Electronic Consumer Contracts in the Conflict of Laws 9781472564894, 9781841138473

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SERIES EDITORS’ PREFACE

Studies in Private International Law is a new series of books published by Hart Publishing under the Series Editorship of Paul Beaumont and Jonathan Harris. It builds on the success of the Journal of Private International Law, which is published by the same publisher and is subject to the same editorial control. The Journal began life in 2005. Due to its success in attracting high quality articles and its rigorous double-blind refereeing system, it has quickly established itself as an essential reference point for anyone doing research on private international law. The circulation of the Journal is growing steadily and it expanded from two issues to three issues per year in 2008. The Journal has helped to bring together the global private international law community by providing a dedicated forum for publishing excellent articles in English, and by running conferences at which ideas can be exchanged and young scholars are given an opportunity to cut their teeth. Successful conferences have taken place in Aberdeen (2005), Birmingham (2007) and New York (2009). The next Journal conference will be in Milan (2011). As part of the same stable, the www.conflictoflaws.net website provides the private international law community with an innovative and readily accessible means of keeping up to date with developments in the subject. It is an interactive news and discussion portal, updated by a team of scholars from around the world. The creator and Chief Editor of the website is Martin George (University of Birmingham). The one obvious gap in our activities was a book series for the publication in English of scholarly monographs, collections of essays, or other specialised works on private international law. We are delighted that this has now been rectified with the launch of ‘Studies in Private International Law’. The series editors are keen to receive proposals for books in this series on any aspect of private international law. The emphasis is on quality. We are particularly interested in books that have relevance to readers in more than one country. This can be achieved by writing, for instance, about the Hague Conventions on Private International Law, or regional instruments on private international law (eg a monograph on a European Regulation), or by a comparative, historical, policy-oriented or theoretical approach to private international law. We are delighted that this first book in the series by Zheng Sophia Tang covers a highly important and topical subject that should appeal to readers in many countries. In dealing with electronic consumer contracts it provides a sophisticated

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examination of two EU instruments (Brussels I and Rome I) and analyses common law approaches in England and USA. It also examines the options for alternative dispute resolution in respect of such contracts. The book goes on to set out policy solutions that, if adopted, would provide for global solutions to the private international law of e-consumer contracts. It uses comparative methodology and considers the underlying policy issues and the theoretical and practical challenges posed by modern means of technology. In doing so, the book admirably meets the objectives of the series. Paul Beaumont (University of Aberdeen) Jonathan Harris (University of Birmingham)

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Private international law in consumer contracts is of considerable interest to private international law researchers. Although some authorities have carried out legislative work in this area, it is hard to tell whether a satisfactory resolution has been provided. This book examines two models of conflicts rules in e-consumer contracts, namely the protective model represented by the European conflicts rules, and the neutral model represented by English common law and some approaches adopted in the USA. It not only attempts to evaluate the present approaches, but more importantly to provide original proposals for the possible ‘enlightened unification’ of private international law applied to e-consumer contracts. The book includes four parts. Part I introduces the background and theoretical basis of the research. Part II assesses current jurisdiction rules and their functioning in e-consumer contracts. Although the book focuses on private international law issues, it provides some ideas in establishing an effective online dispute resolution system for e-consumer contracts. Part III examines the existing and reformed choice of law rules in the EU and compares them to the neutral approach in the Second Restatement in the US. It also considers alternative approaches in the context where substantive law is harmonised to a certain degree. Part IV provides proposals for proper conflicts rules. It compares the protective model and the neutral model and examines their socio-economic functioning in e-consumer contracts. It is important to recognise that both models have pros and cons, and it is unreasonable to establish a pro-consumer law at the cost of business development. The key to proper conflicts rules is ‘balance’: balance between consumer protection and business interest, balance between regulation and commercial freedom, and balance between certainty and flexibility. ‘Balance’ can be achieved in both models, though with different emphases. The book has as its specific object to explore jurisdiction and choice of law in e-consumer contracts on a comparative basis. It is not a comprehensive work on electronic law, consumer access-to-justice, or private international law and does not cover all issues of the above named areas. This book is based on my PhD thesis submitted to the University of Birmingham in summer 2007, but with a lot of expansions and updates. I am mainly indebted to my supervisor, Professor Jonathan Harris, who provided invaluable guidance throughout my doctoral research. I specifically express my gratitude to Professor Paul Beaumont whose insights added considerably to the work. I dedicate my appreciation to Professor CGJ Morse and Professor

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Nelson Enonchong, who examined my thesis and provided me with constructive suggestions. I also want to thank all the team at Hart Publishing, whose hard work makes the publication of the book possible. Finally, I wish to thank Roy for his endless support. I have endeavoured to state the law as at 31 December 2008. On 24 April 2009, the European Commission adopted a report and a green paper on the functioning of Brussels I, which do not propose fundamental changes to consumer jurisdiction but raise the issue of special jurisdiction rules for consumer collective redress, a subject not covered in the book. The ECJ gave its decision on 14 May 2009 in Case C-180/06 Ilsinger v Dreschers, which confirms judgments in Gabriel and Engler by holding Article 15(1)(c) of Brussels I does not apply to misleading prize notification unless it is followed by the conclusion of a contract where the consumer orders goods from the company. ZS Tang 12 July 2009

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TABLE OF CASES Australia Akai Pty Ltd v People’s Insurance Co Ltd (1996) 188 CLR 418.....................142, 143 Oceanic Sun-Line Special Shipping Co v Fay [1988] CLR 197 ................................................................................10, 142, 190, 274, 284 Voth v Manildra Flour Mills Pty Ltd (1990) 97 ALR 124 .............................142, 284 World Firefighters Games Brisbane v World Firefighters Games Western Australia [2001] QSC 164 .................................................................................141 Canada Amchem Products Lnc v British Columbia Workers’ Compensation Board [1993] 102 DLR (4th) 96 (SCC)..................................................................10, 141 Bank of Montereal v Snoxell (1982) 143 ELR (3d) 349 .........................................169 Braintech Inc v kostiuk [1999] WWR 133 .............................................................112 Frymer v Brettschneider (1994) 19 OR (3d) 60 (Ont CA) ....................................141 Middle East Banking Co SA v Al-Haddad (1990) 70 OR (2d) 97 ........................100 Rudder v Microsoft [1999] 2 CPR (4th) 474 (Ont Super Ct Justice 1999) ..........139 ZI Pompey Industrie v ECU-Line [2003] 1 SCR 450.....................................141, 142 ECJ Blanckaert & Willems v Trost Case 139/80 [1981] ECR 819 ...........................67, 70 Cape Snc v Indealservice Srl and Idealservice MN RE Sas v OMAI Srl Case C-541 542/99 [2001] ECR I-9049 .......................................................................26 Centros Ltd v Erhvervs-og Selskabsstyrelsen Case C-212/97 [1999] ECR I-1459...........................................................................................................70 Coreck Maritime GmbH v Handelsveen Case C-387/98 [2000] ECR I-9327.................................................................................................122, 129 Effer v Kantner Case C-38/81 [1982] ECR 825 .......................................................31 Engler v Janus Versand GmbH Case C-27/02 [2005] ECR I-481 .........30, 31, 32, 33 Estasis Salotti v RUWA Case 24/76 [1976] ECR 1831 ..........................123, 126, 289 Ets A de Bloos SPRL v Société en commandite par actions Bouyer Case 14/76 [1976] ECR 1497 ................................................................................67, 69 F Berghoefer GmbH and Co Kg v ASA SA Case C-221/84 [1985] ECR 2699.......125 Fonderie Officine Meccaniche Tacconi SpA v Heinrich Wagner Sinto Maschinenfabrik GmbH Case C-334/00 [2002] ECR I-7377 .................31, 33, 34 Frahuil v Assitalia Case C-265/02 [2004] ECR I-1543 ...........................................30

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Francesco Benincasa v Dentalkit Srl Case C-269/95 [1997] ECR I-3767 .................................................................................22-23, 24, 42, 129 Gabriel v Schlanck & Schick GmbH Case C-96/00 [2002] ECR 6367.........30, 32, 33 Galeries Segoura SPRL v Firma Rahim Bonakdarian Case 25/76 [1976] ECR 1851........................................................................................123, 125 Gruber v Bay Wa AG Case C-464/01 [2005] ECR I-439 ............................23, 24, 26 Hans-Hermann Mietz v Intership Yachting Sneek BV Case C-99/96 [1999] ECR I-2277...............................................................................................42 Jacob Handte v Traitements Case C-26/91 [1992] ECR I-3967..............................30 Kapferer v Schlank & Schick GmbH Case C-234/04 [2006] ECR 2585 ...........30, 31 Martin Peters v Zuid Nederlandse Case 34/82 [1983] ECR 987 .............................30 MSG v Les Gravires Rhenanes SARL Case C-106/95 [1997] ECR I-911 ..............129 Owusu v Jackson and others Case C-281/02 [2005] ECR I-1383..........104, 122, 191 Partenreederei ms Tilly Russ v NV Haven & Vervoerbedrijf Nova Case 71/83 [1984] ECR 2417 .....................................................................................127 Powell Duffryn plc v Wolfgang Petereit Case C-214/89 [1992] ECR I-1745.................................................................................................125, 127 Réunion européenne SA v Spliethoff’s Bevrachtingskantoor BV Case C-51/97 [1998] ECR I-6511 ................................................................................30 Sar Schotte Gmbh v Parfums Rothschild Case 218/86 [1987] ECR 4905........................................................................................................69, 78 Shearson Lehmann Hutton Inc v TVB Treuhandgesellschaft fur Vermogensverwaltung und Beteiligungen mbH Case C-89/91 [1993] ECR I-139...............................................................................26, 27, 40, 42 Somafer SA v Saar-Ferngas AG Case 33/78 [1978] ECR 2183..............67, 68, 70, 71 SPRL Acardo v SA Haviland Case 9/87 [1988] ECR 1539......................................30 Trasporti Castelletti Spedizioni Internazionali SpA v Hugo Trumpy SpA Case C-159/97 [1999] ECR I-1597............................................................129, 289 ECtHR Osman v United Kingdom (2000) 29 EHRR 245 ..................................................102 France Compagnie Generale Transatlantique v Peltier freres Cass req Mar 2 1909..........127 Rousseau v Commerzbank, Tribunal d’Instance de Niort, 1 July 1998................225 Germany Bundesgerichtshof (BGH) 26 Oct 1993 ..................................................................182 Bundesgerichtshof (BGH) 19 March 1997 .............................................................226 Bundesgerichtshof (BGH) Feb 22 2001 ..................................................................127 Oberlandesgericht, Koblenz, of 17 Sept 1993 .........................................................44 Oberlandesgericht (OLG) Dusseldorf, 9 June 1994...............................................193

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Re Jurisdiction in a Claim Based on a Prize Draw Notification (BGH(Ger)) [2007] ILPr 15......................................................................................................30 Ireland Intermetal Group Ltd & Trans-World (Steel) Ltd v Worstade Trading Ltd [1998] IL Pr 765...................................................................................................10 Japan Sei Mukoda et al v The Boeing Co Inc (1988) 31 Japanese Annual of International Law 216 ..............................................................................................................284 New Zealand Apple Computer Inc v Apple Corps Sa High Court Of New Zealand, 17 IPR 123, 19 February 1990 (Auckland) .............................................141, 143 McConnell Crane Accessories Ltd v Lim Swee Hee [1989] 1 NZLR 221 .................10 Switzerland The Commercial Court (Handelsgericht) of the Canton of Zurich of 17 Feb 2000 (cisg3.law.pace.edu/cases/000217sl.html) .....................................44 United Kingdom Adams v Cape Industries [1990] 1 Ch 433.........................................................78, 79 Adams v Lindsell [1818] 1 B & Ald 681...................................................................82 Advent Systems Ltd v Unisys Corp 925 F 2d 670 (1991 Pa) ....................................43 Agnew v Länsforsäkringsbolagens AB [2001] 1 AC 223 ..........................................33 Alfred Dunhill ltd v Diffusion Internationale de maroquinerie de Prestige SARL & Ors [2001] CLC 949 ..............................................................................33 American Motorists Insurance Co v Cellstar Corporation [2003] ILPr 370 ..........188 Amtech International v Biosafety USA [2006] EWHC 47.....................................145 Apple Corp Ltd v Apple Computer Inc [2004] ILPr 34 ............................................86 Aratra Potato Co Ltd v Egyptian Navigation Co (‘The El Amria’) [1981] Lloyd’s Rep 119, CA...................................................................................142, 143 Attock Cement Co v Romanian Bank for Foreign Trade [1989] 1 Lloyd’s Rep 572...............................................................................................................100 Bas Capital Funding v Medfinco Ltd [2004] 1 Lloyd’s Rep 652............................145 Base Metal Trading Ltd v Shamurin [2004] EWCA Civ 1316 ................................30 Benaim & Co v Debono [1924] AC 514...................................................................82 Beta Computers (Europe) Ltd v Adobe Systems (Europe) Ltd [1996] FSR 367 ..................................................................................................43, 44, 173 Boss Group v Boss France SA [1997] 1 WLR 351 ....................................................31 BP Plc v AON Ltd (No 1) [2006] 1 Lloyd’s Rep 549 .............................................145

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Brimnes [1975] QB 929............................................................................................82 Brinkibon Ltd v Stahag Stahl und Stahlwarenhandelsgesellschaft mbH [1983] 2 AC 34 ...............................................................................................82, 83 British Aerospace Plc v Dee Howard Co [1993] 1 Lloyd’s Rep 368 ...............143, 145 British and American Telegraph Co v Colson (1871) LR 6 Exch 108......................82 Carvalho v Hull, Blyth (Angola) Ltd [1979] 3 All ER 280.....................................100 Circle Freight International Ltd (T/A Mogul Air) v Medeast Gulf Exports Ltd (T/A Gulf Export) [1988] 2 Lloyd’s Rep 427 ..............................................123 Citadel Insurance Co v Atlantic Union Insurance Co SA [1982] Lloyd’s Rep 543, CA ........................................................................................................88 City-March Ltd v Neptune Specialties Ltd [1997] 1 Lloyd’s Rep 72 .....................100 Cleveland Museum of Art v Capricorn Art International SA [1990] 2 Lloyd’s Rep 166 .................................................................................................79 Coast Lines v Hudig and Veder Chartering NV [1972] 2 QB 34...........................103 Communications Ltd v Communication Telesystems International [1999] 2 All ER 33..................................................................................................126, 141 Compare Trade Indemnity v Forsakrings AB Njord [1995] 1 All ER 796 ...............99 Connelly v RTZ Co [1998] AC 854 ..........................................11, 100, 101, 102, 104 Cordoba Shipping Co v National State Bank [1984] 2 Lloyd’s Rep 91...................99 Definitely Maybe (Touring) Ltd v Marek Lieberberg Konzertagentur GmbH [2001] 2 Lloyd’s Rep 455 QBD (Comm Ct) ..........................................95 Domansa v Derin Shipping & Trading Co Inc (The Sletreal) [2001] 1 Lloyd’s Rep 362 ...........................................................................................79, 80 Donohue v Armco [2002] 1 Lloyd’s Rep 425.........................................................142 Dunlop Pneumatic Tyre v AG Cudell [1902] 1 KB 715 ..........................................79 Durbeck GmbH v Den Norske Bank ASA [2003] EWCA Civ 147 ..........................71 ED & F Man Ship Ltd v Kvaerner Gilbraltar Ltd (The ‘Rothnie’) [1996] 2 Lloyd’s Rep 206 .......................................................................................100, 145 Egon Oldendorff v Libera Co (No 1) [1995] 2 Lloyd’s Rep 64..............................189 Egon Oldendorff v Libera Co (No 2) [1996] 1 Lloyd’s Rep 380 ...........................190 Entores Ltd v Miles Far East Corporation [1955] 2 QB 327 ........................82, 83, 84 Euromarket Designs Incorporated v Peters & Anr [2001] FSR 20 ...........................53 Foster v Driscoll [1929] 1 KB 470...........................................................................169 Gan Insurance Co Ltd v Tai Ping Insurance Co Ltd [1999] ILPr 729, CA....189, 190 Gienar v Mieyer (1796) 2 Hy Bl 603 .....................................................................169 Gill and Duffus Landauer v London Export Corporation GMBH [1982] 2 Lloyd’s Rep 627 .........................................................................................81, 189 Gulf Bank KSC v Mitsubishi Heavy Industries Ltd [1994] 1 Lloyd’s Rep 323......100 Hamed el Chiaty & Co v Thomas Cook Group Ltd [1992] 2 Lloyd’s Rep 399 .......98 Harrods v Dow Jones [2003] EWHC 1162 (QB)...............................................79, 80 HIT Entertainment v Gaffney International Licensing [2007] EWHC 1282 (Ch) ...........................................................................................................145 Household Fire Insurance Co v Grant (1879) 4 Ex D 216 ......................................82 Import Export Metro v Compania Sud Americana [2003] 1 Lloyd’s Rep 405......145

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Islamic Arab Insurance Co v Saudi Egyptian American Reinsurance Co [1987] 1 Lloyd’s Rep 315 ...........................................................................100, 103 JP Morgan securities Asia Private Limited v Malaysian Newsprint Indusctries Sdn Bhd 2001 2 Lloyd’s Rep 41 .................................................................141, 143 Korner v Witkowitzer [1950] 2 KB 128....................................................................95 Lemenda Ltd v African Middle East Co [1988] QB 448 ........................................169 Lord Advocate v Huron & Erie Loan & Savings Co 1911 SC 612......................79, 80 Lubbe v Cape plc [2000] 4 All ER 268....................................................................102 Marconi Communications International Ltd v PT Indonesia Bank Ltd [2007] Lloyd’s Rep 72 .....................................................................................................81 Marubeni Hong Kong & South China Ltd v Mongolian Government [2002] 2 All ER (Comm) 873 ........................................................................................188 Mercury Communications Ltd v Communication Telesystems International [1999] 2 All ER (Comm) 33 ......................................................................141, 143 Mora Shipping Inc v Axa Corporate Solution Assurance SA [2005] EWHC 315 QBD (Comm) ...............................................................................................95 Morrison v Panic Link Ltd 1993 SLT 602, affd 1994 SLT 232 ..............................145 Oppenheimer v Louis Rosenthal and Co AG [1937] 1 All ER 23...................100, 103 OT Africa Line Ltd v Hijazy (The Kribi) [2001] 1 Lloyd’s Rep 76 .......................102 Overseas Union Insurance Ltd v Incorporated General Insurance Ltd [1992] 2 Lloyd’s Rep 439 ................................................................................................99 Pharmaceutical Society of Great Britain v Boots Cash Chemists [1953] 1 All ER 482..........................................................................................................86 Prostar Management Ltd v Twaddle 2003 SLT (Sh Ct) 11......................................22 R (Razgar) v Special Adjudicator [2004] 3 WLR 58..............................................102 R & B Customers Brokers Ltd v UDT Finance Ltd [1988] 1 All ER 847 .................26 Rakusens Ltd v BaserAmbalaj Plastik Sanayi Ticaret AS [2001] EWCA Civ 1820..........................................................................................................79, 80 Re Oriel Limited [1986] 1 WLR 180 ..................................................................79, 80 Reuben v Time [2003] EWHC 1430 (QB).........................................................79, 80 S & W Berisford Plc v New Hampshire Insurance [1990] 1 Lloyd’s Rep 454 ......145 Saab v Saudi American Bank [1998] 1 WLR 937..............................................78, 79 SAIL v Hind Metals Inc [1984] 1 Lloyd’s Rep 405 ................................................189 Sinochem International Oil (London) Ltd v Mobil Sales and Supply Corp [2000] 1 Lloyd’s Rep 670...................................................................................143 St Albans City and District Council v International Computers Ltd [1995] FSR 686, affd in part [1997] FSR 251..................................43, 45, 93, 197 Standard Bank London Ltd v Dimitrios and Styliani Apostolakis [2000] ILPr 766................................................................................................................25 Standard Bank London Ltd v Apostolakis [2001] Lloyd’s Rep 240 ......................130 South India Shipping Corp v Export-Import Bank of Korea [1985] 2 All ER 219..........................................................................................................79 Spiliada Maritime Co v Cansulex Ltd [1987] AC 460 .............10, 96–7, 99, 104, 141 The Eleftheria [1970] P 94........................................................................11, 142, 144

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The Polessk and The Akademik Iosif Orbeli, [1996] 2 Lloyd’s Rep 40 ....................98 The Society of Lloyd’s v Peter Everett White (No 2) [2002] I L Pr 11....................143 Trendtex Trading Co v Credit Suisse [1980] 3 All ER 721 ..............................97, 274 Tzortzis v Monark Line A/B [1968] 1 WLR 406....................................................190 USA 24 Hour Fitness v Superior Court 66 Cal App 4th (Cal App 1 Dist 1998).............238 AAR Internatinal v Nimelias Enterprises SA 250 F 3d 510 (7th Cir 2001)...........140 Advent Systems v Unisys Co 925 F 2d 670 (3d Cir 1991)........................................43 Affinity Internet v Consol Credit Counseling 920 So 2d 1286 (Fla Dist Ct App 2006)..........................................................................................................137 Armendariz v Foundation Health Psychcare Services 24 Cal 4th 83 (Cal 2000)...........................................................................................................239 Arthur Young v Leong 383 NYS2d 618 (NYAD 1976) affd 40 NY2d 984 (NY 1976)...........................................................................................................140 Asahi Metal Industry v Superior Court of California 480 US 102 (1987) .............109 Bancroft & Masters v Augusta National 223 F 3d 1082 (9th Cir 2000)........114, 117 Banek v Yogurt Ventures 6 F 3d 357 (6th Cir 1993)..............................................246 Bank Brussels Lambert v Fiddler Gonzalez & Rodriguez 171 F 3d 779 (2d Cir 1999)......................................................................................................107 Bensusan Restaurant v King 937 F Supp 295 (SDNY 1996) .................................111 Best Van Lines v Walker 490 F 3d 239 (2nd Cir 2007) .........................................112 Bickett v Buffalo Bills 472 NYS 2d 245 (NY Sup Ct 1983) ...................................137 BMC Indus v Barth Indus 160 F 3d 1322 (11th Cir 1996)......................................44 Bombliss v Cornelsen 824 NE 2d 1175 (App Ct III 3rd Dist 2005) ......................112 Bonny v Society of Lloyd’s 3 F 3d 156 (7th Cir 1993) ............................................140 Boschetto v Hansing WL 1980383 (ND Cal 2006) affd 539 F Supp 3d 1011 (CA(9)Cal 2008) ................................................................................................115 Brown v AST Sport Science WL 32345935 (ED Pa 2002) .....................................114 Brown v Kerkhoff 504 F Supp 2d 464 (SD Iowa 2007) .........................................112 Building Serv Employees International Union Local 262 v Gazzam 339 US 532 (1950) ....................................................................................................244 Burger King v Rudzewicz 471 US 462 (1985) ........................................................116 Burke v Goodman 114 SW 3d 276 (Mo App E D 2003) .......................................138 Burleson v Toback 391 F Supp 2d 401 (MDNC 2005)..........................................112 Bush v National School Studios 139 Wis 2d 635 (Wis 1987) ................................243 Cal-State Business Products & Services v Ricoh 12 Cal App 4th 1666 (Cal App 3 Dist 1993)........................................................................................140 Calix-Chacon v Global International Marine 493 F3d 507 (CA5(La) (2007)......140 Campbell v General Dynamics Government Systems 407 F 3d 546 (1st Cir 2005 ) ...................................................................................................137 Carideo v Dell 520 FSupp2d 1241 (WDWash 2007) ....................................155, 238 Cario v Cross-media Services WL 756610 (ND Cal 2005) ....................................136

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Carnival Cruise Lines v Shute 499 US 585 (1991).........................................134, 140 Caspi v Microsoft Network LLC 732 A 2d 528 (NJ Super Ct App Div 1999) ......137 Champagnie v WE O’Neil Constr Co 77 Ill App 3d 136 (1st Dist 1979)..............245 Citigroup Inc v City Holding Co 97 F Supp 2d 549 (SDNY 2000) .......................109 Clapper v Freeman Marine Equipment WL 33418414 (Mich App 2000) ............111 Coastal Steel v Tilghman Wheelabrator 709 F 2d 190 (3d Cir 1983), cert denied 464 US 938......................................................................................140 Coastal Video Communications v Staywell 59 F Supp 2d 562 (ED Va 1999)......109 Colonial Leasing Co of New England v Pugh Brothers Garage 735 F 2d 380 (9th Cir 1984) ....................................................................................................138 Colonial Life Insurance Company of America v Electronic Data Systems 817 F Supp 235 (DNH 1993) ..............................................................................43 Communications Groups v Warner Communications 527 NYS2d 341 (NY Misc 1988)....................................................................................................43 Consul Ltd v Solide Enterprises 802 F 2d 1143 (9th Cir 1986)..............................242 Craig v Brown & Root 84 Cal App 4th 416 (Cal App 2 Dist 2000) ......................238 Dagesse v Plant Hotel NV 113 F Supp 2d 211 (DNH 2000) ................................116 Data Processing Services v L H Smith Oil Co 492 NE 2d 314 (Ct App IN 1986) ...............................................................................................................43 Dealer Management Systems v Design Automative Group 355 Ill App 3d 416 (Ill App 2 Dist 2005) ...............................................................................43 Demitropoulos v Bank One Milwaukee 915 F Supp 1399 (ND III 1996) ............245 Digital Control v Boretronics 161 F Supp 2d 1183 (W D Wash 2001) .................111 Digital Equipment Corporation v AltaVista Technology 960 F Supp 456 (D Mass 1997)......................................................................................................13 Discover Bank v Superior Court 134 Cal App 4th 886 (Cal App 2 Dist 2005) ...........................................................................................155, 247, 248 Druyan v Jagger 508 F Supp 2d 228 (SDNY 2007) .......................................136, 137 Duskin v Pennsylvania-Central Airlines Co 167 F 2d 727 (6th Cir 1948) ............242 Dynetech Co v Leonard Fitness 523 F Supp 2d 1344 (MD Fla 2007)....................114 E-Data Copr v Micropatent Copr 989 F Supp 173 (D Conn 1997)......................111 Eurodynamics Systems Plc v General Automation Ltd (6 Sept 1988, QBD, unreported) ...............................................................................................45 Fireman’s Fund Ins v National Bank of Cooperative 103 F 3d 888 (9th Cir 1996).....................................................................................................107 Flores v Transamerica HomeFirst 93 Cal App 4th 846 (Cal App 1 Dist 2001) ....238 Forney Industries v Andre 246 F Supp 333 (DN Dak 1965) .................................243 Fricke v Isbrandtsen Co 151 F Supp 465 (DCNY 1957)................................185, 238 Gay v CreditInform 511 F3d 369 (CA 3 2007) ..............................................243, 248 Geotech Energy Co v Gulf States Telecommunications and information Systems 788 SW 2d 386 (Tex App 1990) ............................................................43 Haisten v Grass Valley Medical Reimbursement 784 F 2d 1392 (9th Cir 1986) ....................................................................................................117 Hanson v Denckla 357 US 235 (1958) ...................................................................109

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Harden v American Airlines 178 FRD 583 (MD Ala 1998) ..................................140 Helicopteros Nacionales de Colombia SA 466 US 408 (1984) ...............................108 Henriksen v Younglove 540 NW2d 254 (Iowa 1995) ............................................236 Heroes v Heroes Found 958 F Supp 1(DDC 1996)................................................110 Hy CITE Co v Badbusinessbureau.Com 297 F Supp 2d 1154 (WD Wis 2004)....114 Inset System v Instruction Set 937 F Supp 161 (D Conn 1996) ............................110 Imo Industries v Kiekert AG 155 F 3d 254 (3d Cir 1998) .....................................117 Instabook Co v Instantpublisher.com 469 F Supp 2d 1120 (MD Fla 2006)............................................................................................114, 115 Instructional Systems v Computer Corriculum Corporation 614 A 2d 124 (NJ 1992)............................................................................................................236 International Shoe Co v Washington 326 US 310 (1945)......................................108 Investors Guar Fund v Compass Bank 779 Sa 2d 185 (Ala 2000) ........................117 Jones v Genus Credit Managemnt 353 FSupp2d 598 (D Md 2005)......................238 Kaltwasser v Cingular Wireless LLC 543 FSupp2d 1124 (NDCal 2008) ......155, 247 Karstetter v Voss 184 SW 3d 396 (Tex Ct App 2006) ...........................................115 Kelly Service v Marzullo WL 4941612, 10 (ED Mich 2008)..................................245 Klussman v Cross Country Bank 123 Cal App 4th 1283 (Cal App 1 Dist 2005) ...................................................................................................246, 247 Knierim v Siemens 2008 WL 906244 (DNJ 2008).................................................140 Lee v New Seaescape Cruise 1998 WL 730873 (ND Cal 1998) .............................140 Lowery v Zorn 243 Ala 285 (Ala 1942) ..................................................................246 M/S Bremen v Zapata Off-Shore 407 US 1 (1972) ........................140, 236, 275, 291 Mar-Eco Inc v T & R Sons Towing and Recovery Inc 837 A 2d 512 (Pa Super 2003) .................................................................................................109 Maritz v CyberGold 947 F Supp 1328 (ED Mo 1996) ..........................................110 Massengale v Transitron Electronic Corporation 385 F d 83 (1st Cir 1967) .........243 Mercier v Sheraton International 981 F 2d 1345 (1st Cir 1992) ..........................141 McGlinchy v Shell Chem 845 F d 802 (9th Cir 1988) ............................................117 McGuire v Lavoie WL 23174753 (ND Tex 2003)..........................................114, 116 Meinerz v Treybig 245 So 2d 557 (La App 3d Cir) writ denied, 247 So 2d 395 (La 1971) ...........................................................................................245 Mellon First United Leasing v Hansen 705 NE 2d 121 (Ill App Ct 1998).............137 Metcalf v Lawson 802 A 2d 1221 (NH 2002) ................................................115, 116 Micro-Managers Inc v Gregory 147 Wis 2d 500 (Wis Ct App 1988) ....................43 Midway Home Entertainment Inc v Atwood Richards 1998 WL 774123 (ND Ill 1998)......................................................................................................245 Mieczkowski v Masco Corp 997 F Supp 782 (ED Texas 1998) .............................108 Millennium Enterprises v Millennium Music 33 F Supp 2d 907 (D Or 1999)........................................................................................108, 111, 116 Morris Material Handling v KCI Konecranes PLC 334 F Supp 2d 1118 (ED Wis 2004) ...................................................................................................112 Multi-Tech Systems v VocalTec Communications 122 F Supp 2d 1046 (D Minn 2000) ..................................................................................................112

