Common Frame of Reference and Existing EC Contract Law

Common Frame of Reference and Existing EC Contract Law Common Frame of Reference and Existing EC Contract Law Reiner Schulze (Ed.) ISBN 978-3-86653-064-5 The Deutsche Nationalbibliothek lists this publication in the Deutsche Nationalbibliografie; detailed bibliographic data are available in the Internet at http://dnb.d-nb.de © 2008 by sellier european law publishers GmbH, Munich All rights reserved No part of this publication may be reproduced, translated, stored in a retrieval system or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without prior permission of the publisher Design: Sandra Sellier, Munich Production: Karina Hack, Munich Printing and binding: AZ Druck und Datentechnik GmbH Printed on acid-free, non-ageing paper Printed in Germany Foreword Over the past months the findings from two international projects have significantly changed the landscape of the research within the field of European private law: the “Acquis Principles” have widened the basis for a European Contract Law; the preliminary draft of a Common Frame of Reference (DCFR) contains concepts, principles and rules for a variety of areas within European private law and combines these in an overarching structure This volume opens the discussion concerning the significance of the results from the research for the further development of European private law The focus is placed upon the relationship between existing Community law and the future Common Frame of Reference (CFR) At the same time this volume supplements the basis for the future CFR and the further academic discussion with an important element: the previous publication of the “Acquis Principles” with comments (in Acquis Group (ed.) “Principles of EC Contract Law – Contract I”, Munich 2007) did not at that point cover the key areas of non-performance and remedies This volume also contains the first publication of these particular “Acquis Principles” with comments The volume itself is a collection of lectures given at an international symposium hosted by the Centre for European Private Law (CEP) at the Westfälische Wilhelms-Universität Münster I wish to particularly thank the respective authors for their cooperation in immediately submitting their papers, likewise the publisher for giving this project priority and thereby allowing for prompt publication Finally, I wish to extend my thanks to my research assistants, in particular Jan Gudlick for efficiently organising the symposium, and Dr André Janssen, Juliane Schrader, and Jonathon Watson for their editorial work Münster, January 2008 Reiner Schulze Contributors Contributors Gianmaria Ajani Professor of Law, University of Turin; speaker of the Acquis Group, Italy Giuditta Cordero Moss Professor of Law, University of Oslo, Norway Judit Lévayné Fazekas Secretary of State for EU Affairs and Criminal Law, Ministry of Justice and Law Enforcement; Professor of Law, University of Miskolc, Pázmány Péter Catholic University, Budapest, Hungary Helmut Heiss Professor of Law, University of Zürich; chairman of the Project Group “Restatement of European Insurance Contract Law”, Switzerland Georg Kathrein Head of Section, Ministry of Justice, Vienna, Austria Konstantinos Kerameus Professor Emeritus of Civil Procedure, University of Athens, Greece Paul Lagarde Professor Emeritus of Law, University Paris I Panthéon-Sorbonne, France Stefan Leible Professor of Law, University of Bayreuth; member of the Acquis Group, Germany Ulrich Magnus Professor of Law, University of Hamburg; judge at the Hanseatic Court of Appeal, Germany Thomas Pfeiffer Professor of Law and Vice-Rector, University of Heidelberg, Germany Hans Schulte-Nölke Professor of Law, University of Bielefeld; coordinator of the Acquis Group and of the Joint Network on European Private Law, Germany VIII Contributors Reiner Schulze Professor of Law and Dean of Law Faculty, University of Münster, Germany Evelyne Terryn Professor of Law, University of Leuven, member of the Acquis Group, Belgium Christian Twigg-Flesner Senior Lecturer in Private Law, Law School, University of Hull, United Kingdom Sjef van Erp Professor of Law, University of Maastricht, Deputy Justice Court of Appeals ‘s-Hertogenbosch, The Netherlands Fryderyk Zoll Professor of Law, Jagiellonian University, Cracow, Poland Contents Foreword Contributors V VII Part I General Aspects The Academic Draft of the CFR and the EC Contract Law Reiner Schulze (Münster) Comparative Law and Common Frame of Reference Konstantinos D Kerameus (Athens) 25 “A Better Coherence of EU Private Law” and Multilingualism: Two Opposing Principles? Gianmaria Ajani (Turin) 33 Part II Structures of the DCFR Contract Law or Law of Obligations? – The Draft Common Frame of Reference (DCFR) as a multifunction tool Hans Schulte-Nölke (Bielefeld) 47 Contracts between Consumer Protection and Trade Usages: Some Observations on the Importance of State Contract Law Giuditta Cordero Moss (Oslo) 65 Part III Conclusion and Content of the Contract Pre-contractual duties – from the acquis to the Common Frame of Reference Christian Twigg-Flesner (Hull) 97 Acquis Principles 342 Article 8:403: Contributory negligence and mitigation Damages are reduced or excluded to the extent that the creditor wilfully or negligently contributed to the effects of the non-performance or could have reduced the loss by taking reasonable steps A Foundation in the Acquis Sources Several EU Regulations and