be wary of the breaking of rules, even in a good cause, for it weakens us when we seek to enforce those rules in more balanced situations.
That having been said, the next stage is to look at what must be done to make the Optional Instrument a success. To begin with, it must be accepted that it is inherently a political as well as a legal-technical enterprise. It may not seem so and indeed there are probably fewer votes in the regulation of cross-border contracting than in any other plank of private law. Its importance lies not in its direct consequences but rather in the ripples which it will send through other parts of private law and further, into the realms of public and regulatory law. As Duncan Kennedy explains, "what is at stake, politically, in technical discussions is a set of quite indirect effects on the persuasiveness of positions in other, non-technical, domains, domains where there is a long running conflict between political points of view, or philosophies, or Habermasian universalization projects." This may all sound rather far-fetched but, to use Kennedy's example, it is difficult to reconcile a strongly paternalistic protection of the mistaken party (or, for that matter, the consumer) in contract with an individualistic social welfare system. To put it another way, "if you make businessmen be nice to other businessmen who are foolish or unfortunate, that puts pressure on you to make the structurally strong be nice to the structurally weak." Beyond that, if a more extensive harmonisation of private law is the (extreme) long-term aim, as seems likely, one should consider even at this early stage how the rules developed now will fit in with the spirit motivating that final project. Mattei is explicit, outspoken even, in his call for a "truly responsible piece of economic legislation" with social-welfarist values at its core. Whilst one might not agree with his analysis of what is to be done, he is right to point out the danger of leaving the development of law to the mercy of vested interests.
It is beyond doubt that there continues to be much work to be done in determining the correct path forward in order to properly balance the rights and interests of the parties involved. With luck, the decision makers will be influenced by the clear thought and pragmatic approach demonstrated by Professor Schmitthoff throughout his works.
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* Paper submitted by Richard Stephen James Mumford to the Clive M. Schmitthoff Essay Competition, The Centre for Commercial Law Studies, Queen Mary, University of London & The Institute of International Commercial Law, Pace University School of Law.
1. SCHMITTHOFF, C.M., ed. The Sources of the Law of International Trade, 1964.
2. SCHMITTHOFF, C.M. "The Science of Comparative Law." Cambridge Law Journal 7, (1939): 94.
3. SCHMITTHOFF, C.M. "Nature and Evolution of the Transnational Law of Commercial Transactions." In The Transnational Law of International Commercial Transactions, edited by Horn, Norbert and Schmitthoff, Clive M. London: Kluwer, 1982.
4. See WEIR, T. "The Timing of Decisions." Zeitschrift für Europaeisches Privatrecht 9, (2001): 679.
5. Historically, judicial co-operation in civil matters has taken the form of conventions. Within the context of the Community Member States concluded the Brussels (1968) and Lugano (1988) Conventions on the jurisdiction and the enforcement of judgments in civil and commercial matters, the Rome Convention (1980) on the law applicable to contractual obligations, the Convention on insolvency proceedings (1995), the Convention on the service in the Member States of judicial and extrajudicial documents in civil or commercial matters (1997) and the Convention on jurisdiction and the recognition and enforcement of judgements in matrimonial matters (1998). Post Amsterdam all these conventions, with the exception of the Rome Convention, were converted into EC regulations adopted in 2000.
6. This schism is accurately captured by Christian Joerges when he compares the situation to Kant's competition between the faculties:
"Comparatists know how to distance themselves from particularly national characteristics of private law; they functionally define issues which are common to the legal systems when interpreting rules, doctrinal constructions and argumentative practices; they identify commonly recognised legal principles which apply across legal systems by disclosing functional equivalences or, where this is not possible, by taking inspiration for legal innovation from the insights and experiences of foreign legal systems. All this entitles comparative law to lay claim to a leading position in the process of Europeanising contract law. Its methodological approach in any case meets the instrumental and purposive rationality of legal harmonisation policy aimed at the accomplishment of the internal market." But at the same time "important practical problems of integration policy which arise in the harmonisation of contract law are not readily 'resolved'" and "The institutional framework of European and national contract law have to be considered by comparative lawyers in the debate on European and national elements of European private law. We thus enter a sphere that is dominated by European law." JOERGES, C. "The Europeanisation of Private Law as a Rationalisation Process and as a Contest of Disciplines -- an Analysis of the Directive on Unfair Terms in Consumer Contracts." European Review of Private Law 3, (1995): 175.