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Nedlloyd Lines v Superior Court 3 Cal 4th 459 (Cal 1992) ...........................241, 246 New Moon Shipping Co v Man B & W Diesel AG 121 F 3d 24 (2d Cir 1997) .....123 Nordyne v Int’l Controls & Measurements Co 262 F 3d 843 (8th Cir 2001) .........123 Northwestern National Insurance v Donovan 916 F2d 372 (7th Cir 1990)..........137 Nowland v Hill-Rom 2008 WL 1909217 (D Or 2008) .........................................140 Oliver v Third Wave Technologies WL 2814598 (DN J 2007) ..............................140 Oestreicher v Alienware 502 FSupp2d 1061 (NDCal 2007)..........................155, 247 Percle v SFGL Foods 356 F Supp 2d 629 (MD La 2004) .......................................112 Perkins v Benguet Consolidâtes Mining Co 342 US 437 (1952) ............................108 Pollstar v Gigamania Ltd 170 F Supp 2d 974 (ED Cal 2000) .......................240, 288 Potomac Leasing Co v Chuck’s Pub 156 Ill App 3d 755 (1987).............................245 ProCV v Zeidenberg 86 F 3d 1447 (7th Cir 1996)..................................................136 Quality Improvement Consultants v Williams WL 543393 (D Minn 2003).........114 Re RealNetworks WL 631341 (ND Ill 2000)..................................................287, 290 Register.com v Verio 126 F Supp 2d 238 (SDNY 2000) ........................................136 Remick v Manfredy 238 F 3d 248 (CA3 (Pa) 2001) .............................................118 Resolution Trust Corp v First of America Bank 796 F Supp 1333 (CD Cal 1992) ...................................................................................................117 Revell v Lidov 317 F 3d 467 (5th Cir 2002) ............................................................112 Reynolds-Naughton v Norwegian Cruise Line 386 F3d 1 (CA1(Mass) 2004) ......140 Richter v Erwin WL 562147 (D Minn 2006) .........................................................114 Roberts & Schaefer Co v Merit Contracting 99 F 3d 248 (7th Cir 1996)...............135 Roth v Garcia Marquez 942 F 2d 617 (CA9(Cal) 1991) ......................................117 Rothschild Berry Far v Serendipity Group LLC 84 F Supp 2d 904 (SD Ohio 1999)..................................................................................................111 Royal Bed & Spring v Famossul Industria e Comercio de Moveis 906 F 2d 45 (1st Cir 1990) ........................................................................141, 145, 146 RRX Indus v Lab-Con 772 F 2d 543 (9th Cir 1985)................................................44 Sayeedi v Walser 835 NYS 2d 840 (NY City Civ Ct 2007)............................115, 116 Scheifley v Capitol One Bank No CV 03-2801RBL (WD Wash 2004) .................245 Schwarzenegger v Fred 374 F 3d 797 (CA9 (Cal) 2004) .......................................117 Scott v Bell Atl Co 726 NYS 2d 60 (App Div 2001) ..............................................290 Security Watch v Sentinel Systems 176 F3d 369 (6th Cir 1999)............................291 Seldon v Direct Response Technologies WL 691222 (SDNY 2004)........................109 SG Cowen Securities Co v Messih 00 Civ 3228 (HB) (SDNY 2000) .....................243 Shamsuddin v Vitamine Research Products 346 F Supp 2d 804 (D Md 2004).....115 Shaw v North American Title 876 P 2d 1291 (Hawai’i 1994) ..............................118 Siegelman v Cunard White Star Ltd 221 F 2d 189 (2d Cir 1955) .................185, 238 Smith, Valentino & Smith v Superior Court 551 P 2d 1206 (Cal 1976) ..............140 Snowney v Harrah’s Entertainment 35 Cal 4th 1054 (Cal 2005)..........................118 Specht v Netscape Communications Corp 150 F Supp 2d 585 (SDNY 2001) ......................................................136, 137, 139, 233, 234, 235, 239 Specht v Netscape Communications Corp 306 F 3d 17 (2d Cir 2002) .....................................................................136, 137, 139, 156, 288

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Staff Network v Pietropaolo 764 A 2d 905 (NH 2000) ..........................................107 Sun Trust Bank v Sun International Hotels 184 F Supp 2d 1246 (SD Florida 2001) ..............................................................................................140 Swain v Auto Services 128 S W 3d 103 (Mo App ED 2003) .................................138 Szetela v Discover Bank 97 Cal App 4th 1094 (Cal Ct App 4th Dist 2002) .......................................................................................238, 239, 245–6 Tandy Computer Leasing v Terina’s Pizza 784 P 2d 7 (Nev 1989) .......................137 Telco Communications v An Apple a Day 977 F Supp 404 (ED Va 1997) ..........110 Thomas v Guardsmark 381 F3d 701 (7 Cir 2004).................................................234 Thompson v Handa-Lopez 998 F Supp 738 (WD Tex 1998)................................114 Ticketmaster v Tickets.Com WL 21406289 (CD Cal 2003)...........................136, 137 TK Power v Textron 433 F Supp 2d 1058 (ND Cal 2006) .....................................43 Toys ‘R’ Us Inc v Step Two SA 318 F 3d 446 (3d Cir 2003) ..................................112 Twin Civy Pipe Line Co v Harding Glass Co 283 US 353 (1931)..........................245 United Cutlery Co v NFZ 2003 US Dist LEXIS 21664 (D Md 2003) ...........115, 116 Wachter Management Co v DEXTER & CHANEY 2006 WL 3040618 (Kan 2006) ...........................................................................................................43 Ware Else and Ware Enterprises v Susan Ofstein 856 So 2d 1079 (Fla App 5 Dist 2003) ........................................................................................140 Warfield v Gardner 346 F Supp 2d 1033 (D Ariz 2004) .......................................118 Waterfront Properties v Xerox Connect WL 266581 (WDNC 2006) .....................44 WebZero v ClickVU WL 1734702 (CD Cal 2008).................................................112 Wilson v Sawyer 106 So 2d 831 (La Ct App 1958)................................................249 Winfield Collection v McCauley 105 F Supp 2d 746 (ED Mich 2000)..........112, 115 World-Wide Volkswagen Corp v Woodson 444 US 286 (1980) ............................110 Young v Mobil Oil Co 85 Or App 64 (Oregon 1987)............................................236 Zippo Manufacturing Company v Zippo Dot Com Inc 952 F Supp 1119 (District Court Pennsylvania 1997)......................................................56, 111–14

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TABLE OF LEGISLATION Australia Electronic Transaction Act 1999 .............................................................................85 Jurisdiction of Courts (Cross-vesting) Act 1987..................................................141 Austria Federal Act governing the Acquisition of Time Share Estate in Immovable Property, Federal Law Gazette I no 32/1997 ....................................................225 Canada Civil Code of Quebec, SQ 1991, c 64 ...............................................7, 170, 194, 284 China Contract Law of the People’s Republic of China of 2001 ............................125, 231 General Principle of the Civil Law of the People’s Republic of China 1987 .........................................................................................................169 European Community Directive Directive 77/388/EEC on the harmonization of the laws of the Member States relating to turnoever taxes—Common system of value added tax: uniform basis of assessment, [1977] OJ L 145/1................................................44 Directive 84/450/EC of 10 September 1984 relating to the approximations of laws, regulations and administrative provisions of the Member States concerning misleading advertisements, [1984] OJ L250.................................253 Directive 85/577/EEC of 20 December 1985 to protect the consumer in respect of contracts negotiated away from business premises, [1985] OJ L 372/31 ................................................................................................251, 253 Directives 85/611/EEC and 93/6/EEC and Directive 2000/12/EC of the European Parliament and of the Council and repealing Council Directive 93/22/EEC (MiFID), [2004] OJ L 145/1 ...........................................................227 Directive 87/102/EEC of 22 December 1986 for the approximation of the laws, regulations and administrative provisions of the Member States concerning consumer credit [1987] OJ L 42/48 amended by Council Directive 90/88/EEC of 22 February 1990 [1990] OJ L 61/14 and Directive 98/7/EC [1998] OJ L 101/17..............................................................227

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Eleventh Council Directive 89/666/EEC of 21 December 1989 concerning disclosure requirements in respect of branches opened in a Member State by certain types of company governed by the law of another State, [1989] OJ L 395/36 ........................................................................................................227 Directive 90/314/EEC of 13 June 1990 on package travel, package holidays and package tours, [1990]OJ L 158/59 .............................................219, 221, 222 Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts (Unfair Contract Terms Directive), [1993] OJ L95/29.....................26, 129, 139, 146, 156, 157, 169, 192, 199, 251, 253, 254, Directive 94/47/EC of the European Parliament and the Council of 26 October 1994 on the protection of purchasers in respect of certain aspects of contracts relating to the purchase of the right to use immovable properties on a timeshare basis, [1994] OJ 280/83 ..........................................253 Directive 97/55/EC of 6 October 1997 amending Directive 84/450/EEC concerning misleading advertising so as to include comparative advertising, [1997] OJ L 290 .............................................................................253 Directive 97/7/EC of 20 May 1997 on the protection of consumers in respect of distance contracts, [1997] OJ L 144/19.......................21, 26, 169, 199, 218, 251, 253, 254, 256, 257 Directive 98/6/EC of 16 Feb 1998 on consumer protection in the indication of the prices of products offered to consumers, [1998] OJ L 80/27................253 Directive 99/44/EC of 25 May 1999 on certain aspects of the sale of consumer goods and associated guarantees, [1999] OJ L 171/12 .....22, 199, 253 Directive 99/93/EC of the European Parliament and of the Council of 13 December 1999 on a Community framework for electronic signatures (Electronic Signatures Directive) [2000] OJ 13/12 ..........................................127 Directive 2000/31/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 (E-Commerce Directive) [2000] OJ L178/1 ........................................15, 28, 29, 68, 69, 83, 132, 150, 151, 186, 193, 193, 195, 253 Directive 2002/65/EC of 23 September 2002 concerning the distance marketing of consumer financial services and amending Council Directive 90/619/EEC and Directives 97/7/EC and 98/27/EC, [2002] OJ L 271/16 ......................................................................................21, 253 Directive 2004/39/EC of 21 April 2004 on markets in financial instruments amending Council [2004] OJ L 145/1 ..............................................................227 Directive 2005/29/EC of the European Parliament and of the Council of 11 May 2005 concerning unfair business-to-consumer commercial practices in the internal market and amending Council Directive 84/450/EEC, Directives 97/7/EC, 98/27/EC and 2002/65/EC of the European Parliament and of the Council and Regulation (EC) No 2006/2004 of the European Parliament and of the Council (Unfair Commercial Practices Directive), [2005] OJ L 149/22 ..............................21, 253

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Directive 2007/64/EC of 13 November 2007 on payment services in the internal market amending Directives 97/7/EC, 2002/65/EC, 2005/60/EC and 2006/48/EC and repealing Directive 97/5/EC Text with EEA relevance, [2007] OJ L 319/1 ..............................................................................................253 Directive 2008/52/EC of 21 May 2008 on certain aspects of mediation in civil and commercial matters, [2008] OJ L 136/3 ............................................153 Regulations Regulation (EC) No 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters, [2001] OJ L12/1 (Brussels I Regulation)..................7, 8, 9, 15, 17, 18, 19, 21, 25, 27, 30, 31, 39, 40, 41, 52, 58, 59, 65, 66, 68, 7, 74, 75, 78,79, 80, 88, 91, 100, 108, 109, 119, 121, 122, 123, 124, 125, 129, 130, 132, 134, 146, 174, 182, 183, 190, 191, 192, 205, 206, 208, 212, 214, 215, 216, 229, 271, 273, 274, 276, 277, 283, 284, 289 Regulation (EC) No 861/2007 of the European Parliament and of the Council of 11 July 2007 establishing a European Small Claims Procedure, [2007]OJ L 199/1 .........................................................................................12, 150 Regulation (EC) No 864/2007 of 11 July 2007 on the law applicable to noncontractual obligations (Rome II) [2007] OJ L 199/40 ..........31, 33, 34, 57, 212, Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations (Rome I), [2008] OJ L 117/6 ..................7, 8, 9, 17, 19, 21, 22, 23, 25, 27, 30, 31, 33, 34, 41, 71, 89, 170, 173, 174, 182, 183, 185, 188, 190, 191, 198, 200, 203, 205-230, 242, 254, 255, 259, 271–276, 278, 285, 293, Conventions Convention of 1968 on jurisdiction and the enforcement of judgments in civil and commercial matters (Brussels Convention), [1972] OJ L 299/32...........................................6, 7, 9, 31, 32, 34, 35, 39, 42, 57, 159, 161 Convention on Jurisdiction and the enforcement of judgments in civil and commercial matters of 1988 (Lugano Convention), [1988] OJ L319/9 ...........................................................................................................191 Convention on the law applicable to contractual obligations of 1980 (Rome Convention), [1980] OJ L 266/1....................5, 7, 8, 9, 15, 17, 19, 21, 22, 25, 27, 30, 34, 53, 55, 57, 89, 90, 91, 99, 169–204, 205–209, 211–214, 216, 219, 221, 222, 225, 226, 229, 230, 232, 254, 256, 259, 271–278, 288, Japan Japanese Law on the Applicable of Laws of 1898 (amended by Law No. 78 of 2006) ..................................................................................................169

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Korea Korean Private International Law of 2001 ...............................................................7 Malta Malta Electronic Commerce Act 2001....................................................................83 Italy Italian Civil Code 1996 ..........................................................................................127 Switzerland Swiss Federal Code on Private International Law of 1987.........................8, 21, 208 USA Uniform Commercial Code of the United States.......................7, 26, 138, 242, 249 Fair Credit Billing Act, 15 USC (1994) .................................................................157 UK Civil Jurisdiction and Judgments Act 1982 (c 27)....................................................6 Civil Jurisdiction and Judgments Order 2001........................................................53 Civil Procedure Rules (CPR) ..........................................9, 77, 81, 87, 88, 90, 91, 95, 96, 99, 139, 142, 145, 181, 274, Companies Act 1985 (c 6) .......................................................................................78 Contracts (Applicable Law) Act 1990 (c 36) ........................................7, 34, 89, 232 Electronic Commerce (EC Directive) Regulations 2002 ............................195, 196, Electronic Signatures Regulations 2002................................................................127 Fair Trading Act 1973 (c 41) ..................................................................................22 Unfair Contract Terms Act 1977 (c 50)..................................................22, 195, 197 Unfair Terms in Consumer Contracts Regulations 1999 ....................129, 196, 199 Other International Conventions Athens Convention relating to the Carriage of Passengers and their Luggage by Sea (PAL) of 1974 ..............................................................................................220 Berne Convention concerning International Carriage by Rail (COTIF) of 1980 ................................................................................................................220 Hague Convention of 15 June 1955 on the Law Applicable to International Sales of Goods .................................................................8, 9, 30, 42, 43, 169, 231, Hague Convention of 22 December 1986 on the Law Applicable to International Sales of Goods ............................8, 15, 21, 25, 30, 42, 43, 169, 186, Hague Convention of 25 November 1965 on the Choice of Court ....................138

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Hague Convention of 30 June 2005 on Choice of Court Agreements ...................................8, 17, 21, 18, 121, 123, 124, 127, 129, 284, 288 Hague Draft Convention of 1980 on the Law Applicable to Certain Consumer Sales .................................................................................................7, 21, 188, 194, Inter-American Convention of 1994 on the Law Applicable to International Contracts ......................................................................................................8, 9, 30 Inter-American Convention of 24 May 1984 on Jurisdiction in the International Sphere for the Extraterritorial Validity of Foreign Judgments (La Paz Convention).......................................................................138 United Nations Convention of 2005 on the Use of Electronic Communications in International Contracts ....................................................17 Montreal Convention of 1999 for the Unification of Certain Rules for International Carriage .......................................................................................220 United Nation Convention of 1980 on Contracts for the International Sale of Goods.........................................................................25, 30, 42, 43, 44, 45, United Nations Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention)......................................288 Warsaw Convention of 1929 for the Unification of Certain Rules Relating to International Carriage by Air ............................................................................220

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1 Electronic Consumer Contracts in Private International Law I. Introduction The protection of consumers in a contractual relationship has not become a specific private international law concern until very recently. It is partially because of the neutral nature of traditional private international law, and partially because of the infrequency with which consumers enter into international contracts. None of these, however, can be justified in modern international commerce. On one hand, traditional private international law gives little consideration to the substantial power balance or the material justice between the parties, and provides no protection to the party characterised by the weaker bargaining and litigation power.1 The parties have freedom to determine private international law issues under the economic liberalism, and it has been argued that it is not the business of private international law to consider whether the parties have made a fair bargain.2 This traditional role of private international law proves inappropriate in the contemporary world, where private international law is no longer a pure technical exercise regardless of the outcome and the substantive interest of each case, but a living law with social functions to provide degrees of material justice to the parties.3 On the other hand, consumers traditionally were very infrequently involved in international transactions, when consumer protection was regarded as a domestic problem.4 With the improvement in transportation and transport 1 For the history of private international law, see generally, J Fawcett and J Carruthers, Cheshire, North & Fawcett: Private International Law, 14th edn (Oxford, OUP, 2008) 19–37; A Anton and P Beaumont, Private International Law: A Treatise From The Standpoint Of Scots Law, 2nd edn (Edinburgh, W & Green, 1990) 18–42; S Symeonides, ‘American Choice of Law at the Dawn of the 21st Century’ (2001) 37 Willamette Law Review 1; A von Mehren, ‘Drafting a Convention on International Jurisdiction and the Effects of Foreign Judgments Acceptable World-wide: Can the Hague Conference Project Succeed?’ (2001) 49 AJCL 191, 194–5. 2 See the discussion in T Hartley, ‘Consumer Protection Provisions in the EEC Convention’ in P North (ed), Contract Conflicts (Amsterdam, North-Holland Publishing, 1982) 111; P North, ‘Reform, But Not Revolution’ (1990) 220 Recueil Des Cours 1, 203. 3 Symeonides, American Choice of Law, 61–70; North, 220 Recueil Des Cours 1, 203; J Sauveplanne, ‘Consumer Protection in Private International Law’ (1985) 32 Netherlands International Law Review 100, 102–3. 4 S Mitchell, ‘Cross Border Disputes: To Sue or Not To Sue’ (1999) 9 Consumer Policy Review 97; JP Nehf, ‘Bordless Trade and the Consumer Interest’ (1999) 38 Columbia Journal of Transnational Law 457.

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foundation, innovation in technology and communication, and the development of international and regional markets, it is more and more usual for consumers and businesses in different countries to contract with each other. The development of information communication technology in particular creates a borderless ‘cybermarket’, which enables consumers to have easy, convenient, and low-cost contact with businesses internationally. Frequent online business-to-consumer transactions challenge the traditional private international law, rendering it an obstacle which discourages the confidence of both parties and prevents the further development of consumer-oriented e-commerce. Consumer protection is no longer merely a domestic concern, but becoming an issue in private international law, especially in the age of electronic commerce.5 It is important to establish appropriate private international law rules for e-consumer contracts, which should provide sufficient protection for consumers and encourage development of electronic business-to-consumer commerce.

II. Consumer Contracts and Private International Law A. A Brief History of Consumer Contracts in Private International Law The history of weak party protection in private international law is short and straightforward compared to the complex, sophisticated and lengthy history of private international law. Ever since its origin private international law, especially choice of law, has presented indifference to substantive justice.6 The classic methodology of the conflict of laws generally depends on the value-free connecting factors and the technical mechanism to localise the legal relationship between the parties in the territory of a particular country, regardless of the interests of the parties, of the power balance between the parties, or of the substantive value of the applicable law. Since the 1930s the mechanical conflict of law rules have been criticised by some distinguished scholars in the USA,7 and the trend continued 5

J Hill, Cross Border Consumer Contracts (Oxford, OUP, 2008) 6–7. L Gillies, ‘Adapting International Private Law Rules For Electronic Consumer Contracts’ in CEF Richett and T Telfer (ed), International Perspectives on Consumers’ Access to Justice (Cambridge, Cambridge University Press, 2003) 359 (‘The role of international private law is often regarded as being “derived from a desire to do justice” for parties involved in cross-border disputes.’); M Baer and N Rafferty, Private International Law in Common Law Canada (Toronto, Emond Montgomery Publication, 2003) 506–7; Fawcett and Carruthers, Cheshire, North &Fawcett, 19–37; Anton and Beaumont, Private International Law, 18–42; A Giardina, ‘The Impact of the EEC Convention on the Italian System of Conflict of Laws’ in North (ed), Contract Conflicts (Oxford, North-Holland Publishing, 1982) 242–3; also see T Hartley’s comments in party autonomy principle, T Hartley, Consumer Protection, 111. 7 eg W Cook, ‘The Logical and Legal Bases of the Conflict of Laws’ (1924) 33 Yale Law Journal 457; D Cavers, ‘A Critique of the Choice of Law Problem’ (1933) 47 Harvard Law Review 173. For a general 6

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and dominated in the USA from the 1950s, when promoting the substantive policies and justice in choice of law became the ultimate goal.8 The conflict of laws revolution has fundamentally changed the traditional conflicts theories, but there was no specific consideration to take on consumer protection as a distinct issue. Although a similar theoretical revolution did not happen in Europe, the continental European countries have taken the lead role in bringing the consumer protection issue into private international law. There was no clear event in Europe which marked the abandoning of traditional mechanical conflicts rules. Some commentators argue the European development would show the indirect influence of the American conflicts revolution.9 However, the European development in the protective conflicts rules originated from an area of jurisdiction which was largely overlooked in the American revolution. European conflicts lawyers in the twentieth century paid more attention to the requirement of social policy and the social value of the proper functioning of private international law, instead of the theoretical foundation to reform the conflict of laws. As a result, European conflicts rules developed gradually and modestly, coinciding with the development of the social policy. The European contribution in this area of law was due to the growth of the consumer society and the post-war development of the protection of human rights.10 With the development of the consumer market and frequent transactions of consumer products, consumers became a real and active party in commerce and in law; with the thought of human rights protection, the law started to pay special attention to protect the rights of the weaker party. The direct result of the post-war development was the rise of consumer policy around 1960 in western Europe,11 which led to the boom of consumer law. A series of important domestic legislation was established to protect consumers. This tendency gradually separated consumer law from other areas of commercial law and made consumer law a different division, which created the preliminary interest in having distinct private international law rules for this subject.12 Before the EEC adopted the first European jurisdiction and judgment convention in 1968, some Contracting States had already established piecemeal protective

introduction, see S Symeonides, The American Choice-of-Law Revolution: Past, Present and Future (Leidon/Boston, Martinus Nijhoff Publishers, 2006) 11–13. 8 E Vitta, ‘The Impact in Europe of the American “Conflicts Revolution”’ (1982) 30 AJCL 1; Symeonides, The American Choice of Law Revolution, 13–35. 9 eg Vitta, The Impact in Europe, 9–12. 10 Hartley, (n 2) 112. 11 eg, in the UK, the Board of Trade published an initial review on consumer protection in 1959; D Cousins, ‘Consumer Affairs; Part, Present and Future, Consumer Affairs’, Victoria 2007 Lecture, Mar 2007, 4. 12 For consumer law in the EU and the development of the conflict of laws, see G Calliess, ‘European Contract Law: Substantive and International—A comment on the inherent interrelation of the Action Plan on European Contract Law’ COM (2003) 68 final and the ‘Green Paper on the Modernisation of the 1980 Rome Convention’ COM (2002) 654 final’, Apr 2003, 8.

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jurisdiction provisions in instalment sales and loans.13 Protective jurisdiction in credit sales thus entered into the negotiation between the six original Contracting States to promote judicial cooperation and remove obstacles in recognition and enforcement of judgments between each other, and had been eventually adopted by the EC Convention of 1968 on jurisdiction and the enforcement of judgments in civil and commercial matters (Brussels Convention).14 However, the Brussels Convention of 1968 did not go very far, as it only provided the distinct jurisdiction rules applying to protect buyers and borrowers in contracts for the sale of goods by instalment and loans. It did not specifically refer to the concept of ‘consumer’. As a result, the relevant protective rules could be interpreted as providing general protection to any buyers or borrowers in credit sales, including those in commercial contracts. This ambiguous scope of protection is not satisfactory. In 1978, the concept of consumer was introduced by the ECJ decision in Bertrand v Ott, where the scope of the protective rules in the 1968 Brussels Convention was clarified to cover cases where buyers were final consumers who should be protected because: [T]heir economic position being one of weakness in comparison with sellers by reason of the fact that they are private final consumers and are not engaged, when buying the product acquired on instalment credit terms, in trade or professional activities.15

The Bertrand decision established the basis to protect those who are generally weaker in a contractual relationship because they are contracting outside their trade or profession. However, the scope of protection in the 1968 Brussels Convention was still narrow, which only protected consumers in the sale of goods by credit. With the development of consumer law and protective consideration, a much broader jurisdiction rule with a clear-defined view to protect consumers as a specific group of persons was required.16 Changes were brought in the subsequent amended convention of 1978 on the accession of Denmark, Ireland and the UK. The 1978 Accession Convention is the first European legislation that clearly contains the concept of the consumer in its text by incorporating part of the Bertrand definition and extends the scope of protection to consumers in not only instalment sales and loans but also other contracts of sale and services.17 The same policy was followed when the Contracting States negotiated the harmonised Convention on choice of law. The EEC subsequently adopted the Convention on 13 P Jenard, ‘Report on the Convention on Jurisdiction and the enforcement of judgments in civil and commercial matters’ (Jenard Report) [1979] OJ C 59/1, 33; P 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’ (Schlosser Report) [1979] OJ C59/71, 117. 14 [1972] OJ L299/32, Arts 13–15. 15 Bertrand v Ott, Case 150/77 [1978] ECR 1431, para 21. 16 Schlosser Report, 117. 17 [1978] OJ L304/77, Art 13. D Lasok and P Stone, Conflict of Laws in the European Community (Oxon, Professional Books Limited, 1987), 227. The Brussels Convention was implemented in the UK through the Civil Jurisdiction and Judgments Act 1982 (c 27).

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the law applicable to contractual obligations (Rome Convention) of 1980, which contains the protective choice of law rules for consumer contracts corresponding to those in the revised Brussels Convention.18 The Brussels Convention and the Rome Convention form the European conflicts of laws system and are remarked on as the cornerstone of the advanced, comprehensive and systematic protective conflict of laws in consumer contracts. In the end of the twentieth century, e-commerce has developed as a new commercial model, the cheap, international and convenient nature of which causes a further bloom of cross-border consumer transactions. Special attention has been paid to protect consumers in e-commerce. The European Community has converted both Conventions into EU instruments and reformed the conflicts rules relating to consumer contracts in order to provide certainty and efficiency for the development of e-commerce. The protective jurisdiction rules in the Brussels Convention has been replaced by the more updated and sophisticated conflict rules in the Brussels I Regulation from 1 March 2002,19 and the protective choice of law rules in the Rome Convention will be replaces by the Rome I Regulation20 in most Member States except Denmark from 17 December 2009. Both Regulations have further expanded the scope under which a consumer can be protected and modernised the conflicts rules to suit the development of e-commerce. This European legislation has a great influence on the rest of the world. The work not only affects the Member States of the European Community, but also spreads its influence outside Europe. More and more non-Member States have successfully reformed, or prepare to reform, their traditional conflicts rules to incorporate special rules for the protection of weaker parties, by following the European model. For example, the similar protective conflicts rules were later introduced in the Civil Code of Quebec,21 the Uniform Commercial Code of the United States,22 the Korean Private International Law,23 and the new Turkish Code on Private International Law and International Civil Procedure.24 Many other international and regional organisations have also learnt from the European practice in drafting private international law conventions. The Special Commission of the Hague Convention on Private International law adopted the agenda to draft a convention on the Law applicable to certain consumer sales in 18 [1980] OJ L 266/1, Art 5. The Rome Convention is implemented in the UK by the Contracts (Applicable Law) Act 1990 (c 36). 19 Reg No 44/2001 of 22 Dec 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters, [2001] OJ L12/1, Arts 15–17. 20 Regulation of the European Parliament and the Council on the law applicable to contractual obligations (Rome I), [2008] OJ L177/6, Art 6. 21 SQ 1991 c64, ss 3117, 3149, and 3168(5). 22 Uniform Commercial Code of the United States, S 1-301(e). 23 Korean Private International Law, see Korean Private International Law of 2001, see Note, ‘Korea: Annual Report on Consumer Issues (2000)’, www.oecd.org/dataoecd/35/19/1865723.pdf, accessed on 21 Jul 2008. 24 Art 26 and 45. For more information, see G Tekinalp, ‘The 2007 Turkish Code Concerning Private International Law and International Civil Procedure’ (2007) Yearbook of Private International Law 313; G Güngör, ‘The Principle of Proximity in Contractual Obligations: The New Turkish Law on Private International Law’ (2008) 5 Ankara Law Review 1, 15–18.