Directives recognise that the creditor’s contribution to the damage reduces or even excludes this person’s claim for damages This is the case with the Regulation on Air Carrier Liability (Art (3)), the Package Travel Directive (Art (2) first indent.), the Cross-border Credit Transfer Directive (Art (3)) and the Product Liability Directive (Art (2)) Moreover, the ECJ has applied the principle of contributory negligence in order to reduce the claim of an injured party (see Case C-308/87 Grifoni II [1990] ECR I-1203; though in this case Italian law was agreed as applicable) Equally, Artt 77, 80 CISG, Artt 9:504 and 9:505 of the Lando Principles and the Artt 7.4.7 and 7.4.8 UNIDROIT Principles provide that contributory negligence of the claimant or its failure to mitigate the damage afterwards may reduce or exclude the right to damages The same rule is recognised by the Principles of European Tort Law (Art 8:101) Development The principle that contributory negligence may reduce or even exclude a claim is widely accepted and belongs to those principles which are long since part of the acquis Political Issues The recognition of contributory negligence is mainly based on the policy argument that a creditor cannot claim full damages for a loss which the creditor him- or herself contributed to and which he or she could have avoided or reduced The formulations by which the present acquis expresses the principle of contributory negligence are not very coherent (see also the comment to Article 8:403: Contributory negligence and mitigation 343 Art 8:102 ACQP) The Package Travel Directive and the Cross-border Credit Transfer Directive use the expression that failed performance must be “attributable” to the creditor (cf Art (2) first indent Package Travel Directive and Art (3) Cross-border Credit Transfer Directive) The Air Carrier Liability Regulation requires in Art (3) that the damage is “caused by, or contributed to by, negligence of the injured or deceased passenger.” Art (2) of the Product Liability Directive partly or wholly relieves the producer from liability where “the damage is caused both by a defect in the product and by the fault of the injured person or any person for whom the injured person is responsible.” But despite the differing formulations the underlying general principle is clear and can be expressed as formulated by Art 8:403 ACQP The coherency of the acquis may be also doubted insofar as Art (3) Crossborder Credit Transfer Directive excludes any compensation in case a delay is attributable to the creditor while the other instruments cited allow a reduction or exclusion of damages depending on the circumstances The inconsistency can be removed if Art (3) Cross-border Credit Transfer Directive is understood to refer only to a delay exclusively attributable to the creditor These rules can then be generalised in that an apportionment should be allowed according to the circumstances B Commentary Meaning and purpose The Article states a widely accepted principle, namely that a creditor can- not claim damages insofar and to the extent that he neglected to avoid the creation of damage or to reduce the consequences after a damage occurred The reduction or even exclusion of a damages claim because of contributory negligence or omitted mitigation requires, however, that the creditor neglected a duty in his own interest to beware his own goods and interests from damage Context The provision is part of the damages section of Chapter and specifies a qualification for damages claims It is based on the more general principle that a creditor should not profit from own misdoings Art 8:403 must also be seen in conjunction with Art 8:102 While Art 8:403 addresses the phase and the creditor’s duties when damage occurred Art 8:102 expresses Acquis Principles 344 the same idea for the phase of non-performance of an obligation which need not necessarily result in a loss Explanation a) Contribution or mitigation It does not matter whether the creditor’s contributory negligence refers to the creation of the damage or to the later mitigation of its effects after the initial damage had already occurred In both phases the creditor is obliged to avoid damage as far as this was reasonable If the creditor neglected this duty this results in a reduction of the amount of damages to the extent to which the creditor could have avoided the damage In case of contributory negligence the amount of damages is to be reduced, even to nil in extreme cases Generally, the liable party must adduce the facts which found the defence of contributory negligence or omitted mitigation b) Relevant factors Thus far, the Regulations and Directives not state which factors have to be taken into account for the eventual reduction or exclusion of the creditor’s claim for damages It is however necessary that the creditor has negligently violated the duty to protect his own goods and interests Example A enters into a package tour contract for himself and his family with tour organiser B In the hotel booked by B, A’s daughter is infected with salmonella by food served there Immediate treatment would have avoided a longer stay in hospital However, A waited some days before having the daughter medically treated B is liable for the damage (cost of medical treatment) to the extent immediate treatment would have caused Article 8:405: Interest in case of creditor’s non-performance 345 Article 8:404: Delay in payment of money (grey letter rule from III.