E commerce and rules of private international law

Conflict of laws

Statement of Purpose and Hypothesis

The purpose of this project is to discuss the application of traditional rules of
international private law rules on jurisdiction in case a transaction is concluded or
performed through the Internet and the development of EU legislation in this respect.

Scope and Limitation

In this project, the researcher has concentrated on studying application of law in e-
commerce in United States and United Kingdom legislation.

Research Methodology:
The researcher has made extensive use of the sources available at the National Law
Institute University library, as well as the World Wide Web. This project has been
divided into four parts: First part deals aim and scope of private international law
along with the general rules of jurisdiction, Second part provides grounds of special
jurisdiction and jurisdiction over consumer contracts, Third part deals with the
prorogation of jurisdiction and arbitration, Last part deals with the conclusion.

E COMMERCE AND RULES OF PRIVATE INTERNATIONAL LAW

Abstract
The application of private international law to electronic consumer contracts raises
new, complex, and controversial questions. It is new because consumer protection
was not a private international law concern until very recently and e-commerce only
became an important commercial activity within the last ten years. E-consumer
contracts generate original questions which have not been considered under
traditional private international law theories.

Traditional rules of private international law on jurisdiction are based on

geographical connecting factors, such as domicile of the parties, which are
sometimes not applicable in the Internet. Some other connecting factors, such as
the place of contracting, the place of performance, the place where an
establishment is situated, etc, are not so easy to be determined in the electronic
world. At the same time, traditional rules of international law on jurisdiction cannot
be set aside only because they seem not to be appropriate or relevant in this case.

It is complex because it has to deal both with difficulties raised by consumer

contracts and the challenges of e-commerce. Reasonable resolutions to consumer
contracts may prove inappropriate in e-commerce, while effective approaches to
resolving private international law problems in e-commerce may be improper for
consumer contracts. It is controversial because it concerns the conflicting interests
of consumers and businesses in a fast-moving commercial environment - a fair
balance is therefore hard to achieve.

Aim and scope of private international law

International private law provides rules of jurisdiction, choice of law and regulation
and enforcement of foreign judgments for cases where the existence of a foreign
element is present in the facts of the dispute. The aim of choice of law must be to
select the appropriate governing law on criteria of justice and convenience for the
parties.

Once the jurisdiction of cross-border dispute has been determined, the lex fori's
choice of law rules will be applied.

The operation of international private law rules are premised on connecting factors
which are used to determine whether parties are physically present or their
activities are associated with certain jurisdictions and laws in a material way.
Domicile is important connecting factor most often used to determine whether
parties are physically located in a jurisdiction. Connecting factor are means of
ensuring that the closest and hereby the most appropriate, jurisdiction of a dispute
can be foreseen. or determined with a degree of certainty and predictability. Since
international law rules seek to ensure justice to the parties in a cross border
dispute, an important consideration is the meaning of justice in this context and in
the context of disputes between consumers and foreign sellers who have contracted
by electronic means.

Sookman has defined electronic commerce as ' any kind of transaction that is made
using digital technology, including transactions over open networks such as the
internet, closed networks such as electronic data interchange(EDI) and debit and
credit cards.

The united states has introduced the uniform electronic transactions act (UETA) and
the uniform computer information transactions Act (UCITA) to regulate electronic
commerce activity. the courts in US have also sought to adapt the rules of personal
jurisdiction to apply to the defendant's commercial activities conducted via e-
commerce in a particular state.

Various international organizations such as the Hague Conference on private

international law UNICTRAL have undertaken project and written reports and
guidelines that have directed a national, and an inherently particularistic, approach
to the legal regulation of contracts by e-commerce.
Where the American doctrine distinguishes between prescriptive, adjudicative and
enforcement jurisdiction, the European rules make a fundamental distinction
between jurisdiction and applicable law. The concept of "jurisdiction" is taken as to
designate which Court is competent in order to rule a case. Once the "jurisdiction"
ascertained, the judge has to designate the applicable law. Where jurisdiction is
mainly based on territorial principle, the designation of the applicable law is mostly
based on the closest connection to a legal system. In other terms, whereas an
American Court looks for which law is applicable in order to ascertain its
jurisdiction, European Courts are reasoning in two steps. In a first stage, the
European judge will verify the jurisdiction rules in order to ascertain its jurisdiction;
then, he will look at his rules of conflict of law in order to designate the applicable
law. The result is that in international situations there is not often a forum legis.

