Contract Law – Business Relationships

Sir Roy Goode

As I previously stated, the question has been gracefully posed by a distinguished scholar of business law and¬†lex mercatoria, Sir Roy Goode. It closely follows one of the basic questions posed by one of the founders of comparative law in the United Kingdom, Harold C. Gutteridge: ‘Is there a problem?’ Are the solutions suggested to resolve it appropriate?’

In order to answer the first question, Goode uses the same starting point as several institutions and study groups. He believes that the starting point for the construction of harmonized contract law (or even codified law) at a European level is incorrect. In other words, he believes that whoever supports the view that differences, currently in existence between national systems of contract and business law, damage trade, have not yet listed the reasons for these disadvantages and, furthermore, there is no evidence that business operators have ever complained about them. Multinational companies are used to using national regulations that are different and these differences only appear when national laws impose imperative regulations; otherwise, if rules can be deviated from, companies can prepare standardized contract forms for every legal system in which they carry out their activity.

Goode’s criticism is also aimed at those who argue that transnational purchases of goods and services by consumers would be made easier by uniform contract law, for which there is no concrete evidence: it is merely hypothetical that success in business depends on the awareness (or otherwise) that consumers have of the law that can be applied to the contract.

In order to answer the second question, Goode maintains that a binding code for the parties involved would not be the best solution to the problem. A code presupposes that the Member States have a common social, cultural and economic background, but this connective framework does not yet exist. It cannot be said, either, that there are more similarities than differences between legal systems, or that the European Commission has the time or the technical skill to achieve this aim, or that study groups dedicated to this theme are legitimized to impose rules on operators. A democratic process requires all market actors to be involved, together with evaluations of a political nature that first need to mature elsewhere.

Goode adds the problem of language to all these difficulties. Translation implies choices of a conceptual nature and the end result is to invent an ad hoc language, in order to draw up texts that are acceptable to all. However, it is legal science that would suffer most, as all publications would have to be rewritten and a comparison of contract law would also be gravely damaged.

According to his conclusions, it does not mean that a ‘model code’ is not to be hoped for but, in Goode’s opinion, the indispensable condition is that the parties involved choose its application, according to the rules of private international law.

In just a few sentences Goode summarizes a trend that is sceptical of (when not opposed to) the harmonization and codification of European contract law, in which many studies, carried out using different methods, converge. However, his position is not drastically negative, as he admits both the usefulness of a process of codification and its functionality, if the end result arises from free choice between the parties of the contract.

The disadvantages of harmonization have been studied in depth by Ewan McKendrick, according to whom it is extremely difficult to achieve unanimous consensus on editing a uniform text on contractual law and the effects of its application might not bring the advantages that supporters of this initiative forecast. Furthermore, the range of choice that national systems offer to contract parties that want to carry out a business operation is such that a decision to harmonize contractual law would decrease this choice. The argument over competition between legal systems is one which is very important to many scholars of comparative law.

Further arguments against establishing a European contract law come from lawyers who work in situations where several legal systems exist side-by-side, due to multilingualism or the existence of different nationalities (for example, in Belgium, Scotland and England or the Autonomous Communities of Spain) and from lawyers who apply methods of economic analysis to law as a solution to this problem.