7. Of the fifteen "directives, regulations and Conventions in force which have implications for the private law of the Member States" listed in the EP Resolution of 15 November 2001 OJ C 140 E/538, the earliest is dated 1980 (The Rome Convention) and ten are dated since 1990.
8. At the Tampere European Council (October 1999) Member States requested "as regards substantive law an overall study on the need to approximate Member States' legislation in civil matters in order to eliminate obstacles to the good functioning of civil proceedings" (Conclusion 39)
9. VON BAR, C. "The Private Law Systems in the EU: Discrimination on Grounds of Nationality and the Need for a European Civil Code." JURI 103 EN: Directorate General for Research, 1999.
10. 'European Parliament resolution on the approximation of the civil and commercial law of the
Member States', OJ C 140 E/538
11. EUROPEAN COMMISSION. "Communication from the Commission to the Council and the European Parliament on European Contract Law." COM(2001) 398 final, Brussels, 2001.
12. EUROPEAN COMMISSION. "Communication from the Commission to the European Parliament and the Council. A More Coherent European Contract Law -- An Action Plan." 2003/C 63/01, Brussels, 2003.
13. Ibid. Title to section 4.3 "Further reflection on the opportuneness of non-sector specific measures such as an Optional Instrument in the area of European contract law".
14. See WEATHERILL, S. "The European Commission's Green Paper on European Contract Law: Context, Content and Constitutionality." Journal of Consumer Policy 24, (2001): 339. and more generally WEATHERILL, S. "Consumer Policy." In The Evolution of EU Law, edited by Craig, Paul and de Búrca, Gráinne: Oxford University Press, 1999. For an exhaustive list of Community interventions to date in contract law, see the Annexe to EUROPEAN COMMISSION. "Communication from the Commission to the Council and the European Parliament on European Contract Law." COM(2001) 398 final, Brussels, 2001.
15. EUROPEAN COMMISSION. "Communication from the Commission to the European Parliament and the Council. A More Coherent European Contract Law -- An Action Plan." 2003/C 63/01, Brussels, 2003. at paragraph 92
17. Ibid. at paragraph 94
18. Ibid. at paragraph 92
19. Ibid. at paragraph 90
20. Drobnig characterises this limitation of the scope of harmonisation to cross-border situations as being the 'narrow' as opposed to the 'grand' solution: DROBNIG, U. "Scope and general rules of a European Civil Code." European Review of Private Law 5, 4 (1997): 489. .
21. The Commission emphasises that it is not its desire to 'reinvent the wheel' in terms of research activities and that current projects should be "continued and exploited to the full." EUROPEAN COMMISSION. "Communication from the Commission to the European Parliament and the Council. A More Coherent European Contract Law -- An Action Plan." 2003/C 63/01, Brussels, 2003. at paragraph 66.
22. JOERGES, C. "On the legitimacy of Europeanising Europe's private law: Considerations on a law of just-ification for the EU multi-level system." In Rechtsverfassungsrecht, edited by Joerges, Christian and Teubner, Gunther. Baden-Baden, 2003.
23. Case C-376/98, Germany v. European Parliament and Council (Tobacco Advertising)  ECR I-8419
24. STAUDENMAYER, D. "The Commission Action Plan on European Contract Law." European Review of Private Law 11, 2 (2003): 113. C:\Documents and Settings\Rick\My Documents\EUI\Research\European Review of Private law\Staudenmayer on Action Plan.pdf
25. Case 26/62, Van Gend en Loos  ECR1, at p.12.
26. BARENTS, R. "The internal market unlimited: Some observations on the legal basis of Community legislation." Common Market Law Review 30, (1993): 85.
27. Joined cases 188-190/80 France, Italy and UK v Commission (Transparency Directive)  ECR 2545
28. BARENTS, R. "The internal market unlimited: Some observations on the legal basis of Community legislation." Common Market Law Review 30, (1993): 85.
29. As Stephen Weatherill puts it: "the Green Paper is a great deal more intriguing for what it does not say about the constitutional dimension of European Contract Law than for what it does say." WEATHERILL, S. "The European Commission's Green Paper on European Contract Law: Context, Content and Constitutionality." Journal of Consumer Policy 24, (2001): 339.
