MAASTRICHT UNIVERSITY

A Glance at the Harmonization Process of

Private Law in Europe

Desirability and Feasibility

León Manuel González Mercé

2012

I am grateful to scholars Dr. Niels Philipsen and Dr. Michael Faure for their classes on the field of Law and Economics, Dr. Fernando Gómez Pomar for his useful works on the topic, and Dr. Agustín Parise for his valuable historical background.

Abstract

This paper aims to present a general overview of the European Contract Law harmonization process and

the two main questions arising from it: is a harmonize contract law in Europe desirable? If it is desirable,

how can be this harmonization achieved? Most important arguments used by different scholars will be

analyzed from a Law and Economics perspective. Some notes about tort law can also be found

throughout the text. A definitive answer to this question is beyond the scope of this paper. The goal of this

paper is to serve as an easy to understand and clearly structured introduction to the topic. This paper will

facilitate a future in depth study of the topic by providing extensive bibliographical footnotes.

Section 1 will introduce the issue; Section 2 will provide an historical approach; Section 3 will present

and examine the two questions, analyzing the economic and political arguments from a Law and

Economic criterion. Finally, Section 4 provides a brief conclusion.

Summary

1. Introduction 2. Historical approach 3. The two main questions arising from the harmonization process

3.1. The desirability question 3.1.1. Economic thoughts

3.1.1.1. Against harmonization through Tiebout’s model

3.1.1.2. Counterarguments of the effectiveness of Tiebout’s model and its

benefits

3.1.1.3. In favor of the harmonization of the private law in Europe 3.1.2. Political thoughts

3.1.2.1. Political arguments supporting harmonization

3.1.2.2. Political arguments against harmonization 3.2. The feasibility question

3.2.1. A European Civil Code

3.2.1.1. Against a European Civil Code

3.2.2. Harmonization trough an “organically progressive” legal science 4. Conclusions

References

1. INTRODUCTION

This paper aims to present the abstract and complex harmonization issue in an easy to understand way,

which can serve as an introduction to the unfamiliar reader and provide a general though useful outlook.

Attention will be focused on the answers to the two main questions: is a harmonize contract law in

Europe desirable? If it is desirable, how can be this harmonization achieved? Opposed arguments from

different approaches will be presented and analyzed them from a Law and Economic view. The

bibliographical footnotes below can provide a deeper study of the topic.

An important historical approach of the issue, inspired by Dr. Reinhard Zimmermann, will be discussed

in the first chapter. The second chapter will try to answer the question of the desirability and feasibility of

the harmonization of private law in Europe. This chapter is divided into two parts. First, this chapter

discusses the desirability of harmonization by approaching the question through the different economic

and politic arguments provided by scholars such as Legrand, Collins, Reding, Smits or Zimmermann

among others. A Law and Economics perspective will be represented by Dr. Faure or Dr. Gómez.

Second, the question of the feasibility of harmonization will be presented and the different ways of

harmonization will be analyzed again using the arguments of the different authors.

Finally, the conclusion will try to find a meeting point among the opposed arguments.

It must be stressed that this paper does not pretend to provide an answer to this difficult and complex

question, but rather endeavors to present an overview of the answers provided by a variety of authors in

the form of an introduction to the topic of harmonization of private law in Europe.

Should the European Union establish a harmonized private law or even a European Civil Code? How? I

will start presenting some data to introduce the topic.

Foreign plaintiffs need to present stronger cases to win in US Courts than American plaintiffs and this

deters firms from engaging in cross-border contracting.1 Similarity of legal systems between countries

may be able to produce roughly between 50-80% more cross-border trade.2 Legal similarity can increase

1 CLERMONT and EISENBERG (1996). Cited in: Juan José GANUZA and Fernando GÓMEZ `Optimal

Standards for European Law: Maximum Harmonization, Minimum Harmonization, and Co-Existence of Standards´ (2011) p. 2 2 DEN BUTTER and MOSCH (2003). Cited in: Juan José GANUZA and Fernando GÓMEZ `Optimal

Standards for European Law: Maximum Harmonization, Minimum Harmonization, and Co-Existence of Standards´ (2011) p. 3

trade among OECD countries up to 65%.3 Some Luxemburg consumers fear being excluded from access

to some products and services, offered in the common market, due to costly differences in their contract

law from that of countries.4 61% of consumers have to give up their account with their internet provider

because the providers do not often offer their services in more than one country.5 Trade across national

borders is a powerful engine of economic growth and social development for societies.6 If a proper

internal European market is to be created, a uniform private law is a prerequisite; integration and

unification must go hand in hand.7

Contrary to nearly all the other disciplines taught at a modern university, legal science in Europe has

been, at least for the last hundred years, predominantly national in substance, outlook, and approach.

Thus, professors at national universities have started to write textbooks on their nation’s law to be read by

their nation’s students.8

Each one of the 27 EU states has its own doctrine of modern private law, its own

curriculum in law courses, its own examination requirements or its own pre-requisites for entry into the

legal profession.9

This nationalistic character of our current legal systems contrasts with an increasingly globalized world

and institutionalized Europe. One might find this surprising given that in Italy and Germany, political and

economic integration of the states brought about a unification of the legal system10; one would suspect

that Europe would be moving in the same direction toward unification.

Furthermore, being the expansion of the single market and the increase of cross-border trade the primary

goals of EU policy, we can think that some steps would have been taken to harmonize legal rules and

standards in order to remove barriers to economic transactions across borders. In fact, article 26 TFEU

(similar to article 14 EC Treaty) envisages the harmonization of the legal systems to the extent required

for the proper functioning of the common market.

