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University of Groningen Non-Legislative Harmonisation of Private Law under the European Constitution Colombi Ciacchi, Aurelia Published in: European Review of Private Law IMPORTANT NOTE: You are advised to consult the publisher's version (publisher's PDF) if you wish to cite from it. Please check the document version below. Document Version Publisher's PDF, also known as Version of record Publication date: 2005 Link to publication in University of Groningen/UMCG research database Citation for published version (APA): Colombi Ciacchi, A. (2005). Non-Legislative Harmonisation of Private Law under the European Constitution: The Case of Unfair Suretyships. European Review of Private Law, 13(3), 285-308. Copyright Other than for strictly personal use, it is not permitted to download or to forward/distribute the text or part of it without the consent of the author(s) and/or copyright holder(s), unless the work is under an open content license (like Creative Commons). Take-down policy If you believe that this document breaches copyright please contact us providing details, and we will remove access to the work immediately and investigate your claim. Downloaded from the University of Groningen/UMCG research database (Pure): http://www.rug.nl/research/portal. For technical reasons the number of authors shown on this cover page is limited to 10 maximum. Download date: 25-12-2019

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University of Groningen

Non-Legislative Harmonisation of Private Law under the European ConstitutionColombi Ciacchi, Aurelia

Published in:European Review of Private Law

IMPORTANT NOTE: You are advised to consult the publisher's version (publisher's PDF) if you wish to cite fromit. Please check the document version below.

Document VersionPublisher's PDF, also known as Version of record

Publication date:2005

Link to publication in University of Groningen/UMCG research database

Citation for published version (APA):Colombi Ciacchi, A. (2005). Non-Legislative Harmonisation of Private Law under the EuropeanConstitution: The Case of Unfair Suretyships. European Review of Private Law, 13(3), 285-308.

CopyrightOther than for strictly personal use, it is not permitted to download or to forward/distribute the text or part of it without the consent of theauthor(s) and/or copyright holder(s), unless the work is under an open content license (like Creative Commons).

Take-down policyIf you believe that this document breaches copyright please contact us providing details, and we will remove access to the work immediatelyand investigate your claim.

Downloaded from the University of Groningen/UMCG research database (Pure): http://www.rug.nl/research/portal. For technical reasons thenumber of authors shown on this cover page is limited to 10 maximum.

Download date: 25-12-2019

Non-Legislative Harmonisation of Private Law under theEuropean Constitution: The Case of Unfair Suretyships*

AURELIA COLOMBI CIACCHI**

Keywords: Suretyships, European Constitution, Case-Law Harmonisation

Abstract: This paper explores the horizontal effect of European constitutional rights,freedoms and principles as an alternative method of harmonisation based on case-lawconvergence. The feasibility and the appeal of this method are illustrated with specificreference to the case of unfair suretyships. A comparison of the existing national instru-ments protecting vulnerable sureties from disproportionate obligations enables us todetect spontaneous convergences and ‘cryptotypes’, but also dramatically different levelsof protection. This paper argues that to give equally effective protection to sureties’ (andlenders’) fundamental rights in all Member States, a new system of judicial harmonisationwould be necessary.

Résumé: Cet article considère l’effet horizontal des droits, des libertés et des principesconstitutionnels européens comme méthode alternative d’harmonisation basée sur laconvergence jurisprudentielle. La faisabilité et l’intérêt de cette méthode sont illustrés àtravers l’exemple du contrat de cautionnement déloyal. Une comparaison des instrumentsnationaux en vigueur protégeant les garants vulnérables contre des engagements dispro-portionnés permet de détecter des convergences spontanés et des ‘cryptotypes’, maiségalement des niveaux de protection nettement différents. Cet article soutient que pourproteger les droits fundamentaux des garants (et des créditeurs) avec la même efficacité intous les États membres, un nouveau système d’harmonisation juridique serait nécessaire.

Zusammenfassung: Dieser Beitrag untersucht die Drittwirkung der europäischenGrundrechte, Grundfreiheiten und Verfassungsprinzipien als eine alternative Har-monisierungsmethode, die auf richterrechtlicher Konvergenz beruht. Die Praktikabilitätund die Vorteile dieser Methode werden anhand des spezifischen Beispiels der unbilligenBürgschaftsverträge erläutert. Ein Vergleich der vorhandenen nationalen Rechts-instrumente zum Schutz der Bürgen vor unverhältnismäßig hohen Verpflichtungenermöglicht es, spontane Konvergenzen und ‘Kryptotypen’, aber auch kraß unterschied-liche Schutzstandards zu entdecken. Um die Grundrechte der Bürgen (und Kreditgeber)gleichermaßen effektiv in allen Mitgliedstaaten zu schützen, hält dieser Beitrag ein neuesSystem judikativer Harmonisierung für notwendig.

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* I wish to thank Ulf Bernitz, Gert Brüggemeier, Hugh Collins, Nicola Countouris, Christine Godt,Matthias Haentjens, Catherine Jacqueson, Gerard McCormack, Ruth Sefton-Green, SteveWeatherill, Simon Whittaker and Katja Ziegler for their helpful comments on earlier versions ofthis paper.

** Dr., Marie Curie Fellow, University of Oxford, Institute of European and Comparative Law;Researcher in European Private Law, Centre of European Law and Politics at the University ofBremen.

European Review of Private Law 3-2005 [285–308] © Kluwer Law International | Printed in the Netherlands

1 The European Constitution: Form and SubstanceContinental lawyers, particularly private lawyers, may tend to associate the word‘Constitution’ exclusively (or at least primarily) with a formally enacted, writtenconstitutional document. They might therefore think that a European constitutionallegal order will emerge only if and when all Member States have ratified the Treatyestablishing a Constitution for Europe, in any case not before 1 November 2006.1

But as soon as we recall that legal systems which have not seen the need forwritten constitutional documents, such as those of England and Scotland, alsoconsider themselves as governed by a Constitution,2 another meaning of the wordcomes into play: the Constitution as a set of fundamental principles, rules and rights,be they written or unwritten. In this regard, continental constitutional lawyers distin-guish between a formal and a substantive Constitution.3 In the substantive sense ofbasic rules shaping government institutions, their powers and mutual relationships,and fundamental policy objectives, a European Constitution as applicable law alreadyexists and is more than 50 years old.4

For much of the European Community’s first few decades of existence, thenature of its Constitution was unclear. On the one hand, the long-term objectivepursued by the Member States through the institution of the Community was a poli-

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1 Cf. Art. IV-447 (2) of the Constitutional Treaty. The Treaty was signed by the representatives ofthe governments of the Member States on 29 October 2004 in Rome. The full text is available at<http://europa.eu.int/constitution/index_en.htm>.

2 See W. BAGEHOT, The English Constitution, 2nd edn, Oxford University Press, Oxford 1928; D.H.MCNEILL, The Scottish Constitution, The Scottish National Party, 1943.

3 In Germany, the distinction between formal and substantive constitutional law (‘formelles undmaterielles Verfassungsrecht’) goes back to G. JELLINEK (e.g. Allgemeine Staatslehre, 3rd edn,Springer, 1929). Cf. P. UNRUH, Der Verfassungsbegriff des Grundgesetzes, Mohr Siebeck, 2002,p 422 et seq. For the French concepts of ‘Constitution formelle’ and ‘Constitution matérielle’ seeD. TURPIN, Droit constitutionnel, 4th edn, Presses universitaires de France, 1999, pp 87-88. InItalian literature, the two distinctions ‘Costituzione formale/Costituzione sostanziale’ and‘Constituzione formale/Costituzione materiale’ are not always treated as equivalent: cf. G. DEVERGOTTINI, Diritto costituzionale, 3rd edn, Cedam, 2001, p 10 et seq.

4 On European constitutionalism see J.H.H. WEILER, The Constitution of Europe: ‘do the new

clothes have an emperor?’ and other essays on European integration, Cambridge University Press,1999; J. SHAW, ‘The emergence of postnational constitutionalism in the European Union’, 6Journal of European Public Policy 1999, p 579; I. PERNICE, ‘Multi-level Constitutionalism andthe Treaty of Amsterdam: Constitution-Making Revisited?’, 36 CMLR (Common Market Law

Review) 1999, p 703; P. CRAIG, ‘Constitutions, Constitutionalism and the European Union’, 7ELJ (European Law Journal) 2001, p 125; C. JOERGES, ‘The law in the process of constitution-alizing Europe’, EUI Working Paper Law 4/2002; S. WEATHERILL, ‘Is constitutional finalityfeasible or desirable? On the cases for European constitutionalism and a European Constitution’,Constitutionalism Web-Papers (ConWEB), Paper No 7/2002, <http://les1.man.ac.uk/conweb>;A. VON BOGDANDY (ed.), Europäisches Verfassungsrecht: theoretische und dogmatische

Grundzüge Springer, 2003.

tical one: to ensure peaceful and even closer political relationships between thepeople of Europe. On the other hand, however, some Member States were quitereluctant to accept the idea of a European Community as a political entity havingsupremacy over the governments of Member States’. As a compromise, the EuropeanEconomic Community was born. In this context, it was perfectly understandable tospeak of a ‘European Economic Constitution’.5

During the following decades, Europe increasingly freed itself from being amere economic alliance. In 1989 the word ‘political Union’ officially entered into theCommunity agenda.6 With the Treaty of Maastricht, the European Union was bornand the adjective ‘economic’ disappeared from the European Community name.

