This chapter provides an overview of what the Protocol does and why it does it. This is a more challenging task than one might initially imagine because the Protocol is written with what one might generously describe as calculated ambiguity, or, less charitably, outright evasion. What the Protocol does is not what it says. Elucidating its true meaning requires a journey through four particular matters: (i) the customs territory to which Northern Ireland belongs, (ii) the effect on West to East (Northern Ireland to GB) trade, (iii) the effect on East to West (GB to Northern Ireland) trade, and (iv) state aid. Each of these issues is considered in greater detail in subsequent chapters. The argument of this chapter is that the approach to drafting the provisions of the Protocol is the same: in each case, the Protocol is written in a way that understates the nature and the extent of the commitments made on the UK side.

THE NEED FOR A POLITICAL AS WELL AS A LEGAL APPROACH

The story told in Chapters 3 and 4 is of the practical difficulty in making sharp and effective use of the promise of a limited role for the EU which is made by the principle of conferral contained in Article 5 TEU. Several features militate against the prosecution of a compelling constitutional case that the limits of EU legislative competence have been exceeded. Most of all, the internal market, to which legislative harmonisation adopted pursuant to Article 114 TFEU is dedicated, is in principle a limiting concept but in practice an empowering one. The threshold which must be crossed is low: the Court is reluctant to intervene in legislative choices provided the constitutionally necessary incantation of a contribution to the functioning of the internal market adorns the legislative measure's reasoning. Seen from the opposite standpoint, it is very difficult to make a plausible case against the validity of measures of legislative harmonisation, since it is so easy for a political preference to act to be endowed with the necessary sheen of constitutional respectability. The case law, examined in Chapter 3, duly reveals that most challenged measures survive attack before the Court.

The problem, then, lies in the limited worth of the currently applicable legal rules in giving substance to the corollary of the principle of conferral, which is that competences not conferred on the EU belong with the Member States. This is important enough to be made explicit twice in the common provisions at the beginning of the TEU, in Articles 4(1) and 5(2) TEU, but it is not backed up by operationally useful rules. The Treaty does not make explicit provision to exclude particular areas from the influence of the EU. In fact, by stark contrast, it is structured to grant functionally broad competences to the EU. Article 114 TFEU is the most supple of these, and, as explained in principle in Chapter 3 and explored in legislative practice in Chapter 4, it is a poor guardian of the notion of ‘States’ rights’ which seems to be promised by Articles 4(1) and 5(2).

INTRODUCTION

The question which is addressed in this chapter is simply stated. It asks what is the scope for action at national level in a field in which the EU has adopted legislation. The most acute dimension of this question asks whether Member States may adopt stricter rules than those set as a harmonised norm by the EU. It is simple enough to ask these questions, but providing answers is not simple at all. The Treaty is evasive on the point. Legislative practice varies, policy preferences among the EU's political institutions have fluctuated (and continue to do so) and the Court of Justice has muddied the waters still further by delivering a spray of rulings, examined below, which seem irreconcilable.

The basic choice lies between a model of ‘maximum harmonisation’ and a model of ‘minimum harmonisation’. This chapter is built on the argument that it is open to the EU, in adopting measures of harmonisation, to choose between setting rules that deny Member States room to choose stricter standards – this is the model of maximum harmonisation – and instead setting rules that allow scope for stricter national standards above the harmonised norm – this is minimum harmonisation. But it is admitted at the outset that this argument is made against a contested constitutional and policy background. The chapter begins by examining the governing Treaty superstructure (section 6.2). It then maps legislative practice in the field of harmonisation (section 6.3), before turning to exploration of the Court's unhelpfully ambiguous legacy in the field (section 6.4). It then tracks the Commission's policy-driven crusade against the technique of minimum harmonisation and in favour of maximum harmonisation, which has been animated by a belief that the maximum model is the superior means to deliver a well functioning internal market for the EU (section 6.5). This has clear resonance in the field of contract law. It then shows how politically contested this has – quite properly – become, and explains how the purity of the Commission's vision has met political resistance and how accordingly minimum harmonisation retains a place in the strategies for the construction of the internal market (section 6.6).

