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International Jurisdiction Over Consumer Contracts in e-Europe

Published online by Cambridge University Press:  17 January 2008

Joakim St Øren
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Extract

In its work to maintain and develop the free mobility of judgments within the European Union, the EU approved on 22 December 2000 a new regulation1 (hereafter the Jurisdiction Regulation) that replaced the Brussels Convention with effect from 1 March 2002.2 Possibly the most discussed and disputed new development in the Jurisdiction Regulation is Section 4, which concerns jurisdiction over consumer contracts. Before the approval of the Regulation, the provisions of Section 4 were heavily debated. The unreserved right of the consumer, under certain circumstances, to sue the other party in the courts of the State where the consumer is domiciled met strong resistance. This was particularly the case in relation to e-commerce, where there was an expressed fear that the provisions would lead to a scenario where anyone doing business through the Internet or by other electronic means could face the risk of being hauled into court in every state in Europe. It was asserted that this would significantly increase the costs of establishing new businesses online, and that, as a result, small and medium size enterprises would be deterred from offering their products online throughout the EU, and restrain the development of e-commerce in Europe.

Type
Research Article
Information
International & Comparative Law Quarterly , Volume 52 , Issue 3 , July 2003 , pp. 665 - 696
Copyright
Copyright © British Institute of International and Comparative Law 2003

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References

1 ‘Council Regulation (EC) No 44/2001 of 22 Dec 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters’.

2 However, Denmark is not bound by the Jurisdiction Regulation, meaning that the Brussels Convention still applies between Denmark and the other Member States of the EU, see recital 21 in the preamble of the Jurisdiction Regulation.

3 In short, an electronic agent can be described as a software program operating on behalf of a user in a digital environment. The use of electronic agents in e-commerce is growing rapidly, and in the future, electronic agents are believed to escalate from being a merely integrated part of a webshop like today, to an autonomous tool in e-commerce. This means that e-commerce as we know it, with its traditional web-shops, might, at least to a certain degree, be replaced with agent-based electronic marketplaces, where independent and autonomous electronic agents are able to perform every necessary transaction without the intervention of human beings. For a further introduction to the practical and legal issues of the application of electronic agents in e-commerce, see the special issue in 9/3 International Journal of Law and Information Technology (2001).

4 See recital (1) of the preamble.

5 See recital (2) of the preamble.

6 See the different preparatory works described later in this paper.

7 The Jurisdiction Regulation can therefore be seen as a part of a whole package of legislative instruments introduced by the EU in the area of e-commerce, and is meant to operate with and complement such legislation as Directive 2000/3 I/EC of the European Parliament and of the Council of 8 June 2000 on certain legal aspects of information society services, in particular electronic commerce, in the Internal Market and Directive 97/7/EC of the European Parliament and of the Council of 20 May 1997 on the Protection of Consumers in respect of Distance Contracts.

8 When interpreting the Jurisdiction Regulation, it is therefore not expected that the replacement of a convention by a regulation will involve any significant changes as far as the legal method applied by the ECJ is concerned.

9 The Rome Convention on the Law Applicable to Contractual Obligations, Official Journal 1980, No L 266:1. See in particular Art 5.

10 Some, however, claim that the Jurisdiction Regulation in reality will result in such a situation; see for instance some of the submissions made by business groups to the public hearing on ‘Electronic Commerce: Jurisdiction and Applicable Law’, arranged by the EC Commission in Brussels 4–5 Nov 1999. Some here claimed that because the Rome Convention is due to be revised, the consumer provisions concerning choice of law would be identical to Art 15 in the Jurisdiction Regulation, and that this would mean that e-commerce retailers will be subject to 15 different laws. However, the outcome of the revision of the Rome Convention is uncertain, and, as will be discussed in this paper, the interpretation of Art 15 in the Jurisdiction Regulation put forward by the business as a presupposition for this assertion is doubtful. An identical discussion of jurisdiction and choice of law is therefore not justifiable.

11 Art 3 states that other countries, within the coordinated field, may not lay down restrictions on a service provider domiciled in another Member State, as long as the operation of the service provider is in accordance with the legislation in the country of establishment. The coordinated field embraces almost exclusively regulatory law only.