3 TURRINI and VAN YPERSELE (2006). Cited in: Juan José GANUZA and Fernando GÓMEZ `Optimal

Standards for European Law: Maximum Harmonization, Minimum Harmonization, and Co-Existence of Standards´ (2011) p. 2 4 Viviane REDING, `Warum Europa ein optionales Europäisches Vertragsrecht benötigt´ (2011), p. 1

5 ID. p. 2

6 Juan José GANUZA and Fernando GÓMEZ `Optimal Standards for European Law: Maximum Harmonization,

Minimum Harmonization, and Co-Existence of Standards´ (2011) p. 2 7 Jan SMITS, `A European Private Law as a Mixed Legal System´, Maastricht Journal (1998), p. 328

8 Reinhard ZIMMERMANN, `Savigny’s legacy: legal history, comparative law, and the emergence of a

European legal science´, Law Quarterly Revew (1996) p. 578 9 Until Ley 34/2006, de 30 de Octubre, sobre el acceso a las profesiones de Abogado y Procurador de los Tribunales

(enforceable from November 2011), Spain pre-requisites for entry into the legal profession were just being a graduate in

law and a member of the Bar Association, far more lenient pre-requisites than in other EU countries. 10

Ole LANDO, `Principles of European Contract Law´ (2002), p. 56

Thus, many Directives have been enacted to achieve a legal harmonization in areas as diverse as unfair

competition law, antitrust law, intellectual property law, labor law and company law. However, instead of

providing more coherence, rationality and predictability, some authors think that the uniform law

emanating from the EU is selective and uncoordinated.11

Scholars have described the current system as:

“Islands of uniform law in a sea of national law”.12

“Limited area, which is also rather fragmentary”.13

“A

Brussels brick here and there within the national private law building”.14

This being the case, the codification of European private law, as a more coherent and systematic

alternative, is at the center of the intellectual and policy debate.

In this in mind, the European Commission subsidized (in the Sixth Framework Program15

) the creation of

the Draft Common Frame of Reference (DCFR)16

which is a body of proposed rules, containing

mandatory and default rules, as an immediate source of legal rules or an influence upon law-makers.17

The DCFR is based on previous projects such as the Principles of European Contract Law (PECL),18

international commercial law of the United Nations Commission on International Trade Law

(UNCITRAL)19

and the rules enacted by the International Institute for the Unification of Private Law

(UNIDROIT).20

Taking another step further towards harmonization, the Commission has established an Expert Group21

to

produce a European Civil Code working on the DCFR. At the same time, a public consultation about the

issue has been launched by the Commission22

and regular meetings with experts in the field designed by

11

Reinhard ZIMMERMANN, `Roman Law and European Legal Unity´, Towards and European Civil Code (1998), p. 24 12

Hein KÖTZ, `Rechtsverleichung und gemeineuropäishes Privatrecht´, in: Peter-Christian MÜLLER-GRAFF, `Gemeinsames Privatrecht in der Europäischen Gemeinschaft´ (1999), p. 151 13

Jan SMITS, `A European Private Law as a Mixed Legal System´, Maastricht Journal (1998), p. 329. 14

Oliver REMIEN, `Über den Stil des Europäischen Privatrechts´ (1996), p. 60 15

The Framework Programmes for Research and Technological Development are funding programmes created by the EU

in order to support and encourage the scientific research of the European Research Area (ERA). 16

C.VON BAR, E. CLIVE, H. SCHULTE-NÖLKE, `Principles, Definitions and Model Rules of European Private Law – Draft Common Frame of Reference (DCFR) (2009) 17

“Undeniably an impressive output from an important academic and legal endeavor in the field of Private Law and, in particular, of Contract Law, in the European context”. Juan José GANUZA and Fernando GÓMEZ, `An Economic Analysis of Harmonization Regimes: Full Harmonization, Minimum Harmonization or

Optional Instrument? (2011), p. 1 18

Ole LANDO, `Principles on European Contract Law prepared by the Commission on European Contract Law´ (2000-

2003) 19

UNCITRAL, established by the United National General Assembly. Resolution 2205 (XXI) of 17 December 1966. 20

UNIDROIT, principles of international commercial contracts published by the International Institute for the Unification

of Private Law (2004) 21

Commission Decision of 26 April 2010 (OJ L 105, 27 April 2010) 22

Green Paper from the European Commission on policy options for progress towards a European Contract Law for

consumers and businesses (COM (2010) 348 final)

the most important associations are taking place.23

After this short introduction to the current status of the discussion, the following sections will provide a

deeper analysis for a better understanding of the topic.

2. HISTORICAL APPROACH

Given the current nation-centric outlook and approach to legal science, one might be tempted to

presuppose that this situation is unaltered since human societies are governed by law. However, this

status quo dates back to only one hundred years ago. Before that time, a common European legal culture,

centered on a legal scholarship and legal practice that were informed by the same sources, did once

exist.24

This European law is known as the Roman-canon ius commune, born in the Renaissance of the

12th

century in Bologna where lawyers began to penetrate the Digest (the most important body of Roman

sources on law and recently rediscovered at that time) using the scholastic method to make it

intellectually accessible. Law became rationalization and Romanisation, turning into a `legal science´ and

was spread throughout Europe by the process known as “Reception”.25

Unlike today, Law was recognized

and applied on an international scale.26

Not until the 18th

century do we find the emergence of nationalism. The French Revolution (1789-1799)

and the Napoleonic Code (1804), representing a symbol of an undivided nation, started the disintegration

of the common European legal culture and the development of the modern codified legal systems in a

process described as emancipation (by thinking apart Roman law and modern law27

). At the same time

(1814), the “Holy Roman Empire of the German Nation” had come to an end and two ideological currents

were emerging: those headed by A.F.J. Thibaut28

and Fiedrich Carl von Savigny.29

Both wanted “a

national community whose scientific endeavors focus upon one and the same object”, but they differed on

23

Viviane REDING, `Warum Europa ein optionales Europäisches Vertragsrecht benötigt´ (2011), p. 5 24

Reinhard ZIMMERMANN, `Roman Law and European Legal Unity´, Towards and European Civil Code (1998), p. 22 25

More about Roman law and history of law: O.F ROBINSON ‘European Legal History: Sources and Institutions´