INTRODUCTION

The EU's legislative acquis affecting contracts and contract law is constructed in line with the constitutionally generous approach mapped in the previous chapter.

Free movement law opens up the internal market by releasing contractual autonomy from the restrictive effect of regulatory barriers to cross-border trading freedom. Then that contractual autonomy is conditioned by controls in the name of competition law. This was covered in Chapter 2. But the limits of free movement law, represented by the available scope to justify barriers to inter-State trade, are also the limits of the internal market as a project built exclusively on deregulation of national markets. Where barriers to inter- State trade survive testing against the standards set by free movement law, progress to the creation of an internal market depends on their (partial or total) replacement by EU-level rules. This is harmonisation. It is the legislative supplement to the judicially driven process of market-making that is founded on the non-absolute requirements of free movement law. Chapter 3 examined this process, and it showed that harmonisation entails deregulation too, in the sense that a multiplicity of diverse national rules are boiled down to a single common rule, set at EU level. But there is a common rule, so the process is deregulatory but simultaneously re-regulatory, in the sense that the EU takes over the responsibility to regulate the market that was previously the preserve of the Member States, performing that task in divergent fashions. In this sense legislative harmonisation has a dual function – both to secure the integration of the markets (by establishing a common rule) but also to set the terms according to which conduct shall be (re-)regulated within that integrated market (by establishing a common rule). Chapter 3 explained that this dual function is commanded by the Treaty, especially Articles 12, 114(3), 168(1) and 169(1) TFEU, and the Charter of Fundamental Rights, especially Articles 35, 37 and 38, and moreover it has been relied on in a legally significant way by the Court in determining that harmonisation properly possesses this dual function. So the Court in the first Tobacco Advertising case did not deny that public health policy and concern for consumer protection may legitimately inform the shaping of the harmonisation programme – quite the reverse.

CONTRACTS AND CONTRACT LAW

A contract sets out the terms on which the parties agree. The contract is typically an exchange of promises. It may be very simple and the transaction may be immediate – an agreement to pay a price in return for a bar of chocolate. It may be very complicated and may envisage a long-term relationship between the contracting parties – supply of goods or services or a combination of both over a period, with payment due in instalments as the work progresses. But the basic common idea is that the parties enter into a contract in order to benefit from it. They should both be better off as a result of the exchange envisaged by the contract.

It follows that contract law has the function of facilitating and protecting the process of exchange. Contract law stipulates the form in which promises should be made in order to be treated as legally enforceable. It then ensures that promises are kept and, where they are not, it stipulates appropriate sanctions. Legal enforceability serves to grant confidence to those entering into contracts that their expectations will be met, which is of particular importance where the planned deal envisages a long-term relationship between the contracting parties. The law therefore promotes freedom to participate in exchange. It encourages parties to sign up to deals because they know they will be reliably performed and, if they are not, sanctions will be imposed. Contract law provides certainty and predictability.

So contracts and contract law are central to the market economy. More generally the decision whether to enter into a contract or not and, if so, with whom is an expression of personal autonomy and individual freedom. There is a political context. Sometimes, however, an agreement may be entered into without the necessary element of freedom or full understanding. Contract law may therefore perform the function of stopping agreements being used for purposes for which they are not intended by both parties. Rules allowing the review of contracts entered into under duress or as a result of fraud come into play here.