12 In many Civil Law countries, this is referred to as ‘public Law’.

13 Recital 23 in the preamble of the e-commerce directive explicitly states that the Directive does not deal with jurisdiction of Courts.

14 The situation here described also existed before the Jurisdiction Regulation, as the Brussels Convention in many cases would lead to the same result. It is therefore not correct to maintain that this inconsistency with the e-commerce directive was solely introduced by the Jurisdiction Regulation. Another matter is whether such tension exists between the Rome Convention and the e-commerce directive, but this will not be discussed in this paper.

15 A teleological method is a designation for interpreting in accordance with the motivation and purpose of the legislation in question. A teleological interpretation of the law means that the interpretation is based on specific knowledge, or an assumed knowledge, regarding the purpose of the law, see Arnesen, Finn Introduksjon til rettskildelceren i EF, tredje utgave, IUSEF nr 2 Senter for Europa-rett, Universitetet i Oslo, Universitetsforlaget, Oslo 1995, 34 fl.

16 C–89/91, Shearson Lehmann Hutton Inc v TVB Treuhandgesellschaft fueur Verm0gensverwaltung und Beteiligungen rnbH [1993] European Court Reports:0139, para 18.

17 The same concern is maintained in the Jurisdiction Regulation, see recital 13. It is therefore not necessary to distinguish between the Brussels Convention and the Jurisdiction Regulation as far as the underlying motivation of the consumer provisions is concerned.

18 See also Kaye, Peter, Civil Jurisdiction and Enforcement of Foreign Judgments (Professional Books Limited, 1987) 823Google Scholar and Stone, Peter, The Conflict of Laws, (Longman Group Limited, 1995) 196Google Scholar. Art 5 of the Rome Convention is also based on the same motivation; see Dicey, & Morris, The Conflict of Laws, 13th edn (London: Sweet & Maxwell, 2000) 1285.Google Scholar

19 See also Jenard, ‘Report concerning the Convention on jurisdiction and the enforcement of judgments in civil and commercial matters’ (Official Journal 1979 C 59, s 1–65 and s 66–70) 33, Schlosser ‘Report on the Convention on the Association of the Kingdom of Denmark, Ireland and the United Kingdom of Great Britain and Northern Ireland to the Convention on jurisdiction and the enforcement of judgments in civil and commercial matters and to the Protocol on its interpretation by the Court of Justice’ (Official Journal 1979 C 59, 71) 117, Giuliano and Lagarde ‘Report on the Convention on the law applicable to contractual obligations’ (Official Journal 1980 C 282, 1) 23, and C-150/77, Bertrand v Paul Otto KG [1978] European Court Reports:1431, para 21.

20 See amendment 3 with justification in the Report from Rapporteur Diana Wallis: ‘Report on the proposal for a Council regulation on jurisdiction and the recognition and enforcement of judgements in civil and commercial matters’, Committee on Legal Affairs in the Internal Market, Rapporteur: Diana Wallis, COM (1999) 348 – C5–0169/1999 – 1999/0154 (CNS).

21 This was also emphasised by Rapporteur Diana Wallis, 35.

22 The Commission's initial proposal, ‘Proposal for a Council Regulation (EC) on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters’, presented by the Commission, Document 599PC0348, ch 4.2.

23 See Report from Rapporteur Diana Wallis, 13.

24 In short, business launched a ‘country of origin’ principle, and the consumer organisations a ‘country of destination’ principle.

25 It would also create many practical problems if the legislation separated electronic transactions and treated these differently from other transactions.

26 Jurisdiction based on a contract.

27 Jurisdiction based on tort, delict or quasi-delict.

28 Jurisdiction based on a dispute arising out of the operation of a branch, agency or other establishment.

29 Several surveys addressing these issues are publicly available, see for instance ‘The cost of legal obstacles to the disadvantage of Consumers in the Single Market’ a report for the European Commission published online: <http://europa.eu.int/comm/dgs/healthconsumer/library/pub/pub03.pdf>.

30 See also the Report from Rapporteur Diana Wallis, 30.

31 If the consumer would have to sue the vendor at his domicile, the vendor could have been said to be winning in all directions, as he would gain a bigger market and profits, and at the same time no longer have to bear the risk of being hauled into a foreign court as with the earlier legislation.

