Summary of Proceedings

Workshop on Standard Terms and Conditions (STCs)
Brussels, 19 January 2004

Problem Definition

The Commission’s View

STCs are seen by many as being beneficial because they simplify legal dealings and help users to avoid unnecessary costs. While most STCs were developed within and for a single legal order, multi-national STCs not only exist but are also thought to be much more useful for business involving cross-border trade.

Guided by the fundamental principle of contractual freedom, the Commission believes that "the proven usefulness of multi-country STCs in certain cases suggests that, if such STCs were developed more widely, they could solve some of the alleged problems and disincentives [of national legal systems and single-country STCs].” (1) Therefore, the Commission would like to promote the development and use of EU-wide STCs, within existing legal limits, as part of its goal of levelling the internal market playing field.  In the first instance this should probably be limited to B2B (business to business) and B2G (business to government) transactions.

The Participants’ Views

The participants had been asked to fill out a brief questionnaire before the workshop, the results of which were summarised  by Ms Amela Trhulj  (Stagiaire, Directorate General Internal Market).

The conclusions reached were that most respondents held positive opinions of STC, believing that STCs help to overcome existing legal divergences and that they encourage cross-border transactions. Negative opinions of STCs, such as the belief that STCs force the second party to incur extra legal costs, were much rarer. Respondents asked questions about and made interesting comments on whether bias was inherent in STCs and how mandatory provisions constraining STC use should be dealt with.

Promoting EU-Wide STCS: Implementing The Commission’s Suggestions

The Commission’s three suggested “actions” were discussed briefly. The morning saw an exchange of information between participants on their experience with STCs. After lunch, the Commission presented a very rough framework for the future website, asking participants to define more precisely the kind of website that would meet their needs. Once both of these discussions had taken place, an attempt was made to define best practice in and set out rough guidelines for the use and development of STCs.

Exchanging Information on Existing Experiences

Three presentations from STC users helped to structure and focus the discussion.

Case Study: Orgalime

In order to give participants a concrete example of existing development and use of EU- and world-wide STCs, Orgalime, a liaison group of the European mechanical, electrical, electronic and metalworking industries, was asked to showcase its work. Messrs. Christian Steinberger(2) and Bengt Kriström(3) explained how, through its Legal Affairs Working Group, Orgalime develops standard contracts, guides, model forms, and how it carries out studies on contractual and legal matters of importance to its member firms. Mr Steinberger introduced Orgalime and its legal publications  in general, after which Mr Kriström outlined the development and the achievements  of specifically the S2000 STCs in more detail.

Both stressed, inter alia, that it was essential in contract law, and therefore also in developing EU-wide STCs, to clearly distinguish between B2C (business to consumer) and B2B (business to business)/B2G (business to government) contracts. Orgalime’s General Conditions have been developed in particular for B2B and B2G transactions. Although B2C transactions might justify some mandatory rules, contractual freedom should play a decisive role in B2B transactions, hence leaving more scope for (EU-wide) STCs in the case of B2B. This point received general support from participants.

A number of other issues were brought to light during the ensuing Q+A session, four of which seemed to resurface throughout the day.

• In choosing the applicable law, participants said, it was important to avoid selecting a national legal system that was overly restrictive with regard to the use of STCs in general. The particularly restrictive German law was discussed at length. Professor Barbara Dauner Lieb, of Cologne University, pointed out that German law relating to STCs was among the most restrictive in this area in the EU, which explains why parties often try to make sure that their contract is governed by another national law if at all possible. Other laws, such as the Italian law requiring a double signature on every page of an STC, were also singled out as very burdensome. A number of participants agreed that a successful way of getting around this hurdle was through the use of the law of a “third country.” Usually this meant Swiss law, but the Unidroit principles were also said to offer an adequate, though somewhat different, solution.

• Participants agreed that one important advantage of STCs was that they greatly reduced the need for legal advice. Mr Kriström admitted that doing business always carried with it a small amount of risk, but stressed that STCs offered sufficient certainty in the majority of cases.

• The impact of the use of STCs on competition, and hence their compatibility with the competition rules, was also discussed briefly. Mr Kriström stressed that, in his experience, the use of Orgalime’s STCs promoted competition by increasing transparency and putting the focus on price and quality, and that there had never been any cartel problems with the Orgalime STCs or the Nordic STCs which they are based on.