30. TILMANN, W. "The legal basis for a European Civil Code." European Review of Private Law 5, (1997): 471.
31. Case C-491/01, The Queen v Secretary of State for Health, ex parte British American Tobacco (Investments) Ltd and Imperial Tobacco Ltd. ECR  I-11453
32. Case C-42/97, European Parliament v. Council (Linguistic Diversity)  ECR I-869
33. Case C-36/98, Spain v Council  ECR I-779
34. See also Case 300/89 Commission v Council (Titanium Dioxide)  ECR 2867
35. For a scathing attack on the 'legislative history' approach to statutory interpretation see SCALIA, A., and GUTMANN, A. A matter of interpretation : federal courts and the law : an essay, The University Center for Human Values series. Princeton, N.J.: Princeton University Press, 1997. The recent House of Lords case of Wilson and others v. Secretary of State for Trade and Industry  UKHL 40 illustrates the political sensitivity adducing evidence of statements made to Parliament etc. before the court.
38. LANDO, O. "Optional or Mandatory Europeanisation of Contract Law." European Review of Private Law 8, 1 (2000): 59.
39. MATTEI, U. "A transaction costs approach to the European Code." European Review of Private Law 5, (1997): 537.
41. LANDO, O. "Why codify the European Law of contract?" European Review of Private Law 5, (1997): 525., LANDO, O. "Optional or Mandatory Europeanisation of Contract Law." European Review of Private Law 8, 1 (2000): 59.
42. VON BAR, C., LANDO, O., and SWANN, S. "Communication on European Contract Law: Joint Response of the Commission on European Contract Law and the Study Group on a European Civil Code." European Review of Private Law 10, 2 (2002): 183.
43. Ibid. at p195
44. EUROPEAN COMMISSION. "Communication from the Commission to the European Parliament and the Council. A More Coherent European Contract Law -- An Action Plan." 2003/C 63/01, Brussels, 2003. at paragraph 34.
45. Ibid. at paragraph 44
46. Ibid. at paragraph 29
47. LANDO, O. "Why codify the European Law of contract?" European Review of Private Law 5, (1997): 525., quoting Thibaut's description of the situation in Germany pre-BGB.
48. BUSSANI, M. "'Integrative' Comparative Law Enterprises and the Inner Stratification of Legal Systems." European Review of Private Law 8, 1 (2000): 85.
49. VON BAR, C., LANDO, O., and SWANN, S. "Communication on European Contract Law: Joint Response of the Commission on European Contract Law and the Study Group on a European Civil Code." European Review of Private Law 10, 2 (2002): 183. at paragraph 14
50. SCHMID, C.U. "Legitimacy Conditions for a European Civil Code." RSCAS 2001/14: European University Institute, Florence, 2001.
51. For an interesting account of unification of law projects in the United States, see GRAY, W. "E pluribus unum? A Bicentennial Report on Unification of Law in the United States." RabelsZ 50, (1986): 111.
52. Council Directive (93/13/EEC) of 5 April 1993 on unfair terms in consumer contracts; OJ 1993 L 95/29
53. See for example COLLINS, H. "European Private Law and the Cultural Identity of States." European Review of Private Law 3, (1995): 353.
54. Joerges however notes an instance in which European law insisted on deciding in favour of the 'consumer' guarantor in a long-running German doctrinal dispute as to the applicability of doorstep selling provisions on 'cooling off' periods to the provider of a (non-syllagmatic) bank guarantee - JOERGES, C. "The Impact of European Integration on Private Law. Reductionist Perceptions, True Conflicts and a New Constitutional Perspective." European Law Journal 3 (1997): 378.
55. See Action Plan paragraph 31
56. Council Regulation 44/2001, O.J. 2001, L 12/1
57. See Action Plan paragraph 30
58. WAGNER, G. "The Economics of Harmonization: The Case of Contract Law." Common Market Law Review 39, (2002): 995.
59. BASEDOW, J. "A Common Contract Law for the Common Market." Common Market Law Review 33, (1996): 1169.
60. JOERGES, C. "The Impact of European Integration on Private Law. Reductionist Perceptions, True Conflicts and a New Constitutional Perspective." European Law Journal 3 (1997): 378.
61. Case 161/84, Pronuptia de Paris GmbH v Irmgard Schillgalis  ECR 353
62. JOERGES, C. "The Impact of European Integration on Private Law. Reductionist Perceptions, True Conflicts and a New Constitutional Perspective." European Law Journal 3 (1997): 378.
64. MAJONE, G. "The Community Method and Self-Regulation." EUI Workshop on Self-Regulation, Florence, 2003.
65. JOERGES, C. "The Impact of European Integration on Private Law. Reductionist Perceptions, True Conflicts and a New Constitutional Perspective." European Law Journal 3 (1997): 378.