32 However, this may not be such a radical amendment as the wording may imply, as it was also assumed that Art 13.3 of the Brussels Convention was intended to cover nearly all activities of a commercial nature, see Ketilbjørn, Hertz, Jurisdiction in Contract and Tori under the Brussels Convention (Jurist- og Økonomforbundets Forlag, 1998) 200.Google Scholar

33 Foss, M and Bygrave, LA ‘International Consumer Purchases through the Internet: Jurisdictional Issues pursuant to European Law’, 8/2International Journal of Law and Information Technology (2000) 124–5.CrossRefGoogle Scholar

34 See the comments to Art 15 in the Commission's initial proposal.

35 Comments to Art 15 in the Commission's initial proposal.

36 Ibid.

37 Ibid.

38 For instance if this denotes the factual or legal steps, see here Foss and Bygrave, 124 with further references in n 76.

39 Rapporteur Diana Wallis, 18.

40 Presumably, the authors are here referring to the situation where the product is downloaded to the consumer's laptop.

41 Foss and Bygrave, 137. However, in order for the consumer in this example to be entitled to sue in a German court, the website in question must direct its activities to Germany. It seems here as though the authors are of the opinion that a consumer contract entered into by electronic means in itself is sufficient for the application of Art 15, an interpretation that the further discussion will prove is doubtful.

42 It could be argued that this is a fair result, as the circumstances surrounding the transaction in most cases occur equally both in relation to the consumer and the vendor, regardless of the physical presence of the parties. In the context of e-commerce, the consumer will most likely act in the same way whether he is in his own domicile or not, for instance by buying the product through his laptop, an Internet-cafe, or his electronic agent. As for the vendor, it is often difficult to decide in which country the consumer is when entering into a contract; it is therefore more advantageous to emphasise the consumer's domicile.

43 However, this must not be understood as a reference to the assessment made when determining the general personal jurisdiction in US courts, even though some of the relevant factors may be the same. See for instance the list at p. 32 in Spang-Hansen, Henrik Cyberspace Jurisdiction in the U.S.—The International Dimension of Due Process, Complex 5/01, Institutt for Rettsinformatikk, Oslo, 2001, referring to the Utah Court of Appeals in the case Buddensick v Stateline Hotel, Inc, 972 P.2d 928 (1998).

44 Where, in this author's opinion, e-commerce arrangements must also be included.

45 For instance, it would be more natural to include the sporadic occurrences of commercial activities as described above within this expression.

46 However, the Commission in its initial proposal stated that ‘the concept of activities pursued in or directed towards a Member State is designed to make clear that point (3) [now (c)] applies to consumer contracts concluded via an interactive website accessible in the State of the consumer's domicile.’ But the applicability of the first alternative to e-commerce was not further elaborated, neither in this proposal nor in the other preparatory works. All discussions seemed to be focused on the ‘directing-test’, and it is therefore uncertain whether the Commission here actually intended to address this problem.

47 Referring to both the number of contracts, and revenues generated through these.

48 Meaning that the vendor does not have any physical presence or representation in the Member State.

49 Especially since the Jurisdiction Regulation was promulgated with a view, inter alia, to take account of new forms of commerce, it could be argued that it would run counter with the ‘philosophy’ of the Regulation to put forward such a requirement of physical presence.

50 E-commerce by electronic agents is believed, at least in the beginning, to be carried out through smaller electronic marketplaces based on parameters like geography, nationality, interests, goods, branches, etc. Just as with websites today, some of the electronic marketplaces of the future could primarily be intended for persons domiciled within a particular state.

51 At least from the consumer's point of view.

52 However, it is believed that it will only be in very rare cases where a situation will only be covered by the first alternative, and not also by the second one.

53 See the comments to Art 15 in the Commission's initial proposal.

54 Even though these activities may also be relevant in relation to the first alternative, it seems more natural to characterise these as directed to, and not pursued in, a state.

55 See the comments to Art 15 in the Commission's initial proposal.

56 It is, however, worth mentioning that the comments talk about the ‘possibility of buying goods via a passive website’. As will be discussed later, a passive website is usually characterised by the fact that it is not possible to buy goods through it. It is therefore difficult to know exactly what the expression ‘passive website’ here means.