• There was a heated debate about restrictions on contractual freedom, including mandatory provisions intended for the protection of weaker parties, such as consumers, particularly when these restrictions were also applied to B2B and B2G contracts.

Freedom of Contract

Another practical perspective was presented by Mr Paul Abbiati, of the Chartered Institute of Purchasing and Supply (CIPS), an organisation that has been drafting standard terms and conditions for purchasing goods, services and works for many years.

Mr Abbiati spoke about the need for more harmonisation of contract law simply on the basis of reducing costs and simplification. He also emphasised that the principle of freedom of contract should be guaranteed. Finally, he proposed the adoption of an instrument that can be voluntarily ratified wholly or partially by member states and which should constitute soft law. His experiences were quite different from those of the multi-national Orgalime in that the majority of CIPS members are in the UK and their terms are drafted for UK buyers under English law.

Mr Abbiati also talked about the success of soft-law in filling in the gaps of national legislation, made possible by the principle of contractual freedom. On top of the European Principles of Contract Law, he especially praised the American Uniform Commercial Code (UCC), an example of soft-law that he was familiar with, which was created in a transparent environment by legislators, practitioners and academics. He proposed that, rather than “re-inventing the wheel” (by drafting a new instrument), the Commission should look at the 'Principles of European Contract Law' and the UCC, and build upon them.

Enforcing EU-Wide STCs

Two representatives of the International Chamber of Commerce (ICC) spoke on "Standardised cross-border solutions: ICC terms and arbitration."

Mr Charles Debattista(4) introduced a number of the ICC’s sectoral, subject-specific, and generic trade tools, including Model Contracts, Incoterms 2000, UCP 500, etc. He stressed the importance of reacting to expressed needs (as opposed to acting pre-emptively). For the successful use of STCs, he recommended that commercial needs expressed at national levels should be taken into consideration. He concluded with the statement that the main goal of STC use was not uniformity for its own sake, but rather predictability and certainty.

Mr Fabio Bortolotti(5) explained that ICC models are balanced models which take the needs of both parties into consideration equally and which reflect the practice of international trade. This is why ICC models are particularly appropriate as a basis for establishing common rules applicable to cross-border contracts. As to the applicable law, ICC models provide two solutions: 1) submitting the contract to the national law of one of the parties; or 2) to the general principles of law (lex mercatoria) together with the UNIDROIT Principles. The latter solution, which can be used only in the context of arbitration, is a possible way of overcoming the problem of the lack of uniformity among the laws of the EU member states.

Participants’ Practical Experiences with STCs

A large number of participants spoke of their experiences, both good and bad, with attempting to develop and use STCs. A non-exhaustive sample is provided below. Apart from the mostly positive comments on the opportunities offered by STCs, general agreement emerged regarding the need for a study of barriers to STCs resulting from national laws, including national mandatory rules.

• Ms Dawn Kimmich of United Parcel Service (UPS), spoke of her company’s experiences with trying to come up with a set of terms and conditions for carriage for use in multiple jurisdictions that satisfies diverging national mandatory laws. Clients want a single set of such STCs, but national laws can make this very tricky.

• Mr Johannes Boner of Sappi Fine Paper Europe, complained about the insufficient modernisation in contract law. He gave the hand signature provision as an example of 21st century (electronic) contracts clashing with 19th century rules. Although today’s business practices are carried out almost exclusively through electronic means, he said, the rules governing these practices have not kept up. The “Country of Origin Principle,” laid down by the EU’s Electronic Commerce Directive (Directive 2000/31/EC), is a necessary but not in itself sufficient condition to ensure that the same business model can be used throughout the EU.

• Ms Lucilla Giuliani of General Electric (GE), said that GE had tried standardisation, but they encountered too many obstacles and found localisation to be the best solution. However, if genuine possibilities existed for using EU-wide STCs, GE was interested in using them.

• Mr Dieter Zwernemann of the Industrie- und Handelskammer Region Stuttgart, reported that German case-law on STCs had de facto turned many of them into quasi-customary law. He regretted that in Germany many restrictions of contractual freedom that had been promulgated in order to protect consumers and made sense in that context were also being applied to B2B and B2G transactions. Hence, under current German law, suppliers were clearly disadvantaged to the benefit of their purchasers. Nevertheless, the wide use of STCs is testimony to their usefulness.