68. See generally CRAIG, P.P., and DE BÚRCA, G. EU law : text, cases, and materials. 3rd ed. Oxford: Oxford University Press, 2003. Chapter 28: Completion of the Single Market and GRANT, C. Delors : inside the house that Jacques built. London: Nicholas Brealey Pub., 1994.
69. ALPA, G. "European Community Resolutions and the Codification of 'Private Law'." European Review of Private Law 8, 2 (2000): 321.
70. ZIMMERMANN, R. "Codification: history and present significance of an idea." European Review of Private Law 3, (1995): 95.
71. See generally:
72. VAN GERVEN, W. "Coherence of Community and national laws. Is there a legal basis for a European Civil Code?" European Review of Private Law 5 (1997): 465.
74. The Commission Communication of 2001 placed great emphasis on gathering empirical data on the relationship between contract law and the functioning of the internal market. It appeals for hard facts and concrete examples of disparate contract law rules upsetting the smooth running of the internal market at paragraphs 23, 33 and finally in bold type in its Conclusions at paragraph 72.
75. SCHMID, C.U. "Legitimacy Conditions for a European Civil Code." RSCAS 2001/14: European University Institute, Florence, 2001.
76. Title VI of the Treaty on European Union, as established by the Maastricht Treaty 1993, included judicial co-operation in civil and criminal matters as matters of common interest for Member States of the European Union. The Amsterdam Treaty, which gave further impetus to the creation of a "European judicial space", linked judicial co-operation in civil matters to free movement of persons under the EC Treaty in the form of the new Article 65 EC.
77. VAN GERVEN, W. "Coherence of Community and national laws. Is there a legal basis for a European Civil Code?" European Review of Private Law 5 (1997): 465.
79. MAJONE, G. "The Community Method and Self-Regulation." EUI Workshop on Self-Regulation, Florence, 2003.
80. BARENTS, R. "The internal market unlimited: Some observations on the legal basis of Community legislation." Common Market Law Review 30, (1993): 85.
81. See Case 68/86, UK v Council (hormones)  ECR 855 where the UK and another Member State refused to agree to the proposals of the rest of the Council concerning how to regulate the administration of hormonal substances to farm animals.
82. See Case C-70/88, Parliament v. Council (Chernobyl)  ECR I-2041 on a dispute over whether Article 100A EC or Art 31 EAEC was the correct basis for a measure with respect to radioactive contaminated food products.
83. Case 300/89, Commission v. Council (Titanium Dioxide)  ECR 2867. For an analysis of whether this case allows non-internal market measures to 'piggy-back' on Article 95, see CROSBY, S. "The Single Market and the Rule of Law." European Law Review 16, December (1991): 451.
84. For a more detailed analysis of the contribution of each of these theories to the process of European integration, see: SCHMID, C.U. "Multi-Level Constitutionalism and Constitutional Conflicts: Interconnecting the National, European and International Economic Constitutions in the Banana Dispute." Doctoral Thesis, European University Institute, Florence, 2001.
85. Cases 2 BvR 2134/92 and 2159/92, Brunner v. The European Union Treaty  1 CMLR 57
86. MAJONE, G. Regulating Europe: Routledge, 1996.
87. JOERGES, C. "The Impact of European Integration on Private Law. Reductionist Perceptions, True Conflicts and a New Constitutional Perspective." European Law Journal 3 (1997): 378.
88. Article 249 EC
89. That is, at least, in theory. In practice, the term 'Decision' has been used in Community law to relate to texts of a normative character and a general scope, such as the Decision on Own Resources and the Decision laying down the procedures for the exercise of implementing powers conferred on the Commission (the "comitology" Decision). There have even been Decisions based on Article 308 which have a general application. However, these uses of the term 'Decision' are essentially aberrations, made for the want of a better word. They do not affect the basic idea of the Decision within Article 249. This terminological morass is one aspect of the Byzantine nature of Community legislation which was seized on by the Working Group. Regrettably, rather than rationalise the use of this term, its proposal was to continue its 'flexible' use and even to extend this flexibility by no longer requiring that a decision be addressed to any individual or group of individuals. However, the Draft Treaty explicitly describes the Decision as "a non-legislative act" and hence cannot be used to make the choix politique de base required of the Optional Instrument.
90. Such as indicated in Article 211: "In order to ensure the proper functioning and development of the common market, the Commission shall [...] formulate recommendations or deliver opinions on matters dealt with in this Treaty, if it expressly so provides or if the Commission considers it necessary."