(2000). R. LESAFFER ´European Legal History: A Cultural and Political Perspective´ (2009). P. STEIN `Roman Law in

European History´ (1999). 26

An example was Heineccius’ Elementa iuris civilis, used as a textbook at universities such as Halle, Pavia, Bologna,

Cracow or Oxford and appeared in 75 editions in Germany, Italy, Switzerland, Austria, Belgium, France and Spain. 27

Ernst Immanuel BEKKER `Die Aktionen des römischen Privatrechts´, vol I, (1871), p. 2. Cited in: Reinhard

ZIMMERMANN, `Roman Law and European Legal Unity´, Towards and European Civil Code (1998), p. 32 28

A.F.J. THIBAUT, `Über die Notwendigkeit eines allgemeinen bürgerlinchen Rechts für Deutschland´(On the Necessity

of a General Civil Law for Germany) 29

Friedrich Carl von SAVIGNY, `Vom Beruf unserer Zeit für Gesetzgebung und Rechtswissenschaft´(Of the Vocation of

our Time for Legislation and Legal Science)

the way of doing it. The former argued for a German Civil Code which followed the French example and

which would facilitate the emergence of an undivided German nation and render the law easily accessible

to the public. The latter thought that codification was “inorganic, unscientific, arbitrary and hostile to

tradition”. He argued for an “organically progressive legal science which may be common to the whole

nation”.30

Many similarities can be shown between this discussion in the early 19th

century in Germany and our

situation in Europe today.31

We are facing a period of transition; an age of post-positivism.32

As Germans

or French did at that time, we are now called to decide whether the harmonization of the European private

law is desirable or not, and if so, how can we succeed in the attempt. We are called to answer the question

of the desirability and feasibility of harmonization.

Savigny’s ideas succeed in Germany and the pandectist legal science built the conceptual foundations of

the German Civil Code (1900). Can we suppose that history will repeat itself and …..

3. THE TWO MAIN QUESTIONS OF THE HARMONIZATION PROCESS

3.1. The question of desirability

Is a harmonized European private law desirable?

3.1.1. Economic thought

The main arguments in favor of the harmonization process and its desirability are related to the proper

functioning of the internal market and respond to economic reasons. At the same time, arguments can be

analyzed from an efficiency criterion by applying a normative economic analysis (Law and Economics

analysis33

) and providing useful information of the costs and benefits of a specific legal regime.

30

Friedrich Carl von SAVIGNY, `Beruf´, p. 192. Cited in Reinhard ZIMMERMANN, `Savigny’s legacy: legal history,

comparative law, and the emergence of a European legal science´, Law Quarterly Revew (1996) p. 576-577 31

See, Reinhard ZIMMERMANN, `Savigny’s legacy: legal history, comparative law, and the emergence of a European

legal science´, Law Quarterly Revew (1996), p. 578 32

Reinhard ZIMMERMANN, `Roman Law and European Legal Unity´, Towards and European Civil Code (1998), p. 41 33

For an extensive bibliography on a Law and Economics analysis of the issue, see footnote 9 in Juan José GANUZA and

Fernando GÓMEZ, `An Economic Analysis of Harmonization Regimes: Full Harmonization, Minimum Harmonization or

Optional Instrument?´ (2011), p. 5

An important element of the economic debate is the Tiebout hypothesis34

. In this model, Law is a public

good (Contract/Tort Law in our case) and the beneficiaries (contracting parties) would choose (if

necessary, by changing their community35

) the set of rules that provides them the maximum available

welfare.

The Tiebout’s hypothesis and the regulatory competition premise have been used in arguments

concerning the desirability of the harmonization of private law in Europe.

3.1.1.1. Against harmonization through Tiebout’s model:

Harmonization would stop the learning process which takes place between jurisdictions

and thus reduce the resources for improving current legal solutions.36

This argument suggests that jurisdictions can learn from the mistakes or achievements of

different jurisdictions and the elimination of diversity would bring legal experimentation

to an end.

The weak point of the argument is the presumption of global harmonization. If the

harmonization of the private law in the EU were a reality, other jurisdictions of the world

(Asia, America etc.) would still be able to provide different legal solutions and therefore

the learning process would be still possible. Similarly, the argument lacks the support of

an empirical study. No theory analysis suggests that legislators learn from the diversity of

legal systems available to them now, and it is even possible that evaluative efforts would

increase after the harmonization process.

Harmonization would stop competition between jurisdictions and preferences of the

citizens would not be satisfied.

The argument suggests that following Tiebout’s model, governments compete to provide

34

Charles TIEBOUT, `A Pure Theory of Local Expenditures´ Journal of Political Economy (1956), p. 416 35

For more information about “vote with the feet” TIEBOUT’s model, see: WAGNER (2002), p. 1007. Cited in: Juan José GANUZA and Fernando GÓMEZ, `Fundamentos económicos de la armonización del Derecho privado europeo´ (2011), p. 12 36

RIBSTEIN and KOBAYASHI (1996), p. 140-141; OGUS (1999), p. 415; WAGNER (2005), p. 38; VAN DEN BERGH

and VISSCHER (2006), p. 517; WAGNER (2007), p. 5; RÜLH (2009), p. 14. Cited in: Juan José GANUZA and Fernando

GÓMEZ, `Fundamentos económicos de la armonización del Derecho privado europeo´ (2011), p. 10

legislation that corresponds best to the preferences of the citizens, wishing to attract

immigrants to their own jurisdiction.37

Indeed, lawmakers in the nation-states will create a

competitive market for the supply of law.38

Thus, by harmonizing legislations, lots of

preferences of the citizens would be underestimated. The argument suggests that

differences in legal systems are rooted in legal culture and legal tradition39

and therefore

these differences reflect preferences of the citizens. Legal diversity is the outcome of

these diverging preferences.40

In the same way, standards should not be independent of

the level of wealth of the parties subject to the standards; rules should be responsive to

the economic conditions.41

Uniform rules would make matters worse if the standard is

maladapted to the true conditions of the relevant population.42

The fact that the UK does

not have strict liability for motor vehicle accidents and France does should be explained

by differences in domestic preferences regarding reduction of accident costs.43

Maintaining local legislation is optimal since local legislators have the best information

on local problems and the preferences of the citizens.