In the meantime, fundamental rights had made their entrance into theEuropean Constitution. In 1974 – 26 years before the Nice Charter! – the ECJ statedthat ‘fundamental rights form an integral part of the general principles of law, theobservance of which it ensures. In safeguarding these rights, the Court is bound todraw inspiration from constitutional tradition common to the Member States’, andfrom ‘international Treaties for the protection of human rights on which the MemberStates have collaborated or of which they are signatories’.7 In 1992, the MaastrichtTreaty codified and generalised these principles. They are now laid down in Article 6of the EU Treaty in the consolidated version of Nice.8

Hence, the European Constitution is no longer merely economic. The citizensof the European Union are granted not only economic freedoms, but also personal free-

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5 For discussion of this topic see P. BEHRENS, ‘Die Wirtschaftsverfassung der EuropäischenGemeinschaft’, in: G. BRÜGGEMEIER (ed.), Verfassungen für ein ziviles Europa, Nomos, 1994, pp73-90; M.E. STREIT & W. MUSSLER, ‘The Economic Constitution of the European Community.From “Rome” to “Maastricht”’, 1 ELJ (European Law Journal) 1995, p 5; C. JOERGES, ‘TheMarket without the State? The “Economic Constitution” of the European Community and theRebirth of Regulatory Politics’, European Integration online Papers (EioP) Vol 1, No. 19, 1997,<http://eiop.or.at/eiop/texte/1997-019a.htm>; A. SOMEK, ‘Equality and ConstitutionalIndeterminacy. An Interpretative Perspective on the European Economic Constitution’, 7 ELJ

(European Law Journal) 2001, p 171; A. HATJE, ‘Wirtschaftsverfassung’, in: A. VON BOGDANDY(ed.), Europäisches Verfassungsrecht, op. cit. (footnote 4 above) 683 et seq.; and, last but not least,C. JOERGES, ‚What is Left of the European Economic Constitution? A Melancholic Eulogy’, EUIWorking Paper Law 13/2004.

6 On 9 December 1989 in Strasbourg, the European Council decided to convene an inter-govern-mental conference on moving ahead with economic and monetary union and political union(DOC/89/3, <http://europa.eu.int/rapid/searchAction.do>).

7 ECJ, Case C-4/73 (Nold v. European Commission).8 (1) ‘The Union is founded on the principles of liberty, democracy, respect for human rights and

fundamental freedoms, and the rule of law, principles which are common to the Member States’.(2) ‘The Union shall respect fundamental rights, as guaranteed by the European Convention for

the Protection of Human Rights and Fundamental Freedoms signed in Rome on 4 November1950 and as they result from the constitutional traditions common to the Member States, asgeneral principles of Community law’.

doms and fundamental rights not necessarily related to economic interests. Besides being based on common economic interests such as the Internal Market, the contem-porary European Union is founded first, and foremost, on common human values.

The fundamental rights and constitutional principles enshrined in Article 6EU continue to be legally binding independently of the existence and the bindingforce of both the Fundamental Rights Charter of 2000 and the Constitutional Treatyof 2004.

2 A Paradigm Shift What consequences are we to draw from the above scenario for the Europeanisationof private law? First of all, a paradigm shift is required:

The European debate on harmonisation of private law beyond the field ofconsumer protection could be described as having been hitherto dominated by threeparadigms. The first one is the supposed necessity of private law harmonisation forthe completion of the Internal Market.9 The second one is the supposed existence ofa common core of principles of private law, deductible from the national legalsystems and which could constitute the basis for further harmonisation.10 The thirdone is the highly controversial project of a European Civil Code, which is promotedincreasingly as an optional instrument rather than as directly binding law.11

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9 On which this paper shares the criticism expressed by H. COLLINS, ‘The Freedom to CirculateDocuments: Regulating Contracts in Europe’, 10 ELJ (European Law Journal) 2004, p 787, andS. WEATHERILL, ‘Why Object to the Harmonization of Private Law by the EC?’ 12 ERPL

(European Review of Private Law) 2004, p 633.10 Cf. e.g. O. LANDO, The harmonization of European contract law through a restatement of prin-

ciples, University of Oxford, Centre for the Advanced Study of European and Comparative Law,1997; C. VON BAR, O. LANDO & S. SWANN, ‘Communication on European Contract Law: JointResponse of the Commission on European Contract Law and the Study Group on a EuropeanCivil Code’, 10 ERPL (European Review of Private Law) 2002, p 183. The discovery of similarsolutions in the case-law of the Member States behind the veil of the different provisions ordoctrines applied is the aim of the comparative law project ‘The Common Core of EuropeanPrivate Law’, launched by U. Mattei and M. Bussani in the early 1990s. See M. BUSSANI & U.MATTEI, ‘The Common Core Approach to European Private Law’, 3 Colum. J. Eur. L. (Columbia

Journal of European Law) 1997, p 339. The Common Core project itself, however, does not aimto harmonise the private laws of European countries. For more information about this project see<http://www.jus.unitn.it/dsg/common-core/>.

11 For discussion see S. GRUNDMANN, ‘The Optional European Code on the Basis of the Acquis

Communautaire – Starting Point and Trends’, 10 ELJ (European Law Journal)2004, p 698; M.HESSELINK, ‘The Politics of a European Civil Code’, 10 ELJ (European Law Journal) 2004, p675.

All three paradigms permeate both scholarly writings and the Community’sofficial documents on private law harmonisation.12 Yet, none of these paradigms iscommonly considered as having much to do with the European Constitution. Not-withstanding the Community institutions being the main actors in European consti-tutional development, there isn’t a single hint to the constitutional dimension ofprivate law harmonisation either in the relevant Parliament’s Resolutions or in theCommission’s Communications. The constitutionalisation of Europe and theharmonisation of private law appear as strictly separate processes.

This is partially true also with regard to the academic debate. Only recentlyscholars have begun to bridge the gap and to recognise the European constitutionalrelevance of private law harmonisation.13 In general, public lawyers tend to prefernot to enter the minefield of EC private law. And the constitutional melody played byEC law since the 1970’s seems not to have yet reached the ears of private lawyers,

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12 See in particular the first Communication of the European Commission on European contractlaw: COM(2001) 398 final, 11 July 2001. Thereafter, the Commission seems to have changed itsunderstanding of the second paradigm. In the Communication of 2001, the common principlesof contract law were presented as immanent in the law of ‘all Member States’ (p. 14), whilst in theAction Plan (COM(2003) 68 final, 12 February 2003) the Commission seems to have abandonedthe ‘common core’ mythos. The Action Plan recognises (p. 16 et seq.) that every drafting ofcommon solutions requires to choose, between different national models, the ‘best’ ones. On thisnew approach is based also the most recent Commission Communication on European contractlaw: COM(2004) 651 final, 11 October 2004, p 3 et seq.

13 See S. WEATHERILL, ‘The Commission’s Options for Developing EC Consumer Protection andContract Law: Assessing the Constitutional Basis’, 13 EBLR (European Business Law Review)

2002, p 497; idem, ’European Contract Law: Taking the Heat Out of Questions of Competence’,15 EBLR (European Business Law Review) 2004, p 23; STUDY GROUP ON SOCIAL JUSTICE INEUROPEAN PRIVATE LAW (SOCIAL JUSTICE GROUP), ’Social Justice in European ContractLaw. A Manifesto’ 10 ELJ (European Law Journal) 2004, p 653; O. GERSTENBERG, ’Private Lawand the New European Constitutional Settlement’, 10 ELJ (European Law Journal) 2004, p 766;D. CARUSO, ’Private Law and Public Stakes in European Integration: the Case of Property’, 10ELJ (European Law Journal) 2004, p 751; G. ALPA, ’The Meaning of ’Natural Person’ and theImpact of the Constitution for Europe on the Development of European Private Law’, 10 ELJ

(European Law Journal) 2004, p 734. See also A. COLOMBI CIACCHI, ’Der Aktionsplan derEuropäischen Kommission für ein kohärenteres Vertragsrecht: Wo bleibt die Rückbindung an dieEuropäische Verfassung?’, in: A. TIETZE , M.-R. MCGUIRE et al. (eds), Europäisches Privatrecht.