57 It seems somewhat peculiar that recital 13 mentions ‘goods or services’, since the corresponding provision is based on the broader term ‘in all other cases’. However, this inconsistency does not seem to be intended, and is most likely to be considered as an inadvertence.

58 See the Report from Rapporteur Diana Wallis, 35.

59 See amendment 23 in the Report from Rapporteur Diana Wallis.

60 However, it can be argued that the existing version of Art 15 does not reflect the traditional relationship between the main rule in Art 2 and the alternative/exclusive jurisdictions in the Regulation, as Art 15 in reality perhaps could be considered as the main rule regarding consumer contracts. But an expression as proposed by the Rapporteur would almost totally exclude the applicability of Art 2 to consumer contracts.

61 This is further reinforced by the fact that the contract in question no longer would have to fall within the scope of the activities directed to the Member State, meaning that every commercial activity within the vendor's business could be subject to the protective consumer provisions.

62 See Amendment 36 from the Parliament in Proposal for a Council regulation on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters’, Document number A5–0253/2000 COM (1999) 348–C5–0169/1999–1999/0154 (CNS).

63 Amendment 37 in the Proposal from the Parliament.

64 However, to operate with such ‘subjective’ criteria in relation to e-commerce is not supportable, as this would often be very difficult to prove and would require a comprehensive production of evidence which would increase the costs of the legal proceedings. It could also be argued that this is a redundant criterion, since it is difficult to imagine situations where the commercial activities are considered as directed in a substantial way to a Member State, without that, at the same time, being the vendor's intention.

65 See the Commission's initial proposal.

66 Rapporteur Diana Wallis, 35.

67 See for instance Dutson, Stuart, ‘Transnational E-Commerce’, (2000) 16 Computer Law & Security Report, 107.Google Scholar

68 Different forms of ring-fence mechanisms will be discussed later in the paper.

69 Commission's amended proposal, 5–6.

70 Something which is surely not contrary to the philosophy of Art 15. Another argument for including such ring-fencing attempts, is that this appear to be a natural counterbalance of the expression ‘directs such activities’.

71 The Commission does, however, only say that such a contract is a clear indication that the vendor has directed his activities to the state, but with such a basis, the mere existence of a consumer contract would very often be sufficient for the application of Art 15.

72 For instance, the Rapporteur of the European Parliament suggested that the wording of the second alternative in Art 15.1 (c) should be ‘the contract has been concluded at a distance with a consumer having domicile in another Member State.’ This seems to be more in accordance with what the Commission here is suggesting.

73 Zippo Manufacturing Co v Zippo Dot Com, Inc, 952 F Supp, 1119 (W.D. Pa. 1997), at 1124.

74 A more thorough discussion of the Zippo case will not be given here.

75 See for instance also Spang-Hansen and McWhinney, Christopher, Wooden, Sean, McKown, Jeremy, Ryan, John and Green, Joseph ‘The “Sliding Scale” of Personal Jurisdiction Via the Internet’, published online: <http;http://stlr.stanford.edu/STLR/Events/personaljurisdiction/contentshtml>.

76 Foss and Bygrave, 119.

77 See the comment to Art 15 in the Commission's initial proposal.

78 The words ‘interactive website’ in the preparatory works seems therefore more likely to refer to the first category in the Zippo-test; situations where the defendant clearly does business over the Internet.

79 It is therefore somewhat peculiar that the comments to Art 15 in the Commission's initial proposal refers to the ‘possibility of buying goods via a passive website’, see the Commission's initial proposal. The characteristic of a passive website in accordance with the US approach is the very opposite, something that indicates that Art 15.1 (c) of the Jurisdiction Regulation may not be so influenced by US case law as one might at first think.

80 See Foss and Bygrave, 114–17, where the authors conclude that webpages containing promotional information may qualify as advertising pursuant to Art 13 (l)(3)(a) in the Brussels Convention. Also in the same direction, Cheshire, and North's, Private International Law, 13th edn (London: Butterworths, 1999), 1288.Google Scholar

81 An example could be a German retailer operating a passive website in which he presents his products, but where the information is only given in Swedish, prices are listed in the Swedish currency, the products offered could be characterised as mainly ‘Swedish’, and where the retailer through the website specifically invites and encourages customers domiciled in Sweden to order the products from Germany through a telephone-/faxnumber or physical address. It can here be maintained that the retailer is directing his activities towards Sweden, and that Art 15.1 (c) under certain circumstances may be applicable.

