Legal-economic reflections on CESL

The European Commission's proposal for a Regulation on an optional Common European Sales Law is slowly but steadily making its way through the legislative process. At this time, it is being discussed in different committees of the European Parliament.

Summaries of the discussions that have so far taken place within these committees can be found on the Edinburgh European Private Law News blog. Most recently, Eric Clive reported on the discussion within the Parliament's Internal Market and Consumer Protection committee ('IMCO on CESL briefly'). As becomes clear from this summary, the proposed CESL continues to divide opinions. While some commentators give constructive comments for the amendment of the proposal, others doubt its added value for the facilitation of transactions concluded on the European internal market.

The legal-economic merits of both points of view were discussed at a conference that was organised by Omri Ben-Shahar in Chicago last year (on which we reported earlier). The final versions of the conference papers have now been published in a special issue of the Common Market Law Review and may provide the European Parliament, as well as other interested parties, with insights into the costs and benefits of introducing a CESL and into the dynamics of regulatory competition in European contract law.

Dwelling in possibility

As a follow-up to the previous post, those of you interested in the design of an adequate system of remedies might like to know about the following upcoming seminars:

- A workshop on 'A new architecture for consumer law' organised in Florence on 18 and 19 January (for which Hans Micklitz's paper on the topic will serve as a starting point)

- A seminar with Christian Joerges in the Dialogue Series of the project 'The Architecture of Postnational Rulemaking' (based on his recent work on 'Europe's Economic Constitution in Crisis')

While looking for inspiration for a paper of my own that has to deal with some foundational issues of European private law, furthermore, I took the time to read up on some more comprehensive views on legal analysis, and concepts and roles of the law. As Zadie Smith once wrote: 'Other people’s words are the bridge you use to cross from where you were to wherever you’re going'. Some people's words that crossed my path (and mind) these days were those of Herbert Hart, a third edition of whose 'The Concept of Law' recently appeared (with an excellent introduction by Leslie Green), Neil Komesar, who wrote a beautiful paper reflecting on his work on comparative institutional analysis, and Melvin Eisenberg, contemplating on 'Basic Contract Law' and teaching.

Are some consumers more equal than others?

In case of a dispute arising from a contract you concluded as a consumer, would you (and: should you) want to have your day in court? Or can your interests be served equally well or maybe even better in arbitration proceedings?

In a recent working paper on 'Arbitration and Access to Justice', Omri Ben-Shahar (University of Chicago Law School) addresses these questions from a law & economics perspective. On the basis of examples concerning product liability, health care, information duties and accommodations for disabilities, he argues that in certain circumstances 'open access' policies may unintentionally have the effect of poor, less sophisticated consumers subsidising access to justice for wealthier consumers. This may be the case if:

'(1) Wealthier sub-groups [of consumers] are more likely to enjoy the benefits of open access; and
(2) Poorer sub-groups pay a share for the funding of the open access that exceeds their proportional benefits.'

The overall results are summarised as follows:

'Mandatory arbitration clauses in consumer contracts are widely regarded as problematic because they limit consumer’s access to judicial forums, to fair procedures, and potentially to any kind of remedy. But rather than looking at consumers as a group, I examine which sub groups of consumers are affected by this limitation more than others. I argue that in most circumstances, access to courts benefits the elite, not the weak. It is a species of open-access policy that has an unintended regressive effect. Paradoxically, rules that limit the use of pre-dispute arbitrations clauses hurt, rather than protect, weaker consumers, as they mandate a regressive reallocation. I also consider the role of class actions, and whether weak consumers are potentially the indirect beneficiaries of class action litigation. This argument has theoretical merit, but it, too, is limited in ways that are often unappreciated.'

The paper offers a very interesting and refreshing view on, in Ben-Shahar's words, the 'seductive logic of the access-to-justice advocacy'. This is of importance for European consumers, too, for instance with regard to the proposal for a Common European Sales Law. As regards the EU context, nevertheless, the conclusion of the paper puzzles me somewhat, insofar as it criticises the 'access justice' model for European private law proposed by Hans Micklitz. If 'access justice' (not to be confused with 'access to justice') is understood as aiming at creating a legal framework that provides weaker consumers with real possibilities to participate in the European internal market, then I have difficulty seeing why a well-designed law of remedies reflecting this concept of justice would necessarily be at odds with Ben-Shahar's conclusions. This is of course not to say that the current practice of European consumer law complies with theoretical insights in all respects... As for mandatory arbitration proceedings for consumers, however, I think that for instance the CJEU's preliminary ruling in the Alassini case might be considered to be in line with both the economic and social justice arguments named here, as well as with fundamental rights argumentation. 

CESL in Chicago

Last Friday and Saturday, Joasia and I participated in a conference on 'European contract law: a law-and-economics perspective' in Chicago (that was announced in an earlier post on this blog). The conference considered a wide range of views on the development of European contract law, focusing on the European Commission's proposal for a Regulation on a Common European Sales Law (CESL).