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1979, the text of which was adopted by the 14th session in 1980. Although this convention has never been enforced, many later conventions have accepted the necessity to treat business-to-consumer contracts differently in the conflict of laws by providing separate rules for different types of contracts.25 During the negotiation for the international judgments convention, the protective rule-based approach again was proposed and included in the preliminary draft Convention of 1999. Although the final convention limits its scope on choice of court agreements in business-to-business transactions, this attempt shows that the topic is never dying in the international agenda. In the 7th Inter-American Specialized Conference on Private International Law, Brazil proposed a draft Inter-American convention on choice of law in consumer contracts.26 With the European influence and the response from the rest of the world, private international law in consumer contracts can be generally categorised into two groups: the protective model and the neutral model. Although comparatively fewer countries have adopted the protective model, the current tendency shows the protective model has been gradually accepted by more and more countries in the world. Even for those countries generally adopting a neutral model, some protective elements have been introduced by recent legislation or modest judicial adjusting.27

B. Difficulties of the Ordinary Private International Law in Consumer Contracts i. Party Autonomy and Inequality of Bargaining Power Why do ordinary conflicts rules not work properly in consumer contracts? First of all, consumer contracts challenge the appropriateness of party autonomy, which is one of the most important principles in modern private international law. The freedom for contractual parties to choose the competent forum and applicable law to resolve disputes arising out of their contracts is almost universally acknowledged.28 Party autonomy can establish certainty, predictability and efficiency. However, the existence of inequality of bargaining power questions the 25 eg b2c contracts are expressly excluded in the Convention of 22 Dec 1986 on the Law Applicable to International Sales of Goods, and the Convention of 30 June 2005 on Choice of Court Agreements. 26 2–4 December, 2006. More details on the conference and the proposal can be accessed through the website of the Organisation of American States: www.oas.org. 27 eg, although the US generally keeps its common law choice of law rules, which contains no specific consideration of consumers, the UCC has introduced a special provision to protect consumers in choice of law. Some cases also show that the Court would take the consumer’s weaker bargaining power into consideration when using their discretion in a particular case. 28 For party autonomy in jurisdiction, see the Hague Convention on Choice of Court Agreements of 2005; the Brussels I Regulation, Art 23(1); Swiss Federal Code on Private International Law of 1987, Art 5. For party autonomy in choice of law, see the Rome Convention of 1980, Art 3; the Rome I Regulation, Art 3; Hague Convention of 15 June 1955 on the Law Applicable to International Sales of Goods, Art 2; Hague Sales of Goods Convention of 1986, Art 7; Inter-American Convention on the Law Applicable to International Contracts 1994, Art 7.1. See general P Nygh, Autonomy in International Contracts (Oxford, OUP, 1999) 1–31; A Briggs, Agreements on Jurisdiction and Choice of Law (Oxford, OUP, 2008).

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proper application of party autonomy in consumer contracts. As the stronger party, a business is able to unilaterally insert a choice of law/forum clause into a contract. This clause could be the one with obvious intention to deprive the consumer of his legal rights, eg a business chooses the law with the lowest standard of protection for consumers. Even if the business simply imposes its standard terms without the specific desire to take advantage of consumers,29 the effect usually prejudices consumers. A business usually intends to choose the law of its home for the sake of familiarity, which will be unfair to consumers if it provides much lower standard of protection; a business also prefers to choose his home country as the competent forum for the sake of convenience, which might inevitably prejudice foreign consumers who would be forced to litigate abroad. Unlimited party autonomy would be unfair for consumers in international commerce.30

ii. Private International Law Based on Connections Traditional private international law also designates jurisdiction and applicable law based on the existence of certain connections between the case and a particular state or system of law.31 Private international law based on the objective connecting factor is helpful to achieve reasonable results by locating jurisdiction and applicable law in a country with which the dispute has real and substantial connections. However, this approach might prejudice the interests of a consumer and create unfairness in practice, because in most cases the state or the system of law which holds close connections to a dispute coincides with the business’s home. For example, the Rome Convention presumes that the country which has the closest connection with a contract is the habitual residence of the party who is to effect the performance for which the payment is due, which clearly directs to the law of the habitual residence of the business.32 Even if the country with the closest connection is decided based on weighing and balancing all connecting factors,33 this country would usually be the country with close connections to the business which is the position to choose to locate most of the connecting factors. The ‘neutral and objective’ conflict of law can hardly work properly in consumer contracts. 29

Nygh, Autonomy, 140. For party autonomy and the protection of the weaker party, see generally Nygh, (n 28), 139–171, and Chs 6 and 8 below. 31 For jurisdiction, see Brussels I Regulation, Art 5(1); Brussels Convention, Art 5(1); Civil Procedural Rules, Practice Direction 6B, para 3.1(6) and (7). For choice of law, see Art 4 of the Rome Convention and Rome I Regulation; American Law Institute, Restatement of the Law, Second: Conflict of Laws (St Paul, American Law Institute, 1971), s188; Inter-American Convention of 1994, Art 9; Hague Sales Convention 1955, Art 3; UCITA, s 109(b). 32 Rome Convention, Art 4(2); M Giuliano and P Lagarde, Report on the Convention on the law applicable to contractual obligations (Giuliano-Lagarde Report) [1980] OJ C282/1, 9. See C Riefa, ‘Article 5 of the Rome Convention on the Law Applicable to Contractual Obligation of 19 June 1980 and Consumer E-Contracts: The Need for Reform’ (2004) 13 Information & Communications Technology Law 59, 60. Art 4(1) of the Rome I Regulation does not make substantive changes for many contracts. For the Rome I Regulation reform, see Z Tang, ‘Law Applicable in the Absence of Choice— The New Article 4 of the Rome I Regulation’ (2008) 71 MLR 785. 33 eg Art 4(5) of the Rome Convention; Arts 4(3) and 4(4) of the Rome I Regulation. 30

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iii. Defendant’s Jurisdiction and Inequality of Litigation Power Although traditional private international law is generally neutral, jurisdiction rules include some concerns to provide justice and fairness to the parties. Regardless of the considerable diversity in jurisdiction rules in various countries, one general principle accepted by most states is to permit a defendant to be sued in his home, for ‘it will seldom be an injustice to a person to have to defend a case in the court of his own country’.34 This traditional maxim actor sequitur forum rei applies in favour of the defendant by holding that the defendant is generally the weaker party in litigation, especially in international litigation.35 The claimant can choose whether, when and where to bring the action, while the defendant has no options except undertaking litigation. It sounds fair enough to provide general jurisdiction to the courts of the defendant’s home. However, the appropriateness of actor sequitur forum rei has been questioned in consumer contracts. Where a consumer acts as a defendant, this rule works well. Where a consumer acts as a claimant, this rule requires the consumer to bring the action in the forum of the business. A consumer is the party who is more reluctant to bring an action, because of his weaker financial power, poorer knowledge, less experience and lower qualification. Requiring a consumer to bring an action in a foreign country, in many cases, deprives the consumer of his right to access to justice. Actor sequitur forum rei can hardly be justified in such a case.

iv. Forum Non Conveniens There are also jurisdiction rules aiming to ensure fairness and justice on a case-tocase basis. It is necessary to observe whether these rules are sufficient to protect consumers as the weaker party in international contracts. Forum non conveniens is adopted in the discretion-based jurisdiction system to ensure the appropriateness and the end of justice in jurisdiction. However, this doctrine alone cannot provide an efficient solution to protect consumers against vexatious or oppressive jurisdiction. Forum non conveniens doctrine primarily focuses on designating a forum which is the centre of gravity of the concerned action, without giving much weight to the consumer’s weak bargaining and litigation power.36 Where a consumer brings an action against a foreign business in his home, the business can use foreign non conveniens to persuade the court to decline jurisdiction by claiming that the natural forum is located in another country.37 The consumer’s weak 34

CMV Clarkson and J Hill, The Conflict Of Laws, 3rd edn (Oxford, OUP, 2006) 52. Jenard Report, 19–22. See also AE Anton, Private International Law: A treatise from the standpoint of Scots law,1st edn (Edinburgh, W Green &Son Ltd, 1967) 4. 36 See J Harris, ‘Consumer Protection in Private International Law’, in F Meisel and P Cook (ed), Property And Protection: Legal Rights And Restrictions (Oxford, Hart, 2000) 245. 37 Spiliada Maritime Co v Cansulex Ltd [1987] AC 460, 474. See also New Zealand case: McConnell Crane Accessories Ltd v Lim Swee Hee [1989] 1 NZLR 221; Canadian case: Amchem Products Lnc v British Columbia Worker’s Compensation Board [1993] 102 DLR (4th) 96 (SCC), 107–12; Ireland case: Intermetal Group Ltd &Trans-World (Steel) Ltd v Worstade Trading Ltd [1998] IL Pr 765; Australian case: Oceanic Sun-Line Special Shipping Co v Fay [1988] CLR 197 (the forum non conveniens doctrine in Australia is different from other common law countries). 35

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financial power which may prevent him from suing in another country is not a weighty factor and would hardly be supported by the court to prove that it is for the end of justice to refuse a stay.38 On the contrary, where a business sues a consumer in the court of the business’s home state, it would be relatively harder for the consumer to prove that the clearly more appropriate jurisdiction is the domicile/habitual residence of the consumer. The business is more active in choosing the location of the most connecting factors which usually makes the centre of gravity of a contract located in the business’s home state.39

v. Overriding Mandatory Rules and Public Policy With the development of private international law, most countries reserve the power to use public policy and overriding mandatory rules of the forum or a closely related third country to protect the fundamental social, economic and political order of the forum or a friendly third country from being violated by the application of foreign law. It is thus suggested by some writers that public policy and mandatory rules are enough to protect the weaker party in a consumer contract.40 This argument is unrealistic due to the narrow scope and rare application of overriding rules and public policy. They only deal with issues which are crucial for safeguarding justice, morality, or the country’s public interests. Most issues in consumer contracts are not regarded as crucial or fundamental enough to be covered by overriding mandatory rules or public policy, but they are important in protecting consumers’ interest. These two instruments alone cannot provide sufficient protection to consumers.

C. The Importance of Private International Law in Consumer Contracts Based on the above discussion, it is suggested that the ordinary choice of law rules are challenged in consumer contracts. However, the area of law is characterised by the lack of cases. Disputes arising out of consumer contracts are generally small claims, which makes court litigation unreasonable for both parties. Without taking disputes to the court, private international law issues hardly arise. Some commentators thus refuse to adopt special considerations to protect consumers in conflict rules because the current law does not suffer difficulties in practice.41 38 Connelly v RTZ Co [1998] AC 854, 873. A list of factors for consideration has been provided by The Eleftheria [1970] P 94, 110, which includes the factors concerning the ends of justice without mentioning the parties’ bargaining, financing, or litigation power. Although the list in The Eleftheria is not exclusive, it indicates the weaker position of the consumer traditionally is not a strong factor for the court’s consideration. 39 For more on forum non conveniens, see Ch 4, s D. 40 This suggestion is discussed in J Sauveplanne, Consumer Protection, 102–3. 41 eg Singapore Academy of Law, Law Reform Sub-Committee, ‘Report on Reform of the Law Concerning Choice of Law in Contract’ (May 2004), para 44, www.sal.org.sg/digitallibrary/Lists/Law% 20Reform%20Reports/AllItems.aspx, accessed on 18 Mar 2008.

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Although very few cases on e-consumer contracts have been brought to the courts, it does not mean this topic is of no value. The lack of cases is due to many reasons. One of them would be the improper conflicts rules that prevent e-commerce participants from accessing justice, which indicates the importance and necessity of reform. Another reason is the high litigation cost that prevents the parties from bringing an action in small claims. In countries with a simple and economic litigation procedure, more cases on consumer contracts are heard by the courts.42 Furthermore, although most consumer contracts are of a small value, some contracts, such as contracts relating to timeshares, package holidays, distance education, credit sales, or the purchase of expensive or luxury goods, could concern a large value, where litigation would be more likely to arise. More importantly, the value of law does not merely depend on the number of cases. A good law shall be the one which could not only resolve disputes, but also ensure fair practice and prevent disputes from arising.43 In consumer contracts, the most efficient means to resolve disputes is by directly contacting the other party, and hopefully a company will adopt a customer friendly policy to handle consumer complaints fairly. The company’s consumer policy partly depends on the company’s self-regulation, partly depends on the profit-motivation, and partly depends on the social and legal pressure. Where a consumer has no chance to sue or the conflicts rules make suing highly difficult or burdensome, the business will have less pressure to provide a satisfactory response to consumers’ claim. Where the pro-consumer conflicts rules increase the risk of being sued, it could induce a business to provide good customer services to resolve disputes out-of-court. Finally, the protective conflicts rules could also provide consumers the confidence to take part in cross-border transactions, knowing that even in the worst situation where the dispute has to be brought to the court, he still has the chance to get redress.

III. Electronic Commerce and Private International Law E-commerce has also brought challenges to traditional private international law. The internet is ‘a network of networks’,44 which breaks down traditional borders 42 Such as Germany and Austria. The European Small Claim Procedure would also help resolve this problem: Reg (EC) No 861/2007 establishing a European Small Claims Procedure [2007] OJ L199/1. 43 See also J Hill, Cross Border, 2. 44 This short definition has been universally accepted, see T Puurunen, ‘The Judicial Jurisdiction Of States Over International Business-To-Consumer Electronic Commerce From The Perspective Of Legal Certainty’ (2002) 8 UC Davis Journal of International Law and Policy 133, 135, and fn 2; M Burnstein, ‘A Global Network In A Compartmentalised Legal Environment’, in K Boele-Woelki and C Kessedjian (eds), Internet: Which Court Decides? Which Law Applies? (Hague/London/Boston, Kluwer Law International, 2001) 32.

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between each country and creates a virtually borderless market.45 It is a decentralised system,46 where it is hard to efficiently control the access and transfer of data messages online, which provides businesses a partially aimless market, where their promotion could ‘target’ everywhere accessible by consumers. The cybermarket is also an anonymous market, where, without the intervention of legal regulation, the contracting parties can hardly know the real identity of each other, including some information which is crucial to private international law, such as the domicile or habitual residence of the other party. Furthermore, e-commerce involves a new intermediary — the Internet Service Provider (ISP), on which the online activities are actually carried out. The status of a server as a connecting factor in private international law is uncertain. These specific characteristics challenge traditional private international law.47 It is therefore necessary to closely scrutinise the private international law norms in connection with e-commerce.

A. Identification and Territorial Connection of Parties Identification and localisation of parties are essential to private international law. Especially in those states where specific protective rules are provided to consumer contracts, it is crucial to clarify the identity of both parties in order to decide whether the contract is classified as a consumer contract.48 This, however, becomes difficult in e-commerce. Firstly, e-commerce reduces the apparent difference between commercial contracts and consumer contracts. The low cost of e-commerce attracts many small and medium sized companies and encourages small orders. The amount and value of products involved in an electronic business-to-business contract can be greatly reduced compared to that in traditional commerce. An e-business running an online wholesale shop might receive orders for a box of decorating hardware from both another small company and an individual trying to decorate his own property. From the seller’s point of view, the difference between these two contracts is not clear-cut. Secondly, e-commerce 45 In Digital Equipment Corporation v AltaVista Technology 960 F Supp 456 (D Mass 1997), Gertner J stated:

‘The Internet has no territorial boundaries . . . as far as the Internet is concerned, not only is there perhaps “no there there”, the “there” is everywhere there is Internet access’. See also Uniform Law Conference of Canada (ULCC) and the Consumer Measures Committee (CMC) Joint Working Group, ‘The Determination of Jurisdiction in Cross-border Business-to-Consumer Transactions: A Consultation Paper’, 2002. 46 The internet was designed by the US Advanced Defence Research Project Agency (ADRPA) in order to provide a decentralised communications network. If some of the ‘routes’ were destroyed, routers would be able to find alternate routes to transfer information and communicate. 47 For more discussion, see DJB Svantesson, Private International Law and the Internet (The Netherlands, Kluwer Law International, 2007), ch 2. 48 The importance of identification in private international law has been mentioned in the Geneva Round Table on the Questions of Private International Law Raised by Electronic Commerce and the Internet (organised by the Hague Conference on Private International Law and the University of Geneva, 1999), cui.unige.ch/~billard/ipilec/com1ques.doc, accessed on 17 Mar 2006.

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enables many unprofessional individuals to sell second hand products online. In many internet marketplaces, such as eBay49 and Amazon,50 the difference between these individual sellers and professional sellers is vague. Buyers sometimes have no clear idea as to whether they are dealing with a business or someone acting outside his trade or profession. Thirdly, the distant and anonymous nature of e-commerce brings additional difficulties in determining the identities of contractual parties. Furthermore, it is more difficult to determine the country with relevant territorial connections to the parties in e-commerce.51 Many conventional conflicts rules require the places with which the parties have a close relationship to be taken into consideration. A contractual party needs to know the other party’s location in order to predict which country may be one of those having potential jurisdiction and which law may possibly apply. However, the information that could be relied upon to predict the home of the other party is limited to the website domain, the email address, the IP address and the party’s statement. The website domain and the email address might be inaccurate or misleading in determining the party’s location. For example, it is possible for someone resident in England to register a domain name ending with ‘fr’. In addition, some websites and email addresses adopt generic top level domains instead of country code top level domains,52 which will not give other internet users any clue as to the probable location of the party. Taking note of the Internet Protocol address (IP address) might avoid the above inaccuracy, but recognition of the IP number requires more than ordinary technology and knowledge.53 Even if it was practical for normal persons to recognise the IP number, it tells us no more than the location of the computer, which can only indicate the location of the user during the communication, instead of that person’s domicile, habitual residence or other personal connection factors. Finally, genuineness and accuracy cannot be guaranteed simply by relying on the party’s statement, especially as most contractual parties may not have sufficient knowledge as to those legal concepts such as domicile or habitual residence and cannot provide accurate information. Although some jurisdictions require the e-business to provide clear information to internet users as to its real identity and location, it can only partially resolve 49 ‘eBay is the world’s online marketplace, enabling trade on a local, national and international basis. With a diverse and passionate community of individuals and small businesses, eBay offers an online platform where millions of items are traded each day.’ See www.ebay.com. 50 Amazon is an online company selling millions of products, and also enables independent sellers to sell new and used items on the website. See www.amazon.com. 51 See S van der Hof, ‘European Conflict Rules Concerning International Online Consumer Contracts’ (2003) 12 Information & Communication Technology Law 165, 167. 52 There are two types of top-level domains: generic domains and country code domains. Generic domains are created for use by the internet public, such as ‘.com’, ‘.net’ and ‘.org’, while country code domains are created to be used by individual countries, such as ‘.uk’, ‘.de’ and ‘.jp’. W Black, ‘The Domain Name System’ in L Edwards and C Waelde (eds), Law & Internet: A Framework For Electronic Commerce (Oxford, Hart Publishing, 2000) 125. 53 Many IP addresses are unique, which identifies the location of devices. IP addresses can be tested by using special computer programmes, which are presented by a serious of numbers. Professionals can tell the location of a device by reading the correspondent numbers. However, not all IP addresses are unique in the current technology.

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the problem. For example, the European Commission attempts to address these difficulties by requiring an e-supplier to provide other internet users with his details, such as his name, geographic address or e-mail address in an easy, direct and permanent way.54 However, recital 58 of the Directive says the rules can only regulate e-suppliers established in the territory of the EU Member States. If an e-supplier is established in Egypt, for instance, his identity and location might still be unclear to the buyer. Secondly, it does not provide a similar requirement for the buyer. The identification problem remains as the business has difficulty in knowing whether the other party is a consumer and in which country the other party has his domicile or habitual residence.55

B. Location of Activities The location of activities is a very important connecting factor in traditional conflict of laws. In international contracts in the absence of effective agreements on the competent forum or applicable law, the court usually will decide jurisdiction and choice of law issues by considering the location of a series of activities: the place of contracting,56 the place of performance,57 the place of breach of the contract,58 the place where necessary steps are taken to conclude the contract,59 the place of advertising,60 etc. Although localising activities in traditional commerce is also a problem, e-commerce makes it worse. Firstly, a single activity online would generate complex sequences of events, which can spread amongst different countries. For example, once a business publishes an advertisement on a webpage, the advertisement becomes accessible in every state, providing the internet connection is available and there is no efficient technical blockage. Secondly, the distance nature of e-commerce enables an activity to be done with both parties physically located in different states, which makes it difficult to determine where the event actually takes place. Thirdly, some widely adopted e-commerce programmes, such as electronic agents, will produce further difficulties in locating activities. It is uncertain which location shall be taken into account: the location of the person who is responsible for the activity, or the location of the electronic agent that 54 Dir 2000/31/EC of the European Parliament and of the Council of 8 Jun 2000 on certain legal aspects of information society services, in particular electronic commerce, in the Internal Market (E-Commerce Directive) [2000] OJ L178/1, art 5(1). 55 See generally, J Fawcett, J Harris and M Bridge, International Sale of Goods in the Conflict of Laws (Oxford, OUP, 2005) para 10.06–7. 56 According to CPR Pt 6 Practice Direction B, para 3.1(6)(a) an English court may serve a claim form out of jurisdiction in case the contract is made within England. The place of contracting is also one of the connecting factors in deciding the centre of gravity of the contract, eg Restatement 2nd Conflict of Laws, s 188(1)(2)(a). 57 Brussels I Regulation, Art 5(1); Hague Sale of Goods Convention 1986, Art 8(2)(b); Swiss Private International Law, Art 113. 58 CPR Pt 6 Practice Direction B, para 3.1(7). 59 Rome Convention, Art 5(2). 60 Rome Convention, Art 5(2)..

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actually effects the activity.61 Fourthly, e-commerce separates a single action into different stages and each could happen in different places. For example, when a business sends a consumer a digital product by email, the email will be originally stored in the server of the consumer’s mailbox, which is located in state A; the consumer could then download it to his computer, which is in state B; the consumer may not open it directly, but take the laptop to state C, where he opens the mail and uses the digital product. Or the consumer might have different email addresses and for the sake of convenience, the consumer uses one email address located on the server in state D to download all the incoming messages from other addresses. In this case, the outgoing email will be first stored in state A, then transferred to and stored in state D. It is not wise to take the location of an ‘action’ as the nexus, for it may occur in more than one forum.

C. Status of a Server The internet cannot run without the participation of a server, which acts as an intermediary to facilitate communications between internet users. A server is a computer used to host websites, mailboxes and relevant data messages. A server plays an important role in e-commerce. It acts as the ‘storage’ of an e-company, hosting all digital products. It is the place where online stores are physically located, where the digital subject matter is technically delivered, and where the parties’ electronic agents are located. However, the status of a server is uncertain. On the one hand, it does play an important role in electronic transactions, since almost all internet transactions have to be carried out through the server. On the other hand, it is not clear whether this technically important role is also substantially significant in private international law. In many cases, a server only holds fortuitous and superficial connections to a transaction. It functions as no more than a medium of communication, such as a telex machine in traditional commerce, which undermines the idea of giving too much weight to the location of the server when deciding private international law issues. A business can frequently change its server or adopt more than one server for its commercial activities. For example, it can use one server to host its website and another for a mirror site, in order to provide quicker access to a larger amount of consumers. A business can also use one server to host its website, a second server to receive orders and payments and a third server to store and upload digital products. The server used to host the website can simply be chosen randomly, and only provides technical support without any decision making, responsibility or autonomy. E-commerce 61 An electronic agent is software designed to execute a human user’s demands. See A Bellia, ‘Contracting with Electronic Agents’ (2001) 50 Emory Law Journal 1047, 1051; S Middlebrook and J Muller, ‘Thoughts On BOTs: The Emerging Law of Electronic Agents’ (2000) 56 Business Lawyer 341; J Lerouge, ‘The Use of Electronic Agents Questioned Under Contractual Law: Suggested Solutions On A European And American Level’ (1999) 18 John Marshall Journal of Computer and Information Law 403, 404–6.

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brings a new question as to whether a server can contribute as a new connecting factor for the conflict of laws in e-commerce.62

D. Formation of Contracts E-commerce also brings challenges to the formation of contracts. An e-contract will be concluded not only in different form, but also by different procedure, which raises specific questions as to its validity. This issue is important in the conflict of laws because it determines the validity of a choice of law or choice of forum clause. From a private international law perspective, the validity of a contract or contract terms can be addressed either by the choice of law approach or by the uniform law approach. If adopting the first option,63 the potential difficulty is that where the relevant system of law designated by the choice of law rule has no updated legislation for e-contracts, the contract might be unreasonably invalidated irrespective of both parties’ intention. If adopting the second option,64 it is questionable as to how the uniform rules could be established to regulate e-contracts and whether this compromise could be reached by different countries.65

E. Conclusion It is clear that e-commerce has raised some interesting and tricky issues of private international law. However, the general trend in the research in this area has moved from fantasy to reality. Around the end of twentieth century, e-commerce was considered as a ‘myth’. The importance and challenges brought by e-commerce were frequently exaggerated by some commentators, most from the US, who argued that e-commerce would bring about the decay of traditional law, including private international law, in this area. Some held the view of internet-separatism arguing that e-commerce took place solely in cyberspace instead of in the physical world.66 It breaks the necessary link between the virtual world and physical world and 62

See Ch 3, s IV, Ch 4, s II below. This is the common practice currently relating to the substantive validity of contracts. See Rome Convention, Art 8; Rome I Regulation, Art 10. 64 Usually, the uniform rules are accepted for the formal validity of an agreement. Brussels I Regulation, Arts 23(1) and 23(2); the Hague Choice of Court Convention 2005, Art 3(c). 65 For a uniform substantive law, see 1996 UNCITRAL Model Law on E-Commerce; 2001 UNCITRAL Model Law on Electronic Signatures; 2005 United Nations Convention on the Use of Electronic Communications in International Contracts. 66 eg DR Johnson and D Post, ‘Law and Borders—The Rise of Law in Cyberspace’ (1996) 48 Stanford Law Review 1367; JP Barlow, ‘A Cyberspace Independence Declaration’ www.eff.org/Barlow, accessed on 04 Feb 2004; DG Post, ‘Governing Cyberspace’ (1996) 43 Wayne L Rev 155. For discussions, see LJ Gibbons, ‘No Regulation, Government Regulation, or Self-Regulation: Social Enforcement or Social Contracting for Governance in Cyberspace’ (1997) 6 Cornell Journal of Law and Public Policy 475; V Mayer-Schönberger, ‘The Shape of Governance: Analyzing The World of Internet Regulation’ (2003) 43 Virginia Journal of International Law 605. 63

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regards the internet as a new jurisdiction immune from the activity and regulation in the physical world. In fact no element in internet could occur without its real world existence. With the improved understanding of e-commerce, researchers gradually turned more realistic and started to realise the challenge brought by e-commence could mostly be technical which can be resolved by providing updated interpretations.67

IV. Consumer Contracts in E-Commerce and Private International Law Consumer contracts and e-commerce have brought new issues for private international law. Private international law problems become more complicated in electronic consumer contracts. Special consideration has to be established to protect consumers as the weaker party in private international law. Additionally these specific rules have to be updated to be applicable in e-commerce. The characteristics of consumer contracts make some potential solutions for e-commerce unreasonable; while the specific nature of e-commerce makes some effective methods for consumer contracts problematic.

A. Dilemma of Party Autonomy Although e-commerce challenges traditional private international law rules, one private international law doctrine, party autonomy, escapes the difficulties generated by e-commerce. Party autonomy has been favoured especially in e-commerce, for it can easily avoid the difficulty of localisation and identification brought by e-commerce.68 Most recent private international law legislation has placed the doctrine of party autonomy in a primary position, by recognising the parties’ choice of law and choice of court agreements. However, this doctrine works properly anywhere except in contracts with an inequality of bargaining power, including consumer contracts, where party autonomy could easily provide unfair results and deprive consumers of their rights.69 The effect of party autonomy has been widely restricted in consumer contracts, which brings more uncertainty and difficulties to consumer contracts than other commercial contracts in e-commerce. 67 See eg Fawcett, Harris and Bridge, International Sale of Goods, para 10.242–10.258; Hill (n 5) 25, 149–50 68 Both the Brussels I Regulation and the Hague Choice of Court Convention provide special rules to validate electronic choice of court agreements. The UNCITRAL Model Law on E-Commerce also supports party autonomy. See Brussels I Regulation, Art 23(2); Hague Choice of Court Convention, Arts 5 and 6; UNCITRAL Model Law on E-commerce with Guide, para 44. 69 s II.A above.

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B. Targeting and Parties’ Purpose Since ordinary conflicts rules cannot work properly in consumer contracts, some jurisdictions, such as the EU, provide protective conflicts rules, where the default forum for a consumer dispute shall be the forum of the consumer’s home state and the default applicable law is the law of the consumer’s home country. These protective conflicts rules would damage a business’s reasonable expectation if, by any reasons, the business cannot foresee being subject to the jurisdiction and system of law in a particular country. The normal approach to balance the interest of consumers and the expectation of businesses is to establish a scope to preclude some consumers from being protected. In most cases, the scope is established according to the activities of a business. If the business targets its consumers in a particular country the business should be subject to the protective rules which either assign jurisdiction to that state or apply the national law of that state to govern the contracts.70 The problem is that what constitutes ‘targeting’ will be hard to decide in e-commerce. The international characteristic of e-commerce makes a website accessible in every country where the internet access is available. It is problematic if this can be understood as ‘targeting’. In e-mail trading, a business cannot reasonably know exactly which states an email would reach by sending group emails, because the email address sometimes would provide nil or misleading information as to the recipient’s domicile or habitual residence.71

V. The Purpose of this Book Private international law in e-consumer contracts is of considerable interest to conflict practitioners, legislators, and academic researchers. Although many authorities have carried out research or legislative work in this area, it is hard to tell whether a satisfactory resolution has been provided. The proper solution should pay attention to consumer protection and business development, as well as the specific challenges generated by e-commerce. This area is controversial and short of a unanimously recognised principle. Different countries may adopt different rules according to their economic policies, which generates confusion and uncertainty. This work aims to study current private international law rules, in order to answer the urgent question as to which court should hear a case and what law should govern a dispute arising out of an electronic consumer contract. The book does not examine the recognition and enforcement of foreign judgments as 70 See Brussels I Regulation, Art 15(1)(c); Rome I Regulation, Art 6(1); Rome Convention, Art 5. Also this approach is similar to some US cases where the ‘minimum contact’ doctrine has been applied to determine jurisdiction. It requires ascertaining the business’s ‘intention’ to purposefully avail himself to the jurisdiction of a particular State. 71 SIII.A above.

