A Giant with Feet of Clay : A First Law and Economics Analysis of the Draft Common Frame of Reference (DCFR)

This paper contains the conclusions from the work of the Economic Impact Group (EIG), a part of the CoPECL Network of Excellence funded by the EU to prepare a Draft Common Frame of Reference (DCFR). Part 1 revisits basic principles which are central to the work of the whole group. For one, contract law is not just about remedying market failures, it is fundamentally a basic condition for markets to exist at all. Moreover, law and economics analysis looks for Pareto-efficiency and total welfare, without taking distributional considerations into account. Part 2 summarizes the contributions of the EIG members: they dealt with general issues of contract law (function of contract law, good faith, non-discrimination), the formation and interpretation of contracts (including standard terms), contractual performance (choice of remedies, standard for the assessment of damages), termination (including long-term contracts), specific areas such as insurance and consumer law, as well as non-contractual liability (interplay between contract and tort law, limits to extra-contractual liability). Part 3 draws general conclusions from these contributions. As regards the first question before the EIG (desirability of harmonization at European level), the costs of harmonization have been downplayed, so that the case for harmonization has probably been exaggerated, certainly as regards areas such a non-contractual liability where the DCFR cannot simply be an optional regime. As regards the second question assessed by the EIG (appropriateness of the provisions chosen in the DCFR), the work of the EIG reveals shortcomings: among others, rules have been formulated without a complete assessment of their rationales and the ex ante impact of the DCFR has been ignored. The drafters of the DCFR could have derived more added value from an economic analysis of their work than they seemed to acknowledge. Accordingly, while the DCFR is a momentous work of scholarship, it rests on fragile foundations