91. Such as its use by the Commission in the legislative process where it may respond to the Parliament's amendments to a measure with its own amending or non-amending Opinion. The European Parliament delivers Opinions when acting in its legislative capacity, either at first and second reading under the codecision and co-operation procedures or at a single reading under the now redundant consultation procedure.
92. Weatherill words this as follows: "An EC Directive, permitting national choices about the specific manner of transposition into the domestic legal order, would be flexible, yet may not eliminate some of the divergences between national law which have created the problem calling for legislative intervention in the first place." WEATHERILL, S. "The European Commission's Green Paper on European Contract Law: Context, Content and Constitutionality." Journal of Consumer Policy 24, (2001): 339.
Basedow makes a similar point when he states that "In applying national statutes based on EC directives, most national lawyers are not even aware of the European background. Consequently, there is only a cultural integration insofar as the lawyers of the Member States deal with directly applicable provisions of the EC Treaty and of regulations, but not when it comes to transpose EC directives." BASEDOW, J. "A Common Contract Law for the Common Market." Common Market Law Review 33, (1996): 1169.
93. See generally DOUGAN, M. "Minimum harmonization and the internal market." Common Market Law Review 37, (2000): 853.
94. This was most clearly shown in Case C-52/00, Commission of the European Communities v. French Republic  ECR I-3827 where the Court took a very formalistic, market-oriented approach to the implementation of the Product Liability Directive, disallowing the higher level of protection (absence of fifty Euro threshold, softened state of the art defence) existing in the Code Civil.
95. Koch makes this distinction with regard to the prospects for uniform application of the Unfair Terms in Consumer Contracts Directive in the following passage:
"Experience with other directives and their implementation into national law shows that harmonisation is generally a gradual process, which takes place in qualitatively different steps. Margins for implementation in the Member States will arise when the directive expressly leaves law-making to the Member states or gives them several options, and when the directive uses indeterminate notions or does not entirely answer preliminary or consequential questions. This in turn will raise the question of the law to be applied in non-harmonised areas."
Going on to give examples of areas of possible divergent application of the Directive, he notes that
"these examples can be classified into two groups: (i) areas which have not been harmonised by virtue of express or implied wording in the Directive (i.e. silence), and (ii) the aspects of the Directive containing indeterminate notions, or which may be subject to variegated interpretation. For the latter group, the consolidation of different national opinions is not necessarily a problem for private international law. However, resort to indeterminate notions, and general clauses which are simply transcribed verbatim in national implementing laws, will give rise to important difficulties regarding interpretation. They must be exclusively construed in the light of the wording of the Directive, and can be interpreted by way of preliminary reference to the European Court of Justice. The reference mechanism will be available even if the terms of the Directive also appear in domestic provisions." KOCH, H. "Private International Law: a 'Soft' Alternative to the Harmonisation of Private Law?" European Review of Private Law 3, (1995): 329.
96. WEATHERILL, S. "The European Commission's Green Paper on European Contract Law: Context, Content and Constitutionality." Journal of Consumer Policy 24, (2001): 339.
97. See generally SENDEN, L., and PRECHAL, S. "Differentiation in and through Community Soft law." In The Many Faces of Differentiation in EU Law, edited by De Witte, Bruno, Hanf, Dominic and Vos, Ellen: Intersentia, 2001.
98. WEATHERILL, S. "The European Commission's Green Paper on European Contract Law: Context, Content and Constitutionality." Journal of Consumer Policy 24, (2001): 339.
99. EUROPEAN COMMISSION. "Communication from the Commission to the European Parliament and the Council. A More Coherent European Contract Law -- An Action Plan." 2003/C 63/01, Brussels, 2003. at paragraph 92
100. EMILIOU, N. "Opening Pandora's Box: The legal basis of Community Measures before the Court of Justice." European Law Review 19, (1994): 488.
101. One can hardly do justice to the wealth of literature on this subject in one footnote so I will limit myself to mentioning the works which have proved most influential in the writing of this paper: EMILIOU, N. "Subsidiarity: An Effective Barrier Against "the Enterprises of Ambition"?" European Law Review 17, October (1992): 383., BERMANN, G.A. "Taking Subsidiarity Seriously: Federalism in the European Community and the United States." Columbia Law Review 94, 2 (1994): 331., EDWARDS, D.J. "Fearing Federalism's Failure: Subsidiarity in the European Union." The American Journal of Comparative Law 44, (1996): 537., DE BÚRCA, G. "Reappraising Subsidiarity's Significance After Amsterdam." Harvard Jean Monnet Working Paper 7/99: Harvard Law School, Seminar and Workshop on Advanced Issues in Law and Policy of the European Union, NAFTA and the WTO, Cambridge, MA, 1999, SWAINE, E.T. "Subsidiarity and Self-Interest: Federalism at the European Court of Justice." Harvard International Law Journal 41, 1 (2000): 1., HOWELLS, G.G. "Federalism in USA and EC -- The Scope for Harmonised Legislative Activity Compared." European Review of Private Law 5, (2002): 601.