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there are almost no e-commerce specific issues. A comparative study shall be carried out, primarily based on the current conflict rules in the European Union, the English common law72 and some interesting innovations in the USA. Contributions in other jurisdictions and international organisations should be considered in due course as relevant and necessary supplements. Based on the comparison between the rule based protective model and the discretion-based neutral model, proposals for model private international law in e-consumer contracts will be provided. As it has been argued by Reimann, the greatest utility of comparative analysis of conflict of law lies in ‘enlightened rulemaking’ that promotes the ‘international unification of law’.73

72 The European choice of law has been implemented in England which greatly replaces its traditional choice of law, but the English traditional jurisdiction rules continue to apply in the area uncovered by the European regime. 73 M Reimann, ‘Parochialism in American Conflicts Law’ (2001) 49 AJCL 369, 379.

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2 The Definition and Scope of the Book I. Definition of Consumer There is no international, uniform definition of consumer. The European Community usually adopts a negative definition, where a consumer is someone contracting for a purpose, which is outside his trade, business or profession.1 The Hague Conference on Private International Law, on the other hand, uses a positive definition, where a consumer is someone acting for a purpose for personal or domestic family use.2 Some countries also choose the mixed approach. For example, the Swiss Federal Code on Private International Law of 1987 combines personal use with the exclusion of the professional nature of the activity.3 In order to clarify the concept of consumer, the following issues should be addressed.

A. The Status of the Other Party The first point is whether the other party to the contract should act within the course of his business or profession. According to the text of some legislation, no specific requirements have been established for the status of the other party.4 However, the omission does not mean that the other party could be anyone. Suppose a private individual sells his second hand television to a private buyer. Both the seller and the buyer contract for a purpose outside their trade or profession. It is impossible to define both of them the consumers.5 Even if the literal meaning of the word ‘consumer’ suggests that a consumer can only be the buyer, the buyer in this particular case cannot be considered ‘weaker’ and should not get 1 A similar definition has been widely accepted in the EU legislation. Rome Convention, Art 5.1; Brussels I Regulation, Art 15(1); Dir 2005/29/EC concerning unfair business-to-consumer commercial practices in the internal market and amending Council Dir 84/450/EEC, Dirs 97/7/EC, 98/27/EC and 2002/65/EC and Reg (EC) No 2006/2004 (Unfair Commercial Practices Directive) [2005] OJ L 149/22, Art 2(a); E-Commerce Dir 00/31/EC, Art 2(1). 2 Hague Draft Consumer Sales Convention, Art 2; Hague Choice of Court Convention 2005, Art 2.1(a); Hague Sale of Goods Convention 1986, Art 2(c). 3 Art 120. 4 Rome Convention, Art 5(1); Brussels I Regulation, Art 15; Hague Draft Consumer Sales Convention, Art 2. Cf Rome I Regulation, Art 6(1). 5 A Briggs and P Rees, Civil Jurisdiction & Judgments, 4th edn (London, LLP, 2005), para 2.77; J Harris, ‘Consumer Protection in Private International Law’ in F Meisel, P Cook (ed) Property And Protection: Legal Rights And Restrictions (Oxford, Hart, 2000) 245.

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specific protection against the seller. Second hand sales arranged by ordinary persons outside their trade or profession are very normal in electronic commerce. Many electronic companies, such as eBay and Amazon, manage worldwide online marketplaces, where individuals in different countries can deal with each other.6 It is unreasonable to specifically protect the buyer against the seller, where there is no inequality of bargaining and litigation power between them. Although the Rome Convention does not provide any express requirements for the other party, the Guiliano-Lagarde Report stresses that the specific consumer protection provision would only apply where the other party ‘supplies goods or services or provides credit acts in the course of his trade or profession’.7 This issue has been clarified in the Rome I Regulation which requires the other party to act within the exercise of his trade or profession.8

B. Outside One’s Trade or Profession i. Contracts for the Future Trade or Profession A consumer shall contract for the purpose of personal or family use, or for a purpose outside his trade or profession. How should the term ‘outside his trade or profession’ be interpreted? Is a buyer, who acts outside his trade or profession at the time of contracting but uses the subject matter of the contract for his trade or profession in the future, a consumer? This question has been addressed by the European Court of Justice in Benincasa v Dentalkit,9 where Benincasa, a nonprofessional, concluded a franchise contract with Dentalkit, which is a company promoting a chain of franchise shops selling dental hygiene products. When a dispute arose out of the contract, Benincasa argued that he should be protected as a consumer because he was not carrying on a business when he concluded the contract. The ECJ nevertheless held that a consumer should conclude contracts outside and independent of any trade or professional activity or purpose, whether present or future.10 As a result, the status of a consumer is not determined by the pre-existent objective situation, but rather the position under a particular contract, having regard to its scope and purpose.11 At the time of contracting, the buyer does not act relating to a trade or profession which he has already taken up. However, once the contract is concluded, the buyer would surely operate in the 6 There are 1.5 million individuals selling on eBay outside the course of their trade and profession. See //pages.ebay.co.uk/aboutebay/thecompany/companyoverview.html, last accessed on 16 Dec 2006. 7 Guiliano-Lagarde Report [1980] OJ C282/1, 22. 8 Art 6(1). See also Fair Trading Act 1973 (c 41), s 137(2); Unfair Contract Terms Act 1977 (c 50) s 12; Dir 1999/44/EC on certain aspects of the sale of consumer goods and associated guarantees, [1999] OJ L171/12, Art 1(2)(c). 9 Benincasa v Dentalkit Case C-269/95 [1997] ECR I-3767. For further discussion of this case, see J Harris, ‘Jurisdiction Clauses and Void Contracts’ (1998) 23 ELR 279. See also Prostar Management Ltd v Twaddle 2003 SLT (Sh Ct) 11. 10 Benincasa v Dentalkit, paras 17 and 18. 11 Benincasa (n 9), opinion of Advocate General Ruiz-Jarabo Colomer, AG para 38.

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course of business. Even though the buyer is in an inferior position at the time of contracting, this is not enough for him to be protected as a consumer.12 The concept of consumer should thus be understood as someone contracting for a purpose, which is outside not only his current trade or profession, but also the trade or profession he would take as the result of this contract. Although one party of a franchise contract is in a weaker position, he should be protected as a small business but not as a consumer.13

ii. Contracts Partially Within and Partially Outside One’s Trade or Profession What if a person purchases for a purpose partially outside and partially within his trade or profession? An earlier approach was to consider the predominant purpose of the contract. If a purchaser acts primarily outside his trade or profession, he can still be protected under the specific conflict of law rules as a consumer.14 However, it is quite unclear how to decide the predominant nature of a contract. Shall one take into consideration the percentage of the subject matter actually used or intended for each purpose? What if the buyer’s intention is changed and the predominant purpose at the time of contracting differs from the actual use after the contract was concluded? What if the seller, at the time of contracting, could not assess the predominant purpose of the contract? What if the predominant purpose of the contract cannot be decided? What if the subject matter is equally used for each purpose? By considering all these difficulties, as well as the background of the protective provisions for consumers, the ECJ in Gruber v Bay Wa AG has provided a distinct approach by classifying contracts with mixed purposes as non-consumer contracts, except where the usage for business purposes was so little as to be negligible.15 The ECJ justifies that the specific consumer protective provision aims to protect consumers as the weaker party, while the general weaker position of the buyer does not exist in cases where the buyer purchases for his trade or profession, even if only partially for this purpose.16 It takes a restrictive interpretation in order to ensure that only those generally holding a weak position will be afforded protection. However, it is still uncertain how to decide whether the purpose for trade or profession is negligible and when the negligible test should be used. The ECJ suggests taking into consideration the content, nature and purpose of a contract, 12 Benincasa |(n 9), AG para 49–52. A buyer in such contracts can be protected as a small business. eg, the Scottish and English Law Commissions have published a joint report recommending laws with greater protection for small businesses in unequal bargaining positions. See Law Commission joint paper, ‘Unfair Terms In Contracts: Report on a reference under section 3(1)(e) of the Law Commissions Act 1965’ (Law Com No 292, Scot Law Com No 199), Pt 5, and App A, ‘Unfair Contract Terms Bill’, part 3.11. 13 eg, Art 4(1)(e) of the Rome I Regulation applies the law of habitual residence of a franchisee in a franchise contract, where the franchisee is the weaker party. It does not consider a franchisee a consumer though still provides him some protection. 14 Giuliano-Lagarde Report, 23. 15 Gruber v Bay Wa AG Case C-464/01 [2005] ECR I-439, para 39, and also Advocate General Jacos, AG para 29–32. 16 Gruber v Bay Wa AG, para 39.

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as well as all the objective circumstances in which it was concluded.17 This statement can only provide a general principle for interpretation, which hardly contributes to certainty in practice. Concluding a contract partially within and partially outside a person’s trade or profession could occur in two scenarios: one is where the subject matter of the contract is the direct subject of one’s trade or profession; another is where the subject matter of the contract is but the supplementary support for the trade or profession. The Gruber decision can be properly applied in the first scenario. For example, a businessman sells hardware. The subject of his trade or profession is hardware. If the person concludes a contract to purchase hardware for sale, this is a standard business-to-business contract. Even if he uses some hardware for private purposes, it usually does not change the nature of the contract. However, applying the Gruber decision in the second scenario could not be easy. In Gruber v Bay Wa,18 the farmer bought building materials to replace the roof of his farm house. The subject matter of the contract is not for the purpose of direct trade, because the farmer is not a seller of building materials or a professional constructor. The purpose of the purchase is partially used to support the farmer’s profession. The Gruber decision has adopted wide interpretation to construe ‘the purpose within one’s trade or profession’, which includes not only the purpose to engage in direct transactions, but the purpose to support one’s trade or profession. The wide interpretation would exclude a lot of apparent consumer contracts from the protective category. For example, the hardware seller also purchases stationery, such as envelopes, notepads and pens, for his personal family use and also for daily office use. The stationery is not the subject matter of his trade or profession but partially used for the daily maintenance of the professional’s activities. A company manager buys shirts and suits which he mainly wears when going to work. The products are bought partially for the purpose to support his trade or profession. Shall the court define these contracts as business-to-business contracts? It is suggested that the negligible test shall be generated in the circumstances. Although the stationery is partially used for office work, and the shirts and suits are wore primarily when the buyer is doing his trade or profession, the content of the contract and the circumstances to conclude the contract suggest that the professional propose is negligible and the contracts shall be consumer contracts.

iii. Investment Another relevant question is what can be regarded as a purpose outside someone’s trade or profession. At first glance, this purpose should relate to personal or family use, or should be the one that satisfies an individual’s needs in terms of private consumption.19 However, the English High Court held that private investors, who 17 18 19

Gruber (n 15), para 47. Gruber (n 15). Benincasa (n 9), para 17.

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entered into foreign exchange contracts in the hope of making profitable use of their disposable income but did not earn their living from the investment industry, were not engaging in trade.20 It can be concluded that the concept of personal use or private consumption could be interpreted widely to cover every appropriate method of using one’s income for personal purposes, including personal investment.21 The interpretation could be too broad, because it can lead to a result where a person who frequently buys with the sole purpose of resale, can still be protected as a consumer, if he does not earn a living by it. Secondly, it is still uncertain how to decide whether a person earns his living by some commercial activities. There is not a clear line between a person who holds more than one profession, and a person who engages in secondary dealings as a hobby. Should one take into account of the amount of profits earned or the frequency of the activities in order to decide whether a person is contracting in the course of his business? Thirdly, the purpose of investment or buying for resale is to earn profits instead of consuming the subject matter of a contract. Regardless of these difficulties, the European legislators seem to prefer a broad definition. Recital 26 of the Rome I Regulation provides that financial services such as investment services and contracts for the sale of units in collective investment undertakings should be subject to the protective choice of law.

C. Perspective of the Other Party Is it necessary to require that the supplier knew or ought to have known, before or at the time of contracting, the status of the purchaser? Although the EU private international law instruments keep silent on this issue,22 the Giuliano-Lagarde Report comments that if the seller ‘taking all the circumstances into account should not reasonably have known it (ie that the purchaser acts outside of his trade or profession)’, the given contract is not a consumer contract.23 The Hague Convention on the Law Applicable to Contracts for the International Sale of Goods 1986 also defines consumer sales in a way which implies that only if the supplier knew, or ought to have known, that the goods were bought for personal, family or household use at the time of conclusion of the contract, could the other party be regarded as a consumer.24 This requirement is necessary for it protects the good faith and reasonable expectation of the business.25 Consideration should be given to the contract itself and other objective factors, such as the nature of the subject matter of the contract, the quantity of goods ordered, the statement made by the buyer at the time of contracting, etc. The inner intention of the buyer 20

Standard Bank London Ltd v Dimitrios and Styliani Apostolakis [2000] ILPr 766, 771. Ibid, para 21. 22 eg Brussels I Regulation, Art 15; Rome Convention, Art 5(1); Rome I Regulation, Art 6(1). 23 Giuliano-Lagarde Report (n 7), 22. 24 Art 2(c). See also United Nation Convention on Contracts for the International Sale of Goods 1980 (‘Vienna Convention’), Art 3(1). 25 J Hill, Cross Border Consumer Contracts (Oxford, OUP, 2008) 90. 21

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will not be an important factor in deciding his status. However, there should be a tendency to construe a buyer as a consumer unless he behaves in a way leading to the obvious presumption that he is acting within his trade or profession.26 For example, where a buyer enters into a contract with a wholesale company by corresponding on business stationery or mentioning the possibility of recovering VAT, the wholesale company would reasonably presume that this contracting party is a business, and the buyer cannot be protected as a consumer.

D. Personal Situation of the Buyer Should the purchaser’s personal situation, such as his financial power, working experience or education, be taken into consideration when deciding whether he is a consumer? It is true that the purpose of providing conflicts rules is to protect the party who is economically weaker and less experienced than the other.27 However, this purpose aims to protect the whole category of people who are generally weaker against the other category who are generally stronger.28 It does not require the comparative weakness of the consumer to be ascertained in every case. For the interest of legal certainty, it assumes any person who purchases for a purpose outside his trade or profession to be weaker than the supplier.29 Considering the comparative financial or personal situation of the contractual parties in every single case is unworkable.30

E. Legal Person Could a legal person be a consumer? Some laws clearly indicate that only a ‘natural person’ or an ‘individual’ can be a consumer.31 Some other laws have stated that the concept of consumer could be extended to the legal person, providing it acts outside its trade or profession.32 However, it is submitted that, for the purpose of this research, a consumer can only be a natural person. Firstly, the specific private international law rule designed to protect consumers is based on the idea that in general the consumer is in a weak position vis-à-vis businesses. A legal person 26

Gruber (n 15), the Advocate General’s opinion para AG49, and judgment para 51. Case C-89/91 Shearson Lehmann Hutton Inc v TVB Treuhandgesellschaft fur Vermogensverwaltung und Beteiligungen mbH [1993] ECR I-139, para 16; Jointed cases Case C-541/99 Cape Snc v Indealservice Srl and Case C-542/99 Idealservice MN RE Sas v OMAI Srl [2001] ECR I-9049, para 13; GiulianoLagarde Report (n 7), 22. 28 Cape Snc v Indealservice Srl, para 14. 29 Gruber (n 15), para AG36. 30 Briggs and Rees, Civil Jurisdiction, para 2.77. 31 See EC Dir 97/7/EC of 20 May 1997 on the protection of consumers in respect of distance contracts, [1997] OJ L144/1, Art 2(2); Dir 93/13/EEC of 5 Apr 1993 on unfair terms in consumer contracts (‘Unfair Terms Directive’), [1993] OJ L95/29, Art 2(b); US Uniform Commercial Code, Art 2-102. 32 See R &B Customers Brokers Ltd v UDT Finance Ltd [1988] 1 All ER 847, where the Court of Appeal held that a limited company can be a consumer. The Spanish and French Governments once held the same opinion based on their national laws, Cape (n 27), para 19. 27

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does not generally find itself in this weaker position in need of protection.33 Secondly, the natural person purchases for personal or family use, while the legal person purchases for the purpose of its business, or at least, for a purpose relevant to its business. Even if a legal person purchases for its employees to use, it is the employee who is the final user, not the legal person.34 Finally, consumer protection also includes human rights and health considerations, neither of which is applicable to legal persons.35 This interpretation has been accepted by the European private international law. Article 6(1) of the Rome I Regulation clarifies that a consumer should be ‘a natural person’.

F. A Seller Acts Outside his Trade or Profession The last issue relating to the concept of a consumer is whether a consumer can be a seller. This question must seem unnecessary as the literal meaning of the word ‘consumer’ clearly requires the so-identified person to consume or use the subject matter of the contract. However, many legal texts only require a contract to be concluded by a person for the purpose outside his trade or profession,36 without clarifying the exact position of this person in the contract. It is possible for the seller to act outside his trade or profession but the buyer to act within his trade or profession. For example, a person sells his old car to a car agent, or a private shareholder sells his share to the takeover company. The seller is comparatively in an inferior bargaining position, and the contract concluded usually is in a standard form of the buyer. A literal interpretation of such legislative texts would suggest that the seller might have the chance to be defined as a consumer. This interpretation, however, shall not be accepted. Although the seller acts outside his trade or profession, the seller acquires benefits in the transaction instead of paying money for personal consumption. This contract shall be treated as an ordinary commercial contract.37

G. Conclusion It is suggested that in this book a consumer is a person concluding a contract for a purpose outside his trade, business or profession where: (1) The other party of the contract should act within his trade, business, or profession. (2) The purpose of a contract means the purpose at the time of contracting, and the purpose in the future. If a contract is concluded for future business, the purchaser cannot be regarded as a consumer. 33

Cape (n 27), para 15. Shearson Lehmann Hutton Inc v TVB, para 22. 35 European Union, ‘Overview of the European Union Activities—Consumers’,europa.eu.int/pol/ cons/overview_en.htm, last access on 07 May 2006. 36 Brussels I Regulation, Art 15(1); Rome I Regulation, Art 6(1). This problem does not exist in the Rome Convention, where Art 5(1) defines a consumer as a person receiving the goods or services. 37 J Hill, Cross Border, 99. 34

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The Definition and Scope of the Book (3) The contract should be read as a whole. If the subject matter is partially for private use and partially for business purpose, the purchaser cannot be regarded as a consumer, unless the business usage is so little as to be negligible. (4) The other party, before or at the time of contracting, must know or ought to have known the transaction is for a purpose outside the buyer’s profession. If the other party did not know the buyer is acting outside his trade or profession and this ignorance was not attributable to negligence, the purchaser is not a consumer. (5) The buyer’s personal situation, such as his financial power, education, career and qualification will not be taken into consideration when deciding his status. (6) A consumer can only be a natural person. (7) A consumer can only be the one paying money to acquire goods, services or other subject matter of the contract for private or family use.

II. E-Commerce There are many different definitions of the concept of ‘e-commerce’.38 The difference occurs by separately addressing the two crucial concepts, ‘electronic’ and ‘commerce’. With regard to ‘electronic’, a narrow view covers only the use of the internet,39 while a wider view comprises earlier devices, such as telephones, televisions and faxes.40 In relation to ‘commerce’, the widest definition encompasses all activities which have connections with the participant’s trade, business, or profession.41 A narrower definition holds that ‘commerce’ covers only transaction-related activities.42 All these different definitions are sound in some aspects according to the different purposes of the research. It is said that ‘an e-commerce definition is necessarily dynamic and varies with the objective one wants to measure’.43 For the purpose of this book, which is to study the conflict of laws in international business-to-consumer electronic commerce, e-commerce will be limited to all commercial activities over the internet. 38 This problem has been examined by the OECD Working Party on Indicator for the Information Society. OECD ‘Definition and Measuring E-Commerce: A Status Report’ DSTI/ICCP/IIS(99) 4/FINAL, 8–10. 39 OECD ‘Business to Consumer Electronic Commerce: An Update on the Statistics’ www.oecd.org/dataoecd/35/2/2367092.pdf, accessed on 26 Mar 2004. 40 T Puurunen, ‘The Judicial Jurisdiction Of States Over International Business-To-Consumer Electronic Commerce From The Perspective Of Legal Certainty’ (2002) 8 UC Davis Journal of International Law and Policy 133, 135; WTO ‘Electronic Commerce and the Role of the WTO’ (Special Studies No 2 WTO 1998) 1 and 5; WTO ‘Work Programme on Electronic Commerce’ (Electronic Commerce: work programme, adopted by the General Council on 25 Sep 1998) para 1.3; WIPO ‘Primer on Electronic Commerce and Intellectual Property’ (WIPO 2000); E-Commerce Directive, recitals 17 and 18. 41 European Commission, ‘A European Initiative in Electronic commerce: communication to the European Parliament, the Council, the Economic and Social Committee and the Committee of the Regions’, COM(97)157, 15 Apr 1997. 42 C Kessedjian, ‘International Jurisdiction and Foreign Judgments in Civil and Commercial Matters’ (Hague Conference on Private International Law, Prel Doc No 7, 1997) 17. 43 OECD ‘Definition and Measuring E-Commerce, 9–10.

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A. Electronic Commerce is Internet Commerce This book focus on studying specific private international law issues arising on the ‘internet’. Firstly, although some earlier electronic communication instruments, such as telephone, broadcasting, television and fax, share some characteristics of the internet, the real bloom of this new commercial model has only occurred after the introduction of the internet into commerce. The internet acts not only as a communication medium, but also as a systematic, large-scale, broadcast and interactive commercial instrument.44 Like television and radio, the internet can provide large-scale broadcasting to a wide range of customers; like telephone and fax, the internet allows inexpensive communications and interactions between distant parties;45 the internet also has the capacity to deliver intangible products. The internet integrates all the valuable features of traditional electronic instruments, which makes it unique. Secondly, the internet creates innovative business modules, such as transactions of digital products, online libraries, online education, etc. The transaction of digital products fundamentally changes the way in which business is carried out. By adopting any other electronic communication instruments, information products, such as books, music and video, have to be provided within a physical medium. On the internet, these products can be provided in the form of data messages, which can be transferred simply through telecommunication lines. This form of transaction only exists on the internet, which brings challenges to traditional commercial law, including the conflict of laws. Thirdly, a large number of international business-to-consumer contracts have only come into existence since the development of the internet. Before that, very few consumers directly took part in international transactions using the earlier electronic communication instruments, owing to the high cost and inconvenience. Fourthly, compared with other electronic communication instruments, the internet brings far greater challenges to private international law. Other instruments may act merely as an alternative communication method to simplify commercial procedure, which will not bring too many changes to the application of traditional private international law rules. Only the internet, holding all the characteristics such as internationalism, non-centralism, anonymity and nonadministration, creates interesting private international law issues and requires a thorough study.

44 V Heiskanen, ‘Dispute Resolution In International Electronic Commerce’ (2002) 5 E-Commerce Law Report 2. 45 eg Art 2(6) of the E-Commerce Directive excludes the e-instrument, which only broadcasts but is not interactive, from the scope of e-commerce.

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B. E-commerce Covers all Relevant Commercial Activities Online This book adopts a wide definition of commerce to address all relevant online commercial activities with the consumer as one party. It covers all types of behaviour, such as distribution, marketing, sale or delivery of goods or digital products and provision of services by electronic means. It is inappropriate to cover only transaction-related activities, which might be too narrow. Transaction-related activity excludes many important business arrangements such as advertising and email promotion, which are important in e-commerce and raise challenges to traditional private international law. In this book, e-commerce means all consumer-oriented activities carried out on the internet.

III. Contract The concept of contract differs from one country to another. Due to the difficulty of definition, many international conventions simply leave this issue open.46 The European Community intends to provide a harmonised definition for most concepts used in the European instruments.47 The Rome Convention and its successor the Rome I Regulation contain the European choice of law rules in contractual obligations, but they do no define the concept of contractual obligation. The ECJ has provided some guidance to the concept ‘matters relating to a contract’ in Article 5(1) of the Brussels I Regulation. According to the ECJ decisions, matters relating to a contract do not exist where there is no obligation freely assumed by one party against another,48 but it is uncertain whether there must be such a matter if a freely assumed obligation exists,49 whether the definition is wide enough to cover restitutions, pre-contractual obligations and other related issues, and whether ‘matters relating to a contract’ have the same range as a contractual obligation.

46 eg Hague Sale of Goods Convention 1955; Hague Sale of Goods Convention 1986; Vienna Convention 1980; Inter-American Convention 1994. 47 Case 9/87 SPRL Acardo v SA Haviland [1988] ECR 1539, 1554; Case 34/82 Martin Peters v Zuid Nederlandse [1983] ECR 987; Case C-26/91 Jacob Handte v Traitements [1992] ECR I-3967. 48 Jacob Handte v Traitements; Case C-51/97 Réunion européenne SA v Spliethoff’s. Bevrachtingskantoor BV [1998] ECR I-6511; Case C-265/02 Frahuil v Assitalia, [2004] ECR I-1543; Case C-234/04 Kapferer v Schlank [2006] ECR I-2585; Case C-27/02 Engler v Janus Versand GmbH [2005] ECR I-481. This definition is provided for in Art 5(1) of the Brussels I Regulation, and shall generally be used for ‘consumer contracts’ because Art 15 is a lex specialis relating to Art 5(1). Cf Case C-96/00 Gabriel v Schlanck & Schick GmbH [2002] ECR 6367, para 36; Re Jurisdiction in a Claim Based on a Prize Draw Notification (BGH(Ger)) [2007] ILPr 15, para 9. 49 In Base Metal Trading Ltd v Shamurin [2004] EWCA Civ 1316, para 26, Tuckey LJ said: ‘however that use of the double negative somewhat blunts the force of this passage.’ Also Briggs and Rees (n 5), para 2.126.

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The Rome II Regulation on the law applicable to non-contractual obligations provides further guides on classification.50 The Rome II Regulation expressly covers quasi-contractual issues, namely unjust enrichment, negotiorum gestio and culpa in contrahendo. It is also suggested that the definition and scope should be consistent between the three European conflict of laws instruments.51 As a result, unjust enrichment, negotiorum gestio and culpa in contrahendo are not contractual obligations in a strict sense, and should be excluded from the scope of the Rome I regime. However, if these non-contractual obligations are relating to the contractual relationship between the parties, they should be governed by the law governing the contractual relationship. It is thus uncertain whether these noncontractual obligations, if in connection to a contract, can be included within the scope of ‘matters relating to a contract’ in Art 5(1) of the Brussels I Regulation, which, according to the language used, would have a wider scope to cover obligations that are not contractual in a strict sense but relating to a contract and should be governed by the same law applicable to a contract. This book does not provide a uniform definition for contract, but it considers some controversial issues relating to the classification. It does not analyse the different classifications for contractual obligations in detail. It only discusses the most common issues and considers the specific requirement for the classification in consumer conflict of laws.52

A. Non-Existence of a Contract If a wide definition has been provided, the concept of ‘contract’ should cover all matters relating to a contract, and a dispute between a consumer and a business concerning the existence of a contract shall be covered.53 If the scope is narrow, only the dispute relating to an existent contract could be covered.54 According to some ECJ cases, consumer protective jurisdiction rules apply only when a consumer contract has been formed.55 In Engler v Janus, an Austrian consumer received a letter personally addressed to her from a Germany company which led her believing that she had won a prize draw. After the consumer conducted the instructed activities by returning the payment notice confirmation, the company refused to pay the sum arguing there was no contract concluded. The ECJ provided a literal interpretation of the text of the Brussels Convention, which says 50 Reg (EC) No 864/2007 on the law applicable to non-contractual obligations of 11 Jul 2007 [2007] OJ L 199/40. 51 Recital 7 of Rome II and Recital 7 of Rome I. 52 For a specific discussion on classification, see A Layton and H Mercer, European Civil Practice, 2nd edn (London, Sweet & Maxwell, 2004), 411–24; Briggs and Rees (n 5), 144–58. 53 Case C-38/81 Effer v Kantner [1982] ECR 825; Case C-334/00 Fonderie Officine Meccaniche Tacconi SpA v Heinrich Wagner Sinto Maschinenfabrik GmbH [2002] ECR I-7377; Boss Group v Boss France SA [1997] 1 WLR 351. The wide interpretation is adopted in consumer contracts by Austrian and German Governments, see Kapferer v Schlank, para AG38. 54 Engler v Janus (n 48), para 36–8; Kapferer (n 48), Advocate General Tizzano, AG para 51-3. 55 Engler v Janus.

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‘(i)n proceedings concerning a contract concluded by . . . “the consumer”, jurisdiction shall be determined by this Section’.56 The ECJ held that the text shows that only a ‘concluded’ contract should fall within the protective provisions.57 This narrow interpretation is unfortunate. Firstly, the purpose of specific conflicts rules is to protect the weaker party in a contractual relationship when dealing with a stronger party, and the stronger party is able to acquire benefits from such a relationship. Even if a contract is not eventually concluded, the inequality of power exists which affects the contract related relation between the parties. To protect the weaker party in such a relationship meets the principle of the protective conflicts rules.58 Secondly, if the non-existence of a contract is excluded from the protective scope, it can be abused by the company, which is able to manipulate the process of advertising and the conclusion of a contract. It is submitted that the scope of this book shall be wide enough to cover the non-existence of an alleged contract between a business and a consumer. Disputes relating to the existence of a contract are expected to occur more frequently in e-commerce. Due to the specific form of an e-contract, the specific procedure to conclude a contract, and the fact that communications are carried out in distance and through machines, it is very possible for a court to conclude that the alleged contract has not been formed. It is particularly inappropriate to exclude consumers in these contracts from protection. Furthermore, because of the large-scale communication capability of e-commerce, there would be more and more cases where advertising materials are addressed to internet users either through unsolicited email or through a pop up window, containing a prize draw notification. An innocent consumer is easily convinced to believe he has won a prize and does some performance accordingly, which may cause disputes on the existence of a contract. It is unreasonable to deprive the consumer from the conflicts rules protection when a dispute is arising. The non-existence of the contract is due to the fault of the business, and the business should not be allowed to benefit from its wrong.