3.1.1.2 Counterarguments of the effectiveness of Tiebout’s model and its benefits:

Tiebout’s model only applies under certain restrictive conditions.

The model requires citizens to have adequate information of the content of the different

legislations. Voting with your feet (exit) is often costly and where one chooses to live

may not be decided solely on the criteria of the most preferred legal regime.

Moreover the model assumes that the goal of the main Governmental players is to

respond to citizen’s preferences and not, for instance, the preferences of the

37

Roger VAN DER BERGH (1998), p. 134. Cited in: Michael FAURE, `How Law and Economics may contribute to the

harmonization of tort law in Europe´ (2003), p. 7 38

Anthony OGUS, `Competition between National Legal Systems: A Contribution to Economic Analysis to Comparative

Law´ (1999), p. 405-418 39

See, Pierre LEGRAND, `Against a European Civil Code´ The Modern Law Review Limited (1997). 40

Willem H. VAN BOOM ´Harmonizing Tort Law´ A Comparative Tort Law and Economics Analysis (2009), p.4 41

Fernando GÓMEZ, `The Harmonization of Contract Law through European Rules: a Law and Economics Perspective´

(2008), p. 13 42

See, Juan José GANUZA and Fernando GÓMEZ, `Realistic Standards: Optimal Negligence with Limited Liability´Journal of Legal Studies (2008) 43

Anthony OGUS, `Competition between National Legal Systems: A Contribution to Economic Analysis to Comparative

Law´ (1999), p. 414

Governmental players or lobby groups.44

It seems unlikely that regulatory competence

could implement a socially optimal outcome in the real world.

Harmonization is needed when transboundary externalities are shown.

Tiebout’s model only applies if the problem to be regulated is merely local. In cases

where the harm produced by the activity in one territory is only felt outside this territory,

there are no incentives to impose stringent regulations to internalize the harm. Given this

risk, some kind of centralization may be preferable. However some scholars reject a total

harmonization in this case and provide other possible solutions such as co-operation or a

“transboundary only” regime.45

Tiebout’s hypothesis and competition between legislations would end in a race to the

bottom where legislations would be competing through lenient standards to attract

foreign investments (destructive competition).

This argument is related to environmental standard-setting (tort law) and based on the

prisoner’s dilemma46

inefficiency by which states would progressively lower their

standards in order to attract industry. Empirical evidence is not entirely conclusive47

, but

some recent analysis tries to prove that this sort of destructive competition would take

place.48

The argument presuppose that states would prefer to attract industry instead of a

healthy environment (with less carbon emissions) and that firms would prefer lenient

standards. However some evidence suggests that Member States strive for high

environmental standards by charging extra costs to industry or those firms located in a

high standard Member State would get technological improvements and thus competitive

advantages.49

Then, a race to the top instead of a race to the bottom could arguably

44

US “competitive market” in Corporate Law is shown to produce optimal rules with respect to issues that don’t

have a substantial effect on management’s private benefits, but not with respect to issues that have such an effect.

See, Fernando GÓMEZ and Maribel SAEZ, `Competition, Inefficiencies and Dominance in Corporate Law´,

Journal of Institutional and Theoretical Economics (2006), p. 161 45

Michael FAURE, `How Law and Economics may contribute to the harmonization of tort law in Europe´ (2003), p. 15-20 46

Example of game theory formalized by Albert. W. TUCKER (1992) 47

Yuquing XING and Charles KOLSTAD, `Do Lax Environmental Regulations Attract Foreign Investment?´,

Environmental and Resource Economics (2002), p. 1 48

LEVISON (2008). Cited in: Juan José GANUZA and Fernando GÓMEZ, `Fundamentos económicos de la armonización del Derecho privado europeo´ (2011) p. 12 49

Anthony OGUS, `Competition between National Legal Systems: A Contribution to Economic Analysis to

Comparative Law´ (1999), p. 415

occur.50

Some authors think that if a race to the bottom occurs, then centralization and not

harmonization should be the solution.51

3.1.1.3 In favor of the harmonization of the private law in Europe:

Creation of harmonized conditions of competition is necessary to avoid trade distortions

(leveling the playing field).52

This argument assumes that legislations impose costs on industry, and if each legislator

imposes a different cost, then the conditions of competition within the common market

would be unequal. The argument is often (having been criticized53

) linked to the race to

the bottom argument54

, arguing that harmonization is needed to avoid this danger.55

Opponents argue that even with harmonized law energy sources, raw materials or

atmospheric conditions will still lead to different market conditions56

and that economic

market integration is possible without total harmonization57

; the free flow of products and

services allows for the common market.58

Harmonization would improve efficiency in economic relationships.

This argument endorses the improvement of the Contract Law in the national systems at

the European level. An improvement of the national Contract Law is possible; the

discussion is centered on how to do make these improvements at the European level

without interfering with the alleged benefits of a national law system.59

The argument

presupposes the honesty of the drafters within each nation. However from an economic

50

Roger VAN DEN BERGH, Michael FAURE and Jürgen LEFEVERE, ‘The Subsidiarity Principle in European

Environmental Law: An Economic Analysis´ Law and Economics of the Environment (1996) p. 141-142 51

Roger VAN DER BERGH (1998), p. 445. Cited in: Michael FAURE, `How Law and Economics may contribute to the

harmonization of tort law in Europe´ (2003), p. 26 52

See footnotes 4, 5 and 7 53

“Given the weaknesses of the harmonization of conditions of competition argument it is not surprising that recent

European scholarship has sought to recharacterise the quest for harmonization in race to the bottom terms”, Richard

REVESZ (2001). 54

See above “destructive competition” (p. 7) 55

Not totally conclusive empirical evidence has been shown of that risk. See footnotes 49 and 50 56

Roger VAN DEN BERGH, `Economics in a Legal Strait-Jacket: The Difficult Reception of Economic Analysis in

European Law´ (1999) 57

See articles 28-30 of the Treaty 58

Swiss federal model. See, Bruno FREY, `Direct Democracy: Politico-Economic Lessons from Switzerland (1994), p.