Über die Verknüpfung von nationalem und Gemeinschaftsrechts, Jahrbuch junger Zivilrechts-

wissenschaftler 2004, Boorberg, 2005 (forthcoming).

although they are not insensitive to the music emanating from the nationalConstitutions and the Human Rights Convention.14

Time has therefore come for a paradigm shift: the acknowledgement that bothEC and national private laws as being embedded in and having to be permeated by aEuropean constitutional legal order.15

3 Constitutionalisation of Private Law in Europe: One Word for a Thousand Realms‘European private law’ is a very popular expression, despite or perhaps even thanksto its vagueness. First, it often serves as a synonym for the body of EC private lawlegislation,16 which is not limited to consumer protection measures (as e.g. the LatePayment Directive17 shows).18 Second, the term designates the bundle of differentnational private law regimes in Europe, both gradually converging from the bottom

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14 In most Member States the effect of constitutional and/or Convention norms in private law is awell-known subject of study. The Italian and German literature on this topic goes back to the1950s-1960s: see P. BARILE, Il soggetto privato nella Costituzione Italiana, Cedam, 1953; W.LEISNER, Grundrechte und Privatrecht, Beck, 1960; H.-C. NIPPERDEY, Grundrechte und

Privatrecht, Scherpe, 1961. For some of the first contributions in other Member States see, in theNetherlands, A.G. MARIS, Dient de wet bijzondere regelen te bevatten ten aanzien van de civiel-

rechtelijke werking van de grondrechten, en, zo ja, welke?, Preadviezen NJV 1969, Arnhem, 1969;H. DRION, ‘Civielrechtelijke werking van grondrechten’, NJB (Nederlandse Juristenblad) 1969, p 585; in Spain, T. QUADRA-SALCEDO, El recurso de amparo y los derechos fundamentales en las

relaciones entre particulares, Civitas, 1981; in Portugal, J.C. VIEIRA DE ANDRADE, ‘Os DireitosFundamentais nas Relações entre Particulares’, 5 Documentação e Direito Comparado 1981, p 181et seq.; in France, L. FAVOREU, ‘L’influence de la jurisprudence du Conseil constitutionnnel surles diverses branches du droit’, in: Mélange Hamon, Paris Economica, 1982, p 235 et seq. InSweden the discussion is more recent: see J.NERGELIUS, Konstitutionellt rättighetsskydd: svensk

rätt i ett komparativ perspektiv, Fritze 1996, p 261. Also in England the debate is at an early stage,as it was sparked by the enactment of the Human Rights Act of 1998. Amongst the first contribu-tions see M. HUNT, ‘The Horizontal Effect of the Human Rights Act’, PL (Public Law) 1998, p423; B. MARKESINIS, ‘Privacy, freedom of expression and the horizontal effect of the HumanRights Bill. Lessons from Germany’ 115 L.Q.R (Law Quarterly Review) 1999, p 47; N.BAMFORTH, ‘The Application of the Human Rights Act 1998 to public authorities and privatebodies’ C.L.J (Cambridge Law Journal) 1999, p 159.

15 Cf. SOCIAL JUSTICE GROUP, ’Social Justice in European Contract Law. A Manifesto’ 10 ELJ

(European Law Journal) 2004, p 653 at 667-668.16 See e.g. R. SCHULZE & R. ZIMMERMANN (eds), Basistexte zum Europäischen Privatrecht,

Nomos, 2002.17 Directive 2000/35/EC of the European Parliament and of the Council of 29 June 2000 on

combating late payment in commercial transactions. 18 On the importance of the Late Payment Directive for the whole system of EC private law see A.

COLOMBI CIACCHI, ‘Die EG-Richtlinie über den Zahlungsverzug und ihre Umsetzung durchdas Schuldrechtsmodernisierungsgesetz’,) EWS (Europäisches Wirtschafts- und Steuerrecht)

2002, p 306.

up and being increasingly harmonised from the top down.19 A third use of the expres-sion refers more specifically to the tricky interplay between EC legislation andnational private laws, especially after the transposition of EC Directives.20 Furtherstratifications of meanings of ‘European private law’ arise from the multi-level andpluralistic nature of both national and EC private law, produced by legislators,courts, academic works, self-regulation of market actors etc.21

All of the above private law contexts are embraced by the European constitu-tionalisation process. The extension and complexity of the latter is due to both itsmulti-level dimension and the plurality of constitutional norms relevant in the fieldof private law.22

To entirely explore this phenomenon several books would need to be written.The more modest aim of this paper is to outline some initial ideas for further discus-sion on one single aspect: the horizontal effect of European constitutional rights andprinciples as a possible instrument of non-legislative contract law harmonisation,briefly illustrated by the example of unfair surety agreements.

4 The Horizontal Effect of Fundamental Rights and ConstitutionalPrinciples in Private Law It is a settled principle in the constitutional theory of most Member States that funda-mental rights and freedoms have effect not only in the ‘vertical’ relationship betweenprivate individuals and public powers, but also in the ‘horizontal’ relationships of

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19 See e.g. M. BUSSANI & U. MATTEI, ‘The Common Core Approach to European Private Law’, 3 Colum. J. Eur. L. (Columbia Journal of European Law) 1997, p 339.

20 See e.g. A. TIETZE, M.-R. MCGUIRE et al. (eds), Europäisches Privatrecht. Über die Verknüpfung

von nationalem und Gemeinschaftsrechts, Jahrbuch junger Zivilrechtswissenschaftler 2004,

Boorberg, 2005 (forthcoming).21 See C. JOERGES, ‘On the Legitimacy of Europeanising Private Law: Considerations on a Justice-

making Law for the EU Multi-level System’, 7.3 EJCL (Electronic Journal of Comparative Law)

2003, <http://www.ejcl.org/ejcl/73/art73-3.html>.22 For further discussion on this topic see O. GERSTENBERG, ’Private Law and the New European

Constitutional Settlement’, 10 ELJ (European Law Journal) 2004, p 766.

private parties between each other. The same is true for constitutional principlessuch as non-discrimination, which confer rights upon individuals.23

In EU law, the four fundamental economic freedoms and some principles ofthe Treaties (such as equal pay for men and women) have been applied horizontallyby the ECJ since the early 1970s.24 The same happened to the fundamental right tofreedom of expression in a case of 1991.25 This seems to be the only example of hori-zontal effect of fundamental rights in ECJ jurisprudence. Perhaps for this reason, inacademic literature much attention has been paid to the horizontal effect of funda-

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23 On the horizontal effect of fundamental and constitutional rights see, for France J.-P.MARGUÉNAUD, CEDH et droit privé, La documentation française, 2001; for Germany C.-W.CANARIS, Grundrechte and Privatrecht – Eine Zwischenbilanz, de Gruyter, 1999; for Italy A. DIMAJO, La tutela civile dei diritti, 4th edn, Giuffré, 2003; for the Netherlands; J.H. NIEUWEN-HUIS, ‘De constitutie van het burgerlijk recht, RM (Rechtsgeleerd Magazijn) Themis 2001, p 203;S.D. LINDENBERGH, ‘Constitutionalisering van contractenrecht. Voer de werking van funda-mentele rechten in contractuele verhoudingen, WPNR (Weekblad voor Privaatrecht, Notariaat

en Registratie) 2004, p 977; for Portugal J.C. VIEIRA DE ANDRADE, ‘Os Direitos Fundamentaisnas Relações entre Particulares’, 5 Documentação e Direito Comparado 1981, p 181 et seq.; forSpain M.P. GARCÍA RUBIO, ‘La eficacia inter privatos (Drittwirkung) de los derechos funda-mentales’, in: Libro Homenaje a Ildefonso Sánchez Mera, Fundación General del Notariado,2002, pp 297-314; for Sweden J. NERGELIUS, Konstitutionellt rättighetsskydd: svensk rätt i ett

komparativ perspektiv, Fritze, 1996, p 261. In England it is still controversial whether or nothuman rights can have horizontal effect. For an overview of the debate cf. P. CRAIG,Administrative Law, 5th ed, Sweet & Maxwell, 2003 p 599 and see further M. HUNT, ‘TheHorizontal Effect of the Human Rights Act’ PL (Public Law) 1998, p 429; N. BAMFORTH, ‘Thetrue “horizontal effect” of the Human Rights Act 1998’ 117 L.Q.R (Law Quarterly Review)

2001, p 34; R. BUXTON, ‘The Human Rights Act and Private Law’ 116 L.Q.R. (Law Quarterly

Review) 2000, p 48; H.R.W. WADE, ’Horizon of Horizontality’ 116 L.Q.R. (Law Quarterly

Review) 2000, p 217. For discussion of the impact of the Human Rights Act on contracts see S.WHITTAKER, ’The Human Rights Act 1998 and Contracts’, in: H.G.BEALE (ed.), Chitty on

Contracts, 29th ed, Sweet & Maxwell 2004, 1-029 et seq.

24 See e.g. C-36/74 Walrave v. Union Cycliste Internationale (1974) ECR 01405; C-43/75 Defrenne

v. Sabena (1976) ECR 00455; C-13/76 Donà v. Mantero (1976) ECR 01333. For a recent overviewon the ECJ jurisprudence giving horizontal effect to fundamental rights and European constitu-tional principles see N. FERREIRA, J. KRZEMINSKA & T. RUSSO, Horizontal Effects of

Fundamental Rights and Freedoms in European Union Law, May 2004 (on file with authors).25 C-219/91 Ter Voort (1992) ECR I-05485.

mental freedoms,26 while the horizontal effect of fundamental rights in EC lawremained almost unexplored.27

In the academic debate at both national and EU level, the most controversialquestion about the horizontal effect of fundamental rights, freedoms and principlesis whether it is direct or indirect. This distinction is usually referred to either theapplicability of a constitutional norm (or a norm of the ECHR) in a private law case,or the binding force of this norm on private parties, or both.

