This report summarises the progress of the European Contract Law (ECL) initiative and the review of the acquis since the Commission’s Communication on European Contract Law and the revision of the acquis of 2004, and outlines main policy issues.

Firstly, the report notes that the network of stakeholder experts on the Common Frame of Reference

(“CFR-net”) was established. Its participation ensures that the research takes into account the practical context in which the rules are to be applied and the needs of users. As indicated in the 2004 Communication, the relevant findings (e.g. definitions, model rules) in the CFR preparation will be tested in the field of consumer protection, in the context of the review of the consumer acquis.

The Commission discusses procedural issues, in particular enhancing the effectiveness of the CFR-net input.

Regarding substance, the Commission underlined the following, in the light of discussions with stakeholders and Member States:

-Th e Commission will feed issues arising during the diagnostic phase of the consumer acquis review into the CFR process.

- Definitions of abstract legal terms are indispensable for the CFR preparation and need to be included in the drafts. Where sector-specific differentiation is necessary this should be highlighted and explained. Definitions have to be closely coordinated with the elaborated rules.

- The overall coherence of a draft CFR is crucial: The interdependence between general and specific contract law needs to be clarified. For horizontal issues, coherent solutions need to be achieved. The scope of the rules should be clarified.

- Policy decisions should be clearly identified and explained, in particular in the researchers’ outline and in the comments linked to the draft rules.

- The principle of freedom of contract needs to be emphasised as crucial for the process. Should rules be mandatory, this should be clarified and justified in the drafts. Appropriate differentiation between B2B and B2C contracts is paramount. Consumer law adjusts structural imbalances between a consumer and a trader; therefore policy decisions might be taken differently in a B2C and in a B2B context. In order to allow sufficiently differentiated solutions, a case by case approach that identifies where specific consumer rules are necessary and that, for these cases, suggests deviations from the general rules, appears appropriate.

The Commission will invite researchers to consider these issues when preparing future or revised drafts.

On the matter of reviewing the acquis, the Commission has launched the review to simplify and complete the regulatory framework. The review process draws on the example of the consumer acquis because of its relevance to contract law. This report aims at outlining in more detail this process and follows again an example based approach. Progress on the review is described with an emphasis on process. Although it is still too early to draw conclusions on the individual directives, the work undertaken so far on the Unit Pricing, Injunctions, Timeshare and Distance Selling Directive provides preliminary findings, which are described in the report. The Commission also describes possible options, if it were to find evidence that the acquis needs to be revised or completed.

In the 2003 Action Plan, the Commission agreed to examine whether it could promote the development by private parties of EU-wide Standard Terms and Conditions (“STCs”) in particular by hosting a website on which market participants could exchange relevant information. After careful examination, the Commission considers that it is not appropriate to host such a website.

Finally, in the area of financial services, the Commission has taken note of the debate on a “26 th regime”, leaving the 25 sets of rules untouched. The Commission responds to the call to explore such 26 th regimes further by launching a feasibility study, e.g. in the fields of simple (term-life) insurance and savings products.

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This Communication sets out the Commission's follow-up to the 2003 Action Plan, in the light of the reactions from EU institutions, Member States and stakeholders. It outlines how the Common Frame of Reference (CFR) will be developed to improve the coherence of the existing and future acquis, and sets out specific plans for the parts of the acquis nrelevant to consumer protection, in line with the Consumer Policy Strategy 2002-2006. It also describes planned activities concerning the promotion of EU-wide standard contract terms and intends to continue the reflection on the appropriateness of an optional instrument.

Contributors to the Action Plan supported the need to improve the quality and consistency of the acquis in the area of contract law and emphasised that the CFR could contribute to that goal. In the light of this significant support the Commission will pursue the elaboration of the CFR. The CFR will provide clear definitions of legal terms, fundamental principles and coherent model rules of contract law, drawing on the EC acquis and on best solutions found in Member States' legal orders.

With regard to possible uses, the Commission states the following :

- the Commission will use the CFR as a toolbox, where appropriate, when presenting proposals to improve the quality and coherence of the existing acquis and future legal instruments in the area of contract law. At the same time, it will serve the purpose of simplifying the acquis;

- national legislators could use the CFR when transposing EU directives in the area of contract law into national legislation;

- another role, suggested by the European Parliament, is the possible use of the CFR in arbitration;

- Parliament indicated that the CFR could be developed into a body of standard contract terms to be made available to legal practitioners;

- the Commission is considering the suggestion that it could integrate the CFR in the contracts concluded with its contractors;

- finally the CFR, based on the EC acquis and on best solutions identified as common to Member States contract laws, could inspire the European Court of Justice when interpreting the acquis on contract law.

In order to ensure that the CFR is of high quality the Commission will finance three years of research under the Sixth Framework Programme for research and technological development1. Proposals for research were evaluated and work is expected to begin soon.

The structure envisaged for the CFR (an example for a possible structure is provided in Annex I) is:

- it would set out common fundamental principles of contract law, including guidance on when exceptions to such fundamental principles could be required;

- secondly, those fundamental principles would be supported by definitions of key concepts;

- these principles and definitions would be completed by model rules, forming the bulk of the CFR.

Two types of contracts which were mentioned specifically were consumer and insurance contracts. The Commission expects the preparation of the CFR to pay specific attention to these two areas. Other areas mentioned specifically which the CFR could cover were contracts of sale and services and clauses relating to the retention of title and the transfer of title of goods.

The adoption of the CFR by the Commission is foreseen for 2009.

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