MAASTRICHT UNIVERSITY

A Glance at the Harmonization Process of Private Law in Europe

Desirability and Feasibility
Len Manuel Gonzlez Merc 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 Gmez Pomar for his useful works on the topic, and Dr. Agustn 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 Tiebouts model 3.1.1.2. Counterarguments of the effectiveness of Tiebouts 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. Gmez. 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

CLERMONT and EISENBERG (1996). Cited in: Juan Jos GANUZA and Fernando GMEZ `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 Jos GANUZA and Fernando GMEZ `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 nations law to be read by their nations 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.

TURRINI and VAN YPERSELE (2006). Cited in: Juan Jos GANUZA and Fernando GMEZ `Optimal Standards for European Law: Maximum Harmonization, Minimum Harmonization, and Co-Existence of Standards (2011) p. 2 4 Viviane REDING, `Warum Europa ein optionales Europisches Vertragsrecht bentigt (2011), p. 1 5 ID. p. 2 6 Juan Jos GANUZA and Fernando GMEZ `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, `Savignys 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 Hein KTZ, `Rechtsverleichung und gemeineuropishes Privatrecht, in: Peter-Christian MLLER-GRAFF, `Gemeinsames Privatrecht in der Europischen Gemeinschaft (1999), p. 151 13 Jan SMITS, `A European Private Law as a Mixed Legal System, Maastricht Journal (1998), p. 329. 14 Oliver REMIEN, `ber den Stil des Europischen 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-NLKE, `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 Jos GANUZA and Fernando GMEZ, `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 (20002003) 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)
12

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 12 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
th th

Not until the 18 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 24

Viviane REDING, `Warum Europa ein optionales Europisches Vertragsrecht bentigt (2011), p. 5 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 rmischen 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, `ber die Notwendigkeit eines allgemeinen brgerlinchen Rechts fr Deutschland(On the Necessity of a General Civil Law for Germany) 29 Friedrich Carl von SAVIGNY, `Vom Beruf unserer Zeit fr 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
th

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

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. Savignys 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, `Savignys legacy: legal history, comparative law, and the emergence of a European legal science, Law Quarterly Revew (1996) p. 576-577 31 See, Reinhard ZIMMERMANN, `Savignys 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 Jos GANUZA and Fernando GMEZ, `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 Tiebouts 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 Tiebouts 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 Tiebouts model, governments compete to provide

34

35

Charles TIEBOUT, `A Pure Theory of Local Expenditures Journal of Political Economy (1956), p. 416 For more information about vote with the feet TIEBOUTs model, see: WAGNER (2002), p. 1007. Cited in: Juan

Jos GANUZA and Fernando GMEZ, `Fundamentos econmicos de la armonizacin 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; RLH (2009), p. 14. Cited in: Juan Jos GANUZA and Fernando GMEZ, `Fundamentos econmicos de la armonizacin 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 Tiebouts model and its benefits:

Tiebouts 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 citizens 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 GMEZ, `The Harmonization of Contract Law through European Rules: a Law and Economics Perspective (2008), p. 13 42 See, Juan Jos GANUZA and Fernando GMEZ, `Realistic Standards: Optimal Negligence with Limited LiabilityJournal 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. Tiebouts 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

Tiebouts 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 prisoners 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 dont have a substantial effect on managements private benefits, but not with respect to issues that have such an effect. See, Fernando GMEZ 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 Jos GANUZA and Fernando GMEZ, `Fundamentos econmicos de la armonizacin 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 Jrgen 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 costeffective 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 GMEZ, `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 USAs 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 Europisches Vertragsrecht bentigt (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. Its 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 74

Willem H. VAN BOOM Harmonizing Tort Law A Comparative Tort Law and Economics Analysis (2009), p.7 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. 6366. 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 mentalit78). 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 dont 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 convergence85 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, `Savignys 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, `Savignys legacy: legal history, comparative law, and the emerge nce 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 berholte 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
89

Pierre LEGRAND, `Against a European Civil Code The Modern Law Review Limited (1997), p. 53 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 Jos GANUZA and Fernando GMEZ, `Fundamentos econmicos de la armonizacin del Derecho privado europeo (2011), p. 16

We have seen that the Directives 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 Legrands 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 Fernando GMEZ, `The Harmonization of Contract Law through European Rules: a Law and Economics Perspective (2008), p. 14 94 Juan Jos GANUZA and Fernando GMEZ, `Fundamentos econmicos de la armonizacin 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
93

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 laws 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 GMEZ, `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 pense juridique europenne (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 Savignys 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.