338-342 59

See above p. 5 and 6

perspective, the presence of lobby groups and opportunism, particularly at the European

level, should be taken into account.60

Harmonization would provide the economies of scale in legal reform.

The costs of law-making are not negligible.61

If the legal reform is concentrated to serve a

large population, the per-capita costs decrease. Thus, the legal reform could be cost-

effective at the European level, due to the reduction of transaction costs (described in the

next argument).

Harmonization would mean a reduction of transaction cost62

in cross-border trade.63

As Viviane Reding64

argues:

Europe is comprised of different legislations. However, firms interact in a common

market. Consequently, parties often have to apply, either totally or partially, the laws

from various countries.65

Firms therefore need legal advice66

, which is costly. Evidently,

the most affected legal advisors are the SMEs67

, representing 99% of the European

firms68

and having less bargain power than big firms to impose their legislation. This

being the case, legislation is seen as a barrier to entry into foreign markets. Smaller

member states of the common market are not profitable and therefore, suppliers in the

market do not face foreign competition, and are thus able to offer more expensive

products and services, of worse quality and less variety. A harmonized private law tear

down barriers to entry, reduce transaction costs, benefit the common market, strengthen

competitiveness and supply more, better and cheaper products and services to the

consumers. 60

Politicians react to the reward or punishment of their constituents. At the European level this incentive works less

effectively and immediately. 61

See, Fernando GÓMEZ, `The Harmonization of Contract Law through European Rules: a Law and Economics

Perspective´ (2008), p. 9 62

See, Ronald H. COASE, `The Problem of Social Cost´ (1960) 63

“Legal systems are very complex and only serve to Brussels law firms”, Ole LANDO. 64

Vice-President of the European Commission and European Commissioner for Justice, Fundamental Rights and

Citizenship 65

Should be emphasized that is not the case in the USA’s common market. Despite being a federalism model, parties can apply a common legislation. 66

Determine the applicable legislation, translate it, foresee its legal interpretation and application and finally, adapt the

contract to it. 67

Small and Medium Enterprises (SMEs). In USA known as Small and Medium Businesses (SMBs) 68

Viviane REDING, `Warum Europa ein optionales Europäisches Vertragsrecht benötigt´ (2011), p. 2

The consumer perspective is also relevant. Some authors consider the consumers’

perceptions of legal uncertainties of cross-border trade as the main barrier affecting the

common market69

and so, the reduction of transaction cost must be internalized by them.

The benefits of the reduction of transaction costs are the strongest argument in favor of

harmonization though this is discussed by few scholars.70

The question of how to

harmonize efficiently without perturbing the benefits of diversity arises as the main

challenge to harmonization.

3.1.2. Political thoughts

Despite the fact that most of the arguments supporting the harmonization process have to do with

completion within internal markets and the several economic alleged benefits it would provide71

, some

people argue that the desirability or undesirability of the process of harmonization must be considered

without reference to economic interests.

3.1.2.1 Political arguments supporting harmonization:

A European Civil Code is needed to create a common identity among the peoples

of Europe. A European social model, social and economic progress and cohesion depend

on a deeper sense of community.72

This argument is based on the thought that the European Union is a political structure

without a unified community. The recognition of a mutual set of rights and obligations

combined with social interaction would encourage members of the union to believe they

are a part of the same community; a Transnational Civil Society. The European Union

should have established in advance dense networks of civil society before the

69

Hugh COLLINS, `EC Regulation of Unfair Commercial Practices´ The Forthcoming EC Directive on Unfair Commercial Practices (2003), p. 3 70

“No evidence of legal diversity costs in cross-border trade” VAN DEN BERGH and VISSCHER (2006), p. 514-515 71

See above p. 8 and 9 72

See, Hugh COLLINS, `Why Europe Needs a Civil Code: European Identity and the Social Model´ (2007).

construction of a supra-national politician constitution. Thus, a Civil Code would supply

part of an economic and social constitution for Europe and would restore citizens’

confidence and respect for the European supra-national political structure.

Harmonization of tort law would provide a minimum level of protection to accident

victims in the whole Europe.

It must be stressed that tort law (unlike contract law) from a societal point of view, seems

to be relatively unimportant to business, and therefore the harmonization of tort law is

considered politically superfluous.73

The argument asserts that preferences of citizens for

lower standards at lower costs may sometimes be overruled if it is held that these low

standards would infringe upon human rights.74

If human rights are not infringed, the

imposition of standards would be paternalistic. It’s argued that European policy has never

tried to provide a basic quality of life for all European citizens and it would be perhaps

better if the EU provided minimum social security, such as basic health care or

harmonized minimum wages. An economic critique of this argument using non-pecuniary

losses is very useful to understand the issue.75

3.1.2.2. Political arguments against harmonization:

Europe is irremediably plurijural.76

Desirability of a European Civil Code responds to

administrative convenience and fear.77

The harmonization issue finds one of his biggest difficulties in the differences between

the two legal traditions in Europe: Civil Law and Common Law. Pierre Legrand argues

that differences between these legal cultures are more pronounced than the similarities

between nations, since they differ in their understandings of facts, rules and rights

73

Willem H. VAN BOOM ´Harmonizing Tort Law´ A Comparative Tort Law and Economics Analysis (2009), p.7 74

Anthony OGUS (1999). Cited in: Michael FAURE, `How Law and Economics may contribute to the harmonization of

tort law in Europe´ (2003), p. 59 75

Michael FAURE, `How Law and Economics may contribute to the harmonization of tort law in Europe´ (2003), p. 63-