PRIMARY LAW AS A BASIS FOR INTERVENTION IN CONTRACTS AND CONTRACT LAW

The theme which binds together the material traversed in this chapter is that EU internal market law acts as a restraint on contractual autonomy and on national contract law. It is primary EU law – the provisions of the Treaty and those of the Charter of Fundamental Rights – that is the subject of inquiry. There are measures of secondary legislation, mostly Directives, which are relevant to choice of a contracting partner and to contractual enforceability, such as those concerning equality and those concerning protection of weaker parties such as consumers and workers, and these will be mentioned in this chapter and examined more fully in those that follow. But Directives can be amended or withdrawn. They represent a political consensus assembled through the EU legislative process at a particular time that may not endure. As a matter of constitutional hierarchy, primary law – the Treaty and the Charter – is different. It may not be altered save in the exceptional circumstances which apply at times of Treaty revision, requiring unanimous support of the Member States and performed according to the procedures laid down by the Treaties and mandated by national constitutional law. Change of this type happens relatively irregularly and when it does happen, it is almost unknown for protection granted by EU law to be withdrawn. So the relevant rules of primary law are entrenched to a high degree. Moreover, Directives are limited in their impact on domestic legal proceedings. Where a Member State fails correctly to implement a Directive, the Directive is denied horizontal direct effect in legal proceedings before a national court – it may not be relied on as source of protective rights by a private party, including a contracting party, against another private party. No such principled constraint attaches to primary law, and indeed key Treaty provisions associated with free movement, competition and equal pay are capable of horizontal direct effect, as will be explained in this chapter.

Therefore primary law – the Treaty and the Charter – constitutes the foundation of the EU legal order, and the concern of this chapter is to show how the relevant provisions surround and constrain contractual autonomy and contract law.

Two principal ambitions have animated the writing of this book on Contract Law of the Internal Market.

The first ambition is to demonstrate to contract lawyers that there are constitutional limits to the role of the EU in acting in the field, but that full appreciation of the nature of those limits, and the consequences they entail for the shaping of an EU contribution to the making of contract law in Europe, requires awareness of a complex interaction of oft en ambiguous constitutional rules, oft en politically inconsistent institutional rhythms and oft en evasive judicial pronouncements. A contract lawyer today needs also to be an EU lawyer.

The second ambition is to demonstrate to EU lawyers that the intervention of the EU in contract law – through judicial application of the free movement and competition rules and through legislative harmonisation – is not simply a niche area that has grown erratically but ultimately remains on the edges of the EU's core public law activities, but rather that the rise of EU contract law asks some vividly important questions about the principle and practice of conferred competence and about the choice of priorities in market regulation as protective instincts and deregulatory impulses collide. This has long been visible in the field of consumer contract law and labour market regulation, but the adjustments made by the Treaty of Lisbon, especially but not only the grant of binding effect to the Charter, have sharpened the interest. An EU lawyer today does not need to be a contract lawyer, but he or she could learn a lot from appreciating the contract law of the internal market.

I have been writing in this area for almost twenty years and I am very pleased to have had the opportunity to bring together my thoughts in this book. Contract law in the EU is largely, though not exclusively, driven by the pursuit of the internal market and this exposes it to the accusation that the EU diminishes a proper understanding of the place of contract law.

SECONDARY LEGISLATION

The previous chapter examined primary EU law as a means to confine the exercise of contractual autonomy. Where it is anti-competitive, where it impedes free movement (of persons and services) or where it involves discrimination on prohibited grounds, EU law prevails. Chapter 2 also considered how national contract law may be subjected to the demands of the internal market. Where it restricts inter-State trade, it is subject to review: where it is not shown to be justified, it must be set aside in so far as it impedes imports.

This chapter moves from primary to secondary law. It concerns regulation of the exercise of contractual autonomy and it largely concerns the scope of EU legislative competence in the field of contract law. Its primary concern is the sturdy raft of Directives that have been adopted as measures of harmonisation with the aim of improving the functioning of the internal market. In this sense it operates at a lower constitutional register than the material considered in the previous chapter. Directives are constitutionally weaker than primary law, in at least two important senses. First, they may be altered ‘from within’, through the EU's internal legislative process, whereas the Treaty and the Charter can be changed only ‘from the outside’, with the unanimous support of the Member States acting through processes for revision foreseen by the Treaty superstructure. Second, Directives are denied horizontal direct effect in proceedings before national courts, whereas this attribute readily attaches to many, though not to all, of the relevant provisions of the Treaty and the Charter. In short, primary law paints a bigger, bolder picture of the EU's commitment to regulating contracts and contract law than does secondary law.