–3:708 DCFR) (1) If payment of a sum of money is delayed, whether or not the nonperformance is excused, the creditor is entitled to interest on that sum from the time when payment is due to the time of payment at the average commercial bank short-term lending rate to prime borrowers prevailing for the contractual currency of payment at the place where payment is due (2) The creditor may in addition recover damages for any further loss Comment There is insufficient basis in the acquis for formulating such a rule The DCFR rule above is reproduced in order to show the context in which the acquis rules can operate Please note that the words and expressions used in the rule above may be inconsistent with Acquis Group terminology Article 8:405: Interest in case of creditor’s non-performance The creditor is not entitled to interest to the extent that there has been nonperformance of the creditor’s reciprocal obligation A Foundation in the Acquis Sources The acquis contains a similar rule in Art (1)(c)(i) of the Late Payment Directive according to which “the creditor shall be entitled to interest for late payment to the extent ( ) that he has fulfilled his contractual and legal obligations ( )” Development The acquis deals with questions of interest rather extensively The men- tioned provision of the Late Payment Directive can be generalised Acquis Principles 346 Political Issues It can be questioned whether a creditor shall be entitled to interest only if he fulfilled his own obligations But the synallagma of contracts strongly favours this solution B Commentary Meaning and purpose The Article restricts the creditor’s right to interest Under Art 8:404 the debtor is obliged to pay interest irrespective whether or not the nonperformance of his payment obligation is excused because in any case the debtor could use the money which he owed the creditor The present Article excludes the creditor’s right to interest if, and to the extent that, the creditor has not fulfilled the own reciprocal obligation Context The Article prevails over Art 8:406 which determines the time from which interest starts running This latter provision must be read subject to Art 8:405 Otherwise the present Article had almost no practical application Explanation It is a consequence of the general maxim of good faith and fair dealing that the creditor can claim interest only if he himself has fulfilled his own corresponding obligation If, for instance, the buyer withholds payment because delivery is still lacking (and if the buyer is neither obliged to pay in advance nor irrespective of delivery at a certain date) then it would offend the principle of good faith if the seller would nonetheless be entitled to interest from the date of the agreed delivery But it has to be noted that the provision only refers to the creditor’s reciprocal obligation If the creditor does not fulfil an obligation which is entirely unrelated to the debtor’s payment obligation then interest is due Example Business A has sold a printing machine to business B The date of delivery is 30 June, the date of payment 30 July A delivers on October 31 and B pays Article 8:406: Interest in commercial transactions 347 on November 15 A is not entitled to interest for the time between the contractual date of payment and the actual payment since A had not performed the own reciprocal obligation i.e delivery Due to Art 8:405 the contract must be interpreted in such a way that B had a payment period of one month after delivery Article 8:406: Interest in commercial transactions (1) If a business delays the payment of a price for goods and services without being excused under Art 8:401, interest is due at the rate in para (4), unless a higher interest is applicable (2) Interest at the rate specified in para (4) starts to run (a) on the day which follows the date or the end of the period for payment provided in the contract, and otherwise (b) 30 days after the date when the debtor receives the invoice or an equivalent request for payment; or (c) 30 days after the receipt of the goods or services, it the date under (b) is earlier or uncertain, or if it is uncertain whether the debtor has received an invoice or equivalent request for payment (3) If conformity of goods or services to the contract is to be ascertained by way of acceptance or verification, the 30 day period under para (2) (c) starts to run on the day of acceptance or verification (4) The interest rate for delayed payment (“the statutory rate”) is the interest rate applied by the European Central Bank to its most recent main refinancing operation carried out before the first calendar day of the half-year in question (“the reference rate”), plus seven percentage points (“the margin”), unless otherwise specified in the contract For the currency of a Member State which is not participating in the third stage of economic and monetary union, the reference rate is the equivalent rate set by its national central bank (5) The creditor may in addition recover damages for any further loss A Foundation in the Acquis Sources EU rules on interest are to be found in Art Late Payment Directive (on the date from which interest is running and on the rate of interest) and in Art (1) and (2) Directive on Cross-border Credit Transfers (on the right to interest) The ECJ has recognised in several decisions, e.g Mulder a.o ./ Council and Commission (C-104/89 and C-37/90, ECR 1992, I-3061) and Acquis Principles 348 New