82 See Giuliano and Lagarde 23–4 where for instance it is statements as ‘where the trader has taken steps to market his goods or services in the country where the consumer resides’, and ‘special advertisement intended for the country of the purchaser’.

83 Foss and Bygrave, 118.

84 Based on the statement ‘If, for example, a German makes a contract in response to an advertisement published by a French company in a German publication, the contract is covered by the special rule. If, on the other hand, the German replies to an advertisement in American publications, even if they are sold in Germany, the rule does not apply unless the advertisement appeared in special editions of the publication intended for European countries. In the latter case the seller will have made a special advertisement intended for the country of the purchaser’ on 24 in the Giuliano-Lagarde Report, Foss and Bygrave conclude that the ‘decisive is whether the promotional information is intended, objectively speaking, to be accessed in that State’.

85 However, it cannot be ruled out that the vendor's subjective intentions could have relevance, especially when these are made visible to the surrounding world in a clear and unambiguous way, and where the business activities are carried out in accordance with these intentions.

86 Commission's amended proposal, 5.

87 See the comments to Art 15 in the Commission's initial proposal.

88 It could here also be mentioned that the purpose of the main rule in the Jurisdiction Regulation, ie Art 2, domicile of the defendant, is to create predictable rules, and that all provisions that derogate from Art 2 are to be interpreted and applied restrictively.

89 Whether the vendor has been carrying out these activities for a period of time or not, does not seem to have any relevance here. Such activities will in many circumstances create in themselves a legitimate expectation for the consumer of being able to sue the vendor in the courts of the Member State where the consumer is domiciled. These situations can be compared to ‘specific invitation‘spam’.

91 See also Foss and Bygrave, 122.

92 This may occur quite often, since it is usually not required that the consumer must be domiciled in the state indicated by the email address in order to operate it. Also, persons tend to hold on to their email addresses as long as possible, even if they move to another country, especially if this is a frequently used address where most of the user's electronic communications are carried out from.

93 See Hertz, 205, concerning advertising in media received across the border in a neighbouring State.

94 This impression could be further enhanced by other existing factors, for instance that the offer is written in English (which in this example cannot be characterised as a country specific indicia), that the product offered is not a distinctive ‘German’ product, and the number of previous contracts entered into with French domiciled consumers.

95 Reservation is here made against a consumer who deliberately represents himself as domiciled in a Member State other than the one in which he is in fact domiciled. The importance of this will be discussed later in this paper.

96 See also Foss and Bygrave, 122.

97 Meaning it will be almost impossible, from an objective point of view, to identify which particular States the commercial activities are directed towards.

98 It is here maintained that in order to fulfil the ‘directing-test’, it cannot be required as an absolute condition that it is possible to enter into contract through the website. As the previous discussions have proved, commercial activities may be considered as directed towards a Member State through a website even if it is only promotional information which occurs on the site. Refer here what has been earlier said about the distinction between interactive and passive websites.

99 See Stone, , Peter, , ‘Internet Consumer Contracts and European Private International Law’ (2000) 9 Information & Communication Technology LawCrossRefGoogle Scholar. Also Hertz, 205–6 and Nielsen, Peter Arnt International privat- og procesret, Jurist- og Økonomforbundets Forlag, K0benhavn 1997, 518 seem to take the same line, although the latter pertains to Art 5 (2) of the Rome Convention.

100 This seems like a somewhat hasty and premature solution which does not reflect the nature of electronic communication in a desirable way. This is because one of the fundamental ideas behind the Internet is that a website should be accessible to everyone connected to it, irrespective of geographical location. To make a comparison with other media, it is hard to believe that anyone would claim that this paper is directed to every person in the world who knows how to read, even if it is published in an international journal available for sale in every country throughout the world.

101 This seems like a more appropriate solution, since emphasis on where an activity is directed towards and has its effect, instead of mere accessibility of the website in question, is a more adequate approach in achieving predictability regarding jurisdictional matters.

102 Typically by containing national suffixes as.de,.uk or.es.

103 For instance, if this can be characterised as a strictly ‘national’ product for the Member State in question, only useful for persons domiciled in that State, this could indicate that the foreign vendor is directing his activities towards that State.