As to applicability, scholars speak of direct horizontal effect when a funda-mental right, freedom or principle is applied as the very, direct legal base of a privatelaw claim.28 Consequently, horizontal effect is considered as indirect when the indi-viduals’ claims need to be based on (ordinary) private law norms, which are to beinterpreted and applied in the light of fundamental rights, freedoms and constitu-tional principles.29

As to binding force, direct horizontal effect is associated with the idea offundamental rights, freedoms and constitutional principles being directly bindingnot only for public powers but also for private parties. In other words, the question iswhether the relevant constitutional (or Convention) norms confer upon private indi-viduals the legal obligation to respect the fundamental rights and freedoms of

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26 The discussion of the horizontal effect of fundamental freedoms has been particularly intense inGermany: see E. STEINDORFF, ‘Drittwirkung der Grundfreiheiten im europäischenGemeinschaftsrecht’, in: Festschrift P. Lerche, Beck, 1993, p 575; W. KLUTH, ‘Die Bindungprivater Wirtschaftsteilnehmer an die Grundfreiheiten des Eg-Vertrages’, 122 AöR (Archiv des

öffentlichen Rechts) 1997, p 581; M. JAENSCH, Die unmittelbare Drittwirkung der Grund-

freiheiten, Nomos, 1997; T.O. GANTEN, Die Drittwirkung der Grundfreiheiten, Duncker &Humblot, 2000; R. STREINZ & S. LEIBLE, ‘Die Unmittelbare Drittwirkung von Grundfreiheiten’,EuZW (Europäische Zeitschrift für Wirtschaftsrech) 2000, p 459; T. KÖRBER, ‘InnerstaatlicheAnwendung und Drittwirkung der Grundfreiheiten?’, 6 EuR (Europarecht) 2000, p 947; C.W.CANARIS, ‘Drittwirkung der gemeinschaftsrechtlichen Grundfreiheiten’, in: H. BAUER D.CZYBULKA, W. KAHL, A. VOSSHLE (Hrsg.), Umwelt, Wirtschaft und Recht, Wissenschaftliches

Symposium aus Anlass des 65. Geburtstages von Rainer Schmidt, Mohr Siebeck, 2002, p 40. 27 On this topic see the doctoral thesis of D. SCHINDLER, Die Kollision von Grundfreiheiten und

Gemeinschaftsgrundrechten. Entwurf eines Kollisionsmodells unter Zusammenführung der

Schutzpflichten- und der Drittwirkungslehre, Duncker & Humblot, Berlin 2001.28 Cf. M. HUNT, ‘The Horizontal Effect of the HRA’, PL (Public Law) 1998, p 429; D. SPIEL-

MANN, L’effet potentiel de la Convention européenne des droits de l’homme entre personnes

privées, Bruylant, 1995, p 19; G. CAMPANELLI, ‘Le forme di tutela immediata dei diritti fonda-mentali tra giudice comune e corte costituzionale’, Giust. Civ. 2002, p 411 et seq.

29 Cf. G. DÜRIG, ’Grundrechte und Zivilrechtsprechung’, in T. MAUNZ (ed.), Vom Bonner

Grundgesetz zur gesamtdeutschen Verfassung. Festschrift zum 75. Geburtstag von Hans

Nawiasky, Isar-Verlag, 1956, p 157 et seq.; C.A.J.M. KORTMANN, P.T. BOVEND’EERT, Dutch

Constitutional Law, Kluwer Academic, 2000, no. 358, p 147; M.P. GARCÍA RUBIO, ‘La eficaciainter privatos (Drittwirkung) de los derechos fundamentales’, in: Libro Homenaje a Ildefonso

Sánchez Mera, Fundación General del Notariado, 2002, p 300.

others.30 If not, the horizontal effect is only indirect: those norms only bind publicpowers and require them to protect the fundamental rights and freedoms of individ-uals from detrimental behaviour of other private parties. This protection can beprovided not only by legislative measures, but also by case-law.31

Whether direct or indirect, the horizontal effect of fundamental rights andconstitutional principles is a matter of fact in the courts practice. In western continentalEurope, it has been a powerful and effective means to develop and innovate private law.The supreme rank of fundamental rights, freedoms and constitutional principles hasprovided the courts with the legitimacy necessary to move away from established prin-ciples of private law no longer respondent to the spirit of the time. Through horizontaleffect, courts have ensured contemporary private law offers higher levels of protectionfor weaker parties and stronger consideration of non-economic human values.32

5 Harmonisation of Standards of Protection through Horizontal EffectThe academic debate about horizontal effect of fundamental rights, freedoms andconstitutional principles in Europe has so far predominantly reflected the traditionalboundaries between States on the one hand, and between legal disciplines on theother. The main point of reference has not been the European Constitution, but theindividual national Constitutions. Comparative law studies on this topic are at theirvery beginning.33 And at EC level, except for the apparently separate, specific matterof the horizontal effect of fundamental freedoms,34 little debate has been sparked.Since the adoption of the Nice Charter, countless contributions have been written onthe new European fundamental rights, but only few sensed a link between their hori-zontal effect and the approximation of private law in Europe.35

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30 Cf. J.-P. MARGUÉNAUD, CEDH et droit privé, La documentation française, 2001, p 77; A.BALDASSARRE, ‘I diritti fondamentali nello stato costituzionale’, in: Scritti in onore di Alberto

Predieri, Milano 1996, p 76.31 Cf. C.-W. CANARIS, Grundrechte and Privatrecht – Eine Zwischenbilanz, de Gruyter, 1999; H.

DANELIUS, Mänskliga rättigheter i europeisk praxis, Norstedts Juridik, 1997, p 62.32 See e.g. G. COMANDÉ, ‘Diritto privato europeo e diritti fondamentali’, in: G. COMANDÉ (ed.),

Diritto Privato Europeo e Diritti Fondamentali, Giappicchelli, 2004, p 21 et seq.

33 A thorough comparative analysis of the horizontal effect of fundamental and Constitutionalrights in the law of eight Member States and in EC law is in preparation by the EC fundedResearch Training Network ‘Fundamental Rights and Private Law in the European Union’(<http://www.fundamentalrights.uni-bremen.de>), co-ordinated by G. Brüggemeier, A. ColombiCiacchi and G. Comandé.

34 See footnote 26 above.35 See O. GERSTENBERG, ’Private Law and the New European Constitutional Settlement’, 10 ELJ

(European Law Journal) 2004, p 766; W. VAN GERVEN, ‘Remedies for Infringements ofFundamental Rights’, 10 EPL (European Public Law) 2002, p 261; M. HESSELINK, ’The Politicsof a European Civil Code’, 10 ELJ (European Law Journal) 2004, p 675 at 682; A. COLOMBICIACCHI, ’Der Aktionsplan der Europäischen Kommission für ein kohärenteres Vertragsrecht:Wo bleibt die Rückbindung an die Europäische Verfassung?’, op. cit. footnote 13 above.

Yet Article 6 EU demonstrates clearly that there is a set of common Europeanfundamental rights, freedoms and constitutional principles, which are already inforce as applicable law. These rights and principles are common not only to allMember States, but also – and in the first place – to all European citizens. This isconfirmed by Article 17(2) EC: ‘Citizens of the Union shall enjoy the rights conferredby this Treaty and shall be subject to the duties imposed thereby’.

The assessment of the due level of protection of the rights and principlesenshrined in Article 6 EU cannot be entirely left to the discretion of the MemberStates. First of all, discriminations on the ground of nationality in the protection offundamental rights are prohibited by both Article 12 EC and Article 14 ECHR.Second, the principle of uniform interpretation of Community law36 applies to thecommon European constitutional rights as well. Third, the function of the Union citi-zenship is ‘to strengthen the protection of the rights and interests of the nationals ofits Member States’ (Article 2(1) EU). This objective can be reached only if Europeanfundamental rights, freedoms and constitutional principles are provided with acommon content of protection which transcends the different national interpreta-tions. Without this, the Union citizenship would degrade to mere rhetoric.37

The rights, freedoms and principles under the EC and EU Treaty have a hori-zontal effect, as the ECJ jurisprudence shows.38 Then, if they protect all Europeancitizens without any discrimination in the vertical dimension, why should they notenjoy the same standard of protection also in their horizontal dimension, in the case-law of all Member States?39

For example, the freedom of information under Article 10 ECHR is undoubt-edly one of the common European fundamental rights. So why are tenants in Italyand Germany protected by this right via horizontal effect when they want to install aparabolic aerial against the landlord’s will,40 while e.g. in the UK and in Spain they

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36 On the role of uniform interpretation of EC law and the authority of the ECJ in the process ofharmonisation of European private law see H. COLLINS, ‘The Voice of the Community in PrivateLaw Discourse’ 3 ELJ (European Law Journal) 1997, p 407; C. JOERGES, ‘On the Legitimacy ofEuropeanising Private Law: Considerations on a Justice-making Law for the EU Multi-levelSystem’ 7.3 EJCL (Electronic Journal of Comparative Law) 2003, <http://www.ejcl.org/ejcl/73/art73-3.html>.

37 For further discussion on this topic see N. REICH, ‘Union Citizenship – Metaphor or Source ofRights?’, 7 ELJ (European Law Journal) 2001, p 4.

38 See footnotes 24 and 25 above. 39 Cf. A. COLOMBI CIACCHI, ’Der Aktionsplan der Europäischen Kommission für ein

kohärenteres Vertragsrecht: Wo bleibt die Rückbindung an die Europäische Verfassung?’, op. cit.

footnote 13 above.40 For Italy see Cass. 16 December 1983 no. 7418, Foro It. 1984, I, 415; Cass. 6 November 1985 no.