The American approach is based on casuistry - in each case the judge analysis the
facts in order to determine the applicable law. In Europe, there are abstract
formulated rules which gives the judge the solution. Maybe it is true that at the end
the result with both approaches is the same. However, for legal engineering, there is
a fundamental difference as it is reasonably possible in Europe to foresee the
applicable law at the moment of the conclusion of the contract for example. Even
the modern principle of the closest connection, replacing the ancient lex loci
executionis is an abstract formulated rule in the Rome Convention because it is in
9/10 of the cases the law of the country of the residence of the party who is to effect
the performance which is characteristic of the contract. It is only in some
exceptional cases that the judge must refute the presumption in order to undertake
a contact analysis in order to determine the applicable law.

Two different set of rules, abstract pre-formulated rules of conflict, that are the
postulates of the European PIL and which must be taken in consideration in regard
to the new paradigm of e-commerce

As e-commerce is not restricted to consumers and businesses situated in one

jurisdiction, the ways in which other countries have sought to adapt their
international private law rules for such contracts must be considered. Both countries
economies have continued to maintain high levels of participation in e- commerce
and have also adapted existing jurisdiction rules for consumer contracts and are in
the process of modernizing choice of law rules. The court of the US have adapted
their existing rules of personal jurisdiction in an attempt to ensure the online
activities of a foreign defendant and the US is currently participating in negotiations
for convention on choice of law rules for consumer contracts.

The UK has implemented an EU regulation which modified the jurisdiction rule for
consumer contracts. The EU has recently adopted a regulation to replace the Rome
convention 1980.

1.General principles of jurisdiction

The European national legal systems have a dual regime in regard to jurisdiction. If
the defendant is domiciled or if the obligation is performed in the EC, one has to refer
to the Brussels Convention. In the other cases, the judge applies its national
jurisdiction rules.

The basic principle of the Brussels Convention is that only the forum domicilii has
jurisdiction to adjudicate. However, the Convention provides some limited options
and exceptions.
In respect to contracts, one has first of all to point out that the concept of "contract"
is construed under the Brussels Convention independently of any particular national
law and defined has an transaction between parties who have voluntarily undertaken
an obligation towards the plaintiff. By art. 5.1 the plaintiff has an option between the
jurisdiction of the domicile of the defendant and the jurisdiction of the place of
performance of the relevant contractual obligation. If the action is based on a single
obligation, one has to locate its place of performance by reference of the substantive
law which governs the obligation under the choice of law rules of the country whose
court is seized. If the plaintiff makes in the same action several claims based on
different obligations from the same contract, jurisdiction belongs to the court of the
place of performance of the most important obligation.
The difficulty here is obvious : how to locate the place of some specific obligations
under a national law as they do not contain any provisions in this sense ? That's why
the European Working Group proposes to modify art. 5.1 in adopting the place of
delivery and the place of prestation as most modern codification do. The adoption of
the place of performance of the contract instead of the relevant obligation would
also help for cases involving e-commerce. How can under the actual regime a virtual
transaction be localized like an online banking transaction ? Technically the
obligation, resulting of a contract between a French client and a Swiss bank, of
crediting a smart card is executed on a server which can be in the United States for
example. The place of payment can neither be localized in case of use of e-money.
However, either the place of prestation can be localized in the country where the
bank is established or the place of delivery in the country where the client has his
habitual residence.
The Brussels Convention foresees a certain number of protective jurisdiction rules
as well. One of these is article 13 that allows the court of the domicile of the
consumer to judge the litigation if in the State of consumer's domicile the conclusion
of the contract was preceded by a specific invitation addressed to him or by
advertising; and the consumer took in that State the steps necessary for the
conclusion of the contract.
Unfortunately, during the Commission's public hearing in Brussels, it were surprising
how the new draft was misinterpreted by the representatives of industry who
consider that the simple fact of having a Website fulfills the new requirement. For
torts and non-contractual restitutionary obligations, the plaintiff may sue the
defendant's domicile jurisdiction or in the court of the place where the harmful event
had taken place (art.5.3). The concept of harmful event has been interpreted as
either the place where the wrongful conduct has occurred and the place where the
resulting injury happened without however including the place where the victims
claims to have suffered financial damage when the initial damage was suffered in
another Member State. The Court of the place where the wrongful conduct has been
occurred has jurisdiction to grant indemnities covering the whole prejudice beard in
all the countries while the Court of the place where a the resulting injury happened
only awards damages for the "national" prejudice.
In regard to enforcement of judgments, those rendered under the Brussels
Convention are recognized and enforceable unless :

