In the new technological era businesses and consumers are capable of entering into international contracts anywhere in the world. Whilst this is beneficial in advancing the economy, the potential for cross-border disputes is increased significantly. There are many inherent risks associated with e-commerce, yet two key legal issues frequently arise. These are; 1) the determination as to which legal system should govern the transaction; and 2) which court should hear the dispute arising from the transaction. Because of the difficulty in determining these issues, consumers are a lot more reluctant to enter into online contracts. At present there are no specific rules that deal primarily with internet jurisdiction and much confusion is often created as to what legal rules and principles ought to apply when entering into transactions with businesses from other countries. The manner in which these two legal issues are determined in online consumer contracts will be critically evaluated in this study, with particular reference to Section 4 of the Brussels I Regulation and Article 6 of the Rome I Regulation.
Regulation of E-Commerce
Given the complex nature of e-commerce, it cannot always be regulated effectively as new circumstances that are created make it extremely difficult for established legal principles to be applied. The borderless nature of the internet is capable of disguising the origin of certain websites which makes it difficult for consumers to understand the true nature of the legal rules and principles surrounding their transaction. Consequently, there has been much confusion as to what is and what is not permissible on the internet and even when this is identifiable; problems arise when trying to locate those who are in breach of certain laws. More efficient regulation of e-commerce is therefore needed, yet this is unlikely to be achieved if a lack of harmony continues to exist. Unless the internet is regulated by one single governing body, many challenges will continue to emerge for many years to come. As suggested by Engel; an “independent legal order” should be established in cyberspace so that the problems that surround the confliction of laws can be eradicated. This would be a lot more effective than the system that is currently being adopted since consumers appear to have a lack of protection when entering into consumer contracts online. Furthermore, the laws of different jurisdictions are unable to keep up-to-date with the changing nature of the internet highlights the need for a single body of rules regulating online activity.
Many attempts to provide effective regulation in this area have been made by the international community as well as lawmakers from different jurisdictions. However, because the specific rules and regulations that deal with e-commerce will not be applicable to all online transactions, the extent to which consumers are being adequately protected is unclear. The LICRA v Yahoo case provides a clear example of the problems that are capable of arising with online transactions. Here, the issue of jurisdiction in cyberspace was addressed by the court when it was required to determine whether Yahoo ought to be subject to French law even though they were based in the United States. It was found in the case that because the actions of Yahoo directly affected the French jurisdiction French access of the site should be restricted. This was not an easy decision to make as it could not be determined whether French citizens would in fact be accessing the site. Moreover, if a French citizen accessed the site outside of France, it was said that the rules would still apply. This illustrates how the borderless nature of the internet presents a challenge to both lawmakers and those expected to obey it. In spite of these complexities, it is vital that consumers are being provided with sufficient protection when purchasing goods or services over the internet.
Conflict of Laws
Whilst parties are generally free to include an express choice of law clause, as illustrated in Vita Food Products Inc v Unus Shipping Co, exceptions will apply when it comes to the protection of weak consumers. For cases involving consumer contracts, the Brussels I Regulation will apply. This Regulation is favourable towards consumers in that it allows them to sue in their country of destination. Section 4 of the Brussels I Regulation contains three provisions under Articles 15-17 that provide a regime on jurisdiction over consumer contracts. The scope of the application is determined under Article 15 by defining what is meant by a ‘consumer contract’, whilst the rules of jurisdiction are determined under Articles 16 and 17. Section 4 is a comprehensive regime and therefore has priority over the general and special rules of jurisdiction that are contained in sections 1 and 2 of the Regulation. Therefore, if a contract is covered under section 4, these other sections will not apply. The main objective of section 4 is to provide appropriate protection to the weaker party so as to prevent unfairness. Under this section consumers can only be sued in the Member State to which they are domiciled, yet the consumer is able to initiate proceedings against the other party to the contract in the Member State to which they or the other party are domiciled.
Jurisdiction clauses are thereby limited by section 4, although they may still be permitted if they allow the consumer to bring proceedings in jurisdictions other than those permitted by section 4. These provisions were implemented in order to protect those buyers in need of protection as a result of an inequality of bargaining power. Therefore, unless a buyer can satisfy the requirements under section 4, it is unlikely that they will be provided with the relevant protection. In effect, buyers will be required to demonstrate that they are in need of protection and that they hold a weak economic position in the contract. An example of this can be seen in the Societe Bertrand v Paul Ott KG case where it was made clear by the ECJ that jurisdictional advantages contained in section 4 should only be provided to those buyers who are in need of protection as a result of their weak economic position. Furthermore, it was also demonstrated by the ECJ in Johann Gruber v Bay Wa AG that section 4 only covers private consumers not engaged in trade or professional activities and that the other party to the contract must be a legal and natural person acting in the course of trade. In effect, section 4 will not apply to those contracts that have been created; a) between private parties; b) between consumers; and c) between a private party and a consumer.