102. WEATHERILL, S. "The European Commission's Green Paper on European Contract Law: Context, Content and Constitutionality." Journal of Consumer Policy 24, (2001): 339.
104. Whose contents are, according to Weatherill, "designed to convert subsidiarity from a rather vague cri de coeur by Member States nervous about perceived over-ambition on the part of the Community into a set of operationally useful principles that will exert real influence within the Community's institutional culture" Ibid.
105. The full text of the original Communication and the responses to it, as well as the subsequent Action Plan can be found at: http://europa.eu.int/comm/consumers/cons_int/safe_shop/fair_bus_pract/cont_law/index_en.htm
108. In spite of the bon mot so beloved of British constitutional law lecturers that the Parliament at Westminster can make it illegal to smoke on the streets of Paris, Schmid is indubitably correct in his assertion that "if the necessity of harmonisation of certain areas of private law is taken as given, then it can come about bindingly only at Community level" SCHMID, C.U. "Legitimacy Conditions for a European Civil Code." RSCAS 2001/14: European University Institute, Florence, 2001.
109. See generally JONES, J. "The Committee of the Regions, Subsidiarity and a Warning." European Law Review 22, (1997): 312.
110. DE WITTE, B. "Old-fashioned Flexibility: International Agreements between Member States of the European Union." In Constitutional Change in the EU -- From Uniformity to Flexibility, edited by de Búrca, Gráinne and Scott, Joanne, 2000.
111. BERMANN, G.A. "Taking Subsidiarity Seriously: Federalism in the European Community and the United States." Columbia Law Review 94, 2 (1994): 331.
112. WAGNER, G. "The Economics of Harmonization: The Case of Contract Law." Common Market Law Review 39, (2002): 995.
113. VON BAR, C. "The Private Law Systems in the EU: Discrimination on Grounds of Nationality and the Need for a European Civil Code." JURI 103 EN: Directorate General for Research, 1999. See also the comment of the first President of the European Commission, Walter Hallstein, that "In the whole of the great Community area equal facts must be treated equally, and that as a matter of law!", quoted in BASEDOW, J. "A Common Contract Law for the Common Market." Common Market Law Review 33, (1996): 1169.
114. COING, H. "European Common Law: Historical Foundations." In New perspectives for a common law of Europe = Nouvelles perspectives d'un droit commun de l'Europe, edited by Cappelletti, Mauro, 31-44. Leyden ; Boston: Sijthoff, 1978.
115. LEGRAND, P. "What Borges Can Teach Us." In Fragments on Law-as-Culture. Deventer: W.E.J. Tjeenk Willink, 1999.
116. COLLINS, H. "European Private Law and the Cultural Identity of States." European Review of Private Law 3, (1995): 353.
119. Collins acknowledges the possibility of harmonisation measures which would not challenge "a worthwhile conception of the cultural identity and diversity of Member States" but that "the replacement of basic institutional arrangements or rules representing a symbolic endorsement of particular moral ideals" would pose such a problem, creating tensions by jeopardising the "cultural nexus" in which personal identity is constructed. Ibid.
120. Acknowledging the 'bottlenecks, weaknesses and omissions' visible in a "deliberative supranationalism" reconceptualisation of the EU, asks:
"Do all these practical troubles, then, ultimately militate in favour of the project of a European civil code? First of all, they are in favour of accepting the view that, in such a project, the very difficulties that arise are those that it is supposed to solve. The "classical" models of private law codification do not come into consideration for today's Europe.First, because Europe will not become some hierarchically structured polity, but will remain heterarchical and plural; there is no legislative actor with the vocation for universal legislation that would bring Europe under a unitary codified regime. Nor, however, is Europe some sort of cultural nation able to write down its code without having to wait for the formation of a state." JOERGES, C. "On the legitimacy of Europeanising Europe's private law: Considerations on a law of just-ification for the EU multi-level system." In Rechtsverfassungsrecht, edited by Joerges, Christian and Teubner, Gunther. Baden-Baden, 2003.