 such recognition/enforcement is contrary to public policy;

 the defendant was not duly served and did not have the opportunity to prepare
its defense;

 the judgment is irreconcilable with a judgment given in a dispute between the

same parties in the State in which the recognition/enforcement is sought;

 if the Court of the State of origin, in order to arrive at its judgment, has
decided a preliminary question concerning the status or legal capacity of
natural persons, rights in property arising out of a matrimonial relationship,
wills or succession in a way that conflicts with a rule of the private
international law of the State in which the recognition is sought, unless the
same result would have been reached by the application of the rules of private
international law of that State;

 if the judgment is irreconcilable with an earlier judgment given in a non-

contracting State involving the same cause of action and between the same
parties, provided that this latter judgment fulfills the conditions necessary for
its recognition/enforcement in the state addressed.

2. Special jurisdiction grounds

In some cases, the court other than that of the country where the defendant is
domiciled can solve the dispute. This other court has so-called special jurisdiction
on the issue. But in these cases the Plaintiff has still a right to choose whether he
wants to sue the defendant in the court of his domicile or the other court.
2.1. The place of performance of the obligation in question
In accordance with Article 5.1 in case of breach of contractual obligations, the
defendant may be sued before the court of the state where the obligation in question
was performed. Article 5 of the Regulation governs the place of the performance of
the obligation in question. In case the sale of goods, this will be the place where the
goods were delivered or should have been delivered, in the case of the provision of
services, the place where the services were provided or should have been provided
under the contract. This solution absorbed earlier court practice on this matter. In
case of several contractual obligations, which must be performed in different
countries, the obligation in question will be a contractual obligation forming the
basis of the legal proceeding, in case of several claims involving different obligations
- the principal obligation.

Determining the place of performance will create no Internet-related problems when

the product advertised on the Internet was delivered to the customer by post. But if,
for example, you could download the product from the Internet (for example, music,
games or books), by way of entering the code, which you received after the
payment? Where would be the place of performance of the obligation, taking into
consideration that you could download the product from anywhere in the world? Or is
it going to be the place where the products were placed to the disposal of the
customer by the seller?

Commission recommendations (Hague conference on Private international law, April

2000) provide that it was best to separate contracts concluded electronically online,
but performed offline either wholly or in part, from those which, although concluded
online, are also performed entirely online. For the first, jurisdictional based on the
place of the performance remain the same.

For the second neither place of conclusion, the place of performance nor the place of
activity are relevant. There exist an opinion think that downloading could constitute
sending of a product.

2.2. The place of operation of the branch, agency, other

establishments
Article 5(5) of all documents permits a dispute arising from the operations of a
branch, agency or other establishments to be adjudicated by the courts for the place
in which the branch, agency or other establishment is situated. To establish
jurisdiction based on the location of the "branch, agency or other establishment"
required, the branch must have been operated and subject to the control of the
defendant and the dispute must have arisen out of the operations of that branch,
agency or other establishment.

Can an Internet site constitute an establishment that can serve as a basis for
jurisdiction pursuant to Article 5(5)? There exist a point of view that an Internet site
itself could constitute an establishment, it was a code of a particular country in the
address of the web-site, which could create a legitimate expectation on the side of
the customer that he is dealing with an establishment situated in a particular
country.

But Electronic Commerce Directive states that the place of establishment of a

company providing services via an Internet website is not the place at which the
technology supporting its website is located.