103 104

See above the historical approach, p. 3, 4 and 5 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, `Savignys legacy: legal history, comparative law, and the emergence of a European legal science, Law Quarterly Revew (1996), p. 580 108 Reinhard ZIMMERMANN, `Savignys 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, `Savignys 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, `Savignys 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, `Savignys 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).120Maximum 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

Legrands 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 Tiebouts 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 GMEZ, `The Harmonization of Contract Law through European Rules: a Law and Economics Perspective (2008), p. 18-24 121 For a deeper economic analysis: Juan Jos GANUZA and Fernando GMEZ `Optimal Standards for European Law: Maximum Harmonization, Minimum Harmonization, and Co-Existence of Standards (2011). Juan Jos GANUZA and Fernando GMEZ, `An Economic Analysis of Harmonization Regimes: Full Harmonization, Minimum Harmonization or Optional Instrument? (2011). Juan Jos GANUZA and Fernando GMEZ, `Fundamentos econmicos de la armonizacin 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 Gmez 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 states laws should be applied.127 The objective is to reduce transactions costs and obtain economic benefits.128

Finally, Fernando Gmez and Juan Jos 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

123 124

Ugo MATTEI `The European Codification Process. Cut and Paste. (2003), p. 123-124 Hugh COLLINS, `Why Europe Needs a Civil Code: European Identity and the Social Model (2007) 125 See, Fernando GMEZ, `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 Europisches Vertragsrecht bentigt, (2011), p. 3 128 See above economic arguments in favor of harmonization, p. 7 ff 129 Juan Jos GANUZA and Fernando GMEZ, `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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Pierre LEGRAND `The Impossibility of Legal Transplants Maastricht Journal of European and Comparative Law (1997) LEPAULLE `The Function of Comparative Law Harvard Law Review (1921-22) Basil MARKESINIS `The Gradual Convergence: Foreign Ideas. Foreign Influences and English Law on the Eve of the 21st Century (1994) Ugo MATTEI `The European Codification Process. Cut and Paste. (2003) Peter-Christian MLLER-GRAFF, `Gemeinsames Privatrecht in der Europischen Gemeinschaft (1999) Anthony OGUS, `Competition between National Legal Systems: A Contribution to Economic Analysis to Comparative Law (1999) Viviane REDING, `Warum Europa ein optionales Europisches Vertragsrecht bentigt (2011) Oliver REMIEN, `ber den Stil des Europischen Privatrechts (1996) Friedrich Carl von SAVIGNY, `Vom Beruf unserer Zeit fr Gesetzgebung und Rechtswissenschaft(Of the Vocation of our Time for Legislation and Legal Science) Jan SMITS, `A European Private Law as a Mixed Legal System, Maastricht Journal (1998) A.F.J. THIBAUT, `ber die Notwendigkeit eines allgemeinen brgerlinchen Rechts fr Deutschland(On the Necessity of a General Civil Law for Germany) Charles TIEBOUT, `A Pure Theory of Local Expenditures Journal of Political Economy (1956) Willem H. VAN BOOM Harmonizing Tort Law A Comparative Tort Law and Economics Analysis (2009) Roger VAN DEN BERGH, Michael FAURE and Jrgen LEFEVERE, The Subsidiarity Principle in European Environmental Law: An Economic Analysis Law and Economics of the Environment (1996) Roger VAN DEN BERGH, `Economics in a Legal Strait-Jacket: The Difficult Reception of Economic Analysis in European Law (1999) C.VON BAR, E. CLIVE, H. SCHULTE-NLKE, `Principles, Definitions and Model Rules of European Private Law Draft Common Frame of Reference (DCFR) (2009) Yuquing XING and Charles KOLSTAD, `Do Lax Environmental Regulations Attract Foreign Investment?, Environmental and Resource Economics (2002) Franz WIEACKER `A History of Private Law in Europe (1995) Reinhard ZIMMERMANN, `Savignys legacy: legal history, comparative law, and the emergence of a European legal science, Law Quarterly Revew (1996) Reinhard ZIMMERMANN, `Roman Law and European Legal Unity, Towards and European Civil Code (1998)

See, Reinhard ZIMMERMANN, `Savignys legacy: legal history, comparative law, and the emergence of a European legal science, Law Quarterly Revew (1996) Reinhard ZIMMERMANN, `Roman Law and European Legal Unity, Towards and European Civil Code (1998)