5399, Foro It. 1986, I, 707; Cass. 29 January 1993 no. 1139, Rep. Foro It. 1993, Radiotelevisione,no. 75; for Germany see Amtsgericht Tauberbischofsheim 1992, NJW-RR (Neue Juristische

Wochenschrift – Rechtsprechungsreport ) 1992, p 1098; BVerfG 9 February 1994 (BVerfGE 90, 27).

are not? And why is this protection in Germany only given to immigrants,41 whilst inItaly also nationals can rely on it?42

One may argue that these unequal treatments are unavoidable consequencesof the plurality and diversity of private law systems in Europe, and no competence forelimination of such inequalities is conferred upon the EC by its Constitution.43 Thefollowing sections of this paper aim to confute this objection.

6 The Advantages of Non-Legislative Harmonisation To plead for equal standards of protection of fundamental rights in private law doesnot mean that one favours legislative harmonisation. Harmonised statutory provi-sions are neither necessary nor sufficient to assure equally effective protection of thesame rights in different legal systems: not necessary, because the same degree ofprotection of a certain interest can be achieved by applying the most different legisla-tive provisions or case-law doctrines,44 as the example of unfair suretyships belowwill show; not sufficient, because even totally uniform rules can lead in their appli-cation to different degrees of protection from country to country, according to eachdifferent system of remedies and courts practice.

A more effective, sensitive and constitutionally legitimate way of harmonisingthe private law standards of protection of fundamental rights is convergence in thecase-law of the Member States. It is more effective, because the intensity of protec-tion of a certain right depends primarily on the law-in-action, not the law-in-books.45

It is more sensitive, because case-law convergence can operate even in a context ofgreatest diversity of legal cultures.46 All that matters is that the courts of differentEuropean States achieve the same practical results in the same cases, regardless ofwhich norms, doctrines or procedures they apply in order to come to this end.

Furthermore, this method of harmonisation is in two ways more constitution-ally legitimate than the traditional ones. First, because it does not require the EC to

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41 Amtsgericht Tauberbischofsheim 1992, NJW-RR 1992, p 1098; BVerfG 9 February 1994(BVerfGE 90, 27).

42 Cass. 16 December 1983 no. 7418, Foro It. 1984, I, 415; Cass. 6 November 1985 no. 5399, Foro

It. 1986, I, 707; Cass. 29 January 1993 no. 1139, Rep. Foro It. 1993, Radiotelevisione, no. 75.43 Cf. S. WEATHERILL, ‘Why Object to the Harmonization of Private Law by the EC?’ 12 ERPL

(European Review of Private Law) 2004, p 633.44 See the approach of the Common Core project (footnote 13 above).45 Cf. R. POUND, ‘Law in Books and Law in Action’, 44 Am. L. Rev. (American Law Review) 1910,

p 12; W. VAN GERVEN, ‘A common framework of reference and teaching’, 1 EJLE (European

Journal of Legal Education) 2003, p 1.46 On the connection between private law and cultural identity see H. COLLINS, ‘European Private

Law and the Cultural Identity of States’ 3 ERPL (European Review of Private Law) 1995, p 353.On the constitutional, cultural and economic objections moved towards legislative harmonisa-tion see S. WEATHERILL, ‘Why Object to the Harmonisation of Private Law by the EC?’ 12ERPL (European Review of Private Law) 2004, p 633.

enact secondary legislation to harmonise the private law areas of horizontal effect ofEuropean fundamental rights, freedoms and principles. Thus it does not create‘competence creep’.47 Second, because the assumption of a common core of rightsand principles, having the same content and protecting all EU citizens with the sameintensity, relies now on a constitutional base: Article 6 EU, to be read in the light ofArticle 2(1) EU, Article 12 and 17(2) EC, and Article 14 ECHR.48

In the framework of this paper, the practicability of case-law convergence asan alternative method of harmonisation embedded in European constitutionalismwill be tested on a specific factual pattern recurring throughout Europe: the dispro-portionate suretyships of non-professional guarantors.

7 An Example of Case-Law Convergence: Protection from Unfair SuretyshipsBanks often give loans only on condition that close family members of the principaldebtor stand surety. If the amount of the guarantee is disproportionate to the finan-cial means of the family member, the principal debtor’s insolvency inevitably leadsthem to financial ruin. They are doomed to being heavily indebted until the end oftheir lives. This result may appear unfair for many reasons.

First of all, family members often sign surety agreements without being awareof the risk they are running. They do so because their beloved family member and/ora bank employee ask them to put their signature on a form.49 Neither the debtor northe bank has any interest in advising the potential guarantor about the financial riskof the agreement.

Second, these agreements may be unfair even when the family member isperfectly aware of the contractual risk while signing the form. Indeed, familymembers often have little choice, if any. Either they accept to stand surety, or theyrisk impairing their familiar relationship by refusing to do so.50

Third, family members do not always have an economic interest in thepersonal guarantee. Even if they could have had such an interest at the time of theconclusion of the agreement, the family situation may have dramatically changedbefore the realisation of the surety risk, e.g. after a divorce.51

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47 The expression is borrowed from S. WEATHERILL, ‘Why Object to the Harmonisation of PrivateLaw by the EC?’ 12 ERPL (European Review of Private Law) 2004, p 633.

48 See above, 5.49 See e.g. in Germany BVerfG 19 October 1993, NJW 1994, p 36.50 Cf. B. FEHLBERG, ‘The Husband, the Bank, the Wife and her Signature’, 57 MLR (The Modern

Law Review) 1994, p 467; idem, ‘The Husband, the Bank, the Wife and her Signature. TheSequel’, 59 MLR (Modern Law Review) 1996, p 675; D. GEARY, ‘Notes on Family Guarantees inEnglish and Scottish Law – A Comment’, 8 ERPL (European Review of Private Law) 2000, p 25.

51 See in German case law e.g. BGH, 5. January 1995 NJW 1995, p 592; BGH, 25 April 1996 (BGHZ

132, 328).

For these and other reasons, since the 1970’s – and with particular intensity in the1990’s – the courts of several Member States, such as the UK,52 France,53 Germany,54

Austria55 and the Netherlands,56 have looked for remedies in order to dischargevulnerable guarantors totally or partially from unfair surety obligations. Once theneed for protection from such agreements was subsequently acknowledged by case-

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52 A milestone in the 1970’s was Lloyds Bank v. Bundy [1975] QB 326, later overruled by National

Westminster Bank v. Morgan [1985] 1 All ER 821. The current leading case in the UK is Royal

Bank of Scotland v. Etridge (No. 2) [2001] UKHL 44; [2002] A.C. 773, which followed Barclays

Bank plc v. O’Brien [1994] 1 AC 180. In Scottish law see also Smith v. Bank of Scotland; Mumford

v. Bank of Scotland, 1996 SLT 392.53 See e.g. Cour d’appel Paris 18 January 1977, JPC G, II, 19318, commentated by P. Simler; Cass.

4 July 1979, D. 1979, 538.54 Although the first German cases in this field go back to earlier decades, the very starting point of

the discussion was a judgement of the Federal Constitutional Court of 1993 (BVerfG 19 October1993, NJW 1994, p 36), which forced the Federal Court of Justice (BGH) to overrule its prece-dents so as to ensure effective protection to vulnerable family guarantors. Cf. M. HABERSACK &R. ZIMMERMANN, ‘Legal Change in a Codified System: Recent Developments in GermanySuretyship Law’, 3 ELR (Edinburgh Law Review) 1999, p 272; Mr Justice KIEFEL, ‘Guaranteesby Family Members and Spouses: Garcia and a German Perspective’, 74 ALJ (Australian Law

Journal) 2000, p 692.55 In 1995, the Austrian Supreme Court (OGH 27 March 1005, 1 Ob 544/95) aligned itself with the

new German case law. Cf. G. GRAF, ’Verbesserter Schutz vor riskanten Bürgschaften’, ÖBA

(Österreichische Bankarchiv) 1995, p 776. 56 See the Supreme Court judgments HR 1 June 1990, RvdW 1990, p 119 = NJ 1991, p 759; HR 3 June

1994, RvdW 1994, p 126. Cf. R.P.L.J. TJITTES, ‘Verplichtingen van de schuldeiser jegens de borg’,TPR (Tijdschrift voor Privaatrecht) 2000, p 28; O. CHEREDNYCHENKO, ‘The Constitu-tionalization of Contract Law: Something New under the Sun?’, 8 EJCL (Electronic Journal of

Comparative Law) March 2004, <http://www.ejcl.org/81/art81-3.html>, p 4 at 10 et seq.; C.E. duPERRON & M. HAENTJENS, Boek 7 Titel 14 (‘Borgtocht’), aant. Inl. 3, in: Artikelsgewijs commen-

taar op het Burgerlijk Wetboek, Kluwer, 2005 (forthcoming), with further references.

law in some countries, such as France57, the Netherlands58 and Austria,59 the legisla-tors also intervened.