B. Pre-Contractual Obligations It is also questionable as to whether pre-contractual obligations shall be covered by the concept of contract. According to the House of Lords, pre-contractual obligations including misrepresentation are covered by ‘matters relating to a 56

Art 13. Engler (n 48), para 40, and AG Jacobs’s opinion, para 23. Ironically, the ECJ decided that the issue is contractual in nature for the purpose of Art 5(1) of the Brussels Convention. See P Nielsen, in U Magnus and P Mankowski, Brussels I Regualtion (Germany, Sellier-European Law Publishers, 2007), 309. Cf Gabriel v Schlanck, which concerns a case where the prize notification led to the conclusion of a sale of goods contract. The same view has been adopted by Advocate General Trstenjak in Case-C 180/06 Ilsinger v Martin Dreschers. There are different material facts in Gabriel. See also J Hill (n 25), 85–7. 58 See the Austrian Government’s opinion, summarised in Engler (n 48), para 39. 57

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contract’ in the European conflict of laws scheme.59 However, the ECJ held in a later case Fonderie v Heinrich that the pre-contractual obligations characterised by the absence of obligations freely assumed by one party towards another and by a possible breach of rules of law to require the parties to act in good faith in precontractual obligations shall be classified as non-contractual.60 The Rome I Regulation clearly excludes pre-contractual obligations from its scope,61 while the Rome II Regulation deals with non-contractual obligations, which covers culpa in contrahendo.62 Pre-contractual obligations thus are not contractual in a strict sense, but it certainly is closely connected to a contract. Excluding pre-contractual obligations from protective scheme is inappropriate as it enables the wrongdoer to take advantage of his wrong.63 In e-commerce, there is no chance for a consumer to investigate the products and the consumer has to rely on the business’s presentation. Once a consumer is induced in entering into a contract by the company’s misrepresentation, the consumer should be able to rely on the protective jurisdiction and choice of law to sue the company. Also, according to the ECJ decision in Gabriel,64 if the pre-contractual obligation is so closely connected to an existing contract that they are indissociable, the pre-contractual obligation is classified as a matter relating to a contract. It is justified by policy reasons as it is better for the sound administration of justice to permit one court to consider both issues together in order to avoid the situation where several courts have jurisdiction in respect of one contract. It is thus submitted that excluding pre-contractual obligations from a contract makes the scope too narrow. It is clear that pre-contractual obligations are generally obligations imposed by law instead of obligations freely assumed between the parties. However, some pre-contractual obligations cannot be dispensable from the negotiation with the intention to conclude a contract. As it is suggested by Advocate General Geelhoed in Fonderier, there should be different types of precontractual obligations.65 Where a contract is concluded, a pre-contractual issue which is closely connected to the existing contract should be classified as a matter relating to a contract. At the stage where no contract is actually formed but the whole circumstances show an obligation assumed between the parties, the 59 Agnew v Länsforsäkringsbolagens AB [2001] 1 AC 223 (Lord Hope of Craighead and Lord Millett dissenting). See also D Evrigenis and KD Kerameus, ‘Report on the Accession of the Hellenic Republic to the Community Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters’ [1986] OJ C 298/86, para 49. 60 Fonderie v Heinrich, para 19–27. See also Alfred Dunhill ltd v Diffusion Internationale de maroquinerie de Prestige SARL & Ors [2001] CLC 949, 961. Cf Engler (n 48), where the prize notification might only arise in pre-contractual obligations, but have been classified as a matter relating to a contract in Art 5(1). 61 Art 1(2)(j). 62 Arts 2(1) and 12. Recital 30. 63 National Report England/Wales (British Institute), Study JLS/C4/2005/03, para 2.2.1.3. It is also suggested that a teleological construction should be adopted regardless of the actual wording of the Article. See also Briggs and Rees (n 5), para 2.76. 64 Gabriel (n 48), para 52–4. 65 Fonderie (n 53), paras 81–5. See also Engler (n 48). It is also consistent with Gabriel (n 48).

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pre-contractual obligation arising at this stage should be a matter relating to a contract.66 This interpretation suggests that pre-contractual obligations relating to an obligation which one party freely assumed against another, whether the contract is eventually concluded or not, are contract-related obligations.

C. The Consequence of Nullity of a Contract The consequence of nullity of a contract has been traditionally classified as a restitution issue in the UK, which is distinct from contract.67 In Kleinwort Benson v Glasgow City Council,68 the claimant sued for recovering money paid to the defendant in a contract which was void ab initio. Disputes arose as to whether the claim was a matter relating to a contract under Article 5(1) of the Brussels Convention. The House of Lords held by majority that the restitution claim under a void contract was not a matter relating to a contract. However, both the Rome Convention and the Rome I Regulation provide that the consequence of nullity of a contract, including obligations arising out of unjust enrichment, shall be classified as a contractual obligation.69 This classification, strictly speaking, may conflict with Article 10(1) of the Rome II Regulation, which classifies unjust enrichment, even though arising out of a contract, as one of the non-contractual obligations, though the difference will not cause substantial difficulties in practice because the choice of law rule under Rome II refers one back to the contractual conflicts rules in the Rome I regime to decide the applicable law to such unjust enrichment.70 The classification of the consequence of nullity of a contract is uncertain in the European Community. Regardless of the controversial provisions in the Rome I regime, it is suggested that including restitution in the concept of contract would be too ambitious, which is inconsistent with the theory and practice in most countries. However, restitution in connection to a contractual relationship could be reasonably construed as ‘a matter relating to a contract’. From the choice of law point of view, unjust enrichment relating to a contract should be governed by the law applicable to the contract. From a jurisdiction perspective, it is better for the practical convenience to allow one court to hear claims on the restitution consequence resulting from a decision that the contract is void.71 A very wide interpretation has been proposed by Advocate General Darmon, who suggested that ‘an action based on tortious and contractual liability and unjustified enrichment is 66

Fonderie (n 53). Contracts (Applicable Law) Act of 1990, s 2(2). Kleinwort Benson v Glasgow City Council [1999] 1 AC 153. It does not exclude all claims for restitution from Art 5(1). If the restitution arises out of a valid contract, Art 5(1) shall apply. See Cheshire, North & Fawcett, Private International Law, 14th edn (Oxford, OUP, 2008) 231. 69 Art 10(e) of the Rome Convention and Art 12(1)(e) of the Rome I Regulation. For more discussion on restitution, see Layton and Mercer, European Civil Practice, 419–22; National Report of England and Wales (n 63). Kleinwort Benson v Glasgow City Council, 168. 70 Art 10(1) of the Rome II Regulation. 71 See Kleinwort Benson (n 68) 174–7 (per Lord Nicholls). 67 68

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governed exclusively by the rules laid down for contractual matters by article 5(1) of the (Brussels) Convention’.72 Although this interpretation is too broad to be accepted by the ECJ, it does recognise the possibility of concurrent claims of contract and restitution. The restitution claim usually arises concurrently with a claim concerning the existence or nullity of a contract, and it is convenient to leave all the issues to one jurisdiction. Furthermore, in relation to consumer claims, it is unwise to provide too narrow a scope to contract. Because the European private international law only provides protection to ‘consumer contracts’, a consumer would not get any private international law protection on issues excluded from ‘contract’. A narrow definition is contrary to the policy of consumer protection.

D. Conclusion It is suggested that a scope for consumer contracts in the conflict of laws should be wide enough to cover all ‘contract-related issues’ instead of simply ‘contractual obligations’. It includes the question of the existence of a contract, the nonexistent contract, the pre-contractual obligations arising at the stage where there is assumed obligations between the parties and the consequence of nullity of a contract. Providing a broad scope is not because the book aims to adopt an ambitious view by extending the concept of contract to those issues traditionally held non-contractual, but primarily due to the practical convenience and protective necessity. Since the protective conflicts regime currently only exists in contractrelated consumer disputes and these quasi-contract issues would frequently arise in consumer contracts, providing a wide scope is better for the protection of consumers.

72

Case 189/87 Kalfelis v Bankhaus [1989] ECC 407, 415.

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3 Jurisdiction in Electronic Consumer Contracts (1) The Rule-Based Approach in the Brussels I Regulation I. Introduction In the absence of a valid choice of forum clause,1 there are two models that could be applied to ascertain jurisdiction in electronic consumer contracts. Firstly, there are rule-based approaches with specific protective provisions for consumer contracts to protect consumers as the weaker party. Second, there are discretion-based approaches without specific rules for consumer protection where the weaker position of consumers could be considered on a case-to-case basis. It is necessary to study and compare these two models to see which one is more appropriate to achieve predictability and fairness in electronic consumer contracts. The rule-based model is studied by examining the Brussels I Regulation, which is regarded as the most typical and updated legislation in answering the urgent requirement to regulate jurisdiction issues in electronic consumer contracts. The Brussels I Regulation replaces and updates the Brussels Convention, with the specific purpose ‘to offer consumers better protection, notably in the context of electronic commerce’.2 This chapter focuses on the general protective jurisdiction rules in the Brussels I Regulation to see whether these provisions could work effectively in e-commerce, and whether they could eventually promote the development of consumer-oriented electronic commerce in Europe.

1

Consumer contracts with choice of forum clauses will be discussed in Ch 6. European Commission, Proposal for a Council Regulation (EC) on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters COM(99)0348 final, [1999] OJ C 376E/1, 7. 2

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II. Basis of Jurisdiction in Consumer Contracts— Article 16 The basic jurisdiction rule in the Brussels I Regulation is founded on the doctrine of actor sequitur forum rei. It has provided that ‘jurisdiction is generally based on the defendant’s domicile and jurisdiction must always be available on this ground save in a few well-defined situations’.3 However, specific jurisdiction rules have been applied to consumer contracts because ‘the weaker party should be protected by rules of jurisdiction more favourable to his interest than the general rules provide for.’4 The basic principle of jurisdiction in consumer contracts is set up in Article 16 of the Brussels I Regulation, which provides that: 1. A consumer may bring proceedings against the other party to a contract either in the courts of the Member State in which that party is domiciled or in the courts for the place where the consumer is domiciled. 2. Proceedings may be brought against a consumer by the other party to the contract only in the courts of the Member State in which the consumer is domiciled.

This basic principle indicates a strong tendency to protect the consumer as the weaker party in international transactions. It has been justified by the ECJ that: [T]he special system established . . . is inspired by the concern to protect the consumer as the party deemed to be economically weaker and less experienced in legal matters than the other party to the contract, and the consumer must not therefore be discouraged from suing by being compelled to bring his action before the courts in the Contracting State in which the other party to the contract is domiciled.5

Comparatively, to require a business to have litigation abroad would be more practical, as the business has the necessary litigation power to participate in a foreign action. In addition, it would be more reasonable to require the business to have foreign litigation, as the risk of foreign litigation can be justified as the cost of an expanding market and acquiring additional economic benefits from consumers in foreign states.6 However, the protective jurisdiction basis should not be applied to a level that will prejudice business activities and damage the economy. In e-commerce, the strong communication power of the internet might potentially subject businesses to the courts of all the Member States.7 In order to achieve a reasonable balance between consumer protection and business promotion, the Brussels I Regulation limits the application of the protective jurisdiction rules by 3

Brussels I Regulation, recital 11. Recital 13. 5 Case C-89/91 Shearson v TVB [1993] ECR I-139, para 18. 6 See B Dahl, ‘Consumer Protection and the Provisions on Jurisdiction in the 1968-EEC Judgments Convention’ (1977) 46 Nordisk Tidsskrift Int’l Ret 104, 104–5. 7 For criticisms, see T Puurunen, ‘The Judicial Jurisdiction Of States Over International BusinessTo-Consumer Electronic Commerce From The Perspective Of Legal Certainty’ (2002) 8 UC Davis Journal of International Law and Policy 133, 171. 4

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providing certain pre-requisites under Article 15. These pre-requisites are crucial to the efficiency of jurisdiction rules and require detailed analysis.

III. The Scope of Protection—Article 15 The condition for applying the protective jurisdiction rules is provided in Article 15. Article 15(1) provides three specific circumstances where a consumer contract falls within the scope of protection. It will be specifically examined in this section. Article 15(2) extends the protective jurisdiction rules to contracts concluded by a non-EU defendant, which enlarges the scope of consumers that can be protected by the protective section. The specific feature of Article 15(2) will be examined in Section IV. Besides, Article 15(3) excludes a contract of transport except a contract of package travel from the scope of protection. The exclusion is justified by Schlosser Report in that ‘such contracts are subject under international agreements to special sets of rules with very considerable ramifications, and the inclusion of those contracts . . . purely for jurisdictional purposes would merely complicate the legal position.’8 Jurisdiction rules applying to ordinary contracts in Sections 1 and 2 of the Regulation continue to apply to contracts of transport. Furthermore, the interrelationship between Section 4 and other jurisdiction provisions suggests that the protective jurisdiction rules of the Brussels I Regulation will not apply to the following specific contracts: (1) contracts relating to the right in rem in, or tenancy of, immovable property, which are subject to the exclusive jurisdiction of the Member State where the immovable property is located;9 (2) contracts relating to the short term tenancy of immovable property concluded for temporary private use for a maximum period of six months and both parties are domiciled in the same Member State, where the Member State of the defendant’s domicile has jurisdiction under the second paragraph of article 22(1);10 (3) insurance contracts, where Section 4 provides different protective jurisdiction to protect the insured. The following discussion is based on the premise that these contracts are not included. 8 P 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’ (Schlosser Report) [1979] OJ C59/71, 119. For more discussion on jurisdiction in contracts of transport, see J Hill, Cross Border Consumer Contracts (Oxford, OUP, 2008) 125–7. 9 Art 22(1). However, it is currently uncertain whether timeshare contracts should be covered in the category. Based on the protective policy and the specific characteristic of timeshare contracts, and in light of the correspondent rule in Art 6(4)(c) of the Rome I Regulation, it is suggested that timeshare should be excluded from Art 22(1) and be subject to the protective jurisdiction rules. Ch 9, s III.B.iii. For more discussion, see Hill, Cross Border, 107–13. 10 Hill (n 8).

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A. Contracts for Consumer Credit—Articles 15(1)(a) and (b) Article 15(1) provides certain conditions for the application of consumer protection provisions. Article 15(1)(c) is the most interesting, original but controversial contribution which will be discussed separately in the next section. Article 15(1)(a) and (b) follow their precedents in the Brussels Convention, which permits contracts relating to the consumer credit to be covered by the scope of protection. Two alternative conditions relating to a consumer credit contract have been provided. When the contract is ‘a contract for the sale of goods on instalment credit terms’, or ‘a contract for a loan repayable by instalments, or for any other form of credit, made to finance the sale of goods’, the consumer is automatically entitled to have litigation in the court of his domicile.

i. ‘Sale of Goods’ in E-Commerce Applying these provisions in electronic consumer contracts will encounter the difficulty of defining the concept of ‘sale of goods’ in electronic commerce. This term has no universal definition, and there is no autonomous community meaning given to it. However, as to the concept of the EC Regulation, it should be interpreted by an autonomous European meaning instead of by using the conflict of law rules to refer to any domestic law.11 A proper community interpretation to ‘sale of goods’ in this provision has to be formulated. The relevant definitions in the UN Convention on the International Sale of Goods (CISG) 1980 (Vienna Convention) and the Hague Convention on the Law Applicable to International Sale of Goods of 1955 and 1986 are less helpful here and can only be treated as imprecise guides for three reasons.12 First, none of them provides a positive and precise definition of ‘sale of goods’ other than an incomprehensive list of the ‘goods’ that might or might not be covered.13 This list cannot show whether a particular subject matter in e-contract shall be excluded or included in the scope of ‘goods’, and produces confusion. Secondly, these conventions predate the development of e-commerce. There exists a notable absence of any consideration of the concept of ‘sale of goods’ in e-commerce. Thirdly, according to the Vienna Convention and Hague Sales Convention 1986, the consumer transaction is expressly excluded from the ‘sale of goods’.14 It is thus necessary to analyse different types of online transactions to find out whether they are the sale of goods, the provision of services, or something else. 11 Case 150/77 Bertrand v Paul Ott KG [1978] ECR 1431; Shearson v TVB; Case C-269/95 Benincasa v Dentalkit Srl [1997] ECR I-3767; Case C-99/96 Hans-Hermann Mietz v Intership Yachting Sneek BV [1999] ECR I-2277. J Fawcett, J Harris and M Bridge, International Sale of Goods in the Conflict of Laws (Oxford, OUP, 2005) para 3.148; Hill (n 8) 81–3. 12 Cf Fawcett, Harris and Bridge, International Sale, para 3.148. 13 Vienna Convention, Art 2; Hague Sales Convention 1955, Art 1; Hague Sales Convention 1986, Art 2. 14 Art 2(a) of the Vienna Convention, and Art 2(c) of the Hague Sales Convention 1986.

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a. Transaction of Physical Products Where a contract is about the transfer of tangible movable property, even if the contract is negotiated and concluded online, the nature of this transaction is of no difference from that of a traditional transaction. It is a ‘sale’, and the physical products are ‘goods’.15 As to some materials, which could be sold by both tangible and intangible forms, such as music, movies, and books, there is also no much doubt that once these materials are contained in physical mediums, the transaction of them should be categorised as the ‘sale of goods’. Things are different as to the transaction of software on a disk. Scott Baker J in St Albans City and District Council v International Computers Ltd indicated that software was probably goods because it was necessarily contained in a physical medium.16 This opinion has been rejected by Lord Penrose in Beta Computers v Adobe Systems,17 who held that decisions have to be made according to different types of software and different forms of transaction. In this particular case, the supply of customised software was held to be neither a sale of goods nor a provision of services, but a sui generis supply.18 In the US, some courts tend to draw a distinction between the ‘off the shelf’ purchase and the ‘customised’ purchase, and hold the former the ‘sale of goods’ while the latter the ‘provision of service’.19 However, some other cases in the US also treat the customised software as ‘goods’.20 It is reasonable to decide the nature of the transaction of software case-bycase.21 Apparently, the supply of software can be categorised into the supply of standardised software off the shelf, and the supply of customised software specifically designed to meet the requirements of a particular customer. The former has similar features to the sale of hardcopy books, music CDs and movie DVDs. What is actually purchased is the ‘information’, or in the more accurate terminology, the right of the usage of the intellectual property. During the purchase, the copyright in the product is transferred to the buyer. Although Lord Penrose in the Beta case argued that the means of access and use of software are different from those of 15 There is not much controversy as to this question. See Vienna Convention, Art 2; Hague Sales Convention 1955, Art 1; Hague Sales Convention 1986, Art 2; UK Sale of Goods Act 1979 (c 54), ss 2(4) and 61(1). 16 St Albans City and District Council v International Computers Ltd [1995] FSR 686. The decision has been confirmed by Sir Iain Gildewell in obiter dictum in the appeal, [1997] FSR 251, 265 (reversed in other part). 17 Beta Computers v Adobe Systems [1996] FSR 367. 18 Ibid, 375–7. 19 eg, Micro-Managers Inc v Gregory 147 Wis 2d 500 (Wis Ct App 1988) 507; Data Processing Services v L H Smith Oil 492 NE 2d 314 (Ct App IN 1986); TK Power v Textron, 433 F Supp 2d 1058 (N D Cal 2006) 1062–63; Geotech Energy Co v Gulf States Telecommunications and information Systems 788 S W 2d 386 (Tex App 1990) 389. 20 Advent Systems v Unisys 925 F 2d 670 (3d Cir 1991) 674; Colonial Life Insurance Company of America v Electronic Data Systems 817 F Supp 235 (DNH 1993) 239; Communications Groups v Warner Communications 527 NYS2d 341 (NY Misc 1988) 344; Dealer Management Systems v Design Automative Group 355 Ill App 3d 416 (Ill App 2 Dist 2005) 419; Wachter Management Co v Dexter & Chaney 2006 WL 3040618 (Kan 2006). 21 TK Power v Textron 433 F Supp 2d 1058 (N D Cal 2006) 1062; Beta (n 17) 375.

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books, it is suggested that the means of access and use of products by the buyer do not change the nature of these products. The standard software on disk supplied off the shelf is a ‘sale of goods’. The supply of customised software to an individual to suit his particular requirements includes the supply of physical products and the provision of specific labour and ability. It can be categorised as the sale of goods, the provision of services, or both. It has been suggested that the nature of the transaction should depend on the predominance of the information product or the labour.22 In practice some courts would tend to construe the supply of customised software as the ‘sale of goods’ when the proportion of labour does not predominate, or the proportion of each obligation is hard to determine, in order to provide a more predictable and uniform result.23 b. Transaction of Intangible Products Defining the nature of intangible products is controversial. They are held as ‘goods’ by some decisions in Germany, Switzerland and the US.24 However, Lord Penrose in Beta Computers rejected the idea that software transferred through a telephone line is covered by goods, though he did not provide a precise definition of this type of transaction.25 Some insist that goods should be physical, tangible objects. For example, ‘goods’ is defined in the US Uniform Computer Information Transactions Act (UCITA) as ‘all things that are movable at the time relevant to the computer information transaction’ and does not include ‘computer information’ or ‘general intangibles’.26 This definition has been turned over in some other legal instruments where goods extend to electricity, power, gas and heating.27 Some others prefer to interpret digital products as ‘services’.28 However, the preponderant part of the obligation of the business is to provide the right of usage, 22 BMC Indus v Barth Indus 160 F3d 1322 (11th Cir 1996). See also J Whitcomb, ‘Mattoon v City of Pittsfield’ (2006) 40 New England Law Review 1023. 23 RRX Indus v Lab-Con 772 F2d 543, 546 (9th Cir 1985); Waterfront Properties v Xerox Connect WL 266581 (WDNC, 2006). See also Art 3(2) of the Vienna Convention. 24 See the decisions in German and Swiss courts: Oberlandesgericht, Koblenz, of 17 Sep 1993 (cisg3.law-pace.edu/cases/930917gi.html); the Commercial Court (Handelsgericht) of the Canton of Zurich of 17 Feb 2000 (cisg3.law.pace.edu/cases/000217sl.html). See also the submission by the US to the General Council of WTO, ‘The Council For Trade In Services, The Council For Trade In Goods And The Committee On Trade And Development WTO Work Program On Electronic Commerce’, 11 Feb 1999, 6; F Debussere, ‘International Jurisdiction Over E-Consumer Contracts In The European Union: Quid Novi Sub Sole?’ (2002) Computers and Information Technology 10, and n 31–6 therein. 25 Beta (n 17) 376. W Hellerstein, ‘Jurisdiction to Tax Income and Consumption in the New Economy: A Theoretical and Comparative Perspective’ (2003) 38 Georgia Law Review 1, 29, where he describes services, digital products and intangibles supplies as something other than goods. 26 UCITA 2002, s 102(a)(33). 27 EC Directive 77/388/EEC on the harmonisation of the laws of the Member States relating to turnover taxes—Common system of value added tax: uniform basis of assessment, [1977] OJ L 145/1, art 5(2). 28 eg, the European Union claimed that digital products should be classified as services other than goods and should not be covered under GATT, see ‘Digital Products: The Case For Services—Why The GATS Applies To Digital Products’ (European Commission, Brussels, 26 Mar 1999). europa.eu.int/ comm/trade/services/ecommerce/digi.htm, accessed on 27 Sep 2004.

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instead of the supply of labour.29 There is also the third approach to classifying the transaction of digital products as neither the ‘sale of goods’ nor the ‘provision of services’,30 which does not provide a clear legal status to intangible products.31 A comparison should be made between digital products sold in intangible form and those products sold in physical mediums. The only difference is that the latter has a physical carrier, while the former has not. Some argue that there should be two contracts in the sale of information products contained in physical carriers. One is the contract for the supply of the physical carrier; another is the contract for the supply of information.32 This could be justified on the ground that the physical carrier contributes a part of the total value of the product, and the physical carrier may be defective or subject to damage, which makes the whole product unusable.33 As a result, the supply of information products contained in physical mediums is the sale of goods while the supply of intangible products is of a different nature. Although this argument is sound to the extent that the physical medium does contribute to the total value and quality of the product, it exaggerates the importance of the physical medium. The nature of purchasing digital products online has no difference from its traditional counterpart. For example, in traditional commerce, a consumer can buy music contained in a CD, where what the consumer really buys is not the physical CD carrier but the music. The price paid is primarily for the music and only a small part for the cost of the CD, which is usually negligible. The quality of the CD does affect the quality of the product, but it does not mean that the CD dominates the product and can be decisive to its nature. The situation is the same for other digital products such as software, books and PC games. E-commerce only changes the form of their existence and delivery, enabling them to be received free from any physical mediums, without changing their nature. Furthermore, with the development of modern technology, goods should be extended to cover both tangible products and intangible products, such as gas, electricity and information. It is suggested that the status of intangible products delivered online is of no difference from the status of information products transferred in tangible mediums.34 The transaction of e-book, music and standard software in the form of digital products is the sale of goods.

29

Vienna Convention, Art 3(2). C Reed, Internet Law: Text and Materials, 2nd edn (Cambridge, CUP, 2004) 182; Fawcett, Harris and Bridge (n 11) para 10.49. See also Beta (n 17) 377. Although Beta is about software contained in physical mediums, the court held that there should be no difference between this transaction and the transaction of software without physical carriers. 31 For this reason, this decision has been criticised by some writers. See B Goodger, ‘Beta Plus For Effort; Beta Minus For Clarity’ (1996) 18 European Intellectual Property Review 636, 638. 32 Eurodynamics Systems Plc v General Automation Ltd (6 Sep 1988 unreported). 33 Beta (n 17) 376. 34 M Foss and L Bygrave, ‘International Consumer Purchases Through the Internet: Jurisdictional Issues Pursuant to European Law’ (2000) 8 International Journal of Law and Information Technology 99; Beta (n 17) 376. Cf Sir Iain Gildewell held tangible software was goods but intangible software was not in the appeal in St Albans City v International Computers, 265. 30

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c. Transactions of Intangible Specialised Ability It is clear that the transaction of intangible specialised ability, where the value of the subject matter largely relies on the labour or the use of specialised equipment, is the ‘provision of service’. In e-commerce, many traditional services can be provided online, by sending an email or taking use of other electronic communication instruments, where the nature of the transaction does not change at all. There are also new internet-based services, such as online translation, online virus-scan and online technical support. Many online activities are complex. They may include both the sale of goods and the provision of services. In these cases, it is necessary to use the predominant test to examine the nature of contracts. Confusion may exist as to the nature of an e-library. As a traditional library, an e-library enables its customers to access the online catalogue, to access the information and to ‘borrow’ e-books. It seems that an e-library provides information services. However, different from a traditional library where a book is borrowed and should be returned in the future, an e-library lends books in the way of uploading. An e-library user simply ‘downloads’ and ‘saves’ part of the book or article that he has ‘borrowed’, without the necessity to return. It is questionable as to how many differences exist between downloading e-books from an e-library and purchasing e-books directly from an e-book seller. The latter has been classified as the sale of goods.35 The predominant test could be applied to decide the nature of an e-library. Consumers usually pay annual fees in order to access an e-library, which enables them to search and to access information. The fee paid by a consumer is to access and use the information instead of buying each book that has been downloaded by the consumer. Furthermore, an e-library would regulate the consumer’s access to a book by requiring the consumer to delete a copy within a period of time or by limiting the consumer’s right to print more than a percentage of the total book. The predominating obligation of an e-library is to provide information services instead of selling books.

ii. Consumer Credit on Instalments or Other Forms of Credits Articles 15(1)(a) and 15(1)(b) apply to contracts for consumer credit, which has been interpreted in Bertrand as a transaction in which the price is paid by way of several payments or which is linked to a financing contract.36 It has been justified that this type of purchase could induce consumers to buy where payment in a lump sum would cause economic difficulties to them.37 The consumer may be misled as to the real amount which he owes and will bear the risk of losing the product while remaining obligated to pay any outstanding instalments.38 As a 35

S b. Transaction of Intangible Products above. Bertrand v Paul Ott KG, para 20. Cited in Mietz v Intership Yachting, para 28. See also P Jenard, ‘Report on the Convention on Jurisdiction and the enforcement of judgments in civil and commercial matters’ (Jenard Report) [1979] OJ C 59/1, 33. 37 Bertrand (n 11), Opinion of Advocate General Capotorti, para AG 3; cited by Advocate General Leger in Mietz (n 11), para AG52. 38 Mietz (n 11), para 31. 36

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result, strong protection has been provided so that whenever a consumer purchases under consumer credit the protective jurisdiction rules shall apply, even if the business does not target the country where the consumer has his domicile and cannot expect to be subject to the potential jurisdiction of that country. The protection also extends to all consumers, including consumers with their domiciles outside the EU Member States. A contract for sale on consumer credit can exist in e-commerce. Where business-to-consumer e-commerce becomes common, the subject matter purchased online is not limited to cheap products. Companies could sell expensive goods online on instalment credit terms. These goods include tangible movables which shall be posted to the consumer in a traditional way, and also intangible digital products which can be delivered online. The purpose is the same, namely to induce a consumer, who may be reluctant to pay the full price, to buy. Suppose a consumer purchases software from a company on instalment credit terms, once the transaction is classified as a sale of goods,39 the company is subject to the protective jurisdiction rules and may be required to take litigation to the consumer’s domicile regardless of its expectation at the time of concluding the contract. Suppose a consumer buys customised software from a company and pays the price in five instalments when the company designs the software, and the last instalment is paid when the company completes designing and making the software. Upon receiving the last instalment, the company delivers the software online to the consumer. Should Article 15(1)(a) apply to this case? It firstly depends on the classification of the transaction of customised software, namely whether it is a ‘sale of goods’.40 If it is classified as a contract for the provision of services, Article 15(1)(a) should not apply. The consumer can only be protected in jurisdiction if the case falls within the test of Article 15(1)(c). If, on the other hand, it has been classified as a ‘sale of goods’, the ECJ decision in Mietz suggests that Article 15(1)(a) still does not apply, because the buyer paid the full price before the transfer of ownership.41 However, this interpretation is considered too narrow as the consumer in such a case is also induced to conclude the contract or misled as to the real amount he owes at the time of contracting.

iii. Conclusion Based on the above discussion, it is said that Article 15(1)(a) and (b) are both ambiguous and improper. Firstly, only a small amount of electronic consumer contracts are covered in Article 15(1)(a) and (b). It is suggested that a rule-based regulation should avoid some traditional concepts such as ‘goods’ and ‘services’ in e-commerce, or should provide a clear explanation as to what they are in e-commerce. Furthermore, Article 15(1)(a) and (b) separate the credit sale from other contracts. A consumer of a credit sale is entitled to home litigation even if 39 40 41

See s i ‘Sale of Goods’ in E-Commerce above. See s i ‘Sale of Goods’ in E-Commerce above. Mietz (n 11) para 31.