Europe Consulting Ltd a.o ./ Commission (T-231/97, ECR 1999, II-2403) that interest has to be paid on sums which are due At least from the day of the judgment onwards, interest is due Also Artt 78 and 84 (1) CISG, Art 9:508 of the Lando Principles and Art (4) (9) of the UNIDROIT Principles contain provisions which permit interest if the payment of a sum of money is delayed Development The provision follows the Late Payment Directive which details the obligation to pay interest between businesses if a payment has been delayed Political Issues A policy issue is the question of whether or not interest should be owed if the debtor’s delayed payment is excused by grounds beyond his or her control Irrespective of any exoneration during delay the debtor is in possession of the money that should actually be in the hands of the creditor For this reason, for instance, the CISG does not apply the exoneration provision to interest claims On the contrary, it can likewise be argued that an exoneration to pay must also extend to the duty to pay interest The acquis follows this latter rule B Commentary Meaning and purpose The Article addresses the obligation to pay interest between businesses and specifies (for them) the general provision contained in Art 8:404; which follows exactly the provisions of the Late Payment Directive The interest duty under Art 8:406 accrues only if the business is not excused from delayed payment by circumstances beyond its control The present Article further details the date from which on the interest obligation starts to run, and it fixes the rate of interest Article 8:406: Interest in commercial transactions 349 Context The Article is to be read in conjunction with Art 8:405 and Art 8:401 If the creditor itself does not perform his own reciprocal obligation then he cannot claim interest Furthermore, the debtor is exonerated from the duty to pay interest if the delay is excused by circumstances beyond the debtor’s control Art 8:406 (5) reserves the creditor’s right to recover damages for any further loss under Art 8:401 Explanation a) Right to interest The right to interest amongst businesses accrues when the payment of a sum of money is delayed The right accrues automatically without specified notice being necessary (see Art (1)(a) and (b) Late Payment Directive) The ground for the delay is generally irrelevant The right to interest does, however, not accrue if the debtor can prove that he is not responsible for the delay b) Relevant date Para (2) – the wording of which is taken from Art Late Payment Direc- tive – fixes the regular date from which interest starts running for transactions between commercial parties: first, on the agreed date; otherwise 30 days after the receipt of the goods or services or, if later, 30 days after receipt of the invoice Para (3) prolongs this date where goods or services have to first be ascertained in a certain way c) Relevant rate Para (4) fixes the relevant rate of interest in accordance with Art (1)(d) Late Payment Directive if the parties to the contract have not agreed on another rate of interest d) Further damage Interest is a means to fix in a rather abstract way the damage caused by de- layed payment Since the concrete damage of the creditor may be higher then (5) provides that this party may also recover further damage Acquis Principles 350 Example 10 Business A has sold a truck to business B for € 100.000 Neither a delivery date nor a payment date was agreed upon The truck was delivered on May A sent an invoice which B received on 17 July B pays on 30 October On the same day the money is in A’s bank account B is obliged according to Art 8:406 (2)(b) to pay interest from 30 days after the date when he received the invoice (the earlier receipt of the truck does not matter) Interest therefore runs from 17 August until 29 October The rate of interest is to be determined according to Art 8:406 (4) If A had to take credit at a higher interest rate or had other losses through the delay A is still entitled to recover that damages for that loss (Art 8:406 (5)) Article 8:407: Unfair clauses relating to interest (1) A clause whereby a business pays interest from a date later than that specified in Art 8:406 para (2)(c) and para (3), or at a rate lower than that specified in Art 8:406 para (4), is not binding insofar as this would be grossly unfair to the creditor, taking into account all circumstances, including good commercial practice and the nature of the goods or services (2) A clause whereby a debtor is allowed to pay the price for goods or services later than the time when interest starts to run under Art 8:406 para (2)(b) and (c) and para (3) does not deprive the creditor of interest to the extent that this would be grossly unfair, taking into account all circumstances, including good commercial practice and the nature of the goods or services A Foundation in the Acquis Sources The Article is based on Art (3) Late Payment Directive That provision allows the option either to invalidate unfair clauses on interest or deferred payment or, to grant a claim for damages instead The present provision opts for the first alternative Neither the CISG nor the Lando Principles or the UNIDROIT Principles contain a comparable rule Article 8:407: Unfair clauses relating to interest 351 Development The provision is part of the EU strategy to improve the situation of small and medium-sized enterprises for which late payment is a particular problem