Introduction

On a policy level the European Union has concerned itself with small and medium-sized enterprises (SMEs) for some time now, as is witnessed by the Small Business Act for Europe and the “Think Small First” principle. In EU contract law, however, there exist practically no rules specifically concerned with SMEs. The proposed regulation on a Common European Sales Law (CESL) aims to change this. In only the first two pages of the Explanatory Memorandum, SMEs are mentioned seven times and Article 7(2) of the proposed Regulation determines that the CESL maybe used even in B2B situations if at least one party is an SME. Interestingly enough, however, SMEs are not mentioned once in Annex I, which contains the material rules of the CESL. To conclude that the CESL would not change anything for the position of SMEs, however, would be a big mistake.

The CESL includes a section on unfair terms in contracts between traders. Accordingly, the terms of a contract between an SME and another business can be tested on its unfairness under the CESL. It is the first time that would be the case in a EU context, as the Unfair Terms Directive only included an unfairness test for B2C contracts. The extension of an unfairness test to B2B situations is not uncontroversial.

In this chapter I will first argue that an extension of the unfairness test of contractual terms is justified in contracts where at least one party is an SME. Two paradigms lie at the basis of much of European contract law: the creation of a well-functioning internal market and the protection of weaker parties. These aim respectively at removing barriers to trade and the prevention of taking advantage of weaker parties. The Commission identifies these two rationales as underlying the CESL and captures both concerns when it says in its Explanatory Memorandum: ‘in their relations with larger companies, SMEs generally have to agree to apply the law of their business partner and bear the costs of finding out about the content of foreign law applicable to the contract.’ I will not discuss the (relative) merits of these - sometimes overlapping, sometimes conflicting - paradigms. Instead I will argue that both paradigms justify an unfair terms test for SMEs.