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the business does not target these countries.42 It might be because in a contract for credit sale, the consumer is more vulnerable and easily misled by the price trap. If so, there is no sufficient reason to exclude a contract for the provision of services by consumer credit, which is also common in e-commerce, from the same standard of protection that he would get in a contract for the sale of goods on instalment credit terms. Many online education companies or information services providers use marketing strategy such as ‘buy now and pay later’ policy to attract consumers. The situation to induce someone to buy and the possible price misleading equally exist,43 but consumers in these contracts will get the lower standard of protection than those buying goods under the same credit terms.

B. General Consumer Contracts—Article 15(1)(c) Since Article 15(1)(a) and (b) apply to a limited amount of cases, Article 15(1)(c) is much more important and interesting in e-commerce. It has been designed to extend the scope of protection to consumers engaging in all other transactions, regardless of whether the subject matter is goods, services or something else.44 A consumer of a contract can be protected in jurisdiction under Article 15(1)(c): (I)n all other cases, the contract has been concluded with a person who pursues commercial or professional activities in the Member State of the consumer’s domicile or, by any means, directs such activities to that Member State or to several States including that Member State, and the contract falls within the scope of such activities.

The character of Article 15(1)(c) is that it provides a rather flexible requirement as to the type of contracts. It applies to ‘all other cases’ than the contracts covered in Article 15(1)(a) and (b) and it does not require the protective rules to be applied to a specific classification of contracts. On the other hand, it adopts a more restrictive view as to the manner in which the contract has been concluded. The provision focuses on the activity of a business and provides two alternative situations under which a contract falls into the scope of protection. These two alternative conditions are: (1) the business pursues commercial or professional activities in the consumer’s domicile; (2) the business directs commercial or professional activities to the consumer’s domicile, or the States including the consumer’s domicile. Furthermore, the contract has to be concluded within the scope of the business’s activity.

i. Pursuing Commercial Activities in the Consumer’s Domicile Compared with the ‘direct . . . to’ condition, little attention has been paid to the ‘pursue . . . in’ expression either by the EU preparation documents or the later 42 43 44

As to the accurate understanding of ‘targeting’, see s B below. Hill (n 8) 116. European Commission, Proposal for a Council Regulation, 16.

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commentators. However, the lack of attention does not mean that this provision is easier to interpret. One possible interpretation would be that the condition of ‘pursue commercial activities in’ a consumer’s domicile refers to traditional commerce, where ‘direct commercial activities to’ a consumer’s domicile is designed specifically for e-commerce. As a result, there is no necessity to analyse the condition of ‘pursue . . . in’ in the context of e-commerce. This interpretation makes Article 15(1)(c) over rigid as it clearly limits the two conditions to different types of commerce. As a matter of fact, the targeting activities in traditional commerce and e-commerce can be interchangeable. In traditional commerce, a company could ‘direct’ his commercial activities to a country without been physically present in that country, while in e-commerce a company could ‘pursue’ its commercial activities in a country with clear and specific business plans. It is unrealistic to make an artificial attribution to the competence of these two conditions. The exact meaning of ‘pursue’ in transnational commerce is not absolutely certain, and there is no authorised interpretation. By referring to other relevant legislative documents, we may notice similar terms have been adopted. Article 7(1)(a) of the Hague Draft Convention 1999 uses ‘engage in’, while Article 7(2) of the Hague Interim Text uses ‘conduct in’.45 However, none of them can provide a precise description as to what activities these terms represent. It is suggested they range from continuous business management to more sporadic occurrences of commercial activities.46 However, when reading this expression with the alternative condition ‘direct . . . to’, ‘pursue . . . in’ shows a stronger, more purposeful and more expectable connection between commercial activities and a concerned Member State, while ‘direct . . . to’ shows a comparatively casual and less particular connection. For this reason, the ‘pursue . . . in’ condition in Article 15(c) should be understood as including active, deliberate, planned and systematic activities. By pursuing commercial or professional activities in a state, a business is doing commerce in a continuous and systematic way, and such activities are carried out clearly aiming at the market of that state with the obvious purpose of obtaining commercial benefits in that country. a. Should the Business be Physically Present in the Targeted Member State? It is suggested by some authors that the ‘pursue . . . in’ requirement could mean that the business has to physically carry out commercial activities in the state it aims at.47 This could be the case where the business is physically present, or its 45 Hague Conference on Private International Law, the Preliminary Draft Convention on Jurisdiction and Foreign Judgments in Civil and Commercial Matters, adopted by the Special Commission on 30 Oct.1999, art 7.1 and 7.2, and Summary of the Outcome of the Discussion in Commission II of the First Part of the Diplomatic Conference 6–20 June 2001, Interim Text, Prepared by the Permanent Bureau and the Co-reporters, art. 7.2, and 7.4. These proposals, however, has not been finally adopted as the Hague has only unified jurisdiction rules on choice of law agreements in business-to-business contracts.. 46 J Oren, ‘International Jurisdiction Over Consumer Contracts in E-Europe’ (2003) 52 ICLQ 665, 676. 47 J Oren, International Jurisdiction, 676–7.

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representative is present, in the aimed state. However, what constitutes the ‘physical presence’ of an e-business in e-commerce? An e-business can be present in a country in the same way as a traditional business, by establishing business establishments, holding properties, or dispatching representatives. However, these traditional models are no longer widely adopted by electronic companies. A typical commercial model of e-business is that the business has its head office or central administration in its domicile and establishes a website on a server located either in the same country or somewhere else. The problem is whether the business can be regarded as being present in the place where the website is located which is not in the country of its head office or central administration. If a website on a server can be regarded as the physical presence of a business, the business can choose to be ‘present’ in some jurisdictions, which may or may not be the state where the business aims to have planned, continuous and systematic commerce. Application of the ‘pursue . . . in’ test would cause uncertainty. If a server cannot be regarded as the presence of a business, the business usually will only be present in the place of its domicile and the ‘pursue . . . in’ condition would hardly be satisfied. It is suggested that the interpretation of ‘pursue . . . in’ as requiring the ‘physical presence’ is not compliant with e-commerce, the development of which requires the avoidance of the explicit requirement of physical location. Furthermore, the place where the company is physically present and the place where the company is actually engaged in doing business could have a fortuitous and superficial connection. To determine whether the business is pursuing commercial activities in a country, it should be the nature and the substance of business activities that count, instead of the formal presence and location of the business or its representatives. b. Is It Necessary to Examine the Business’s Intention? Since the ‘pursue . . . in’ test implies purposeful, planned and deliberate commercial activities, there is a further question as to the necessity of examining the subjective intention of a business to determine whether the business pursues commercial activities in the country. In other words, although all the objective factors show a continuous and systematic business arrangement in the country, could the business escape from the protective scope by claiming that it does not ‘intend’ to pursue business activities in that country? The business’s intention can be shown by its commercial plan or arrangement. If there is a commercial plan or arrangement to carry out commercial activities in a certain state, and the arrangement is at the level that would lead to a continuous and close connection, a business should be regarded as pursuing its commercial activities in that state. However, in cases where the plan and arrangement cannot be proved, the objective test should be carried out. Generally speaking, a continuous and systematic commercial activity can be determined by the standard of time and quantity. If commercial activities have been carried out in a country continuously for a certain

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period of time, or have been carried out repeatedly and bring the business a certain amount of value, the business has pursued its commercial activities in the country. Even if the business claims that it does not ‘intend’ to have planned commercial activities in this country, the continuous and systematic transaction within the country alone should be sufficient for the ‘pursue . . . in’ test. c. Single State or Multiple States? Could a business pursue commercial activities in more than one Member State? Where a business is pursing commercial activities, Article 15(1)(c) provides that the targeted country is ‘the Member State’ instead of ‘the Member State or Member States’. Where a business is directing commercial activities, Article 15(1)(c) specifically indicates that the targeted country could be a ‘Member State’ or ‘several States including that Member State’. A literal reading of the text of Article 15(1)(c) and the comparison to the ‘direct . . . to’ condition may suggest that a company can only pursue commercial activities in one country. This interpretation, however, is unrealistic. There is no reason to exclude a business which is pursuing systematic and continuous commercial activities in more than one country. If a narrow interpretation has been adopted, more difficulties will be generated. Providing a business is engaging in systematic commerce in more than one state, a court would have to analyse and compare the nature and characteristics of the commercial activities carried out in different states, in order to find out the ‘centre of commercial activities’. A company would need to be found to pursue commercial activities in the country which is the centre of its activities, while directing its commercial activities to all other countries. Such a test is unrealistic and unnecessary. It is thus submitted that regardless of the text of Article 15(1)(c) a business is able to pursue commercial activities in more than one Member State. d. Conclusion It is suggested that the ‘pursue . . . in’ requirement can be determined based on the nature of an e-business’s entire operation. If a business has a systematic business arrangement for the domestic market in a country and carries out continuous and repeated commercial transactions with the consumers domiciled in that country, it is reasonable to say that the business pursues commercial activities in that country. It could be the case where a business’s website is designed particularly for consumers in certain countries. For example, the website clearly states that its purpose is to provide products to consumers in a particular country and the business has repeat transactions with consumers domiciled in that country for an appreciable period of time. It could be the case where a business adopts an electronic agent aimed at the market of a particular country.48 For example, an e-agent is used only to accept orders from England.

48

J Oren (n 46) 676–7.

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When a company is ‘pursuing’ business activities in a Member State, it is reasonable to presume that the business is able to expect to be subject to this forum. To offer consumers domiciled in the concerned country protective jurisdiction will not be regarded as an unreasonable burden to the business. However, the ‘pursue . . . in’ test is limited and is not applicable to a wide range of e-commerce. As a result, the Brussels I Regulation introduces the second alternative, the ‘direct . . . to’ test, which generates much more difficulties and problems in e-commerce.

ii. Directing Commercial Activities to the Consumer’s Domicile Compared with the requirement of ‘pursue . . . in’, the requirement of ‘direct . . . to’ is more flexible, ambiguous and uncertain. It aims to cover a wide range of commercial activities, which are not so strongly connected with the state in question. The business’s activities can be sporadic and fortuitous and the concerned state can be outside the business’s previous arrangement. Without an official interpretation of the exact meaning of the expression, it is suggested that ‘direct . . . to’ should not be understood by its natural meaning but has to be interpreted according to the purpose in establishing this provision.49 The requirement of ‘direct . . . to’ can be read separately in website trading, email trading and transactions combing the use of email and website. a. Website Trading Website trading is the most popular and common type of e-commerce. In website trading, communications between a business and a consumer are completed through multipurpose websites. A business could establish a website purely for advertisement; it could have an interactive website to have direct communications with potential consumers; it could have a website to receive all the orders; it could have a website that automatically deals with the whole procedure of commercial transactions, including the delivery of information products and the provision of online services. The website is a powerful commercial mechanism, which is easy and cheap to establish and which usually can be accessed any time, anywhere and by any one. It generates difficulty as to how to determine whether a business is directing its commercial activities to the consumer’s domicile in website trading. Generally, there are five theories which might provide the potential resolution. (i) Accessibility According to this theory, if a consumer is able to access a commercial website in his domicile, the business who manages this website is directing its activities to the Member State where the consumer has his domicile.50 For example, recital 13 of the Commission Proposal for the Brussels I Regulation stating that: 49

For more discussions on this issue, see generally, Debussere, International Jurisdiction, 356–63. This test has been used by some national courts in practice. See VznGr Den Haag, NIPR 2005, 168; OGH 9 Nc 110/02; LG Feldkirch 3 R 259/03. For criticisms, see P Motion, ‘The Brussels Regulation and E-commerce—A Premature Solution to A fictional Problem’ (2001) 7 Computer and Telecommunications Law Review 209, 212. 50

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Account must be taken of the growing development of the new communication technologies, particularly in relation to consumers; whereas, in particular, electronic commerce in goods or services by a means accessible in another Member State constitutes an activity directed to that State. Where that other State is the State of the consumer’s domicile, the consumer must be able to enjoy the protection available to him when he enters into a consumer contract by electronic means from his domicile.51

This recital is designed to protect consumers in particular. However, it cannot be regarded as reasonable because a website usually is accessible from everywhere in the world.52 This option potentially subjects an e-business to the jurisdiction of all the Member States, and might damage the development of e-commerce. This interpretation has been denied by most authorities. Jacob J held that ‘the mere fact that websites can be accessed anywhere in the world does not mean . . . that the law should regard them as being used elsewhere in the world’.53 The UK Department of Trade and Industry also stresses that ‘mere accessibility should not be enough to bring a transaction stemming from a website within the scope of Article 15’.54 The Council and the Commission later clarify that: (T)he mere fact that an internet site is accessible is not sufficient for Article 15 to be applicable, although a factor will be that this internet site solicits the conclusion of distance contracts and that a contract has actually been concluded at a distance, by whatever means.55

It seems that where an e-company establishes a website doing pure advertising and there are no other factors indicating that the company targets the Member State where a consumer has his domicile, even if the consumer has entered into the contract as the result of having browsed the website, the company is not subject to the protective jurisdiction rules. (ii) Profitability There may be another approach holding that if a business obtains profits in a consumer’s domicile, it directs its activities to that state. Even if the business does not intend to target the jurisdiction, the result of the contract is that the business gains profits and benefits from the contract, so that it is economically fair for the business to be subject to the jurisdiction of this state. However, mere economic effects 51 Commission Proposal (n 2) recital 13. The text literally is contrary to the Explanatory Memorandum of Art 15, n 2, 16. It shows that the Commission does not make a clear clarification between ‘accessibility’ and ‘activity’ of a website. 52 European Mail Order and Distance Selling Trade Association, ‘Comments on the Green Paper on the conversion of the Rome Convention of 1980 on the law applicable to contractual obligations into a Community instrument and its modernisation COM (2002) 654’, 3. 53 Euromarket Designs Incorporated v Peters & Anr [2001] FSR 20. 54 Department of Trade and Industry (DTI), ‘Brussels Regulation: Consumer provisions of the Brussels Regulation—implemented through the Civil Jurisdiction and Judgments Order 2001’ para 1.15. www.dti.gov.uk/consumers/consumer-support/resolvingdisputes/Jurisdiction/brussels/index.html, accessed on 12 May 06. 55 The Council and the Commission, ‘Joint Statement on Articles 15 and 73’ (‘joint statement’) ec.europa.eu/civiljustice/homepage/homepage_ec_en_declaration.pdf, accessed on 16 Nov 2008.

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should not operate as a principal consideration for jurisdiction.56 Since a business gains profits in any contracts that it has concluded, the profitability theory implies that the mere existence of a consumer contract would be enough to indicate that the business has directed its activities towards the state where the consumer is domiciled. As a result, once there is a consumer contract, the business would be subject to the protective jurisdiction. This implication is obviously inconsistent with the purpose of Article 15(1)(c), which is supposed to establish certain conditions so that only when it makes some efforts to create certain ‘links’ will the business be subject to the jurisdiction of the consumer’s domicile.57 (iii) The Existence of Country-Specific Indicia The third approach uses the existence of country-specific indicia to determine whether a business directs its commercial activities to a consumer’s domicile. It is argued by some writers that where a website is registered in a particular domain, the webpages are in a particular language used in a specific country and the accepted currency is indicating otherwise, the website is targeting the particular country shown by the country-specific indicia.58 These country-specific indicia can be easily identified from the express appearance of a website, including its domain name, the language adopted, the offered product and the accepted currency. For example, if the domain name of a website ends with a ccTLD59, such as ‘.fr’(France), ‘.de’(Germany) and ‘.it’(Italy), it can be an indication that the business targets the state specified by the domain name. However, the country-specific indicia are sometimes misleading. As to domain names, the gTLD60 will tell us nothing about which specific country it indicates, while most ccTLDs are open for registration, which can be abused by businesses. An e-business could escape from being subject to the jurisdiction which it really targets by registering a specific domain name for its website. As to the language, some languages, such as English and French, are used as an official language in more than one country in the Community. As to the accepted currency, with the adoption of euro, the currency provides little guidance as to the targeted state. Regardless of the weakness, country specific indicia could be helpful for decision making. The weight attached to each country-specific indication varies from case to case. Suppose most country-specific indicia direct to the same country, 56 This idea has been presented by Thünken as a choice of law rule in cyberspace, see A Thünken, ‘Multi-State Advertising Over The Internet And The Private International Law Of Unfair Competition’ (2002) 51 ICLQ 909, 935. OGH (Austria) has ruled that the mere existence of a contract meets the ‘direct . . . to’ test, see B Hess, T Pfeiffer, and P Schlosser, ‘Report on the Application of Regulation Brussels I in the Member States’, Study JL S/C4/2005/03, Sep 2007 (‘Hess, Pfeiffer and Schlosser Report’), para 343. 57 For more criticisms of this approach, see Oren (n 46) 682. 58 See German Appellate Court, a judgment of 12/15/2004—U 1855/04. J Graham ‘Consumer Protection/Advertising—Comments To The Proposed Draft By The ABA’ www.kentlaw.edu/ cyberlaw/docs/foreign/Luxembourg-Advert-Graham.rtf, 2, accessed on 10 May 06; A Thünken, MultiState Advertising, 923; DTI, Brussels Regulation: Consumer provisions, para 1.16. 59 Country code top-level domain, see Ch 1, s III.A. 60 Generic top-level domain, such as ‘.com’, ‘.net’ and ‘.org’. See Ch 1, s III.A.

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these indicia can be strong factors for a court to take into consideration. Although they cannot be used as negative defence, ie by a business using those country specific indicia to show that it does not direct its commercial activities to other countries,61 it could be used as a positive factor to show a business certainly has targeted the country indicated by those country specific indicia. Although the Council and the Commission say in the Joint Statement that as to a passive website, the country-specific indicia are not relevant factors to make the protective jurisdiction rules apply,62 the context of the statement does not prevent country specific indicia from being relied upon to decide whether a business has targeted a specific country by using an active website. (iv) Activity A popular theory is to base the decision on the business’s activity. The court would ask the question: does the business actively manage to conclude contacts with consumers domiciled in certain states, or is the business just passively pursued by consumers? It is said that if a business is actively targeting consumers domiciled in certain states, the business should reasonably predict the possibility of being subject to the jurisdiction of those states. The application of the protective jurisdiction rules will not damage the business’s reasonable expectation. Although this approach seems attractive, it is not easy to determine whether a business actively seeks consumers in a jurisdiction, or several jurisdictions including that particular jurisdiction. More specifically, it is not clear whether the ‘activity’ should be the subjective activity or the objective activity.63 Supporters for a subjective criterion argue that it should be possible for a business to avoid the situation where it enters into an unintended contract by mistake because of the specific characteristics of e-commerce. The subjective activity test is accepted in the Guiliano-Lagarde Report for the interpretation of the Rome Convention,64 and the European Parliament had also proposed that the commercial activity should be purposefully directed in a substantive way to the consumer’s domicile in order to meet the requirement of ‘activity’.65 However, this option has been opposed because it is difficult to prove the ‘actual’ intention of a business, which may need comprehensive evidence that would increase the cost of legal proceedings.66 It has been suggested that to determine a business’s intention, the business has to make some efforts in order to have commerce with consumers domiciled in the Member State in question prior to the conclusion of the contract. These cross-border 61 Department of Trade and Industry (UK) has pointed out in its consultation paper that even if the country-specific indicia has been adopted by the trader, he can be exposed to the States he does not intend to target. See DTI (n 54). 62 The Council and the Commission, Joint Statement. The language or currency which a website uses does not constitute a relevant factor 63 Oren (n 46) 687, and footnote 64 in Oren. 64 Giuliano-Lagarde Report, [1980] OJ C282/1, 22, 23. 65 Amendment 37 from the Parliament in the Proposal for a Council Regulation on Jurisdiction and the Recognition and Enforcement of Judgements in Civil and Commercial Matters, Document number A5-0253/2000 COM (1999) 348-C5-0169/1999–1999/0154 (CNS), [2001] OJ C 146/94, 97–8. 66 Oren (n 46) 681 and n 64 in Oren.

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activities need to appear to be a planned and intended transaction.67 However, it still opens the door for a business to escape from the consumer protection provisions in cases where such an escape is unreasonable. For example, it prevents a business from being subject to the protective jurisdiction provisions if the business only occasionally, or maybe just once, enters into a contract with a consumer in a Member State where it has not previously planned to engage in commercial activities. In this situation, the business may be aware of the identity of the consumer but passively continues the transaction. The objective approach bases the decision on the characteristics of the business’s commercial website. If a business’s website is designed for contracting with consumers domiciled in certain countries, instead of simply providing information, the website is ‘active’ based on the objective test. By using an active website, which is specially designed to conclude contracts automatically, the business should be regarded as targeting the domicile of a consumer in an active way, because a consumer from the state could access the website and conclude contracts through the website. On the other hand, simple accessibility of a passive website cannot indicate that a business actively engages in commerce in that jurisdiction. The approach has been adopted by the European Commission’s initial proposal, which provides: The concept of activities pursued or directed towards a Member State is designed to make clear that point (3) [Article 15.1(c)] applies to consumer contracts concluded via an interactive website accessible in the State of the consumer’s domicile. The fact that a consumer simply had knowledge of a service or possibility of buying goods via a passive website accessible in his country of domicile will not trigger the protective jurisdiction.68

The distinction between ‘passive’ and ‘active’ websites has been widely accepted but not adopted in the late statement of the Council and Commission.69 However, this approach generates similar difficulties as the ‘accessibility’ approach.70 For example, an English company seeking consumers domiciled in France via an interactive website may not be able to prevent this website from being accessed by consumers domiciled in Germany. Because an interactive website also has unlimited range in its accessibility, once an interactive website has been established it would be regarded as targeting every Member State in an active way. Secondly, it is based on an unrealistic view that a website can easily be 67

Oren (n 46) 687. Commission Proposal (n 2) 16; European Parliament Committee on Legal Affairs and the Internal Market, Report on the proposal for a Council regulation on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters, PE 286.66, A5-0253/20000, (‘Wallis Report’), 30. The term ‘interactive’ here has the same meaning as ‘active’. It is necessary to note that the term ‘interactive’ differs between Europe and USA. In Europe, it means all websites doing more than pure advertising. In the US, it covers only the website between the pure passive website and the website directly performing the interpersonal role. For the definition in the US, see Zippo Manufacturing Co v Zippo Dot Com 952 F. Supp. 1119 (WD Pa 1997) and Ch 5, s IV; GB Delta and JH Matsuura, Law of the Internet (New York, Aspen Law & Business, 1999), ch 3, 19. 69 Joint Statement (n 55); Hess, Pfeiffer and Schlosser Report, para 340. 70 See s (i) Accessibility above. 68

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classified into ‘active’ and ‘passive’.71 Thirdly, it is hard to justify that the activity of a ‘website’ must coincide with the activity of a business, especially in cases where a business is using a third party’s website to do e-commerce. There is also a suggestion that the test should combine both a ‘subjective’ and an ‘objective’ element. For example, Amendment 36 of the European Parliament on the Commission’s Brussels I proposal suggests that a business has directed its commercial activities to a state ‘where the on-line trading site is an active site in the sense that the trader purposefully directs his activity in a substantial way to that other State’. However, it can hardly do any help without giving proper interpretations to both ‘active’ websites and ‘purposeful’ activities of businesses. (v) Ring-Fencing Another approach, which has been more and more widely used in e-commerce, is to permit a business to adopt certain activities to clarify and limit the area of its commercial activities. As the European Parliament has proposed, in order to determine whether a business has directed its activities to the Member State in which a consumer has his domicile, ‘the courts shall have regard to all the circumstances of the case, including any attempts by the trader to ring-fence his trading operation against transactions with consumers domiciled in particular Member States’.72 An effective ring-fencing activity should be able to prevent the application of the protective provision. It can both protect the parties’ reasonable expectation and reduce the difficulty to decide the business’s intention in e-commerce. The problem is what kind of ring-fencing is ‘effective’. An ineffective ring-fencing method may be abused by the business as a tool to escape the consumer protective provision. Presently, there are three methods for an e-business to clarify the geographic scope of its commercial activities. The first one is by statement. An e-business may state on its websites, either on the home page, in the terms and conditions or somewhere else, that it intends to contract within or outside certain States. Although it has been described as the ‘most straightforward way’ to ring-fence a scope of target,73 this method can hardly be regarded as ‘effective’. A statement on the website is not always obvious or easy to access; it can be overlooked by a consumer; it is easily abused by a business; the effect of the method totally depends on the cooperation between a consumer and a business. As a result, ring-fencing by statement is not sufficient to discharge a business of all responsibilities.74 The 71

Reed, Internet Law 197. Amendment 37, n 65. 73 EURIM Network Governance Working Party, ‘Response to DTI Consultation Paper: European Commission Proposals for Changes to Article 13 of the 1968 Brussels Convention’ www.eurim.org.uk/ activities/netgov/005consresp_dti.pdf, 2, accessed on 25 May 2007. 74 M Pullen, ‘On The Proposals To Adopt The Amended Brussels Convention And The Draft Rome II Convention As EU Regulations Pursuant To Article 65 Of The Amsterdam Treaty—Position Paper Prepared For The Advertising Association’ (Internet Law and Policy Forum, Jurisdiction: Building Confidence in a Borderless Medium, 26–7 Jul 1999, Montreal) www.ilpf.org/events/jurisdiction/ presentations/pullen_posit.htm, accessed on 10 May 2006; see also U Magnus and P Mankowski, ‘Joint Response to the Green Paper on the Conversion of the Rome Convention of 1980 on the Law 72

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second method is the employment of technical devices, which can identify the location of a computer that a consumer uses to connect the internet. It can block the access from a computer located in certain areas by recognising the IP address allocated to this computer. Compared with the ring-fencing by statement, this method is more effective, but it generates some other problems. Technical devices can only recognise the location of a computer, which does not necessarily indicate the real identity of the user of the computer. A consumer domiciled in the area which is ‘blocked’ by the software may enter into a contract with the company when he is temporarily abroad, while a consumer domiciled within the business’s intended market might be refused from entering into transactions when he is temporarily in the area that is blocked. The third method is to require the consumer to provide personal information before concluding a contract. A company can choose whether or not to conclude a contract with a particular consumer according to the information provided by the consumer. This method can also be used with the employment of an electronic agent without the human intervention. For example, a consumer is required to input his post code or his telephone number, including the international area code, into the online order form. The electronic agent can refuse to enter into a contract with a person whose post code or telephone number is from an area outside the pre-selected region. The problem is that the misrepresentation of a consumer may lead to the conclusion of a contract. Although a consumer has to carry the disadvantage of this misrepresentation and be denied special protection, the imperfect ring-fencing method opens the door for this misrepresentation. Moreover, a consumer might provide incorrect information without realising it. Suppose a company requires a consumer to indicate his ‘domicile’, which may cause difficulties for those who have multiple places of residence and who cannot tell which one should be provided. Furthermore, a company gets the benefit from such a contract eventually and would be happy to ‘permit’ or ‘encourage’ the occurrence of such a misrepresentation. Regardless of all the concerns over the present ring-fencing methods, there are no good reasons to abandon ring-fencing approach in e-commerce. Ring-fencing is effective if compared with all other possible approaches. It has been accepted in some EU documents. For example, amendment 37 of the European Parliament’s Proposal for the Brussels I Regulation provides: In determining whether a trader has directed his activities in such a way, the courts shall have regard to all the circumstances of the case, including any attempts by the trader to ring-fence his trading operation against transactions with consumers domiciled in particular Member States.75

The European Commission refused to accept the ‘ring-fencing’ approach proposed by the Parliament, by claiming that it is ‘running counter to the philosophy Applicable to Contractual Obligations into a Community Instrument and Its Modernisation COM(2002) 654 final’ 26, (Magnus and Mankowski Response) europa.eu.int/comm/justice_home/ news/consulting_public/rome_i/doc/university_hamburg_en.pdf accessed on 28 Apr 2006. 75 Amendment 37, n 65.

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of the provision’ and ‘based on the essentially American concept of business activity as a general connecting factor determining jurisdiction’.76 This statement is unfortunate. It is true that in general the European jurisdiction rules are based on the objective connection between the dispute and the forum, while the US jurisdiction rules are based on the activity of the defendant which purposefully subjects the defendant to jurisdiction of the forum. However, the philosophy of the protective jurisdiction rules in the Brussels I Regulation partially depends on the business’s activity as a connecting factor. Only when the business targets the consumer’s domicile which creates a link to justify the jurisdiction, will the protective rule be triggered. There is no reason to reject the adoption of ring-fencing as a possible approach to test the business’s activities under Article 15(1)(c). The Commission also claims that the adoption of the ring-fencing approach would fragment the market within the Community.77 However, without a proper dispute resolution system that could reduce the difficulty and cost in cross-border litigation, to fragment the market in a reasonable way to safeguard businesses should be allowed. Furthermore, as a normal commercial practice, nothing should prevent a business from selecting its market. As a result, the ring-fencing approach should be recognised to decide the jurisdiction issue in electronic consumer contracts. However, further regulations are needed to ensure its efficiency and prevent it from being abused by businesses. Since each ring-fencing method has its weaknesses and advantages, it is suggested to combine some of these methods together for a more efficient result.78 (vi) Conclusion After an analysis of the current theories, it is suggested that a combination of these five theories, especially the last three, would be effective when deciding whether a business directs its commercial activities to a consumer’s domicile. A business can only be regarded as having been targeting a consumer’s domicile when it actively seeks the consumer or the benefit in a particular country. The intention of a business should be determined by the objective factors of the business’s commercial activities, including whether the business has adopted the appropriate ‘ringfencing’ method, whether the website holds certain specific indicia pointing to certain states, whether the website is totally passive as a pure advertisement and whether the business has other activities which indicate its authentic intention. In general, it is suggested that ‘direct . . . to’ in the website trading can be interpreted as the following: (1) A business directs its commercial activities to the State where a consumer is domiciled only when it intends to do so.