and burden often threatening their existence (see also Recital no and Late Payment Directive) The cross-border trade and the proper functioning of the single market is also regarded as being impaired by different payment rules and practices (recital no Late Payment Directive) Political Issues The Late Payment Directive necessitates to choose between the option to either invalidate clauses inconsistent with the Directive, or to award damages where inconsistent clauses are used A policy choice could also combine both approaches by first invalidating such clause and entitle the creditor in addition to damages with respect to any further loss caused through late payment This solution has been adopted by the Acquis Principles B Commentary Meaning and purpose The Article invalidates certain clauses concerning interest and late payment between businesses when these clauses are grossly unfair to the creditor The provision intends to “prohibit abuse of freedom of contract to the disadvantage of the creditor” (see verbally Recital no 19 Late Payment Directive which justifies the respective provision of that Directive) Context The provision belongs to the Articles on interest (Art 8:405-8:407) which in essence intend to discourage late payment The Article does not preclude a claim for damages if the use of unfair interest terms should have caused any damage to the creditor Acquis Principles 352 Explanation a) Deviation from prescribed interest parameters Art 8:407 (1) invalidates a clause under which the date or rate of interest deviates from the legally fixed standard if in the light of all the circumstances the clause is grossly unfair to the creditor The term ‘clause’ does not require a standard contract term; individually negotiated clauses are also covered Art (3) Late Payment Directive uses the notion “agreement“ and thus comprises also individually negotiated terms However, the purpose of the provision requires that the clause must be proposed by, and agreed upon on the initiative of, the debtor If the creditor voluntarily proposed the clause it cannot be regarded as grossly unfair to him Whether a clause is grossly unfair depends on all the circumstances and must be objectively assessed with respect also to good commercial practice (e.g the usual date and rate of interest in the specific branch) and the nature of the goods or services It has also to be taken into account whether the debtor has any objective reason to deviate from the prescribed interest parameters (see explicitly Art (3) Late Payment Directive) b) Extension of payment date Art 8:407 (2) orders that the creditor does not lose his entitlement to interest if a clause extends the time for payment over the period from which interest would normally start running and if such extension is grossly unfair to the creditor The question of gross unfairness has to be answered in the same way as under (1) c) Consequences If a clause is grossly unfair it is unenforceable (Art (3) Late Payment Directive) The debtor cannot rely on it Instead, the legally prescribed terms apply, which can also be found explicitly in Art (3) Late Payment Directive This rule however, allows that the national courts may determine differing fair conditions Article 8:407: Unfair clauses relating to interest 353 Example Business A (seller) and business B (buyer) have entered into a contract on 10 the sale of computer hardware B’s standard terms have been validly incorporated into the contract The standard terms contain the following clause: “In case of delayed payment interest starts running only if the delivered hardware had worked correctly for a period of twelve months.” The clause must be interpreted contra proferentem (Art 6:203 (1)) It must therefore be read as meaning that the contractual date at which interest starts running is one year after delivery A further requirement is that the delivered good fully functions This clause drastically deviates from the normal date when interest begins to run It must be regarded as grossly unfair and irreconcilable with good commercial practices since it excludes an effective sanction for delayed payment In fact, if valid, the clause would encourage the buyer to delay payment for a whole year The buyer’s/debtor’s interest to ensure that the purchased good conforms to the contract would be one-sidedly preferred at the expense of the seller/creditor Table of Cases European Court of Justice C-140/97 – W Rechberger and others / Austria 8:401 2, 10, 11 C-172/97 – SIVU du plan d'eau de la Vallée du Lot / Commission of the European Communities 8:301 C-40/98 – Commission of the European Communities / Tecnologie Vetroresina SpA (TVR) 8:301 C-168/00 – Leitner / TUI Deutschland 8:401 2, 10, 8:402 2, 9, 13 C-6/90, C-9/90 (joint cases) – Francovich / Italy 8:401 2, 10 C-34/87 – Culin / Commission 8:401 10, 8:402 C-358/90 – Compagnia italiana alcool / Commission 8:401 11 C-308/87 – Alfredo Grifoni / European Atomic Energy Community (Grifoni II) 8:402 2, 8:403 C-104/89, C-37/90 (joint cases) – Mulder and others / Council and Commission 8:406 356 Table of Cases Court of First Instance T-572/93 – Odigitria / Council and Commission 8:401 11 T-231/97 – New Europe Consulting Ltd and others / Commission 8:406 T-47/93 – C / Commission 8:401 2, 10 T-168/94 – Blackspur DIY / Council and Commission 8:401 2, 10 T-230/94 – Farrugia / Commission 8:401 2, 10 German Federal Court Judgement (X ZR 119/01) November 2004, NJW 2005, 418-420 8:401 12