Therefore it could be concluded that the location of a web server would not establish
jurisdiction. The web server is a conduit of information, similar to a telephone or a
fax machine and need information input from the owner or operator of the web site
itself if it is to make that site available and useful. That information may well come
from another web server or servers. Accordingly to try to find out the precise
server(s) from which the web site derived from could be time consuming and costly.

Whether an electronic agent constitutes a "branch, agency or other establishment"

also remains to be considered. In any event, such an agent would have to be situated
in a Member State to the Regulation and any dispute would probably have to arise
from that agent's acts or omissions.

3. Jurisdiction over consumer contracts

Consumers have a special protection under the rules of the Conventions and the
Regulation. When a contract is concluded between a professional and a consumer,
consumer is regarded as a weaker party. Consumer is defined as a person who
concludes a contract for a purpose exclusive his professional activities (Article 13.1
of the Conventions, Article 15.1 of the Regulation).

These specific rules apply to contracts for the sale of goods on installment credit
terms; for a loan with installment credits, or for any other form of credit, made to
finance the sale of goods, the list of contracts is open, so it could be any other
contract (Article 15.1 of the Regulation, Article 13.1 of the Conventions). The
consumer has a right to choose a competent court. It could be either:

i) court of the defendant's domicile, or

ii) court of his own domicile (if the contract was preceded by advertising there
and consumer took in that country the steps necessary for the conclusion of
the contract)(Article 13 of the Conventions, Article 16 of the Regulation).

But the consumer can use this special protection only in case when the conclusion
of the contract was preceded by a specific invitation addressed to him or by
advertising in the state of his domicile; or the consumer took in that State the steps
necessary for the conclusion of the contract (Article 13.3 (b) of the Convention). In
case of electronic transaction, it's very difficult to apply those rules.

In the new Regulation there is new concept of activities pursued in or directed

towards a Member State (Article 15.1 (c). In a proposal for this regulation (Brussels,
14.07.1999 COM (1999) 348 final, 99/0154 (CNS), it said that this would apply in case
of consumer contracts concluded via the Internet site accessible in his country of
domicile. In case the site only advertising products (passive web-site) with no
possibility to conclude a contract through the Internet, will give no grounds for
special jurisdiction. You have to have the ability to conclude a contract through the
site accessible in your country, and then you could use a special protection.

It actually raised anxieties in business world, because it gives the customer an

opportunity to sue the company in every Member State, where you can conclude a
contract. This problem could be solved by means of placing a list of countries which
consumers could conclude a contract through the Internet. But this might not a very
'clean' method from the competition law point of view. There also proposed in a
business world to take into consideration such facts as the use of the certain
language, currency, etc. The use of the certain language may be a sign of orientation
towards the relevant market. But this is not a fact that the court would consider
such proposals.

ICC fears that proposed EU legislation would discourage companies, and particularly
small and medium-sized enterprises, from embarking on B2C ventures and also place
severe limitations on e-business in developing countries. The ICC statement said:
Many companies today simply are not willing to subject themselves to the costs of
investigation and compliance with a myriad of rules in each country, or the risk of
sanctions, unenforceable contracts, and adverse publicity in hundreds of countries,
states and provinces.

There could be also situation where a Web site is neither passive nor active, for
example, when it allows only a limited exchange of information, such as request for
an order or for a consumer to add his name in a mailing list. Only European Court of
Justice may decide in this case how to interpret a term directing such activities.

About the requirement that the consumer must have taken steps for the conclusion
of the contract in his home country. How could we, if a contract was concluded
through the Internet, find where the consumer took the relevant steps as he could
access the site all over the world?

The new Regulation's rules removed this requirement. So consumer can take
advantage of special protection in case when contract was concluded in a state
other than the consumer's domicile.

4. Prorogation of jurisdiction
The court, which has a jurisdiction to solve the dispute, can be selected by common
agreement between the Parties (Article 17 of the Conventions, Article 23 of the
Regulation). Court should be located in a Contracting State. The jurisdiction could be
different from that under Convention, except for the rules on exclusive jurisdiction
(Article 15) and those, which are applicable to consumer contracts (Article 15). This
rule is a solution to avoid all difficulties described above arising at the interpretation
of jurisdictional rules of the Convention from one side, but there is its own problem
here on the other side.