76 European Commission, Amended Proposal for a Regulation on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters, COM (2000)689 final, Explanatory Memorandum, 5–6. 77 European Commission Amended Proposal, 6. 78 As to how this combination can be designed, see s (vi) Conclusion below.

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Jurisdiction in Electronic Consumer Contracts (1) (2) A business’s intention should be determined according to the objective commercial activities: a. When the business has established an active website, through which contracts can be concluded and transactions can be completed, the business intends to do business anywhere the website can be accessed if it does not adopt further activities to prevent unexpected transactions. b. When the business has clarified its expected area of transactions in its website in a permanent, clear and unambiguous way, and at the same time adopts necessary technical devices to exclude unexpected transactions, the business intends to have commercial activities only in the area stated in the website, except where there is strong evidence showing that the business knows the real identity of the consumer who is domiciled outside the intended area but continues with the transaction. c. When the business requires its potential consumers to disclose their identity before any transactions and deals with them afterwards, the business intends to do business in the State disclosed by the consumers, regardless this disclosure is authentic or not. d. A simple statement of intended commercial area in the business’s website alone cannot be sufficient to prove that the business does not intend to trade with consumers domiciled in any states outside of the stated area. e. If the business’s website contains country-specific indicia showing obvious and exclusive signs pointing to one state, the business intends to do business in that State. If the indicia point to more than one state, it is inconclusive, and a court has to make its decision according to (a) to (d) above. f. When the business has established a website which simply acts as an advertisement without providing any contact information, this website cannot be the basis to determine the business’s intention. (3) A business’s intention can be assumed if the business continuously and repeatedly enters into contracts with consumers domiciled in a particular state. Irrespective of the nature of the website and all the other elements, the business should be regarded as directing its commercial activities to that state.

b. Email Trading The second powerful commercial mechanism in e-commerce is email. By sending email, a business can easily contact its potential consumers worldwide with almost no costs. Although an email has similar characteristics to a website, it is far more controllable. One could use the theories discussed above for website trading to examine whether a business directs its activities to the State in which a consumer has his domicile in email trading. (i) Unsolicited Email A business and a consumer would conclude a contract by email under different situations. The first one is that the business sends promotion information to the consumer’s email address without receiving any invitation or inquiry from the consumer. The active behaviour of the business should easily be regarded as

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directing commercial activities to the state where the consumer has his domicile, because this activity shows that the business aims to do commerce with consumers domiciled in that state. However, the real situation is far more complex. Where the business actually knows the domicile of the consumer and sends the promotion email to the consumer, this activity can be regarded as targeting the consumer’s domicile. For example, if the consumer’s email address is clearly localised, with the domain name indicating his correct domicile, the business should be regarded as directing commercial activities to the consumer’s domicile.79 However, in electronic commerce, it is too imprudent to assume a business knows the physical domicile of a consumer simply by sending email. The address of an email sometimes could tell the sender nothing or even mislead them. It is worth wondering whether different approaches should be taken where a consumer’s email address indicates inaccurate information. Where a consumer’s email address ends with a gTLD, such as ‘.com’ or ‘.net’, it tells a business nothing about the domicile of the consumer. However, the business which actively sends email to the consumer, should have expected that the possible domicile of the consumer might be anywhere. The activity of distributing email to the email address ending with a gTLD can be assumed as that the business purposely targets the market everywhere. In this case, it can be interpreted that the business ‘directs’ commercial activities to the consumer’s domicile, no matter where it is.80 If a consumer’s email address provides misleading information about the consumer’s domicile, for example, a consumer domiciled in Germany using the email address ending with ‘.fr’, should a business be regarded as targeting Germany when sending promotion information to the consumer by email? The business might expect to do business in both countries, and send email to all the available addresses ending with ‘.fr’ or ‘.de’. In this case, it is unfair to deprive this consumer of the protection he would otherwise get only because his email address does not indicate his real domicile. Nonetheless, it is very common for a consumer to choose an email domain that does not indicate his real domicile. A consumer would wish to choose a domain according to his nationality; a consumer might have registered the email when he had his previous domicile and continue to use the old email after his domicile had changed. In another case, the business might expect to have transactions in France only and send email to all the available email addresses ending with ‘.fr’. In this case, subjecting this business to the German court will be against its expectation. When facing the dilemma, it is suggested that a rigid test cannot be adopted and all the circumstances should be taken into consideration. When a business sends unsolicited email to a consumer, it is the business’s active action which induces the consumer to enter into the contract. The consumer is in a totally passive position and will not enter into the contract without the business’s invitation. Furthermore, an e-business should be professional 79 80

Foss and Bygrave, International Consumer, 122. For the same view, but by different reasoning, see Foss and Bygrave (n 34) 122.

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enough to predict the possibility that the domain name of an email address could be misleading. An e-business should expect that ‘spam’ mails may reach somewhere outside its previous commercial plan. It should employ further activities to prevent an unwanted contract from being concluded, such as requiring the consumer to confirm his personal information and indicating in the email that it does business within or outside some states. Otherwise, the business should be regarded as ‘directing’ commercial activities to the state where the consumer has his domicile. (ii) Email Responding to a Consumer’s Invitation Things might be different in the less usual case where a business sends email responding to a consumer’s invitation. It seems that it is the consumer who targets the jurisdiction of the business at the first place. However, the response of the business shows that the business is not completely passive, as it has conducted necessary activities in order to have the contract concluded. There may be three approaches regarding this issue. The first one is to study the whole commercial activities of the business. If a business in fact has frequent transactions with consumers domiciled in that particular state, the business should be regarded as having directed its commercial activities to that state, no matter which party contacts the other first. If a business only has one transaction with the consumer domiciled in that particular country and the consumer actively contacts the business for purchase, it should be reasonable to conclude that the business does not direct its activities to the state where the consumer is domiciled. The second approach is to judge the consumer’s email address and the information provided by the consumer. If a consumer’s email address can tell the business his domicile, or the consumer provides adequate information concerning his domicile, the business will be regarded as directing its professional activities towards that state. If a consumer’s email address ends with a gTLD, the business should be regarded as not directing its activities to any particular country. If a consumer’s email address shows the misleading information about his domicile, the business should be regarded as directing to the state indicated by the email address, instead of the consumer’s real domicile. The third approach is to observe the business’s behaviour. If a business requires the consumer to provide relevant information about his domicile and at the same time notifies the consumer of the area that it intends to exclude from its transactions, which includes the consumer’s domicile, it can be said that the business does not direct its activities to the consumer’s domicile. If the consumer provides misleading information, which leads to the conclusion of the contract, the consumer shall not be protected by the protective provision. However, where the business undertakes the transaction after knowing the consumer’s domicile, even if it has made a statement saying it is not willing to contract with consumers domiciled in certain states including this one, it is reasonable to conclude that the business has directed its commercial activities to the consumer’s domicile regardless of the statement.

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It is suggested that in order to determine whether a business has directed its activities to a consumer’s domicile by sending an email in response to the inquiry of the consumer, a comprehensive study of activities of both the business and consumer is required. Each of the three approaches alone cannot be appropriate, but they can be combined in order to decide the status of a business’s activities. Firstly, where a business has continuous and frequent transactions with consumers in a particular state, the business should be regarded as directing its commercial activities to that state, regardless of whether the consumer contacted the business first in an individual case. Secondly, if a contract is concluded via email, the consumer’s email address cannot be regarded as a decisive factor. Thirdly, the business’s activities shall be examined in a case-to-case basis. If a business requires a consumer to provide the information about his domicile and clearly indicates in which market it intends to do business, the misleading information provided by the consumer cannot subject the business to the protective jurisdiction; however, if a business continues to conclude the contract with a consumer after knowing the consumer’s actual domicile is outside the scope of its intended market, it should nonetheless be regarded as targeting the consumer’s home country. If a business simply continues to conclude the contract without any further actions, it could be presumed that according to its professional nature, the business should expect that the consumer might come from anywhere outside those states which it intends to target. Since the business simply let the transaction happen regardless of its professional expectation, the business directs its commercial activities to the consumer’s domicile. (iii) Conclusion It is suggested that a business only directs its commercial activities to the Member State of a consumer’s domicile when it intends to do so. This intention should be judged according to all the relevant factors and determined objectively: (1) Where a business sends a consumer a promotion email without the consumer’s invitation, the business should be regarded as directing its commercial activities to the consumer’s domicile, except where the business indicates in this email that it does not intend to have business in this State and acts accordingly. (2) Where a business sends a consumer a promotion email responding to the consumer’s invitation, it is the business’s responsibility to prevent any unwanted transaction. Otherwise, the business will still be regarded as directing its commercial activities to the consumer’s domicile.

c. Combination of Email and Website Trading In practice, most businesses adopt both email and websites in e-commerce. It could be the case where a business sends a consumer an email with a link to the business’s website, or where a business’s website provides consumers a valid email address for any inquiry. In these cases, the nature of the business’s commercial activities should be determined according to the mechanism that

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primarily leads to the contract. Suppose there is a business website with all the elements indicating that the business is not targeting state A. A consumer domiciled in state A contacts the business by email according to the email address provided in the website, and discusses the possibility of transactions. During the communications by email, the business knows the real identity of the consumer but finally decides to enter into a contract with the consumer. The business is targeting state A in this individual case because the nature of the trading should be determined by the nature of the email, which primarily leads to the transaction. iii. Contracts Within the Scope of Such Activities Even if a business targets a consumer’s domicile by pursing commercial activities in that state, or directing such activities to that state or to several states including that state, the protective jurisdiction rule may still not apply. The final requirement is for the contract to fall within the scope of the business’s activities. As the Council and the Commission stress in the joint statement: [F]or Article 15(1)(c) to be applicable it is not sufficient for an undertaking to target its activities at the Member State of the consumer’s residence, or at a number of Member States including that Member State; a contract must also be concluded within the framework of its activities.81

Further observations are required to interpret this condition. It is uncertain how to interpret ‘the framework’ of the commercial activities. Does it mean that the contract should be the direct result of a business’s professional activities which target a consumer’s domicile? Suppose a company directs its professional activities to a consumer’s domicile in state A by establishing an active website with a clear intention to sell books in that country. The company has another active website targeting state B. A consumer accesses the website in state B to conclude the contract with the company. This contract is not the direct result of the active website targeting state A, but it is within the scope of the commercial activities that the company manages to have in state A. Could the court conclude that the contract falls within the scope of the business’s commercial activities targeting state A and provide the consumer the protective jurisdiction? If a strict interpretation has been given, this condition requires the specific contract to be the direct result of the commercial activities targeting the consumer’s domicile. Where the consumer concludes the contract in state B via the website targeting state B, even if the company has engaged in the same business in state A, the protective jurisdiction cannot apply. However, it is suggested that a wide interpretation is more appropriate for the purpose of protecting consumers. Since the business has directed its commercial activities in the consumer’s domicile, the business should have the reasonable expectation to be subject to the jurisdiction of the consumer’s domicile for this type of transaction. 81

Joint Statement (n 55).

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What if a business targets a consumer’s domicile for different types of transactions? Suppose a company establishes a website to sell books in the consumer’s domicile in country A, and the company established another website to sell music in country B. Could the protective jurisdiction apply where a consumer purchases some music from the website targeting country B? In this case, subjecting the business to the consumer’s domicile would damage the company’s reasonable expectation. By establishing different website dealing with different types of products, the company only expects jurisdiction in country A to decide the contract for the sale of books, while jurisdiction in country B to deal with the contract for the sale of music.

IV. Domicile of Electronic Companies A. Extending the Concept of Domicile of a Business i. Extending Consumers’ Options The application of the protective jurisdiction is subject to the restriction of the parties’ domicile. Where a consumer acts as the claimant, he can choose the jurisdiction of either the domicile of the defendant or the domicile of his own. In order to provide more protection to consumers, the Brussels I Regulation extends the concept of domicile of companies. Besides Article 60, which provides alternative domiciles for a company, Article 15(1) clearly indicates that the protective rules should not prejudice Article 5(5) of the Regulation,82 which provides that a person domiciled in a Member State may be sued in another Member State, as regards a dispute arising out of the operations of an ancillary establishment, in the courts where the ancillary establishment is situated. The original purpose of Article 5(5) is to extend an EU defendant’s domicile and to provide the claimant a wider choice of jurisdiction. Suppose a company has its domicile in England and its branch, agency or other establishment in Germany, regarding a dispute arising out of the operation of the German branch, the claimant could bring an action in England which is the defendant’s domicile,83 in Germany as the place of the branch,84 or in the Member State which is the consumer’s domicile.85 82 Art 15(1) provides that for consumer contracts ‘jurisdiction shall be determined by this Section, without prejudice to Article 4 and point 5 of Article 5’. 83 Art 2(1). 84 Art 5(5). 85 Art 16(1). If the consumer is domiciled outside any one of the Member States and meets the conditions in Art 15(1)(a) and (b), Brussels I cannot guarantee the consumer jurisdiction in the consumer’s home, which should be decided by the domestic law of the non-Member State where the consumer has his domicile.

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ii. Extending the Protective Jurisdiction to Companies Domiciled Outside the Member States The application of the European protective jurisdiction rules is subject to geographic limitation. The protective jurisdiction grounds in Article 16 can only be applied where the defendant has his domicile within one of the Member States. Where a New York company directs its commercial activities to one of the Member States, the consumer could not rely on Article 16(1) to sue the defendant in his domicile.86 On the other hand, Article 16(2) would only reasonably bind a business that has its domicile within the Member State. The New York company in the above case might be able to sue the consumer in New York instead of the Member State in which the consumer has his domicile based on the New York jurisdiction rules. As a result, Article 15(2) provides: Where a consumer enters into a contract with a party who is not domiciled in the Member State but has a branch, agency or other establishment in one of the Member States, that party shall, in disputes arising out of the operation of the branch, agency or establishment, be deemed to be domiciled in that State.

This provision aims to widen the general application of the protective provision. A business which has its domicile outside any Member States, by holding a branch, agency or other establishment in a Member State, shall be deemed to have its domicile within that Member State for disputes arising out of the operation of the establishment. As a result, if the New York company has a business establishment in any Member States, the protective jurisdiction grounds in Article 16(1) shall bind the company. The consumer could rely on the protective jurisdiction rule to sue the company in the consumer’s domicile. Of course, the Brussels I Regulation cannot prevent the defendant from suing the consumer in a nonMember State. Extending protective rules to non-EU businesses is necessary, especially in e-commerce, where businesses can target the European market without being domiciled in any Member States. Otherwise, European consumers cannot be properly protected and they have to tell which websites are managed by companies within the Member States in order to enter into a contract. It is also unfair and may damage the development of internal market where all European businesses are subject to the protective provisions, which would potentially increase commerce costs, while companies outside the EU could be free to get benefits from the EU market without being subject to the protective rules.87 86 Case C-318/93 Brenner v Dean Witter Reynolds [1994] EC I-4275. However, the consumer could use domestic jurisdiction rules to sue the defendant, which may or may not permit the consumer to bring an action in his home country. For a report of national law on this issues, see A Nuyts, ‘Study on Residual Jurisdiction’, JLS/C4/2005/07-30-CE)0040309/00-37, 3 Sept 2007 (‘Nuyts Report’), paras 54–5, and para 162. 87 However, it is not completely certain the nonapplication of s 4 of the Brussels I Regulation would benefits e-companies. Domestic laws of each Member State may also provide protective jurisdiction grounds to protect consumers.

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iii. Deemed Domicile in the Place of Branch, Agency or Establishment Both Article 5(5) and Article 15(2) extend the concept of domicile of a business by providing that a business is deemed to have its domicile in the place of its branch, agency or other establishment if the dispute is arising out of the operation of the branch, agency or other establishment. How could these provisions apply to e-commerce? A uniform definition has been provided to determine the existence of a branch, agency or other establishment, the location of which can be deemed as the parent’s alternative domicile.88 ECJ made an important statement in Somafer that: As regards to the first issue, the concept of branch, agency or other establishment implies a place of business which has the appearance of permanency, such as the extension of a parent body, has a management and is materially equipped to negotiate business with third parties so that the latter, although knowing that there will if necessary be a legal link with the parent body, the head office of which is abroad, do not have to deal directly with such parent body but may transact business at the place of business constituting the extension.89

Based on Somafer and other relevant ECJ decisions, theoretically, the existence of a business establishment usually requires: (1) it holds an appearance of permanency;90 (2) it is subject to the direction and control of the parent;91(3) it has a certain degree of autonomy;92 (4) it is so presented to the third parties.93

B. The Appearance of Permanency i. Physical Appearance v Virtual Appearance The first question with the interpretation is whether an intangible device can be regarded as an ancillary establishment. Some claim that the appearance of permanency requires the use of fixed premises or equipments.94 A more ambitious 88 Case 33/78 Somafer SA v Saar-Ferngas AG [1978] ECR 2183, paras 4–8. This case only decides the definition of establishment in Art 5(5), but this concept should be the same in these two provisions. See Hess, Pfeiffer and Schlosser Report (n 56) para 343. 89 Hess, Pfeiffer and Schlosser Report (n 56) para 12. 90 Somafer SA v Saar-Ferngas. 91 Case 14/76 Ets A de Bloos SPRL v Société en commandite par actions Bouyer [1976] ECR 1497; Case 139/80 Blanckaert & Willems v Trost [1981] ECR 819. 92 Blanckaert & Willems v Trost; Somafer (n 88). 93 Somafer (n 88). For other summaries of the requirements of business’ branch, agency or other establishments, see Cheshire, North & Fawcett, Private International Law, 14th edn (Oxford, OUP, 2008) 259; Reed (n 30) 232–8; Fawcett, Harris and Bridge (n 11) para 10.81. 94 C Reed, ‘Managing Regulatory Jurisdiction: Cross-Border Online Financial Services and the European Union Single Market for Information Society Services’ (2001) 38 Houston Law Review 1003, 1015; OECD, ‘Clarification on the Application of the Permanent Establishment Definition in E-Commerce: Changes to the Commentary on Article 5’ (OECD revised clarification) (OECD, 22 Dec 2000) 1–2; OECD, ‘The Application of the Permanent Establishment Definition in the Context of Electronic Commerce: Proposed Clarification of the Commentary on Article 5 of the OECD Model Tax Convention’ (OECD proposed clarification) (OECD, 3 Mar 2000), 6.

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interpretation is that the physical presence is not decisive for an ancillary establishment.95 The requirement of a ‘physical’ or ‘fixed’ appearance is not expressed in the Somafer decision. E-commerce was undeveloped at the time of the judgement and it is reasonable to presume that the ECJ did not intend to cover virtual appearance at the time of decision. However, it does not mean that the ECJ would prefer a rigid interpretation to exclude all possible new forms of business establishment in the future. Three examples have been given in Somafer as to the meaning of ‘appearance of permanency’, namely the establishment is the extension of the parent body, has a management and is materially equipped to negotiate business with third parties.96 None of them requires the ancillary establishment to have a physical appearance. The parent body could have a virtual extension, and management can be carried out by an intangible programme. The ‘material equipment’ requirement might be understood as to require the extension to have physical equipment, but it can also be interpreted that, as far as the extension has the necessary capacity and equipment in order to negotiate business with third parties, it is sufficient to consider the extension as an ancillary establishment.97 As a result, it has been suggested that the function of the establishment is more decisive than the form, and the existent authorities are insufficient to exclude a virtual device from being a company’s ancillary establishment.98

ii. Real Permanency or Presumed Permanency However, what does the ‘appearance of permanency’ mean? Two interpretations may be provided. The first one is that the appearance of permanency shall be decided according to the objective factors, namely an ancillary establishment has to be present in a country in a permanent way. It shall not be easily moved from one country to another and it definitely should not appear in a ‘floating’ basis. The other interpretation is that an establishment can appear in a ‘presumed’ permanent manner. Providing whenever the internet user in the given country wants to contact the undertaking, he can do it without going abroad, the undertaking meets the requirement of having permanent appearance in that country. The ‘presumed’ permanency approach is in no doubt unreasonable for e-commerce. Adopting this approach would usually provide a business the domicile in every Member State where the website can be accessed. Although multiple domiciles are permitted in the Brussels I Regulation, holding too many domiciles or holding domiciles in all Member States obviously causes difficulties in law.99 95 J Oren, ‘Electronic Agents and the Notion of Establishment’ (2001) 9 International Journal of Law and Information Technology 249, s 4.1.3. This idea is also proposed by Spain and Portugal governments, see OECD revised clarification, 2. 96 Somafer (n 88) para 12. 97 Oren, Electronic Agents, s 4.1.4. 98 OECD revised clarification (n 94); Oren (n 95). 99 For the same point of view, see the expert meeting on the Electronic Commerce and International Jurisdiction organized by the Hague Conference on Private International Law held in Ottawa from 28 Feb to 1 Mar 2000, Pre Doc No 12, 9. See also, recital 19 of the E-Commerce Directive.

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Since the first interpretation should be adopted, the establishment of an e-business has to exist permanently in an objective manner. The objective appearance, strictly speaking, can only be used to describe the feature of a physical entity, which should have a fixed and permanent location. This approach excludes the possibility of taking a website or any other computer programmes as an ancillary establishment. The only option left is a server. The appearance of a server is determined by its physical location. Unlike physical premises and equipments in the traditional sense, a server is in fact computer equipment and is easy to move from one state to another. If a business locates its server in one of the Member States temporarily, and plans to move it to another state afterwards, this server should not constitute a permanent place of business. A server needs to be located in a state for a sufficient period of time to fulfil the requirement as the business’s establishment.

C. Direction and Control of the Parent Body According to the ECJ decision in De Bloos, an ancillary establishment has to be subject to the direction and control of the parent body.100 One may wonder whether an e-business should ‘own’ the entity in order to direct or control it. In Sar Schotte Gmbh v Parfums Rothschild the ECJ held that a subsidiary could be its parent’s establishment as far as it acted as the parent’s extension and was so presented to the third parties, though the two undertakings had separate and independent legal personality.101 It seems that it is not compulsory for an e-business to own or to lease a server. The essential condition is that the ‘establishment’, regardless of its legal personality, has to work on behalf of, and in control of, the parent, and has this relationship clearly expressed to the third parties. If a business rents a server from a third party, the company that owns and operates the server is different from the company that actually runs the business through the website located on the server. The company managing the website only owns the data and software stored in the server. It can only control the functioning of the website and has no right to control the operation of the server. The server is not the premise of the electronic company and it does not present to be the extension of the e-company to a third party, so that it is not the business’s establishment.102 This interpretation has been adopted in the E-Commerce Directive, which defines the established service provider as a party that ‘effectively pursues an economic activity using a fixed establishment for an indefinite period’,103 and states that ‘the presence and use of the technical means and technologies required to provide the service do not, in themselves, constitute an establishment of the provider’.104 Only when a server functions under the control 100 101 102 103 104

Ets A de Bloos SPRL v Société en commandite par actions Bouyer, 1497. Case 218/86 Sar Schotte Gmbh v Parfums Rothschild [1987] ECR 4905. OECD proposed clarification (n 94) para 3. E-Commerce Directive, Art 2(c). ibid.

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of the company, it might meet this requirement. As a result, for a server to be the ancillary establishment, it has to be owned or leased by the company. Secondly, the business has to control its establishment as the ‘parent body’, which means the direction and control by the e-business over the ancillary establishment should have a substantive connection with the performance of commercial activities conducted by the company. In other words, there must be a principal-subsidiary relationship.105 Where the direction by the e-business is isolated from the substance of commercial activities carried out through the entity, this entity cannot be the company’s establishment. This requirement excludes an independent commercial agent, which merely negotiates business and transmits orders without being involved in the drafting, conclusion, and execution of the business, from being the ancillary establishment in the Brussels I Regulation.106 For example, if an e-business is only responsible for technical problems of a server instead of the functioning of the core business activities of the company through the server, the server does not have the principal-subsidiary relationship with the e-company.107 It also excludes companies managing the online marketplace, such as eBay and Amazon, from being the ancillary establishment of the marketplace seller, who uses the market place to build a store or to sell its items. The marketplace company only transfers orders instead of playing any material role in the transaction.

D. Certain Degrees of Autonomy Somafer provides examples to an ancillary establishment, which shall be the extension of a parent body, has a management and materially equipped to negotiate business with third parties.108 It implies that the ancillary establishment has certain degrees of autonomy and can conclude substantive commercial activities on behalf of the parent.109 The autonomy has to be to a degree to enable the establishment to be legally responsible for conducting real and substantive commercial activities, and to keep it under the control of the parent. As a result, the ECJ has excluded an independent commercial agent from being an ancillary establishment, because its autonomy certainly goes beyond that level. The characteristic of the server depends on the programme located on it by its manager. If the programme is aiming at a market solely for advertisement, the ‘passive’ server just provides the information to consumers in this country without any autonomy to have material commercial activities on behalf of the parents. 105

Oren (n 95) s 4.1.2. Blanckaert (n 91) para 13l; Case C-212/97 Centros Ltd v Erhvervs-og Selskabsstyrelsen [1999] ECR I-1459, opinion of Advocate General La Pergola, para 19; De Bloos (n 91). 107 European Commission, ‘Commission Interpretative Communication on the Freedom to Provide Services and the Interest of the General Good in the Second Banking Directive’, SEC (97) 1193 final, 20 Jun 1997. 108 Somafer (n 88) para 12. 109 Blanckaert (n 91). 106

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If the programme is active enough that it can conduct commercial activities by receiving orders, sending acceptance or confirmation letters, receiving and checking credit card payment, etc, then the server has the capability to negotiate with third parties.

E. Geographical Limit on the Operation of the Establishment It is also questionable whether there should be geographical limits on the operation of the ancillary establishment for the place of the establishment to be the domicile of the parent. According to the Somafer decision, the operations of the ancillary establishment comprise those relating to undertakings performed in the state where the establishment is located.110 If an ancillary establishment concludes a contract or performs an obligation for the market outside the state where it has its place of business, the company cannot be deemed to have its domicile in the country where the establishment is located. The geographical limit, however, was rejected in a later ECJ decision in Lloyd’s Register of Shipping v Socieete Compenon Bernard, where a natural meaning has been given to interpret the operation of an ancillary establishment and the action was allowed to be brought in the place of the French establishment even though the undertakings were performed in Spain.111 The ECJ further provided: There does not necessarily have to be a close link between the entity with which a customer conducts negotiations and places an order and the place where the order will be performed.112

The Lloyd’s Register decision might work well in traditional commerce, but it does not properly consider the special circumstances of e-commerce, where an entity could not only conclude a contract that is to be performed somewhere else, but also target a market outside the place where it is situated. Based on the Lloyd’s Register decision, an e-company can be deemed to have its domicile in the place where its server is situated even if the server runs a programme targeting many other countries, or even targeting the markets other than the country where it is located. It is inappropriate especially in e-commerce, where the deemed domicile has no real connections to the commercial activities of the business. In the Lloyd’s Register, the French branch concluded a contract with a French client on behalf of its parent, only the performance was carried out in Spain. In e-commerce, a server located in France could completely target the market in Spain and the Spanish consumers would have no idea that the location of the server was in France. It is unreasonable to make France the deemed domicile without any substantive connections. 110

Somafer (n 88) para 13. Case C-439/93 Lloyd’s Register of Shipping v Socieete Compenon Bernard [1995] ECR I-961, paras 16–22. The decision has been followed by the English Court of Appeal in Durbeck GmbH v Den Norske Bank ASA [2003] EWCA Civ 147, para 40. 112 Lloyd’s Register of Shipping v Socieete Compenon Bernard, para 20. 111

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Comparatively, the Somafer approach would be too restrictive. An e-company is deemed to have its domicile in the place where its server is located only when the server is primarily engaging in commercial activities in the market where it is situated. In e-commerce, companies would rarely use a server to target the country where it is located exclusively. The real power of e-commerce is to permit a company to target multi-market with low costs. It is thus submitted that an intermediate approach should be adopted for e-commerce. A company can be deemed to have its domicile in the place of its branch, agency or other establishment where the operation of the ancillary establishment is ‘primarily’ targeting the country where it is situated or is targeting several countries including the one where it is situated. One dilemma would never disappear whichever approach has been chosen. An e-company which is domiciled outside any one of the Member States would efficiently avoid from being ‘deemed’ to have its domicile within the Member States by locating its server anywhere in a third country, which would direct commercial activities to the EU markets anyway. It is questionable as to how far Article 15(2) could go in e-commerce.

F. Necessity of Human Intervention Another issue which has not been dealt with in the ECJ decisions is whether the establishment can run completely without human intervention. A server can run automatically once a programme has been established and stored in the computer device. Because of the lack of human intervention, some commentators have argued that a server should not be treated as a business’s establishment.113 However, some countries believe that the lack of human intervention does not change the status of a business’s establishment, because only the nature of the business and the activity performed through the equipment should be taken into account. The function can be compared to the performance of automatic pumping equipment used in the exploitation of natural resources, where the presence of personnel is not necessary for the equipment to be the business’s establishment.114 Presuming the human intervention is required, there is another problem as to where the intervention should take place, whether the intervention should come from the business’s personnel, and what level of intervention is required.115 The intervention of the performance of a programme located in the server can be done in distance without any employees being sent to the place where the server is located. The intervention can be done by the business’s personnel on matters relating to the business activities, but can also be done by the technical staff from other companies on technical issues. The intervention can be on the substantive commercial functioning of the server, but can also be on the maintenance of com113 114 115

See Reed (n 30) 233; Fawcett, Harris and Bridge (n 11) para 10.83. OECD revised clarification (n 94) 6. OECD revised clarification (n 94)6–7.