Not all agree with the process under the Brussels I Regulation, however, and have instead argued that an imbalance is created because of the fact that the protections are all one-sided. In effect, it seems as though claimants to a dispute will benefit significantly from the choice of law provisions because of the fact that they will be able to choose the law that will give them the most desirable outcome. This is a clear imbalance of the litigation process as the defendant will be at a disadvantage. Because the Brussels I Regulation has been considered insufficient in achieving harmonisation within the choice of law process, uniformity has been sought by the Rome Convention on the Law Applicable to Contractual Obligations of 1980, which was implemented in 1991 by the Contracts (Applicable Law) Act 1990. Article 3 of the Convention provides that all parties to a contract are to have a choice of the applicable law, yet this can only be recognised by the exercise of an express intention. This will prevent later conflicts arising and will ensure that the intended applicable law will be easily identified. If no express choice has been made, however, the courts will be able to imply the choice under Article 4. This will be based upon the law which has the closest connections. In effect, rather than creating unfairness, the courts are provided with the ability to decide the choice of law based upon the individual case.
Article 6 of the Rome I Regulation provides consumers with additional protection by allowing the provisions to apply to any contract regardless of its object. Previously, protection could only be sought under Article 5 for contracts that were concluded between a consumer and a professional. The object of which needed to be the supply of goods and services. Under Article 6, nonetheless, the only requirement that is needed is that the claimant must be a professional and natural person acting outside his relevant trade or profession, i.e. a consumer. The provisions under this Regulation provide a conflict of laws protection to both EU and non-EU consumers regardless as to what their habitual residences are. Furthermore, it also provides the consumer with a choice of law protection so that consumers have the ability to choose which law will apply in the event of a conflict. It is arguable whether this enables uniformity to be created but as noted by Vernooij; “Rome I is a welcome update of the choice-of-law rules and provides for more certainty than the Rome Convention, albeit sometimes at the cost of reduced flexibility.” Regardless of this, there are still many issues that have been left unresolved such as the parties’ freedom to choose non-State rules as the law applicable to their contract. Still, it is evident that a more coherent framework of European choice-of-law rules is provided under these Regulations, yet it cannot be said that these are sufficient in providing protection to all consumers undertaking e-commerce.
Complexities will, nonetheless, continue to arise within this area and it is doubtful that complete harmonisation will ever be achieved in light of the conflictions that exist between different legal rules and principles. As signified by Fawcett and Carruthers; “this does not necessarily mean that only one legal system is applicable, for different aspects of a case may be governed by different laws.” Private international law will therefore only be capable of functioning once the applicable law has been determined and although the choice of law rules will not provide a resolution to the dispute in question it will certainly be a starting point for the correct formalities to be applied. In effect, courts within the UK will be able to apply foreign laws if it is said to be in the interests of justice because the main objective of the choice of law process is to attain justice between the parties and to prevent any unfairness from being imposed. By applying English law to all situations could lead to a highly inappropriate outcome that would defeat the reasonable expectations of the parties and so it is necessary that flexibility in this area does exist. In Maharanee of Baroda two French residents had entered into a contract in France. In this instance it would have been considered highly inappropriate for the English courts to apply English law and not French law. This demonstrates how uniformity of international decisions is important regardless of where the litigation is brought.
Many issues arise when it comes to online consumer contracts, yet two of the most prevalent issues that frequently arise concern the determination as to which legal system should govern online transactions and which court should hear the dispute arising from the transaction. There is often much dispute when it comes to establishing the choice of law of a particular contract, yet attempts have been made to provide conformity to this area. It is generally the case that parties are free to include an express choice of law clause, yet international legal rules and regulations have been established so that weak consumers are being provided with appropriate protection. Section 4 of the Brussels I Regulation and Article 6 of the Rome I Regulation both seek to provide the consumer with additional protections under international law. It has been debated whether these provisions have proven effective in protecting e-commerce consumers and it seems as though conflictions are still capable of arising. However, because of the difficulty in establishing harmony within the international community, it is unlikely that the complexities within this area will ever be eradicated.
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Johann Gruber v Bay Wa AG Case C-464/01  ECR 1-439
LICRA v Yahoo No RG: 00/05308, Interim Order May 22, 2000
Maharanee of Baroda  2 QB 283
Societe Bertrand v Paul Ott KG Case 150/77  ECR 143
Vita Food Products Inc v Unus Shipping Co  AC 277