• Orgalime representatives stressed that, in their experience, STCs were not about creating new universal rules but they did offer solutions in the face of existing obstacles. Nevertheless, the representatives also pointed out that differing court practices in various countries created problems that could not be solved by STCs themselves; in light of this, the elimination of some obstacles, e.g. by ensuring that harmonisation was done in the right way, could offer a benefit. A uniform ratification of the UN law on sales (CISG) would, therefore, be an appropriate solution.

• Mr Fabio Bortolotti representing the International Chamber of Commerce (ICC), said that one of the main difficulties in overcoming national barriers to EU-wide STC use was the existence of differing mandatory rules in the various national legislations. Mr Bortolotti provocatively called for a study of the possibility of establishing “EU-approved” STCs that would prevail over mandatory rules of all national legislations and could thus become fully effective throughout the European Community.

Defining Best Practice

The Commission’s Action Plan suggested, inter alia, that posting information on existing examples of EU-wide STCs would help define “best practice” in developing and using such STCs. Therefore, Mr Haagsma asked participants, especially those who had presented their EU-wide STCs, what (positive and negative) lessons were drawn from their experiences. He wondered whether it would be possible, on the basis of the limited number of cases presented, to draw-up a list of practical do’s and don’ts in STC usage and development, and whether one could state that both sides to a contract should be involved in the elaboration of STCs as much as possible.

• Mr Kriström presented several examples of best practices as they transpired from Orgalime’s experiences. Some suggestions were very specific, such as maintaining a distinction between B2B and B2C STCs at all times. The issue of whether and to what extent both contracting sides should be involved in developing the STC they were to use sparked a discussion on how far STCs should be balanced. According to the Orgalime representatives, their STCs had benefited greatly from the inclusion of both the supply and the demand side in their development. Others argued that companies would always exploit the particular advantages that they had over their contracting partners. Sanctions against “single party STCs,” it was said, should come from the market place -- companies that had the market power to solely define the STCs they used should not be required to include representatives of the “other” side in the development of their STCs.

• It was universally stressed that STCs should only be created and used to solve specific problems, and not simply for the purpose of standardisation in itself. Furthermore, participants warned that STCs should only be used when they would not compromise a situation too much, and that care should be taken for STCs not to become the lowest common denominator in contract law. One participant stated that soft law had its limitations, which is why, in his view, regulation was to be preferred in certain cases.

Setting up a Website

The purpose of the Commission’s future website was set out by Mr Haagsma as twofold. First, it should allow parties not currently involved in developing or using EU-wide STCs to obtain information on experiences of those who are. Secondly, the website should help such parties to team up with their counterparts in other member states or sectors in order to jointly develop EU-wide STCs. One of the goals of the workshop was, therefore, to determine the maximum amount of information that providers would be willing to make available and the minimum amount of information that users would want to retrieve.

Mr Haagsma likened the concept of this website to that of a matchmaking agency, with organisations and individuals posting summaries of their existing or potential dealings with STCs via a standard online entry form. He stressed that any and all information posted would be the sole responsibility of the parties who posted it, and that the Commission would take no responsibility for the legality or appropriateness of the solutions offered by the various STCs posted on the website; “the Commission cannot and will not pick winners.” He also pointed out that the website would not be an exhaustive set of STCs, but merely a self-selected sample of what is available.

Mr Christophe Volckaert (IT specialist, Directorate General Internal Market) briefly elaborated on the technical scope of this future website using a simple prototype, after which participants were able to express their views on what kind of service this website should provide. In terms of content, participants indicated that they would like to see a database/register of both STCs and various national legislations pertaining to the use of STCs. An identification and evaluation of advantages of and problems with existing STCs was also requested, as was some kind of information about the way that existing laws had actually been implemented. Mr. Haagsma insisted once again that such “identification and evaluation” could only be done by the parties themselves and not by the Commission or any other public authority.

• the provision of information about legal developments relating to STCs in specific member states;
• the presence of a “question wizard” or some form of question-and-answer mechanism;
• a liaison with relevant academic and government bodies as well as consumer organisations;
• and translation of the site into more than just the Commission’s three working languages.

Commission Guidelines on the Use (and Development) of STCs

The final suggestion in the Commission’s Action Plan was to publish Guidelines which would “remind parties of the legal and other limits that applied to the use of STCs”. Although the elaboration of such guidelines was the responsibility of the Commission, participants stated that, in order to be useful to them, such guidelines should include, inter alia, information on the treatment of STCs under the EU competition rules.