66. 76

“Legal systems (…) have not been converging, are not converging and will not be converging” Pierre LEGRAND

'European legal systems are not converging', International and Comparative Law Quarterly (1996), p. 61-62 77

See, Pierre LEGRAND, `Against a European Civil Code´ The Modern Law Review Limited (1997)

(different mentalité78

). The problem is largely historical and psychological. English “feel

definitely uncomfortable with systems of rigid rules”.79

Germans “have been

programmed since their early childhood to feel comfortable in structured

environments”.80

However, other scholar emphasizes the commonality between civil and common law and

argue that harmonization is therefore feasible. It is true that the difference between the

two is even evident in the leading textbook on English legal history81

and that England

has never experienced of the application of Roman law in complexu82

, but Reinhard

Zimmermann argues that England was never totally cut off from Continental legal culture

and mutual influences between both legal traditions are found.83

As Zimmermann says: if

we don’t focus on specific solutions found in Roman sources but take account of the

inherent flexibility of the civilian tradition and its potential for growth and productive

assimilation, one may easily conceive of the English common law as a specific emanation

of a Western legal tradition. The English legal system has of course, developed a number

of peculiarities, but so have the continental legal systems.84 Other authors talk about a

“gradual convergence”85

or a “vanishing distinction”.86

Legrand thinks that the EU offers a particular articulation of universality which is almost

entirely market-oriented and which attempts to achieve a systematic unification of all that

is perceived to be calculable and controllable (“ethically deficient globalism”). Thus, the

European Civil Code would be administratively convenient and a model of administrative

efficiency, but which undermines particularism through undermine legal regulation.87

78

“Two different ways of thinking about law, about what it is to have knowledge of law and about the role of law in

society”. Pierre LEGRAND, `Against a European Civil Code´ The Modern Law Review Limited (1997), p. 45 79

HOFSTEDE, `Cultures and Organizations´ (1991), p. 145. 80

HOFSTEDE, `Cultures and Organizations´ (1991), p. 121. 81

“And so English law flourished in noble isolation from Europe” J.H. BAKER `An Introduction to English Legal

History´ (1990), p. 35 82

Reinhard ZIMMERMANN, `Savigny’s legacy: legal history, comparative law, and the emergence of a European legal science´, Law Quarterly Revew (1996), p. 581 83

Lex mercatoria, anglicised as Law Merchant. Doctrine of consideration and causa-doctrine. Doctrine of frustration of

contract and doctrine of clausula rebus sic stantibus. Moreover, as far as statutory interpretation is concerned, England

was for many centuries a province of the ius commune. Reinhard ZIMMERMANN, `Roman Law and European Legal

Unity´, Towards and European Civil Code (1998), p. 36-40 84

Reinhard ZIMMERMANN, `Savigny’s legacy: legal history, comparative law, and the emergence of a

European legal science´, Law Quarterly Revew (1996), p. 582 85

Basil MARKESINIS `The Gradual Convergence: Foreign Ideas. Foreign Influences and English Law on the Eve

of the 21st Century´ (1994) 86

James GORDLEY ´Common law und civil law: eine überholte Unterscheidung´(1993) 87

Pierre LEGRAND, `Against a European Civil Code´ The Modern Law Review Limited (1997), p. 52

Legrand also argue that the desire to assimilate the common law into the civil law

tradition is linked to the fact that nationalism, which are associated with a territory, terrify

civilians.88

Civilians would try to absorb common law because they fear the risk of war

between legal traditions.89

3.2. The feasibility question

How could be harmonized private law in Europe?

From a normative point of view the question of whether the harmonization of private law in Europe is

desirable or feasible is not the only relevant one. It is equally or perhaps more important to ask how this

harmonization can or should be achieved. The answer the question of whether harmonization is desirable

or feasible depends upon whether there are any plausible ways of achieving it.

It should be stressed that the goal of harmonization is (theoretically90

) to improve the social welfare of

European citizens and not merely an intellectual challenge for the scholars.91

There are four possible ways of creating a European private law:

- Harmonization through Directives of the European Union

- Harmonization through binding treaties

- Harmonization through a European Civil Code (ECC)

- Harmonization through an “organically progressive” legal science

88

Pierre LEGRAND, `Against a European Civil Code´ The Modern Law Review Limited (1997), p. 53 89

“Divergences in law cause other divergences that generate unconsciously, bit by bit, these misunderstandings and

conflicts among nations which end with blood and desolation” LEPAULLE `The Function of Comparative Law´

Harvard Law Review (1921-22), p. 35 90

Some assert that the lack of transparency of the EU is a highly useful cover for lobby groups (industry, comparative lawyers or European burocracy). Michael FAURE, `How Law and Economics may contribute to the harmonization of tort law in Europe´ (2003), p. 69 91

Juan José GANUZA and Fernando GÓMEZ, `Fundamentos económicos de la armonización del Derecho privado europeo´ (2011), p. 16

We have seen that the Directive’s strategy has not produced very successful results.92

Similarly, no

substantive property, contract or tort law has been created by binding treaties thus far. This being the case,

the two last strategies seem to be the most suitable.

3.2.1. A European Civil Code

As we know, the European Parliament is taking steps towards an ECC. Mere codification may bring

benefits in terms of legal certainty, technical precision, facility of implementation and interpretation in

Member States and renovation of the legal knowledge stock or network externalities benefits.93

However, harmonization through codification does not lacked critics:

3.2.1.1 Against a European Civil Code:

New codification would incentivize a more formalist and automatic application of

contract and tort law.94

Written rules in Contract and Tort Law in Europe tend to be old rules (taken from sources

of Roman law) with some degree of open-textured character and abstraction which invite

less formalistic interpretative strategies. Contract and Tort Law depends on the context

and needs to be adapted to the particular circumstances of the economic interaction at

hand. Judge-made Law seems a more desirable option than a set of uniform, abstract and

binding rules uniformly applicable in different economic scenarios. “The law becomes a

sort of reality imposed upon the social data, shaping it, and becoming in the end truer

than the facts”.95

In Legrand’s words, an ECC would provide an officialised construction

of reality and thus limit alternative solutions of social life marginalizing common law.96

