European law - Distance selling
With the establishment and development of the internal market, cross border trade has increased to a great extent in the European Union, mainly due to the removal of barriers to trade between the member states. In fact distance selling, particularly...
With the establishment and development of the internal market, cross border trade has increased to a great extent in the European Union, mainly due to the removal of barriers to trade between the member states. In fact distance selling, particularly via the internet, has become a dominant channel for businesses and individuals in their cross-border dealings.
The need to regulate the contractual obligations of companies and individuals when engaging in cross-border business activities has long been felt. In 1980 the Rome Convention was signed between the then 15 EU member states outlining a set of rules applicable to contracts entered into between EU citizens. Having the form of an international treaty, the Rome Convention does not guarantee a uniform application in all the member states of the EU.
In 2005, the European Commission came up with a proposal for a Rome I Regulation. This proposal is aimed to convert the Rome Convention into a Community instrument having automatic applicability in all the member states of the EU and intended to obtain greater harmonisation of the rules governing contracts. This proposal was preceded by extensive consultations conducted by the Commission with the stakeholders in the member states and with civil society at large.
The proposed regulation contains some changes of potential implications to all businesses and individuals in Europe. Concern has arisen about the provisions contained in the regulation's article 5.
This article introduces the new idea that any business-to-consumer contract will be regulated by the law of the country in which the consumer is habitually resident. Therefore, the place of habitual residence of the consumer will determine the applicable law of the contract, irrespective of the place of establishment of the business of the trader. For consumers that are companies or firms, their principal place of establishment is considered to be their habitual residence.
This new rule envisaged in the proposed regulation entails that companies which sell products across borders will have to deal with consumer complaints under the different legal systems of the member states of the EU. This will apply to all cross-border contracts concluded by businesses and consumers in Europe. However, the rule will not apply to service contracts where the service is to be supplied to the consumer exclusively in a country other than that in which he has his habitual residence, to contracts of carriage, and to contracts relating to immovable property.
The new rule has been the subject of much debate among consumer associations and traders' representatives. On the one hand, consumer associations such as the European consumer-rights group BEUC praised its introduction, claiming that consumers require a degree of legal certainty when engaging in distance selling. The Commission has also justified its proposal as the fairest solution given that consumers make cross-border purchases only occasionally, while traders in the business of operating across borders will do so on a regular basis. On the other hand, traders have criticised this rule as a threat to the growth of online sales, claiming that businesses that trade overseas via the internet, especially small-and-medium sized enterprises, would have to incur additional costs in order to comply.
This month the proposed Rome I Regulation is expected to be voted through the European Parliament in Brussels.
• Dr Grech is an associate with Guido de Marco and Associates and heads its European Law Division.
The need to regulate the contractual obligations of companies and individuals when engaging in cross-border business activities has long been felt. In 1980 the Rome Convention was signed between the then 15 EU member states outlining a set of rules applicable to contracts entered into between EU citizens. Having the form of an international treaty, the Rome Convention does not guarantee a uniform application in all the member states of the EU.
In 2005, the European Commission came up with a proposal for a Rome I Regulation. This proposal is aimed to convert the Rome Convention into a Community instrument having automatic applicability in all the member states of the EU and intended to obtain greater harmonisation of the rules governing contracts. This proposal was preceded by extensive consultations conducted by the Commission with the stakeholders in the member states and with civil society at large.
The proposed regulation contains some changes of potential implications to all businesses and individuals in Europe. Concern has arisen about the provisions contained in the regulation's article 5.
This article introduces the new idea that any business-to-consumer contract will be regulated by the law of the country in which the consumer is habitually resident. Therefore, the place of habitual residence of the consumer will determine the applicable law of the contract, irrespective of the place of establishment of the business of the trader. For consumers that are companies or firms, their principal place of establishment is considered to be their habitual residence.
This new rule envisaged in the proposed regulation entails that companies which sell products across borders will have to deal with consumer complaints under the different legal systems of the member states of the EU. This will apply to all cross-border contracts concluded by businesses and consumers in Europe. However, the rule will not apply to service contracts where the service is to be supplied to the consumer exclusively in a country other than that in which he has his habitual residence, to contracts of carriage, and to contracts relating to immovable property.
The new rule has been the subject of much debate among consumer associations and traders' representatives. On the one hand, consumer associations such as the European consumer-rights group BEUC praised its introduction, claiming that consumers require a degree of legal certainty when engaging in distance selling. The Commission has also justified its proposal as the fairest solution given that consumers make cross-border purchases only occasionally, while traders in the business of operating across borders will do so on a regular basis. On the other hand, traders have criticised this rule as a threat to the growth of online sales, claiming that businesses that trade overseas via the internet, especially small-and-medium sized enterprises, would have to incur additional costs in order to comply.
This month the proposed Rome I Regulation is expected to be voted through the European Parliament in Brussels.
• Dr Grech is an associate with Guido de Marco and Associates and heads its European Law Division.