121. SCHMID, C.U. "Legitimacy Conditions for a European Civil Code." RSCAS 2001/14: European University Institute, Florence, 2001.
122. DROBNIG, U. "Scope and general rules of a European Civil Code." European Review of Private Law 5, 4 (1997): 489.
123. ALPA, G. "European Community Resolutions and the Codification of 'Private Law'." European Review of Private Law 8, 2 (2000): 321.
124. "To ask an English judge to think otherwise [than as an English judge] is to ask her to undergo a religious conversion -- something which may not be wanted and which may not even be possible" LEGRAND, P. "What Borges Can Teach Us." In Fragments on Law-as-Culture. Deventer: W.E.J. Tjeenk Willink, 1999.
125. ALPA, G. "European Community Resolutions and the Codification of 'Private Law'." European Review of Private Law 8, 2 (2000): 321.
126. COLLINS, H. "European Private Law and the Cultural Identity of States." European Review of Private Law 3, (1995): 353.
127. DONAHUE, J.D., and POLLACK, M.A. "Chapter 3. Centralization and Its Discontents: The Rhythms of Federalism in the United States and the European Union." In The Federal Vision, edited by Nicolaidis, Kalypso and Howse, Robert, 73-117. Oxford: OUP, 2001.
128. The most famous situation of this type is the 'market' in laws of company incorporation as between different states of the US, whereby the corporate-friendly rules of the state of Delaware have resulted in a large proportion of US companies being incorporate in that state. For a possible EU parallel to this 'Delaware effect', see Case C-212/97 Centros Ltd. v. Ervervosog Selskabsstrylsen  E.C.R.I-459. For an in-depth analysis of this phenomenon see DEAKIN, S. "Two Types of Regulatory Competition: Competitive Federalism versus Reflexive Harmonisation. A Law and Economics Perspective on Centros." In The Cambridge Yearbook of European Legal Studies, 1999.
129. WAGNER, G. "The Economics of Harmonization: The Case of Contract Law." Common Market Law Review 39, (2002): 995.
130. Ibid. See also WATSON, A. "Legal Transplants and European Private Law." In The Contribution of Mixed Legal Systems to European Private Law, edited by Smits, Jan. Antwerp: Intersentia / Metro, 2001.
131. LANDO, O. "Why codify the European Law of contract?" European Review of Private Law 5, (1997): 525.
132. For a simultaneously wistful and excoriating attack on this tendency of Uniformisierungswut in history, religion, philosophy, politics and law, see WEIR, T. "The Timing of Decisions." Zeitschrift für Europaeisches Privatrecht 9, (2001): 679.
133. To illustrate:
And God said, Let there be a firmament in the midst of the waters, and let it divide the waters from the waters.
And God made the firmament, and divided the waters which were under the firmament from the waters which were above the firmament: and it was so.
And God called the firmament Heaven. And the evening and the morning were the second day.
And God said, Let the waters under the heaven be gathered together unto one place, and let the dry land appear: and it was so.
And God called the dry land Earth; and the gathering together of the waters called he Seas: and God saw that it was good.
The Holy Bible: King James Version, Genesis Chapter 1, verses 6-10
134. For a fascinating account of the historical background to some of these anomalous jurisdictions, see GRAVESON, R.H. "The Unification of Law in the British Isles." In One Law -- On Jurisprudence and the Unification of Law. Selected Essays, Volume II. Amsterdam/ New York/ Oxford: North-Holland Publishing Company, 1977.
135. For a masterly survey of the manifold differences between the two jurisdictions, not only in private law but also in administrative, commercial and criminal matters, see WEIR, T. "Divergent Legal Systems in a Single Member State." Zeitschrift für Europaeisches Privatrecht (1998): 564. For an equally entertaining account, see MACQUEEN, H.L. "Scots Law and the Road to the New Ius Commune." Electronic Journal of Comparative Law 4.4, (2000). http://www.ejcl.org/ejcl/44/art44-1.html
136. Case C-180/96 United Kingdom v Commission (BSE)  ECR I-2265
137. This test was heavily relied on by AG Fennelly in the Tobacco Advertising case where he reasoned that even were the Directive in question to be found to be validly based on Article 95, he would in the alternative have invalidated under the first head of the proportionality test. Worryingly, it was not referred to at all by the Court in the later Tobacco Control Directive case when it was faced with a very similar question.