Substantive Law cannot be designed in isolation, independently of interpretive and

92

See above, p. 2 93

Fernando GÓMEZ, `The Harmonization of Contract Law through European Rules: a Law and Economics Perspective´ (2008), p. 14 94

Juan José GANUZA and Fernando GÓMEZ, `Fundamentos económicos de la armonización del Derecho privado europeo´ (2011), p. 15. No definitive theoretical argument or empirical evidence. 95

ELLUL `Histoire des institutions: Le Moyen Age´ (1982), p. 27 96

“Codification effect” Pierre BOURDIEU `Habitus, code et codification´ Actes de la recherche en sciences

sociales (1986), p. 41-43

enforcement institutions.97

The number, resources and effectiveness of Courts across Member States are dramatically

different. Even within a harmonized legal body of Contract Law, legal diversity will not

disappear if Courts, legal procedure and legal culture remain national.

The proposal of a European Civil Code is arrogant.

Harmonization through codification suggests that the civilian representation of the world

is more worthy than its alternative and is, in short, so superior that it deserves to

supersede the common law’s world view.98

The idea of a European Civil Code belongs to another era.

“The law” and the “written” rules do not coexist and there is, indeed, much “law” to be

found beyond the rules. Codes are a remnant of the authoritarian world of Napoleon.99

The European Civil Code is much more of a political rather a legal challenge.100

A European Civil Code is impracticable

The opinion that legal cultures (Common and Civil Law), which purport to give

normative strength to forms of behavior, and which developed in historically different

contexts, can be unified is a utopian enterprise.101

A European Civil Code will have to be preceded, inspired and sustained by European

scholarship.102

This argument is the root of the fourth harmonizing strategy:

97

Fernando GÓMEZ, `The Harmonization of Contract Law through European Rules: a Law and Economics Perspective´ (2008), p. 15 98

Pierre LEGRAND, `Against a European Civil Code´ The Modern Law Review Limited (1997), p.56 99

ID. p.58-59 100

Jan SMITS, `A European Private Law as a Mixed Legal System´, Maastricht Journal (1998), p. 331 101

ARNAUD `Pour une pensée juridique européenne´ (1991), p. 298 102

Reinhard ZIMMERMANN, `Roman Law and European Legal Unity´, Towards and European Civil Code (1998), p.

25

3.2.2. Harmonization through an “organically progressive” legal science:

This way of harmonizing is based on Savigny’s legacy.103

The idea is to have a European private law

without a centralistically imposed ECC, but without the loss of national cultural differences. The

European private law will come into existence because parties and courts will develop it themselves.104

This harmonization process, based on a historical approach, is described as a “Re-Europeanization” of

private law. Its proponents argue that a ius commune did once exist and is still impregnating Europe

legislations105

--one-and-a-half thousand years after. Thus, this new ius commune has to be built around

shared values and generally recognized legal methods as well as common principles and guiding maxims,

and it has to be shaped by judges, legislators and professors acting in cooperation.106

This argument is not against an ECC107

, but ration against the imposition of it. A code has to be brought

to life by active and imaginative judicial interpretation and doctrinal elaboration.108

Unification happens

in practice itself since a text alone does not produce law.109

Solutions of the court cases do not have to be

found only by an exegesis of the code110

, critical evaluation of the solution suggested by the code

presupposes comparison with other solutions, both past and present.111

A European legal science does not

require uniformity of legal rules and results112

, but the use of the same legal “grammar”, which would

transcend national boundaries and disciplinary divides113

and revitalize a common tradition.

103

See above the historical approach, p. 3, 4 and 5 104

Jan SMITS, `A European Private Law as a Mixed Legal System´, Maastricht Journal (1998), p. 335 105

See Reinhard Zimmermann works for more information about the imprint of Roman law in nowadays legislations. 106

Reinhard ZIMMERMANN, `Roman Law and European Legal Unity´, Towards and European Civil Code (1998), p.

41 107

“The harmonization trough a European legal science is based on the belief that the legal material does not constitute an

indigestible and arbitrary mass of individual rules and cases (law has an inherently dynamic character), but can be reduced

to a rational and organized system”. Reinhard ZIMMERMANN, `Savigny’s legacy: legal history, comparative law, and

the emergence of a European legal science´, Law Quarterly Revew (1996), p. 580 108

Reinhard ZIMMERMANN, `Savigny’s legacy: legal history, comparative law, and the emergence of a European legal science´, Law Quarterly Revew (1996), p. 581 109

“How can we expect the successful acceptance of an imposed ECC, where in twelve years France even failed to

implement a directive on liability for defective products?” Jan SMITS, `A European Private Law as a Mixed Legal

System´, Maastricht Journal (1998), p. 339 110

Franz WIEACKER `A History of Private Law in Europe´ (1995), p. 363 111

Reinhard ZIMMERMANN, `Savigny’s legacy: legal history, comparative law, and the emergence of a European legal

science´, Law Quarterly Revew (1996), p. 582 112

Some problems under ius commune were solved differently by different lawyers at different times and in different

parts of Europe. Reinhard ZIMMERMANN, `Savigny’s legacy: legal history, comparative law, and the emergence of a

European legal science´, Law Quarterly Revew (1996), p. 585 113

“A combination of comparative and historical scholarship appears to be the most appropriate way of grasping the

relationship between common law and civil law and of advancing the process of mutual understanding and

harmonization”. Reinhard ZIMMERMANN, `Savigny’s legacy: legal history, comparative law, and the emergence of a

European legal science´, Law Quarterly Revew (1996), p. 588

Some authors claims that this point of view would satisfy many of the complaints put forward by those

who argue that harmonization is undesirability.114

Thus, Smits thinks that the free movement of legal rules

would end in a harmonization in those areas where it is really needed through legal practice.