Nevertheless, there are quite simply a lot of relevant Directives, to the point that no appreciation of the shape of contract law in Europe can possibly disregard the layer of material added by the EU secondary legislation, even if a degree of grumpiness about the ad hoc nature of that intervention is commonly visible.

THE CONTRACT LAW OF THE INTERNAL MARKET: A BRIEF SUMMARY

The EU is committed by Article 3(3) TEU to the creation of an internal market which, according to the definition provided by Article 26(2) TFEU, ‘shall comprise an area without internal frontiers in which the free movement of goods, persons, services and capital is ensured’. The Court of Justice has had its moments of constitutional hyperbole: in 1971 it declared the ‘essential purpose of the Treaty’ to be ‘to unite national markets into a single market’ and in 2011 it stated that completion of the internal market is ‘the fundamental aim of the Treaty’. Th at goes beyond what is in fact and in form contained in the Treaties, but there is no doubt that the project of economic integration has enjoyed enduring prominence as the EU's most visible transformative feat. The internal market is demonstrably central to the EU's activities.

The EU reaches contracts and contract law almost exclusively through the internal market. Chapter 2 shows how free movement law and competition law are not targeted at contracts or contract law but how nevertheless the impact that contracts and contract law exert on the functioning of the internal market brings them within the scope of the review exercised by free movement and competition law. It is especially ‘regulatory contract law’ that is affected. Chapter 2 also explains that there is a small, but potentially expanding, impact on contracts and contract law as a result of EU anti-discrimination law and the wider, albeit ambiguously shaped, ‘constitutionalisation’ of contract law – this is a glimpse of EU contract law beyond the internal market. Chapter 3 returns to the heartland of the internal market and shows how legislative harmonisation engages with contract law, especially ‘regulatory contract law’, on the basis that diverse national choices obstruct trade in goods and services or cause an appreciable distortion of competition within the internal market. Harmonisation improves the functioning of the internal market, and it has a ‘dual function’: both to put in place common EU rules which are the platform for an integrated trading space, and to put in place common EU rules which determine the intensity of market (re-)regulation within that space.

Private law and the constitutional limits of EU competence

Article 5(1) EC [Article 5 TEU] provides that the EU shall act within the limits of the powers conferred upon it by the Treaty and of the objectives assigned to it therein. There is no competence to be found in the Treaty which confers any general authorisation on the EU to operate in the field of private law. There are, however, particular legal bases that can feasibly be exploited to adopt legislation that touches private law. One is found in Article 153(3)(b) EC [Article 169(2)(b) TFEU], which provides that the Community may adopt measures which support, supplement and monitor the policy pursued by the Member States in order to promote the interests of consumers and to ensure a high level of consumer protection. This was an innovation of the Treaty of Maastricht, so it has been available as a legislative competence only since 1993. Judicial cooperation in civil matters may be pursued by reliance on Articles 61–65 EC [Articles 67–81 TFEU] as a basis for legislation. This has a pedigree in the EC Treaty which goes back only as far as the Treaty of Amsterdam, so the key date here is 1999. Both legal bases have been employed sporadically for the making of legislation affecting private law. But in neither case has anything of radical significance emerged.

Yet ‘EU private law’ – most of all ‘EU contract law’ (of a sort) – was already envisaged by the Treaty of Rome when it came into force in 1958. EU competition law intimately affects private law, for Article 81 EC [Article 101 TFEU] requires that contracts which fall foul of its demands be treated as void. The Treaty rules governing free movement affect private law insofar as they have been interpreted as capable of direct application to the activities of private parties – this is especially true of those concerning the free movement of persons (Bosman (Case C-415/93); Angonese (Case C-281/98)). Also gender equality rules (Defrenne v. SABENA (Case C-43/75)) and, more recently, the wider equality rules covering, inter alia, race and sexual orientation have an important impact on private relations. There is even a general principle of EU law prohibiting discrimination on grounds of age which is capable of application in cases involving exclusively private parties (Mangold (Case C-144/04)).