The history of legal protection from unfair surety agreements is full of spon-taneous convergences between the Member States. For example, the new Article341-4 of the French Consumer Code states that if the surety is manifestly dispropor-tionate to the guarantor’s capital and income at the time the contract was concluded,the lender cannot rely on the guarantee, unless the guarantor’s assets at the time theguarantee is called in, allow them to face their obligations.60 This straightforwardrule is very similar to the ultimate result of long and extremely complex case-law

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57 In France, a specific rule on the invalidity of grossly disproportionate personal guarantees forconsumer credits is included in the Code de la conssomation since its enactment (loi 93-949 du26 juillet 1993). Before the reform of 2003 (loi ‘Dutreil’), which entered into force on 5th

February 2004, this provision was Art. 313-10. Now it has become Art. 341-4. This article isembedded in a chapter of the Consumer Code entirely devoted to the protection of non-profes-sional guarantors (livre III, titre IV, Art. 341-1 to 341-6). Cf. S. REIFEGERSTE, R. SEFTON-GREEN et al., ‘Case 9: Nell v. Scrooge Bank’ (French report), in: R. SEFTON-GREEN (ed.),Mistake, Fraud and Duty to Inform in European Contract Law, The Common Core of EuropeanPrivate Law, Cambridge University Press, Cambridge 2004, p 312 et seq.

58 Also the new Dutch Civil Code of 1992 contains a chapter on suretyships of non-professionals (Art.7:857 to 864), but no provision correspondent to the above French norm. On Dutch suretyship lawsee H.J. SNIJDERS, ’Bürgschaft nach dem neuen niederländischen Bürgerlichen Gesetzbuch’, in:U. DROBNIG, H.I. SAGEL-GRANDE & H.J. SNIJDERS (eds), Neuere Entwicklungen im Recht der

persönlichen Kreditsicherheiten in Deutschland und den Niederlanden, Sellier/European LawPublishers, München 2003, p 77 et seq.; K. BROEKHUISEN, ’Suretyships and independent guar-antees under Dutch law’, in: U. DROBNIG, H.I. SAGEL-GRANDE AND H.J. SNIJDERS (eds), op.

cit., p 91 et seq.59 In 1997, four new provisions on consumer guarantees (§§ 25a-25d) were included in the Austrian

Consumer Protection Act (‘Konsumentenschutzgesetz’). In particular, according to § 25 d, thecourts are empowered to reduce the amount of the guarantor’s obligation or even fully set asidethe guarantee if it is unfairly disproportionate to the guarantor’s financial capacity. In assessingthis unfairness, the courts have to take into account: (1) the creditor’s interest in the guarantor’sliability, (2) the guarantor’s fault in relation to the above disproportion, (3) the advantages takenby the guarantor from the creditor’s performance, and (4) the guarantor’s thoughtlessly, inexpe-rience, emotionality, their being under pressure and their dependence from the debtor at thetime the contract was concluded.

60 ‘Un créancier professionnel ne peut se prévaloir d’un contrat de cautionnement conclu par unepersonne physique dont l’engagement était, lors de sa conclusion, manifestement dispropor-tionné à ses biens et revenus, à moins que le patrimoine de cette caution, au moment où celle-ciest appelée, ne lui permette de faire face à son obligation’.

developments in Germany.61 Yet the formal paths followed by the two countries towardsthis result are totally different. In France, before the enactment of the above provision,62

in exceptional cases the courts have denied validity to unfair surety agreements byapplying the rules of the Civil Code on mistake.63 The German judges have reliedinstead on the general clauses of good morals and good faith in the German Civil Code.64

Only few German decisions have based their reasoning on the good faith prin-ciple (§ 242 BGB), in its specific application known as the doctrine of ‘collapse of theunderlying basis of the transaction’65 (‘Wegfall der Geschäftsgrundlage’). In thesejudgments, the divorce between the main debtor and the guarantor was considered aground of collapse of the underlying basis of the suretyship, which empowered thecourt to reduce the amount of the surety obligation.66 Except for these few cases, theremedy granted by German courts to vulnerable sureties since 1993 has always beenthe nullity of the contract on the grounds of immorality (§ 138 BGB).67

Since 1995, Austrian judges have followed the path of their Germancolleagues, although they haven’t seen the need for referring to constitutional prin-ciples. In both Germany and Austria, the nullity of grossly disproportionate surety-ships of family members on the grounds of immorality has now become the rule,which is subject to very few exceptions.68

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61 For a recent overview of the German case-law see S. BRAUN, ’Von den Nahbereichpersonen biszu den Arbeitnehmern als Bürgen: Ein Überblick über die Rechtsprechung des BGH zurSittenwidrigkeit von Bürgschaften’, JURA (Juristische Ausbildung) 2004, p 474; A. KRAFKA,’Die Rechtsprechung des BGH im Bürgschaftsrecht’, JA (Juristische Arbeitsblätter) 2004, p 668;U. DROBNIG, ‘Die richterliche Neuregelung des Bürgschaftsrechts in Deutschland’, in: U.DROBNIG, H.I. SAGEL-GRANDE & H.J. SNIJDERS (eds), Neuere Entwicklungen im Recht der

persönlichen Kreditsicherheiten in Deutschland und den Niederlanden, Sellier/European LawPublishers, München 2003; H.I. SAGEL-GRANDE, ‘Bürgschaft in Deutschland: facts andfigures’, in: U. DROBNIG, H.I. SAGEL-GRANDE & H.J. SNIJDERS (eds), op. cit., p 63.

62 See footnote 57.63 See Cour d’appel Paris 18 January 1977 JPC G (La semaine juridique, édition générale) 1977 II,

19318, commentated by P. Simler. The decision was approved by Cass. 4 July 1979 D. (Receuil

Dalloz Sirey ) 1979, p 538.64 Cf. M. HABERSACK & R. ZIMMERMANN, ‘Legal Change in a Codified System: Recent

Developments in Germany Suretyship Law’, 3 ELR 1999, p 272.65 Cf. S. WHITTAKER & R. ZIMMERMANN, ‘Good Faith in European Contract Law: Surveying the

Legal Landscape’, in: S. WHITTAKER & R. ZIMMERMANN (eds), Good Faith in European

Contract Law, CUP, Cambridge 2000, p 25.66 BGH, 5. January 1995, NJW 1995, p 592; BGH, 25 April 1996 (BGHZ 132, 328). 67 See recently BGH 11 February 2003, ZIP (Zeitschrift für Wirtschaftsrecht) 2003, p 796; BGH 13

November 2001, WM (Wertpapier-Mitteilungen) 2002, p 436; BGH 26 April 2001, ZIP 2001, p1330; BGH 14 November 2000, NJW 2001, p 815.

68 See footnotes 61 and 67. In Austrian case-law see e.g. OGH 26 November 2002, 10 Ob 315/02z,101 ecolex 2003, p 236; OGH 11 December 2002, 7 Ob 228/02h, 130 ecolex 2003, p 331. For anoverview of the recent developments in Austria cf. P. BYDLINSKI, Die Kreditbürgschaft im

Spiegel von aktueller Judikatur und Formularpraxis, 2nd ed., Bank-Verlag/Springer, 2003.

The British law of family guarantees differs from the French, German andAustrian ones with regard to both the formal paths and the substantive results. InEnglish law, the House of Lords has tackled the problem of unfair suretyships byrelying on the equitable doctrine of undue influence, which empowers the courts toset aside a transaction which is the result of abuse of a relationship of trust and confi-dence.69 According to the current leading case in the field of spouses’ suretyships,Royal Bank of Scotland v. Etridge (No. 2),70 undue influence can be presumed if awife is able on the fact of the particular case to establish that she had placed trust andconfidence in her husband in the management of her financial affairs and that theimpugned transaction was not ‘explicable in the ordinary way’.71 Undue influence,however, is out of question when the lender fulfilled its obligation to ‘take reasonablesteps to satisfy itself that she had understood and freely entered into the transaction’.72

In Scottish law, the House of Lords has come to similar conclusions movingfrom the principle of fair dealing in good faith.73 Also the Dutch Supreme Court(Hoge Raad) deducted from the principle of good faith a duty of professional lendersto provide clear information to non-professional guarantors about the legal conse-quences of the surety agreement.74 The Dutch case-law of family suretyships presentsalso spontaneous convergences with the French jurisprudence cited above:75

according to the Hoge Raad, the creditor’s breach of his information duty gives riseto a surety’s mistake, which makes the suretyship invalid.76

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69 Cf. H.G. BEALE, ‘Duress and Undue Influence’, in: H.G.BEALE (ed.), Chitty on Contracts, 29th

ed., Sweet & Maxwell, 2004, 7-047 et seq.

70 [2001] UKHL 44; [2002] A.C. 77371 For which it must be shown that the transaction cannot ‘reasonably [be] accounted on the

grounds of friendship, relationship, charity or other ordinary motives on which ordinary men act’(cf. Allcard v. Skinner (1887) 36 Ch.D. 145, 185).

72 In Royal Bank of Scotland v. Etridge (No. 2) [1994] UKHL 44; [2002] A.C. 773, the House ofLords has specified in great detail the steps reasonably to be expected of a lender. In relation topast transactions, it has to ‘bring home to the wife the risk she was running by standing surety,either a private meeting with her or by requiring her to take independent advice from a solicitoron whose confirmation the lender might rely that she had understood the nature and the effect ofthe transaction. In respect of future transactions the lender should contact the wife directly,checking the name of the solicitor she wished to act for her and explaining that for its protectionit would require his confirmation as to her understanding of the documentation to prevent herfrom subsequently disputing the transaction (…)’.