However, some limitations regarding “legal transplants” have been shown115

and other scholars have

criticized the theory as well. Legrand argues that the establishment of an ius commune through academic

scholarship is illusory116

in view of the still present national legal positivism.117

In the same way, he

denies the “legal transplant” theory arguing that legal rules cannot be segregated from society and

culture118

. Finally he criticizes the fallaciousness of the argument as he thinks that there never was an ius

truly commune since England was never a true adherent to it.119

The discussion surrounding the European Civil Code does not merely concern itself with its convenience

as a harmonization strategy. The optimal standard or level of harmonization is also discussed.

The election of the harmonization regime is crucial for the success of the measure. One piece of evidence

is the freedom of contract that dominates Contract Law, by which parties can act upon default rules

altering the contracts they write. If the draft rule or the interpretation of it is not responsive, parties would

face additional transaction fees to adapt their contracts. The decision of the regime is even more difficult

without clear behavioral models on contracting behavior (rational model of bounded

rationality).120

Maximum harmonization, minimum one or an optimal instrument are the possibilities.121

Ugo Mattei suggests that the code should be minimal (but mandatory), containing only those fundamental

principles that can readily be used by courts to force market actors to internalize costs.122

However the

114

“Legrand’s argumentation has a weak point. He is not, in fact, against a European private law, but against a ECC

imposed authoritatively, in which national cultural differences are terrorized away in a centralized fashion” Jan SMITS, `A

European Private Law as a Mixed Legal System´, Maastricht Journal (1998), p. 333 115

See above Tiebout’s model, p. 6 ff 116

“A sort of reactionary utopia” Ugo MATTEI `The European Codification Process. Cut and Paste.´ (2003) 117

Pierre LEGRAND 'European legal systems are not converging', International and Comparative Law Quarterly (1996),

p. 53 118

Pierre LEGRAND `The Impossibility of “Legal Transplants”´ Maastricht Journal of European and Comparative Law

(1997), p. 111 ff 119

Pierre LEGRAND, `Against a European Civil Code´ The Modern Law Review Limited (1997), p. 58 120

See, Fernando GÓMEZ, `The Harmonization of Contract Law through European Rules: a Law and Economics

Perspective´ (2008), p. 18-24 121

For a deeper economic analysis: Juan José GANUZA and Fernando GÓMEZ `Optimal Standards for European Law:

Maximum Harmonization, Minimum Harmonization, and Co-Existence of Standards´ (2011). Juan José GANUZA and

Fernando GÓMEZ, `An Economic Analysis of Harmonization Regimes: Full Harmonization, Minimum Harmonization or

Optional Instrument? (2011). Juan José GANUZA and Fernando GÓMEZ, `Fundamentos económicos de la armonización

del Derecho privado europeo´ (2011). 122

Ugo MATTEI `The European Codification Process. Cut and Paste.´ (2003), p. 123

code should not be limited to contract law since private law is an integrated body of fundamental rules of

the game.123

Harmonization of property law or civil procedure law should be included. In the same terms

Hugh Collins supports harmonization just in the key building blocks that will sustain and promote

networks and associations in transnational civil society (contracts, tort, property or business

associations).124

Authors such as Fernando Gómez argue that the variety of interpretation and enforcement caused by the

diversity of Courts and traditions in Europe, provide a menu of solutions instead of a single solution for

each issue. This allows for a better match between the substantive rule and the strategy of interpreting or

applying it.125

Similarly, Michael Faure, in tort law terms, proposes to harmonize how judges deal with

the negligence standard but leave to national judges the specific content of the due care standard.126

Viviane Reding, unlike Mattei, argues for the convenience of an optional European contract law. This

instrument does not try to harmonize private law but to provide a solution where the parties do not have a

common law to apply and must settled which state’s laws should be applied.127

The objective is to reduce

transactions costs and obtain economic benefits.128

Finally, Fernando Gómez and Juan José Ganuza agree that the optional instrument solution appears to be

superior to minimum or maximum harmonization, but only if it is technologically and economically

feasible for the firms subject to the legal rules to use both a national standard and a harmonized European

one.129

123

Ugo MATTEI `The European Codification Process. Cut and Paste.´ (2003), p. 123-124 124

Hugh COLLINS, `Why Europe Needs a Civil Code: European Identity and the Social Model´ (2007) 125

See, Fernando GÓMEZ, `The Harmonization of Contract Law through European Rules: a Law and Economics

Perspective´ (2008), p. 16 126

Michael FAURE, `How Law and Economics may contribute to the harmonization of tort law in Europe´ (2003), p. 50 127

Viviane REDING, `Warum Europa ein optionales Europäisches Vertragsrecht benötigt´, (2011), p. 3 128

See above economic arguments in favor of harmonization, p. 7 ff 129

Juan José GANUZA and Fernando GÓMEZ, `An Economic Analysis of Harmonization Regimes: Full Harmonization,

Minimum Harmonization or Optional Instrument?, (2011), p. 31

4. CONCLUSION

As happened two centuries ago in France and Germany, Europe is facing again a period of transition and

its actors are called upon to decide the future of the private law between Member States, possible

harmonization and the way to achieve it.

From a Law and Economics point of view, scholars agree to some kind of centralization where

transboundary externality or race to the bottom risk is in fact proved. However, the way to harmonize and

the optimal level of harmonization have not yet been agreed upon. It also remains to be seen whether the

reduction of transaction costs is more beneficial enough to outweigh the cost of legislation being

unresponsive to citizens’ preference and the risks/costs of implementation. Nevertheless, harmonization

seems to be a good option to avoid pointless incompatibilities which could create barriers or distortions

within the internal market, and do not protect differences in preferences.

Finding a meeting point between the two legal traditions is a difficult challenge. The complexity of reality

perhaps requires a combination of both legal traditions in order to be fully captured. We should manage

the difference and not to abolish it.

Finally, we must remember that whenever an inefficient regulatory measure is enacted, a special interest

group takes advantage of it.

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