Introduction

1. The Building Societies Association (BSA) represents mutual lenders and deposit takers in the UK including all 49 UK building societies. Mutual lenders and deposit takers have total assets of over £365 billion and, together with their subsidiaries, hold residential mortgages of almost £235 billion, 19% of the total outstanding in the UK. They hold more than £245 billion of retail deposits, accounting for 21% of all such deposits in the UK. Mutual deposit takers account for about 36% of cash ISA balances. They employ approximately 50,000 full and part-time staff and operate through approximately 2,000 branches.

Summary

2. The BSA has no direct evidence to suggest that the divergence of contract laws at national level causes any problems. However, our sector does its business primarily within the UK and has considerably less cross-border transactions than certain other business sectors. It should be borne in mind that English contract law has developed over many centuries, in a logical yet organic fashion, mainly through the common law and equity. It is dynamic and it is broadly fit for purpose in relation to business-business and consumer-business transactions in England and Wales. This is also true of other parts of the UK and presumably similar comments could be made in respect of other EU Member States. The main criticism that could be levelled at current frameworks are that they are overly complicated and could do with simplification, but we believe that any such rationalisation is best achieved primarily at national level (see paragraph 5 below).

3. While we appreciate that there might be improvements that could be made to help facilitate cross-border transactions, we believe a European Contract Law that led to fundamental changes to national laws of contract - ie domestic contract law -would be a retrograde step. The upheaval of seeking to unify national contract laws, and the loss of focused frameworks developed over many centuries, would be immense; indeed, the adverse consequences of such disruption would far outweigh any benefits. It would also represent a disproportionate response to the current problems identified by the Green Paper.

4. We therefore favour, in principle, Option 1 (publication of the results of the expert group) because, as the Green Paper states,

If the Expert Group produces a practical and user-friendly text, this could be used by European and national legislators as a source of inspiration when drafting legislation and by contractual parties when drafting their standard terms and conditions. It could also be used in higher education or professional training as a compendium drawn from the different contract law traditions of the Member States. Extensive use of this work could contribute, in the long term, to the voluntary convergence of national contract laws.”

We recognise the limitations of this approach identified in the Green Paper and would not, therefore, wish to see option 2 (An official “toolbox” for the legislator) ruled out. This approach might facilitate certain targeted changes to help alleviate current tensions. In the event, should the European Union decide to move towards a European contract law, we believe it imperative that it be limited to cross-border transactions and that Member States’ domestic contract laws should remain intact as national codes.

5. From the UK perspective, the Association believes that a simplification of consumer laws, including relevant contract laws, is overdue. A BSA paper on the matter can be accessed at the link below -

Link to the BSA paper

The BSA Secretariat would be very happy to discuss any aspects of the paper.

Questions and Answers

Question 1
Does the current regulation of contract law, and in particular divergence of laws at national level, present problems? If problems are present, how significant are they? How can any problems be quantified, and who is affected by them?

We do not believe so (see paragraph 2 above).

Question 2
What are your views on the relative advantages and disadvantages of each of the options and sub-options identified in the Green Paper? In particular, which should be preferred and why?

Option 1: Publication of the Results of the Expert Group
Option 2: An official “toolbox” for the legislator
2(a) via a Commission act; or
2(b) via inter-institutional agreement
Option 3: Commission Recommendation on European Contract Law
3(a) via encouragement for Member States to replace national laws with the European Union instrument; or
3(b) via encouragement to Member States to incorporate the European Union instrument as an optional regime
Option 4: Regulation setting up an optional Instrument of European Contract Law
Option 5: Directive on European Contract Law
Option 6: Regulation establishing a European Contract Law
Option 7: Regulation establishing a European Civil Code

We favour Option 1 (see paragraph 4 above).

Question 3
Should any future work/response cover any or all of:

• business-to-business contracts?
• business-to-consumer contracts?
• on-line transactions?

What are the specific points that lead you to conclude this?

Should any solution attempt to regulate both cross-border and domestic contracts or approach those separately or differently?

We see no reason to exclude any of the three above areas, provided the work is necessary and is limited to option 1 (or, at most, option 2) and restricted to cross-border contracts.

Question 4
What should be the preferred “material scope” of any instrument?

For reasons explained, we do not favour a legislative response.

Question 5
Are there any other matters not covered in the Commission’s Green Paper or this Call for Evidence which you think should be addressed in this exercise and any following work? What are those issues and why should they be covered here?

Not by this particular exercise but (as noted in paragraph 5 above) we strongly believe that definitive progress should now be made on consumer law simplification.