The choice of the court must be made in writing or it should be a verbal agreement
with verbal confirmation. There was no decision of the EC Court of Justice whether
an exchange of electronic messages fulfils this requirement. In Article 9 (of the
Directive on electronic commerce it's also provided that Member states shall ensure
that their legal system allows contracts to be concluded by electronic means. And
that Member states shall ensure that the legal requirements applicable to the
contractual process can't create any obstacles for the use of electronic contracts or
affect their validity.

So the legislation of the EU members should develop in direction of accepting that

electronic contracts and its condition (we are interested in agreement about
jurisdiction) are equivalent to writing contracts, which would solve this problem for
countries where the Regulation doesn't apply, because Article 23 of the Regulation
provides that any communication by electronic means which provides a durable
record of the agreement shall be equivalent to writing. Means that clauses in
contracts concluded by electronic means are valid and enforceable.

5. Arbitration
The validity of arbitration terms is usually determined under Article 2.1 of the New-
York Convention, which is applicable in more than one hundred countries. According
to this provision, only written agreements are valid prima facie. However, the
requirement of writing is interpreted "normally by the reference to the mode of
imposition of the medium rather than the reference top the medium itself".

This seems that it would be possible to have virtual arbitration clauses at the
condition that the clause is accessible and that the other party can in a clear and
comprehensive manner be informed about the clause.

The New-York Convention requires as well that the arbitration clause must be signed
which excludes click-wrap contracts. Nevertheless, it is possible to consider that
the signature is not required if the arbitration clause is considered as a reference
clause, i.e. the main contract contains a reference to another document which
stands outside of it. French case law validates this kind of clauses, and a French
author sustains the idea that even a pure verbal arbitration agreement should be
valid.

It has traditionally been considered that disputes related to consumer contracts

were not arbitrable in order to protect the consumer against abusive or fraudulent
practices by retailers and manufacturers with superior bargaining power. In this
sense, the directive 93/13 considers as unfair a term which excludes or hinders "the
consumer's right to take legal action or exercise any other legal remedy, particularly
by requiring the consumer to take disputes exclusively to arbitration not covered by
legal provisions", if the consumer has its domicile in a EU Member State. However, a
new trend arises in favorem of the acceptance of arbitration clauses in consumer
contracts.

In Hill v. Gateway 2000, an American Circuit Court ruled in a case, where consumers
purchased a computer system by mail from Gateway 2000 and were the shipping
carton contained a standard form contract with an arbitration clause, mentioning
that the buyer would be deemed to have consented to the terms of the agreement
unless the computer was returned within 30 days, that " a contract need not to be
read to be effective; people who accept take the risk that the unread terms may in
retrospect prove unwelcome. Terms inside gateway's box stand or fall together.

If they constitute the parties' contract because the Hills had an opportunity to return
the computer after reading them, then all must be enforced".

The French Supreme Court also enforced an arbitration agreement in a consumer

contract, but the facts in case were established before the directive 93/13 has been
transposed in French law. This leads me to think that for the moment consumer
contracts cannot include arbitration agreements, unless that a teleological
interpretation prevails that wants that the directive accepts arbitration clauses in
consumer contracts if they are not unfair. In other words, the arbitrator would have
to examine in detail the contract and decide if the arbitration term is unfair or not in
the context of the negotiation and the general content of the contract.

Conclusion
It is very difficult to apply traditional rules of international private law on jurisdiction
in case a transaction is concluded or performed through the Internet. The EU
legislation is now developing to satisfy the needs of this field, some specific rules
have been adopted. But there are still a number of issues to be approached. In
particular, interpretation of international private law terms when they are to be
applied in connection with electronic transactions. Business world has very serious
anxieties about very wide interpretation of such terms. The EU Court of Justice has
not had a chance yet to clarify these issues. Some more time is needed to adjust
contemporary legislation to requirements of nowadays businesses in the light of new
communicational techniques development.