73 See in English law Royal Bank of Scotland v. Etridge (No. 2) [1994] UKHL 44; [2002] A.C. 773;Barclays Bank plc v. O’Brien [1994] 1 AC 180; in Scottish law Smith v. Bank of Scotland;

Mumford v. Bank of Scotland, 1996 SLT 392.74 HR 1 June 1990, RvdW 1990, p 119 = NJ 1991, p 759. 75 See footnote 63 above.76 HR 1 June 1990 (see footnote 74); HR 19 May 1995, NJ 1997, p 648. Cf., also for further refer-

ences in Dutch jurisprudence and academic literature, C.E. du PERRON & M. HAENTJENS,Boek 7 Titel 14 (‘Borgtocht’), aant. Inl. 3, in: Artikelsgewijs commentaar op het Burgerlijk

Wetboek, Kluwer, 2005 (forthcoming).

8 Unfair Suretyships and Inequality of Bargaining PowerThe British and Dutch solutions outlined above do not quite go as far as the French,German and Austrian ones, which deny validity to surety agreements of familymembers when grossly disproportionate, notwithstanding whether or not the cred-itor failed to advise the guarantor. Yet an amazing spontaneous convergence can befound also between the English and German case-law on family guarantees:

In Germany, the decisive step towards a high protection of family membersfrom disproportionate sureties was taken by the Federal Constitutional Court(Bundesverfassungsgericht) in 1993.77 A young woman stood surety for the immensebusiness debts of her father. The bank employee had handed out the contract form toher and said: ‘Please madam, sign here, it’s just for our files’. The Federal Consti-tutional Court did not simply stress the evident unfairness of the creditor’s behav-iour. It went much further.

First, the Court held that if a contractual party is so powerful that it can defineunilaterally the content of the contract, this means heteronomy for the other party andin this case the fundamental right of private autonomy of the weaker party is affected.

Second, the Court assumed that if a contract is unusually burdensome for oneparty and there is a ‘structural inequality of bargaining power’, civil courts have aduty to intervene and correct the content of the contract by making use of the generalclauses of private law.

Thirty years ago, a doctrine strikingly similar to the latter had also been recog-nised in English law. In a 1975 case concerning a father’s guarantee for his son’sdebts,78 Lord Denning tried to unite the three doctrines of duress, unconscionabletransaction and undue influence in a new principle of inequality of bargaining power:

‘There are cases in our book in which the courts will set aside a contract, or atranfer of property, when the parties have not met on equal terms – when theone is so strong in bargaining power and the other so weak that, as a matter ofcommon fairness, it is not right that the strong should be allowed to push theweak to the wall. Hitherto those exceptional cases have been treated each as aseparate category in itself. But I think the time has come when we should seekto find a principle to unite them … [T]hrough all these instances there runs asingle thread. They rest on “inequality of bargaining power”. By virtue of it,the English law gives relief to one who, without independent advice, entersinto a contract upon terms which are very unfair or transfers property for a

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77 BVerfG 19 October 1993, NJW 1994, p 36. For a detailed description in English of the facts of thiscase see O. CHEREDNYCHENKO, ‘The Constitutionalization of Contract Law: Something Newunder the Sun?’, 8 EJCL (Electronic Journal of Comparative Law) March 2004, <http://www.ejcl.org/81/art81-3.html>, p 2 et seq.

78 Lloyds Bank v. Bundy [1975] QB 326.

consideration which is grossly inadequate, when his bargaining power isgrievously impaired by reason of his own needs or desires, or by his own igno-rance or infirmity, coupled with undue influences or pressures brought tobear on him by or for the benefit of the other’.

However, in 1985 the House of Lords79 rejected Lord Denning’s doctrine of inequalityof bargaining power. It held there was no need to erect such a general principle, sinceParliament would place ‘such restrictions upon freedom of contract as are necessary’(such as in the Unfair Contract Terms Act 1977 and the Consumer Credit Act).

9 ‘Cryptotypes’ in Comparative Suretyships Law A comparison between the law of suretyships in the UK, France, Germany, Austriaand the Netherlands sheds light on what Rodolfo Sacco’s comparative law theory calls‘cryptotypes’. Cryptotypes are implicit rules and patterns, which substantially shapethe solution given by a certain legal system to a particular problem, although they arenot explicitly formulated as legal rules. They remain cryptic, hidden behind the veilof other norms and doctrines explicitly applied to solve that problem.80 Sometimescertain principles are formal legal rules in some legal systems and cryptotypes inother. Moreover, within one and the same legal system certain principles may beborn as cryptotypes and then, years later, become formal legal rules.81

Both phenomena can be observed in the field of unfair suretyships. Forexample, in a French decision of 1977,82 the legal rule explicitly applied by the ParisCourt of Appeal in order to annul the suretyship of a poor widow was Article 1110Code Civil (nullity on the ground of essential mistake). In fact, however, the Courtdeducted the essentiality of the widow’s mistake from the manifest disproportionbetween her financial means and the amount of the obligation, after having takeninto account her age and low education.83 Therefore it could be argued that in thiscase the decisive rule was a cryptotype: ‘invalidity of manifestly disproportionatesuretyships of weak persons’. By the enactment of the French Consumer Code in1993, this rule left its cryptotype status and became explicit.

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79 National Westminster Bank v. Morgan [1985] 1 All ER 821. 80 R. SACCO, ‘Legal Formants: A Dynamic Approach To Comparative Law’, 39 Am. J. Comp. L.

(American Journal of Comparative Law) 1991, p 1 and 343, at 384.81 Ibid., at 386.82 Cour d’appel Paris 18 January 1977 (1977) La semaine juridique, édition générale (JPC G) II 19318,

commentated by P. Simler.83 Ibid., 19318: ‘…(l)orsqu’il existe une disproportion frappante entre la pauvreté des ressources de la

caution, personne âgée et ignorante, et l’énormité du cautionnement souscrit par celle-ci, l’erreurcommise par celle-ci au moment de la conclusion du contrat, a porté non seulement sur l’étendue et lesconséquences du contrat mais encore sur l’objet même et sur la cause de l’opération envisagée, c’est-à-dire sur la substance même de l’engagement. Cette erreur entraîne la nullité du cautionnement’.

The same rule seems to play a decisive role also in German case law, where theexplicitly applied norm is the nullity of immoral contracts (§ 138 BGB). Since 1993,the spectrum of suretyships cases falling under this rule has progressively expandedyear by year. The current standing of the law in Germany could be summarised asfollows:

If there is a gross imbalance between the amount of the debt and the surety’sfinancial means, and the surety is a close family member of the debtor who does nothave an economic interest in the suretyship, it may be presumed that the bank hastaken unfair advantage from the surety’s lack of experience or affection to the debtor.In this case the contract is immoral.84

If the amount of debt is out of proportion to the surety’s means but the imbal-ance is not gross, the contract can be considered immoral only if there is positiveevidence of particularly serious circumstances attributable to the creditor (such asthe creditor’s unfair exploitation of the surety’s lack of experience or the debtor’sundue influence).85

Grossly disproportionate suretyships of other persons than family members, e.g.employees of the debtor, can be immoral if there is positive evidence of circumstanceswhich prevented the surety from a free, self-determined conclusion of the contract.86

It could be argued that in German case-law the rule ‘invalidity of manifestlydisproportionate suretyships of weak persons’ is a quasi-cryptotype. On the onehand, the BGH still refuses to link the immorality of suretyships of weaker personsdirectly to the quantitative criterion of gross disproportion. On the other hand,however, the indirect links between the two concepts are becoming even tighter,letting the cryptotype progressively move from the shadow to the light.

Even more important than the specific cryptotype ‘invalidity of manifestlydisproportionate suretyships of weak persons’ is the general cryptotype ‘invalidity ofseverely imbalanced contracts concluded under structural inequality of bargainingpower’. The German Constitutional Court made it explicit. Lord Denning tried to dothe same, but failed because such a general doctrine does not fit into the picture oftraditional English private law. 87

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84 See e.g. BGH 26 April 2001, ZIP 2001, p 1190. 85 E.g. BGH 16 January 1997 (1997) ZIP 446.86 See BGH 14 October 2003, XI ZR 121/02 on a surety agreement between the debtor and his

employees.87 However, equitable relief is possible in certain cases of harsh and unconscionable bargains. As

H.G. Beale puts it, ‘the real question is the scope of the principles involved, particularly that ofrelief against unconscionable bargains with persons suffering from some form of bargainingdisadvantage’ (H.G. Beale, ‘Duress and Undue Inf luence’, in: H.G.BEALE (ed.), Chitty on

Contracts, 29th ed., Sweet & Maxwell, 2004, 7-111 et seq., at 7-111). On the advantages of ageneral doctrine of unconscionability see E. MCKENDRICK, Contract Law, Palgrave Macmillan,2003, p 382 et seq.