104 It could also be mentioned that it is quite usual that advertising for webshops occurs in other more traditional media such as TV, radio and newspapers. The existence of such marketing in national media will of course enhance the impression that the commercial activities carried out through that webshop are directed towards the Member State.

105 However, if the foreign vendor were operating a webshop under a domain name connected to the Member State in question, this would be a relevant factor in the assessment.

106 However, if the price of the products is denominated in, for instance the Swedish currency, this is a quite strong indication that the activities are directed towards Sweden.

107 It could also be maintained that the vendor to a certain degree is entitled to this, as recital (11) in the Regulation states that ‘the rules of jurisdiction must be highly predictable’ (emphasis added).

108 See amendment 23 in the Report from Rapporteur Diana Wallis.

109 See amendment 37 in the Proposal from the Parliament.

110 Especially since this seems to be the natural counterbalance of the expression ‘directs such activities’.

111 The importance of this has also been addressed in US case law, see for instance Euromarket Designs, Inc v Crate & Barrel Ltd, 96 F Supp 2d 824 (NDI11 2000), also referred to in Spang-Hansen 359–60.

112 For instance, if the vendor allowed every consumer, irrespective of domicile, to enter into a contract, these ring-fence mechanisms would in reality exclude Section 4 and force the consumer to sue the vendor at his domicile in accordance with Art 2 or, if applicable, at the appointed jurisdiction in accordance with Art 5.1. With such an interpretation of Art 15, it would be too easy to deprive the consumer protection.

113 See also Norwegian Research Centre for Computers and Law, ‘Legal technology – interlegal issues’, published online: <http://www.edip.org/documents/deliverable_2_2_5_PIL_law&tech.pdf>.

114 For instance, they can be difficult to identify in a website overloaded with information, they can be concealed by small typing in a corner of a website, or presented on a different website which is only visible if the consumer activates it by clicking on its hyperlink.

115 Further, if the business with customers domiciled in one of these Member States is of a certain extent, eventually, it also will be a question of whether the first alternative in Art 15.1 (c) of pursuing activities in the Member State is fulfilled.

116 The collection of such personal information will be regulated by Directive 95/46/EC of the European Parliament and of the Council of 24 Oct 1995 on the protection of individuals with regard to the processing of personal data and of the free movement of such data, OJ L 281, 23/11/1995, 31, but this problem will not be discussed in this paper.

117 However, this may not seem so well founded if the contract in question is based on special circumstances, where the vendor has had no previous business contact with the State in question, the vendor in no way has mislead the consumer, and it is obvious that this is an extremely rare case which is not an attempt to circumvent the provisions in Section 4.

118 Hertz, 95, Stein Rognlien, Luganokonvensjonen, Kommentarutgave, Internasjonal domsmyndighet i sivile saker, Juridisk Forlag AS, Oslo 1993, 174–5, and Foss and Bygrave 106 with further references.

119 See also Hertz, 206, Foss and Bygrave, 106, and Stone, Peter, ‘Internet Consumer Contracts and European Private International Law’ (2000) 9 Information & Communication Technology Law.CrossRefGoogle Scholar

120 For instance through the computer's IP-number.

121 A further problem would then be how to handle a situation where the statement from the consumer is inconsistent with the physical location. At least when it comes to ‘pure’ e-commerce, where the delivery of the product is done by electronic means, it is believed that the vendor should be able to rely on the statement; see what has been earlier said about misleading behaviour and lack of requirements concerning physical location at the time of conclusion and execution of the contract. The assessment will perhaps be somewhat different in a situation involving the shipment of physical goods, since geographical addresses often involve a more permanent and physical connection and presence. Still, the consumer has acted with the intention of misleading the vendor, and as long as the vendor is in good faith, this situation should not be treated any differently to the first one.

122 Irrespective of the different forms of ring-fence attempts, a common question is whether the application of such mechanisms is in conflict with the principle of non-discrimination embodied in the Treaty of Rome. For further reading, see Foss and Bygrave in n 65 on 121, where it is further indicated that this could also be problematic in relation to general EC competition law.

123 See also the comments to Art 15 in the Commission's initial proposal.