In response to this, Ms. María Luisa Tierno Centella (Directorate General Competition) discussed some of the implications of STCs on competition and pointed out a number of issues that would be problematic from the point of view of the competition rules. In particular, she explained that there were some “no go” areas in STC use and development from a competition law point of view. This is in particular the case if the parties use STCs to set competition parameters such as prices or output, or to share markets or customers. On the other hand, some categories of STCs could be considered to be "safe" from a competition law point of view, to the extent that they do not influence competition parameters or affect companies' market behaviour.

Conclusions and Follow-up

The workshop turned out to be a highly successful event at which participants engaged in lively and constructive discussions on many aspects of EU-wide STCs for use in B2B and B2G transactions. Although a number of – at times important – obstacles to the use of EU-wide STCs were identified, including those that resulted from mandatory requirements for the protection of consumers which were unnecessarily applied to B2B and B2G contracts, there was general agreement that these STCs could be successfully used in a significant number of cases where economic actors wanted to offer goods and services throughout the EU under roughly the same contractual conditions.

More specifically, participants agreed the following:

On offering information on existing and planned EU-wide STCs

• There was a lack of knowledge among economic actors in the EU about the possibilities for using EU-wide STCs, even within the present legal realities of diverging national contract laws in the member states.

• It would be helpful to provide information about existing successful examples of such EU-wide STCs, in particular by offering structured information on a Commission-sponsored website.

• It was necessary to further explore what types of information should be provided on such a website in order to make it sufficiently helpful to parties interested in developing their own EU-wide STCs or using existing ones. Such further work should also determine the maximum amount of information that parties currently offering or using EU-wide STCs are willing to provide.

• Information would be included on the website as the sole responsibility of the parties posting it. Inclusion of information concerning specific STCs would not constitute any recognition of their legal or commercial validity.

On identifying best practice

• “Best practice” in developing and using EU-wide STCs could be very helpful as a “benchmark” for first-time developers and/or users of EU-wide STCs -- the latter could avoid some of the mistakes made by others and benefit from their positive experiences.

• Although a certain number of elements of such “best practice” were suggested, particularly by representatives of Orgalime, it was not clear which methodology had to be followed for defining “best practice” more broadly.

• Definition of “best practice” should not result in regulation of any kind, but should simply draw attention to solutions and methodologies that had been particularly successful or that had turned out to be a failure in specific cases.

On possible guidelines drawn up by the Commission

• Although there was no extensive discussion about possible Guidelines (the elaboration of which should be the sole responsibility of the Commission), participants stressed that, in order to be useful, such guidelines should include, inter alia, guidance on the limits on the use of EU-wide STCs that resulted from the competition rules.

On identifying legislative obstacles to the use of EU-wide STCs

• Despite the fact that EU-wide STCs are already now possible in many cases, a certain number of obstacles still exist in particular member states. Some of these might already be in violation of EU law. It was, therefore, deemed useful to identify such obstacles with a view to allowing appropriate action for their elimination. Such action might take the form of voluntary obstacle eradication decisions by the member states concerned, infringement procedures by the Commission where the obstacles violated binding EU law, or other EU action, such as legislative measures, where they did not.

• These obstacles would, in the first instance, be identified by way of a Commission-organised survey; that survey would also seek information about other relevant aspects of the use and development of EU-wide STCs.

In order to take matters further, it was agreed that three "sounding boards" would be established. These would provide concrete input and feedback to the Commission via e-mail on the following three issues:

• How to structure an EU website allowing interested parties to exchange information about concrete experiences in developing and using EU-wide STCs and enabling them, where needed, to identify partners in other member states with whom to develop further EU-wide STCs.

• How the website could help to determine “best practice” in developing and using EU-wide STCs.

• The most appropriate way of structuring the “questionnaire” in order to obtain information about existing legal obstacles in member states and other relevant aspects regarding the use and development of such STCs.

Participants in the workshop, as well as other relevant interested parties, are invited to sign up to one or more of these “sounding boards”.

(1) Action Plan, February 2003

(2) Orgalime and VDMA (German Engineering Federation), chairman of the Orgalime Legal Affairs Working Group

(3) Orgalime and Teknikforetagen (Association of Swedish Engineering Industries), member and former chairman of the Orgalime Legal Affairs Working Group.

(4) Vice-chair of the ICC Commission on Commercial Law and Practice (CLP)

(5) Chair of the ICC Commission on Commercial Law and Practice (CLP)

Workshop Participants