10 Substantial Disparity of Surety Protection Standards in the EU The spontaneous convergences in the suretyship law of France and Germany on the onehand, and the UK and the Netherlands on the other hand, demonstrate that an equallyeffective protection of the same human interests in the same situations can be achievedeither by legislation or case-law, by applying the most different norms and doctrines.88

However, a comparison of the national laws concerning family suretyships inEurope also shows that the degree of effectiveness of protection of the same classesof persons in most similar factual situations may vary notably from country tocountry. First of all, in some countries such as Italy no remedy is available to vulner-able guarantors, except for the ban of completely unlimited surety obligations (e.g.standard terms of guarantee ‘for all present and future debts’), which applies toprofessional sureties as well.89

Second, the protection granted by French and German law is far more effec-tive than the one provided by British and Dutch law. Indeed, even the most accurateand independent advice may be of no practical benefit to sureties, who frequentlybase the decision to guarantee loans on non-commercial grounds. As the Britishcommentator David Geary put it, the ‘emotional tie involved often makes the guar-antor feel obliged to consent to the transaction despite whatever reservations he orshe may have about the financial wisdom of this course of action’.90

To summarise the current standing of the law, at least three different stan-dards of surety protection can be found in the private law of the Member States:

The highest standard is found in France and Germany: Non-professional sure-tyships of family members are, as a rule, invalid when grossly disproportionate to theguarantor’s income and assets.

An intermediate standard is found in Britain and the Netherlands: Professionallenders are under a duty to ensure that non-professional guarantors have been properlyadvised about the consequences of the suretyship before the conclusion of the contract.

The lowest standard is the absence of any special rule protecting non-profes-sional sureties from disproportionate obligations. This is e.g. the situation in Italy.

The above comparison has clarified that the disparity in legal treatment of thesame suretyship cases in the Member States is not just formal, but substantive. In

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88 Cf. O. CHEREDNYCHENKO, ‘The Constitutionalization of Contract Law: Something New underthe Sun?’, 8 EJCL March 2004, <http://www.ejcl.org/81/art81-3.html>, p 13.

89 In the 1980’s, Italian courts did not remain insensitive to the problem of disproportionate familyguarantees. Sometimes the lower courts declared the nullity of such contracts because of theindeterminacy of their object (Art. 1346 and 1325 Italian Civil Code). However, the Corte diCassazione rejected this argumentation (see e.g. Cass. 15 March 1991, Foro it. 1991, I 2060). The1992 Act on transparency in the banking sector (legge 154/1992) modified Art. 1938 of theItalian Civil Code. This provision now requires to indicate, in a surety agreement concerningfuture debts, the maximum amount guaranteed.

90 D. GEARY, ‘Notes on Family Guarantees in English and Scottish Law – A Comment’, 8 ERPL

(European Review of Private Law) 2000, p 25 at 28.

some countries vulnerable sureties are much better off than in others. Vice versa, insome countries banks are much better off than in others.

Spontaneous convergence is therefore not sufficient to ensure an equallyeffective protection of the same surety interests in the same cases throughoutEurope. To render both the European citizens and the European banks more equal,top-down harmonisation – although a non-legislative one – would be necessary.

11 A Plea for Non-Legislative Harmonisation of Surety Protection Standardsvia Horizontal Effect of European Fundamental RightsThe mechanisms for ensuring top-down harmonisation of case law in the EU areavailable already. The judgments of the ECJ and the European Court on HumanRights form legally binding guidelines to be complied with by the Member States.

However, the competence to review private law cases decided by nationalcourts is given to the Strasbourg Court only in so far as a violation of the ECHR isalleged, and to the Luxembourg Court only in so far as a breach of the Treaties orsecundary EC law is at stake. Therefore the question arises whether unfair suretyagreements concluded between a professional lender and a non-professional guar-antor have a human rights and/or a EU law dimension. The answer in both regardsseems to be ‘yes’.

Not only in Germany are private autonomy and freedom of contract consid-ered to be a specific aspect of the fundamental right to self-determination andpersonal autonomy. Indeed, according to a consolidated jurisprudence of theEuropean Court of Human Rights,91 Article 8 ECHR does not merely protect theprivate life in a strict sense, but also the personal autonomy in general.92

The whole discussion on unfair suretyships gravitates to the fundamentalquestion of personal autonomy and freedom of contract. When someone is asked byboth a beloved family member and a bank employee to sign a standard form of guar-antee, her or his substantive self-determination is heavily restricted.93 The same istrue for workers asked to guarantee a loan of their employer. In these and similarcases, the limitation of self-determination concerns both core aspects of freedom ofcontract: the freedom to enter or not to enter into the agreement, and the content ofthe latter.

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91 See European Court of Human Rights, Goodwin v. United Kingdom, no. 28957/95, judgment of3 July 2002, § 59; Pretty v. the United Kingdom, no. 2346/02, judgment of 29 April 2002, § 62;Mikuliĺ v. Croatia, no. 53176/99, judgment of 7 February 2002, § 53.

92 The embedment of freedom of contract in Art. 8 ECHR has been convincingly demonstrated byH. SNIJDERS, ‘Privacy of Contract’, paper presented at the ‘Leiden-Munich-Oxford JointColloquium on Human Rights: Privacy’, Institute of European and Comparative Law, Oxford, 7 &8 January 2005 (on file with author).

93 Cf. B. FEHLBERG, ‘The Husband, the Bank, the Wife and her Signature. The Sequel’, 59 MLR

(Modern Law Review) 1996, p 675; D. GEARY, ‘Notes on Family Guarantees in English andScottish Law – A Comment’, 8 ERPL (European Review of Private Law) 2000, p 25.

One may argue that the personal autonomy of vulnerable sureties is even moreseverely restricted than the one e.g. of consumers willing to buy a certain product.Indeed, to renounce a certain product might be less difficult than refusing to help one’sown father, son, husband or employer whose small enterprise urgently needs a loan.

If it is true that in the context of consumer contracts ‘the idea of free negotia-tion is a myth’ and ‘(t)he bargain has lost its sanctity as an expression of individualwill’,94 the same must be true also with regard to suretyships concluded between abank and a non-professional guarantor for one of his or her close family members,employer etc.

Since personal autonomy, self-determination and freedom of contract arecommon European fundamental rights, the need to protect vulnerable sureties fromcontractual agreements substantively imposed upon them has a European constitu-tional relevance. Thus the constitutional dimension of the law of unfair suretyships isnot a specific heritage of the German legal culture.

Nor is the right to a free development of one’s own personality, which theGerman Federal Constitutional Court considers affected by the denial of remediesagainst unfair surety agreements, a specific heritage of the German legal culture.This right is common to all European citizens. First, it is recognised by many nationalConstitutions. Second – and more important – it is protected by Article 8 ECHR.Indeed, according to the European Court of Human Rights, the concept of ‘privatelife’ extends to the ‘development, without outside interference, of the personality ofeach individual in their relations with other human beings’.95

The lack of protection from unfair suretyships clashes not only with Article 8ECHR, but also with Article 6 EU, because the latter provision acknowledges theConvention rights as general principles of Community law. Although Article 6 EUdoes not create a general competence for the EC (and the ECJ) in human rightsmatters, there may be an overlap of competence between the ECJ and the EuropeanCourt of Human Rights wherever the interpretation of a European constitutionalright or principle is at stake. Indeed, the fundamental rights and constitutional prin-ciples mentioned in the Treaties are European constitutional norms like the funda-mental freedoms. Being part of EC law, they have to be interpreted uniformly in allMember States, and national law must comply with them. The institution competentto interpret EC law – and the European Constitution – in the last instance is the ECJ.

Of course, also the lender’s freedom of contract and property rights are consti-tutionally protected. The European Courts need therefore to strike a balancebetween competing constitutional rights, in order to assess the appropriate level ofboth surety’s and lender’s protection. Both the assessment of the required standards

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94 S. WEATHERILL, EC Consumer Law and Policy, Longman, 1997, p 77.95 See European Court of Human Rights, von Hannover v. Germany, no. 59320/00, judgment of 24

June 2004, § 50, with references to earlier cases.

of protection, and the correspondent adaptation of national law by the courts of theMember States can be achieved via horizontal effect of European constitutionalnorms, such as Article 8 ECHR and Article 6 EU Treaty.

Bearing in mind the current trends in the case-law of the Member Statesmoving towards an even stronger surety’s protection, one may predict that a futurecase-law convergence via horizontal application of European constitutional provi-sions is likely to enhance the average level of protection of vulnerable sureties and topromote an equal treatment of European citizens in the same factual situations. Thusonce again, horizontal effect turns out to be a powerful means to develop Europeanprivate law towards more social justice.96

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96 If the only issue at stake was to approve new, more socially sensitive interpretations of privatelaw, the recourse to constitutional arguments to legitimise these intepretations would be unnec-essary, because this goal could be also reached by reasonings based merely on ordinary privatelaw instruments. However, the existence of European constitutional rights providing equalprotection for all Member States’ citizens offers the necessary legitimacy to the request for equallevels of protection of the same contractual interests throughout Europe. Thus from the view-point of case-law harmonisation, the constitutionalisation of private law is in fact something newunder the sun (cf. O. CHEREDNYCHENKO, ‘The Constitutionalization of Contract Law:Something New under the Sun?’, 8 EJCL March 2004, <http://www.ejcl.org/81/art81-3.html>,p 13 et seq.).