138. KAHN-FREUND, O. "Common Law and Civil Law -- Imaginary and Real Obstacles to Assimilation." In New perspectives for a common law of Europe = Nouvelles perspectives d'un droit commun de l'Europe, edited by Cappelletti, Mauro, 137-170. Leyden ; Boston: Sijthoff, 1978.
139. BASEDOW, J. "Codification of Private Law in the European Union: the making of a Hybrid." European Review of Private Law 10, 1 (2001): 35.
140. Case C-491/01 R v Secretary of State for Health, ex parte British American Tobacco (Investments) Ltd and Imperial Tobacco Ltd, supported by Japan Tobacco Inc. and JT International SA.
141. At paragraph 123 of the Court's judgment.
142. Cases 267 & 268/91, Keck & Mithouard (Criminal Proceedings against)  ECR I-6097
143. BONELL, M.J. "The need and possibilities of a codified European contract law." European Review of Private Law 5, (1997): 505.
144. It seems probable that it was the refusal at the Vienna Diplomatic Conference to include such an 'opt-in' provision which persuaded the UK to refuse to be a party to the CISG.
145. VON BAR, C., LANDO, O., and SWANN, S. "Communication on European Contract Law: Joint Response of the Commission on European Contract Law and the Study Group on a European Civil Code." European Review of Private Law 10, 2 (2002): 183. at paragraph 14.
146. The current Article 3 allows only so-called 'domestic' legal systems to be referred to in a choice of law clause. Bonell points to a precedent for allowing a legal system not attached to any one political entity to be made the choice of law in the 1994 Inter-American Convention on the Law Applicable to International Contracts, Article 9(2) of which permits the 'general principles of international commercial law recognized by international organizations' to be used in determining the applicable law in the absence of a valid choice by the parties. See BONELL, M.J. "The need and possibilities of a codified European contract law." European Review of Private Law 5, (1997): 505.
147. I leave aside for these purposes the numerous non-legislative and ancillary measures deisgned to foster convergence between legal systems and/or the development of a common European legal culture. For a full exposure of these measures, see, inter alia: DE WITTE, B., and FORDER, C. The common law of Europe and the future of legal education / Le droit commun de l'Europe et l'avenir de l'enseignement juridique: Ius Commune Europaeum, 1992, VAN GERVEN, W. "The Case-law of the European Court of Justice and National Courts as a Contribution to the Europeanisation of Private Law." European Review of Private Law 3, (1995): 367., MARKESINIS, B.S. "Why a code is not the best way to advance the cause of European legal unity." European Review of Private Law 5, (1997): 519., SCHMID, C.U. "'Bottom-Up' Harmonisation of European Private Law: Ius Commune and Restatement." In Evolutionary Perspectives and Projects on Harmonisation of Private Law in the EU, edited by Schmid, Christoph U. and Feiden, Sonja. Florence: European University Institute, 1999, SMITS, J. The Making of European Private Law. Towards a Ius Commune Europaeum as a Mixed Legal System. Antwerp/Oxford/New York: Intersentia, 2002.
148. Schmid also expresses general doubts about the level of satisfaction with the ECJ's current output, stating that "the judges are increasingly out of their depth with the universal competence of the Court in the whole of Community law" SCHMID, C.U. "Legitimacy Conditions for a European Civil Code." RSCAS 2001/14: European University Institute, Florence, 2001.
149. In its response to the Commission Communication of 2001 the Confederation of British Industry (CBI) doubted whether common contract principles would in practice produce great savings: "they would probably have to cover every aspect of the agreement. Even then, local counsel would probably have to review the legal implications specific to the jurisdictions of a 'harmonised contract', for example, the remedies available in one jurisdiction, mandatory laws, limitation periods, any matters falling outside contract law, and specific legislation on specific terms such as bills of credit or cheques. The result might well be that two levels of review would be needed and that in reality there would be little or no cost saving for the parties." <http://europa.eu.int/comm/consumers/cons_int/safe_shop/fair_bus_pract/cont_law/comments/2.1.6.pdf>
150. "Smoking may be banned in EU bars". The Independent, 19th September 2003.
151. KENNEDY, D. "The Political Stakes in "Merely Technical" Issues of Contract Law." European Review of Private Law 9, 1 (2001): 7.
153. MATTEI, U. "Hard Code Now!" Global Jurist Frontiers 2, 1 (2002).
154. See also: HESSELINK, M.W. "The Politics of European Contract Law: Who has an Interest in What Kind of Contract Law for Europe?" Global Jurist Frontiers 2, 1 (2002). <http://www.bepress.com./gj/frontiers/vol2/iss1/art3>