While the proposed CESL met some heavy criticism from speakers from both sides of the Atlantic, suggestions for improvement and for the further development of European contract law took diverging directions. In general, and perhaps not surprising in light of the economic angle of the conference, it appeared that the US speakers were rather sceptical about further-going regulation of consumer transactions in the EU's internal market. The European speakers, on the other hand, mostly sought to combine their criticism with suggestions for the elaboration of measures of EU contract law within the existing acquis communautaire. The different approaches generated a lively debate on general issues (harmonisation, regulatory competition, mandatory rules, optional instruments) as well as specific topics (consumer protection techniques, the doctrine of mistake, remedies, custom, precontractual liability, Eurobarometer surveys).

Some of the main points of discussion were the following:

1. The competitive strength of CESL in comparison to the national sales laws of the EU Member States. In this context, it was noted that according to the Commission's proposal CESL is 'more equal' than domestic laws, insofar as it 'neutralises' Article 6(2) of the Rome I Regulation and thus makes sure that in case parties opt into CESL it will be the only set of rules governing the topics within its scope (no additional consumer laws will apply). In terms of game theory, the European regulator thus acts both as a player within the game (offering CESL) and as arranger of the game (setting the rules). Not optimal from a regulatory perspective, it seems. On the other hand, it can be argued that this is the only way to make CESL work, since its uniformity is meant to make it an attractive option for cross-border transactions.

2. The relatively high number of mandatory consumer protection provisions in CESL. It was put forward that the costs of such a high level of consumer protection will likely be borne by consumers. This would be problematic insofar as there is no differentiation between types of consumers: Consumers who may prefer lower protection in combination with lower prices would be priced out of the high-protection market. Furthermore, weaker consumers who do not invoke mandatory protection rules might pay for the protection of stronger consumers that do (cross-subsidy). On the other hand, it was suggested that once a certain type of protection (eg right of withdrawal) has become part of consumer expectations at the conclusion of a contract, it could be made mandatory. Moreover, it was pointed out that many of CESL's mandatory rules originate from EU Directives that are already in place.

3. Efficiency and social justice in European contract law. The idea that European contract law, including CESL, could appeal or contribute to a shared European identity was considered to be unconvincing by some participants to the conference. The 'thickening' of the moral dimension of European identity through contract law would not be successful if CESL was not used or known by contracting parties. While there is some truth in the latter assertion, it may be submitted (and that is what part of my contribution to the conference consisted of) that the development of European contract law should take into account not only economic factors but also the idea of social justice underlying legislation and adjudication in this field.

The working papers can be found on the conference website and are planned to be published in a special issue of the Common Market Law Review.

Statistically relevant

Statistics play a big role in designing consumer policy. As the EU Commissioner Šemeta mentioned:

"Statistics not only pin-point where the weaknesses lie in our economic (and social) systems, but they provide the basis for finding the right solutions to address them." (Commissioner Šemeta presents the "revised Regulation on European Statistics")

The new proposal for changes in the Regulation on European Statistics (223/2009) of 11 March 2009 aims at increasing the independence of gathered statistics and assures high quality thereof (Commission strengthens independence and reliability of EU statistics). It determines criteria for the selection of heads of National Statistical Institutes and Eurostat, as well as clarifies their accountability. The proposal will require Member States to sign "Commitments of Confidence", pledging to respect the European Statistics Code of Practice, to safeguard the independence of NSIs and to establish national quality assurance frameworks for statistics.

L&E of CESL

On Friday 27 and Saturday 28 April 2012, the Institute for Law and Economics of the University of Chicago Law School will host a conference on 'European Contract Law: A law-and-economics perspective'. The contributions to the conference will, among other topics, assess the newly proposed Common European Sales Law:

'The movement to harmonize European contract law generated various proposals for uniform statutes and optional instruments, culminating by the recent Draft Common European Sales Law. This ambitious reform envisions a uniform Sales Law for Europe with strong consumer protections, enacted by every member nation. Transactors will be able to choose this law to govern their transaction in place of existing contract law.

The Chicago conference brings together a group of leading scholars from Europe and from the University of Chicago, exploring the law and economics perspectives of the proposed harmonization. Is such an optional statute a desirable regulatory tool? What economic goals might it serve? Are the protections enacted in it suitable? What can be learned from the American experience with uniform commercial laws?'

More information and the programme can be found on the conference website.

Cartel theory

While as consumers we might feel the consequences of cartels in practice, theoretical studies in law & economics can teach us something about the dynamics behind these attempts of firms to restrict competition among them (e.g. through price fixing or market sharing). In about 1,5 hours from now Martijn Han (Amsterdam Center for Law & Economics, ACLE) will defend his PhD thesis on the topic of 'vertical relations in cartel theory'. How do managers and firm owners behave in cartels? In what way may the functioning of buyer groups (cooperations of retailers) be explained? And how are economic damages resulting from a cartel distributed? Martijn did the math and reached some interesting conclusions, which may be further explored on his website.