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puter equipment, such as doing virus scan. A strict interpretation requiring a high level of human intervention may exclude most servers from being ancillary establishment. The development of technology to allow a entity to have only a machine in a given country to ‘act’ as its establishment, and completely obviate the need for the customer to have contact with the parent company, may require the ECJ to consider an appropriate reform and updating of the concept of business establishment which permits a business’s establishment to run totally without human intervention.116

V. Conclusion Although it is clear that the European Community intends to create appropriate and effective jurisdiction rules for electronic consumer contracts, the above analysis shows that this aim has not been perfectly achieved. The first difficulty that the Brussels I Regulation has suffered is how to apply traditional terminology in electronic consumer contracts, such as the concept of ‘goods’ and ‘branch, agency or other establishment’. The Brussels I Regulation looks like a renovated house, where the old structure is covered under the decoration. At the first sight, it is specially re-designed to cover the electronic commerce,117 but with a close scrutiny one would realise that many important concepts in the whole of Section 4 are traditional terms without the updated clarification on their accurate meaning in e-commerce. It is hoped that the interpretation would be provided by the ECJ. Although the chance for the ECJ to provide an independent interpretation for these terms in e-consumer contracts would be rare,118 the possibility to interpret ‘goods’ or ‘ancillary establishment’ in an electronic context in business-tobusiness disputes might nevertheless arise. Uncertainty will continue to exist before appropriate explanations are provided. Secondly, Article 15(1)(c) is an ambiguous provision. It sets up two conditions to enable a consumer to be entitled to the protective jurisdiction rules. The protective provisions could apply if a business ‘pursues commercial or professional activities in’ the consumer’s domicile, or ‘directs such activities to’ the consumer’s domicile. It is unclear what the difference between these two requirements is, and whether there are overlaps between them. The distinction between the two concepts is unnecessary because it provides new difficulties. Furthermore, there is no sufficient guidance as to the precise meaning of ‘pursue . . . in’ and ‘direct . . . to’ and how they are tested in e-commerce. The explanation in the preparatory documents of the Commission and the Parliament is rather uncertain, while the 116

See also, European Commission Interpretative Communication. Such as the express ‘by any means’ in Art 15(1)(c), which shows obvious intention to cover the ‘electronic means’. 118 Hill (n 8) 147. 117

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later Joint Statement of the Council and the Commission is not detailed enough. Since the same text has been adopted in the Rome I Regulation,119 and the Brussels study report suggests that no amendment should be proposed in the formulation of Article 15(1)(c),120 the text of Article 15(1)(c) is not likely to be revised in the future reform of the Brussels I Regulation. A realistic suggestion would be to urge the European authorities for a clearer and more detailed guidance to interpret the Article in an effective and appropriate manner in e-commerce. Thirdly, one may wonder whether this European approach can be borrowed and applied to a much wider part of the world. The effect and influence of the Brussels I Regulation is limited. It can only effectively protect EU consumers against EU businesses.121 From the perspective of a consumer, Article 15(1)(c) clearly requires the consumer to have his domicile within a Member State. Although Articles 15(1)(a) and (b) literally extend the protection to non-EU consumers, it is doubtful how useful they are. The Brussels I Regulation cannot guarantee that a non-EU consumer could be able to sue an EU business in the consumer’s home, which should be decided by the jurisdiction rules of the non-Member State. It cannot prevent the EU business from suing these non-EU consumers in the courts of one of the Member States either, when the domestic law of the Member State should apply to decide the jurisdiction over a non-EU defendant.122 From the perspective of a business, only EU businesses are subject to the protective rules of the Brussels I Regulation. Where an EU consumer concluded a contract with a non-EU business, the consumer cannot rely on the protective rule to sue the defendant in the consumer’s home, unless the domestic law of the Member State asserts jurisdiction. Nothing in the Brussels I Regulation could prevent the non-EU business from suing the European consumer in the business’s home outside the EU Member States. Although Article 15(2) aims to extend protective jurisdiction to non-EU businesses based on their ancillary establishment in one of the Member State, it cannot help much. The interpretation of the ancillary establishment cannot be too broad in order to cover all websites accessible within the Community. As a result, an e-business could target the markets within any Member States without establishing any ancillary establishment within the Community. The Brussels approach could become protection effective only when the protective rules are globalised, and non-discriminatory treatments are provided for all consumers and businesses. Although the Nuyts Report suggests that the protective rule should be extended to cases where a non-EU business pursues its commercial activities in, or directs such activities to any Member States,123 the protection is 119

Art 6(1). Hess, Pfeiffer and Schlosser Report, (n 56) para 346. 121 Brenner v Dean Witter Reynolds (An EU consumer cannot sue a non-EU defendant in the Member State where the consumer is domiciled); Nuyts Report (n 86) para 55. 122 Art 4(1). 123 Para 164. The report suggests that a closer scrutiny is required in considering whether Arts 15(1)(a) and (b) can be extended to the non-EU defendant, as these provisions do no require further connections with the Community (para 165). 120

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still insufficient. Even though an EU consumer could be able to sue a non-EU defendant in the court of the consumer’s domicile in such a case, the Brussels I Regulation could not prevent a non-EU defendant from suing the consumer in any court outside the EU providing jurisdiction is permitted under the law of the selected forum. Furthermore, such an extension cannot protect a non-EU consumer who has been targeted by a EU company by directing commercial activities outside the Community. A sufficient and effective protection could exist only where the same protective provisions are adopted in a much wider range of the world. It had been attempted by the Hague Conference on Private International Law. The similar protective jurisdiction rules were adopted in both the Preliminary Draft Convention of 1999124 and the Interim Text of 2001.125 An effective consumer protective regime could be achieved if the final convention followed this model. However, the attempt failed during the negotiation and the final Convention covers only jurisdiction agreements in business-to-business contracts.126 As a result, the protective model of the Brussels I Regulation works with inevitable geographic restrictions. It is questionable as to how far the Brussels rule could go in a wider scenario.

124 Preliminary Draft Convention on Jurisdiction and Foreign Judgments in Civil and Commercial Matters, adopted by the Special Commission on 30 Oct 1999, Art 7. 125 Summary of the Outcome of the Discussion in Commission II of the First Part of the Diplomatic Conference 6-20 Jun 2001, Interim Text, Prepared by the Permanent Bureau and the Co-reporters, Art 7. 126 Convention On Choice Of Court Agreements of 2005, Art 2(1)(a).

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4 Jurisdiction in Electronic Consumer Contracts (2) The Discretion-Based Approach in English Common Law I. Introduction Unlike the rule-based approach, the discretion-based approach contains neither specific jurisdiction rules to protect consumers, nor new rules designed specially to deal with the challenge initiated by e-commerce. The courts in the countries with the discretion-based jurisdictional tradition make decisions based on their discretion and aim to provide justice and fairness on a case-to-case basis. These countries continue to apply their traditional jurisdiction rules, except that some innovative tests or explanations have been added to help exercise the discretion. This chapter examines the traditional English jurisdiction rules to see whether they could achieve certainty and fairness in e-consumer contracts. In common law an English court has jurisdiction in claims in personam where the defendant is present in England, where the defendant submits to the jurisdiction, or where the court could exercise its power to give permission for process to be served on the defendant out of the jurisdiction under the Civil Procedure Rules.1 An important feature of the traditional jurisdiction rules is that the English court could eventually decide whether or not to accept jurisdiction based on its discretion. When exercising its power to serve out of the jurisdiction, the English court will not give permission unless it is satisfied that England is the appropriate forum. On the other hand, even if England has jurisdiction, the English court could exercise its discretion to grant a stay upon the defendant’s application.2 It is assumed that although no specific protective jurisdiction rules have been given to consumer contracts, consumers could be protected by the court’s discretion. This 1

SI 1998/3132 (L 17). For discussions on jurisdiction in the traditional English law, see CMV Clarkson and J Hill, Conflict of Laws, 3rd edn (Oxford, OUP, 2006) 87–96, 104–14; J Fawcett and J Carruthers, Cheshire, North & Fawcett: Private International Law, 14th edn (Oxford, OUP, 2008) 353–424; A Briggs and P Rees, Civil Jurisdiction & Judgments, 4th edn (London, LLP, 2005), chs 4 and 5. 2

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chapter analyses how the discretion-based rules work in e-commerce, whether the general principle could contribute to fairness and justice and whether specific practical problems arise when applying the traditional jurisdiction rules in e-consumer contracts.3

II. Service Within the Jurisdiction The English court has jurisdiction as of right if the defendant is present in England. There is no e-commerce specific problem if the defendant is a natural person. If the defendant is a company, there might be difficulties as to its presence in England. According to the Companies Act 1985, a company can be served if it is registered in England,4 it is registered abroad but has a branch in England,5 or it has a place of business in England.6 The common difficulty in e-commerce is whether an e-company has a branch or place of business in England, if the company is registered outside England but its website is accessible in England or a server that hosts the company’s website is located in England. There is no clear definition of the concept of ‘branch’ or ‘place of business’ in the Companies Act 1985. The concept of branch was introduced into the Companies Act by the implementation of the Eleventh Company Law Directive,7 which suggests the concept in English law should follow the harmonised European meaning and will not vary much from the concept of branch in the text of the Brussels I Regulation. Unfortunately, no definite European interpretation has been given to the concept of ‘branch’ either in the Company Law Directive or in the Brussels I Regulation. The concept of ‘ancillary establishment’ in the Brussels I Regulation has been given by the ECJ decisions, but it clearly has a wider scope to include not only the branch, but also the agency or other establishment.8 For example, a subsidiary can be its parent’s ancillary establishment in certain circumstances,9 but it will not be a ‘branch’ of the parent in the English law because it has a separate legal personality.10 In Adams v Cape Industries,11 the Court of 3

This chapter only studies the substantive jurisdiction rules, but not the manner and form of ser-

vice. 4

Companies Act 1985 (1985 c 6), s 725(1). ibid, s 690A and Sch 21A, para 3(e). 6 ibid, s 691, and s 695. 7 Eleventh Council Dir 89/666/EEC of 21 Dec 1989 concerning disclosure requirements in respect of branches opened in a Member State by certain types of company governed by the law of another State [1989] OJ L 395/36. Companies Act 1985, s 690A. L Collins, CGJ Morse, D McClean, A Briggs, J Harris, C McLachlan and J Hill, Dicey, Morris & Collins: The Conflict of Laws, 14th edn (London, Sweet & Maxwell, 2006) 350; Fawcett & Carruthers, Cheshire, North &Fawcett, 359–60. 8 Saab v Saudi American Bank [1998] 1 WLR 937, 941 (per Tuckey J). F Tansinda, ‘EC Eleventh Company Law Directive and Overseas Companies’ [1997] Company Lawyer 98, 99. 9 Case 218/86 Sar Schotte v Parfums [1987] ECR 4905 and the discussion in Ch 3, s IV.C. 10 Cheshire, North & Fawcett (n 2) 359. 11 Adams v Cape Industries [1990] Ch 433. 5

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Appeal provided a brief description of the ‘branch’ office, which is a fixed place of business established and maintained at the principal’s expense for more than a minimal period of time and has carried on the principal’s business.12 The statement can be further interpreted as requiring a business’s branch to fulfil the requirements of: (1) being a fixed place for doing business; (2) being established and maintained at the principal’s expense; (3) holding a permanent appearance;13 (4) carrying on the principal’s business, or working on behalf of the principal. Compared with the European definition for ‘establishment’, the branch has to be established and maintained at the principal’s expense, which separates it from the subsidiary or agency. However, it makes no substantial difference in deciding the position of a server. A server that can be qualified as an ancillary established in Article 15(2) has to be owned or leased by the parent, and, as a result, it should be the business’s branch instead of its subsidiary or agency. The importance of deciding the definition of a ‘branch’ in consumer contracts is dramatically reduced. Since Article 15(2) of the Brussels I Regulation extends the Brussels protective jurisdiction rules to all non-EU defendants who have an ancillary establishment including a branch within the EU, a foreign company that has a ‘branch’ within the UK and the dispute is arising out of the operation of the ‘branch’ certainly satisfies Article 15(2) of the Brussels I Regulation and the Brussels jurisdiction rule, rather than English common law, should apply. However, for disputes irrelevant to the operation of the ‘branch’, the Brussels I Regulation cannot apply and the English court could rely on the traditional jurisdiction rules to serve the defendant within the jurisdiction. A claim form can also be served on a business defendant at its place of business other than a branch. There is no clear definition for the place of business, but the existing common law authorities suggest that the place of business may have a wide and flexible meaning.14 The existent decisions have held an undertaking, which lasts for a short period of time,15 which is the premise for storage and viewing of the principal’s art work,16 and which simply has an English address in its only notepaper to third parties,17 to be the place of business for the purpose of jurisdiction. The concept of place of business generally is a question of fact. However, some legal criteria have been provided to clarify its meaning. Some decisions hold that ‘establishing a place of business’ is different from ‘carrying on business’,18 and suggest that a place 12

Adams v Cape Industries, 530. Although the text of the decision only mentions that ‘more than minimal period of time’ is required, compared with the place of business, the branch should have the character of certain permanency. 14 eg Dunlop Pneumatic Tyre v AG Cudell [1902] 1 KB 715 (9 days presence is sufficient to establish a place of business); Saab v Saudi American Bank [1999] 1 WLR 1861, 1868 (CA); Dicey, Morris and Collins, The Conflict of Laws, 353. 15 Dunlop Pneumatic Tyre v AG Cudell. 16 Cleveland Museum of Art v Capricorn Art International SA [1990] 2 Lloyd’s Rep 166, 172. 17 Domansa v Derin Shipping & Trading Co Inc (The Sletreal) [2001] 1 Lloyd’s Rep 362, 365. 18 Reuben v Time [2003] EWHC 1430 (QB); Harrods v Dow Jones [2003] EWHC 1162 (QB); Rakusens Ltd v BaserAmbalaj Plastik Sanayi Ticaret AS [2001] EWCA Civ 1820; Adams (n 11); Re Oriel Ltd [1986] 1 WLR 180; South India Shipping Corp v Export-Import Bank of Korea [1985] 2 All ER 219; Lord Advocate v Huron & Erie Loan & Savings Co [1911] SC 612. 13

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of business should establish ‘a local habitation of its own’.19 It means the place of business other than a branch must have a fixed premise for more than a minimal period of time carrying on its principal’s business.20 In general, a place of business has the following characteristics:21 (1) it holds a fixed appearance for more than a minimal period of time;22 (2) it carries on the principal’s business, and the cost for doing so is reimbursed or remunerated by the principal;23 (3) its business related to the principal is subject to certain degrees of control by the principal;24 (4) it presents to the third party that it acts as the representative of the principal;25 (5) its activities bind the principal without the need to require authority in advance, which again excludes an independent commercial agent from being a company’s place of business.26 As a result, the ‘place of business’ is close to the European ancillary establishment,27 except that it is something other than a branch, the requirement for permanency is much lower, and the degree of control by the principal is weaker. A server, for example, can be a place of business if it is rented by the website owner or it is relocated in a country only for a couple of months. Again, the document can be served at the place of business irrespective of the cause of action.28 It is thus suggested that if a server meets the European requirements of being an ancillary establishment, and the dispute arises out of the operation of the server, the protective jurisdiction rules in the Brussels I Regulation should apply because the non-EU parent is deemed to have its domicile within the place where the server is located under Article 15(2) of the Regulation. If, on the other hand, a server meets the European requirements of being an ancillary establishment, but the dispute is arising outside the operation of the server, section 4 of the Brussels I Regulation does not apply, but the English court can serve a claim form within the jurisdiction under English national law. If a server does not meet the European requirements of being an ancillary establishment in Article 15(2), but meets the English requirements of being a place of business, the English court can exercise jurisdiction based on the presence of the defendant.

19

Lord Advocate v Huron & Erie, 616. Adams (n 11), 530. 21 An incomprehensive and indefinite guidance has been provided by Adams (n 11), per Scott J, 530–31. However, Scott J also clarified that ‘(t)his list of questions is not exhaustive, and the answer to none of them is necessarily conclusive’, 531. 22 Adams (n 11) 530; Re Oriel Ltd [1986] 1 WLR 180. 23 Adams (n 11) 530; Harrods v Dow Jones, paras 26, 29; Reuben v Time, para 44. 24 Adams (n 11) 530; Reuben (n 18) para 44. 25 Adams (n 11) 531; Domansa v Derin Shipping, 365. 26 Adams (n 11) 531 (‘the fact that a representative, whether with or without approval, never makes contracts in the name of the overseas corporation or otherwise in such a manner as to bind it must be a powerful factor pointing against the presence of the overseas corporation’); Harrods (n 18) para 21; Reuben, (n 18) para 44; Rakusens Ltd v BaserAmbalaj Plastik Sanayi Ticaret AS [2001] EWCA Civ 1820, para 14. 27 Tansinda, ‘EC Eleventh Company Law’, 99. 28 Cheshire, North & Fawcett (n 2) 363; T Hartley, ‘Article 5(5): contracts concluded by a branch’ (1996) 21 ELR 162. 20

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III. Service Out of the Jurisdiction English courts can also serve a claim form on a defendant out of the jurisdiction under traditional law.29 In order to serve a claim form on the defendant out of England, the claimant has to satisfy the court on all three issues: first, one of the grounds of paragraph 3.1 of Practice Direction B to Part 6 of the Civil Procedure Rules (old r 6.20) is satisfied; second, the claim has a reasonable prospect of success; third, England is the proper place in which to bring the claim.30 The first and the third issues need specific interpretations in e-commerce.

A. The Grounds of Para 3.1 of CPR Part 6 Practice Direction B in E-Commerce The grounds for the English court to serve out of the jurisdiction in respect of contracts are indicated in the Practice Direction B to Part 6 CPR, para 3.1(6). A claim form may be served out of the jurisdiction with the permission of the court if: (1) the contract was made within the jurisdiction;31 (2) the contract was made by or through an agent trading or residing in the jurisdiction;32 (3) the contract is governed by English law;33 (4) there is a choice of forum agreement choosing this jurisdiction;34 or (5) the breach of contract was committed within the jurisdiction.35 Furthermore, a claim form can also be served out of England, where a claim is made for a declaration that no contract exists and, if the contract was found to exist, it would comply with one of the above five conditions.36 The five grounds are based on the traditional nexus between the contract and the forum state, which generates difficulty in e-commerce. This section is to examine how these grounds are determined in e-commerce.

i. The Contract was Made Within the Jurisdiction There is no international uniform answer as to the place where a contract is concluded. In order to answer this question, the court first has to decide which law is applicable to this issue. It is widely held that the English domestic law of contract applies as the lex fori to decide the place where a contract is concluded.37 29

CPR 6.36. CPR 6.37. 31 Practice Direction 6B, para 3.1(6)(a). 32 ibid, para 3.1(6)(b). 33 ibid, para 3.1(6)(c). 34 ibid, para 3.1(6)(d). 35 ibid, para 3.1(7). 36 ibid, para 3.1(8). 37 Clarkson and Hill, Conflict of Laws, 106; J Fawcett, J Harris and M Bridge, International Sale of Goods in the Conflict of Laws (Oxford, OUP, 2005), para 4.33; Briggs and Rees, Civil Jurisdiction, 309. Gill and Duffus Landauer v London Export Corporation GMBH [1982] 2 Lloyd’s Rep 627, 631; Marconi Communications International Ltd v PT Indonesia Bank Ltd [2007] Lloyd’s Rep 72, 85–6. 30

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According to English law, a contract is concluded at the place where the acceptance has been posted if it is concluded by post,38 but at the place where the acceptance has been received if it is concluded by instantaneous communications.39 a. Contemplated Communication v Instantaneous Communication There is no consensus as to which category e-communication belongs. Many argue internet communication instantaneous, because it is fast.40 Others argue against it based primarily on the technological reasons that internet communication uses the ‘package switching’ technology which separates information into small packages and transmits each part in different routes. It is different from real instantaneous communication where the information is transmitted simultaneously and together.41 Both arguments are not perfect for they emphasise some characteristics of internet communication but overlook others. One can best conceptualise this issue by looking at different forms of internet communication. The easiest situation is that the parties communicate through an instantaneous communication programme, such as the Windows Messenger. The communication can be completely analogised with the situation described in the Entores case,42 where the parties know whether the communication has been disturbed and the offeror has the chance to re-contact the acceptor to ensure the acceptance. It is, without much doubt, instantaneous and the receipt rule should apply. Where a contract is concluded via a website by sending an electronic form, things may be more complicated. When the party who receives the acceptance establishes an electronic agent to deal with every acceptance, the communication can be regarded as instantaneous. The consumer and the business are instantly in touch, knowing whether the communication is successful. When the parties do not employ an electronic agent, the submitted form will be stored in the offeror’s server waiting for processing by a person. For example, if a consumer makes the acceptance, it is possible that the acceptance is made during the working day and the business’s employee has noticed it directly. It is possible that the acceptance is made in the out-of-office time and will be left unnoticed until the next working day. This situation may be common in e-commerce, where the international communication system connects parties in different time zones. It is also possible that 38 Adams v Lindsell [1818] 1 B & Ald 681; British and American Telegraph Co v Colson (1871) LR 6 Exch108; Household Fire Insurance Co v Grant (1879) 4 Ex D 216; Benaim &Co v Debono [1924] AC 514. 39 This rule was first established in Entores Ltd v Miles Far East Corporation [1955] 2 QB 327, and was followed by most cases concerning the place and time of concluding a contract by instantaneous communication, such as telex, facsimile, etc The Brimnes [1975] QB 929; Brinkibon Ltd v Stahag Stahl und Stahlwarenhandelsgesellschaft mbH [1983] 2 AC 34. 40 eg Fawcett, Harris and Bridge, International Sale, para 10.99; UCITA, s 203. Cf Briggs and Rees (n 2) 309 and fn 383 therein. 41 V Watnick, ‘The Electronic Formation of Contracts and the Common Law “Mailbox Rule”’ (2004) 56 Baylor Law Review 175, 200. The argument, however, is unfortunate for it focuses too much on the technical point, which is in fact less fundamental to the effect in law. 42 Entores Ltd v Miles.

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although the acceptance is made in the business’s office hour, the staff does not notice it promptly. Lord Wilberforce has considered the possibility of all these different situations in Brinkibon and decided that: No universal rule can cover all such cases: they must be resolved by reference to the intentions of the parties, by sound business practice and in some cases by a judgment where the risks should lie.43

However, it is hard to require the sender, who is usually a consumer, to assess whether the online form will be dealt with automatically by a computer programme or by a person. There will be an additional burden for the party to prove that in the specific case the communication does not catch the recipient’s intention immediately. Furthermore, even if the recipient does not access the message immediately, it has arrived at the place where the sender could reasonable expect the recipient to access. The recipient should be deemed as being able to access the message immediately. As a result, it is better to provide the receipt rule to all such communications for the practical reason. However, it brings a question as to whether the same set of rule should be used for all e-communications including email. There is no authority in England on this issue and the European E-Commerce Directive has been ambiguous on it. The second indent of Article 11(1) of the Directive provides that where the internet user places his order through technological means and the service provider acknowledges the receipt, the order and acknowledgement are deemed to be received when the addressees are able to access them. It only provides a rule to decide when a message is received, instead of when a contract is concluded. More clear and straightforward authorities, nevertheless, can be found elsewhere. For example, despite the US tradition in favour of the place of posting even in respect of the instantaneous communication, the US Uniform Computer Information Transactions Act (UCITA) adopts the place of receipt principle and provides that if the acceptance is made by an electronic message, the contract is formed when the electronic acceptance is received.44 If the acceptance consists of performance, or giving access to information, the contract is formed when the performance is received, or the access is enabled and necessary access materials are received.45 The receipt rule in e-contracts is also accepted in Malta.46 This approach simplifies the realities of internet communications and simply assumes that all the e-contracts are concluded instantaneously. It does provide a uniform answer and makes the question straightforward, but it may not be consistent with the English common law on the conclusion of a contract. Where an acceptor notifies an offeror of his acceptance by sending an email, it might be more 43

Entores (n 39) citation omitted. UCITA 2005, s 203(4)(a). 45 UCITA, s 203(4)(b). 46 Malta Electronic Commerce Act 2001, Art 10(a): ‘an electronic contract is concluded when the addressee has received from the originator, electronically, the acknowledgement of receipt of the addressees’ consent’. 44

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likely analogised as communication through traditional mail. The acceptor’s outbox is the postbox, the server which collects the email can be compared to the postman or post office, and the mail is processed to the recipient’s inbox which can be analogised as the offeror’s letterbox.47 Once the acceptor sends the email, the mail is out of his control and difficult to retrieve. Furthermore, like traditional mail, the delivery of an email can also be delayed or fail entirely.48 In order to prevent their customers from unsolicited email (spam), many ISPs routinely monitor or block emails under suspicion, which makes many business’s notifications go missing, including notices of sales, transaction confirmation, and other legitimate communication. Although it is argued that the sender could use technical means to require the confirmation when the message is accessed,49 it could only confirm whether and when the recipient has ‘read’ the message, instead of whether and when the message has been ‘received’ in the recipient’s mailbox. If a recipient has not opened the message or the system automatically mistakes a legitimate message for a spam and forwards it to the trash folder, no acknowledgement will be sent to the sender though the message is delivered and reaches the recipient. It is submitted that for an acceptance made by e-mail, the place where the contract is made is the place of posting; where the acceptance is made via a website, or through an instantaneous communication programme, the place of contracting is the place of receipt. b. The Location in the Internet Another question is where the place of posting or the place of receipt in e-commerce is. When considering the place of posting, several different physical locations may be involved in the consideration: the place where the sender is actually located at the time of sending the acceptance, the place where the sender’s outbox is actually located, or the place where the sender is habitually located. Firstly, it is not difficult to exclude the actual location of the sender. A sender can send an email from any computers located anywhere, even from his laptop in the train or airplane during his journey, where the actual location is accidental and fortuitous. Secondly, according to the authority concerning the postal principle in acceptance by traditional mail, the acceptance is made as soon as the acceptance is put into the post box and out of the sender’s control. The place of the post box or post office thus is the place where the contract is made,50 and the post box, in e-commerce, is the server hosting the sender’s outbox. However, it is also suggested not to choose the place of server as the place of posting, for the location of the server can be 47 R Ong, ‘Consumer Based Electronic Commerce: A Comparative Analysis of the Position in Malaysia and Hong Kong’ (2004) 12 International Journal of Law and Information Technology 101, 105. 48 M Ibrahim, A Ababneh and H Tahat, ‘The Postal Acceptance Rule in the Digital Age’ in S Kierkegaard (ed) Business Law and Technology: Present and Emerging Trends (Copenhagen, IAITL, Vol 1, 2006), 152. 49 J Hill, Cross-Border Consumer Contracts (Oxford, OUP, 2008) 24. 50 Entores (n 39) 332.

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fortuitous. An internet user can frequently change the server that hosts his mailbox, which makes the connecting factor quite unstable. Presently, the most favourable practice is to regard the place of posting as the place where the sender is habitually located. For example, the UNCITRAL Model Law provides: Unless otherwise agreed between the originator and the addressee, a data message is deemed to be dispatched at the place where the originator has its place of business, and is deemed to be received at the place where the addressee has its place of business. For the purposes of this paragraph: (a) if the originator or the addressee has more than one place of business, the place of business is that which has the closest relationship to the underlying transaction or, where there is no underlying transaction, the principal place of business; (b) if the originator or the addressee does not have a place of business, reference is to be made to its habitual residence.51

This resolution is appropriate for e-commerce, which considers only the place with a close relationship to the parties and can avoid the fortuitous connection created by e-commerce. As to the place of receipt, again several locations can be considered: the place where the recipient is actually located when reading the acceptance, the place where the recipient is actually located when noticing the acceptance, the place where the recipient’s inbox is located, and the place of the recipient’s habitual location. A similar analysis as to the determination of the place of posting can be borrowed here. It is suggested that the place of receipt is the recipient’s place of business or his habitual residence.52 c. Offer v Acceptance Further difficulties exist as to what constitutes an offer or acceptance in e-commerce. If a contract is made by email, it might be clearer as to which party makes the acceptance. In website trading, however, the situation is confusing. In a typical business website, products are described, pictured and priced. After a consumer puts the product into the cart and completes the process to ‘check out’, there will be a form requiring the consumer to provide his details, including his email address, credit card number, home address and postal address. The consumer inputs all the necessary information, and clicks the button marked ‘I agree’ or ‘submit’. After a few seconds, the consumer could view a statement confirming that the order has been placed in a refreshed webpage. Sometimes, the consumer will receive one email afterwards, ‘confirming’ the contract. It is questionable whether clicking the ‘submit’ button constitutes an acceptance, or it is simply the consumer’s offer which is accepted later by the business’s confirmation. In other 51 UNCITRAL Model Law on Electronic Commerce 1996, Art 15(4). The similar provision can be found in Australian Electronic Transaction Act 1999, s 15(5)(6). 52 UNCITRAL Model Law, Art 15(4).

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cases, after clicking the ‘submit’ button, the digital product is automatically delivered from the business’s server to the consumer’s computer. In this instance, is the delivery of digital products a performance or an acceptance by performance? There are no English authorities.53 It seems that shopping in an online store can be compared with shopping in a physical supermarket. It has been held that the self-service display of products constitutes an ‘invitation to treat’, and when ‘checking out’, it is the consumer who makes the offer. After the business ensures the consumer’s identity and credit card number, the business will make the acceptance.54 The acceptance can be an email confirming the order; the acceptance can simply be communicated through a refreshed window showing the words ‘your order is successful’; the acceptance can also be the performance such as the automatic delivery of digital products or sending the digital products as email attachments. If the acceptance is made by email, either as confirmation or as performance, the contract is concluded at the place where the email is sent, which is the business’s habitual residence. If the acceptance is made through instantaneous communication techniques, the contract is concluded at the place when the acceptance is received, which is the consumer’s habitual residence. A business usually will not directly deliver a physical product to a consumer without confirming the contract first. If it does happen, the place where the physical product is delivered is the place of contracting. If the situation is really complex and vague, where the offer and acceptance are hard to determine, it might be argued that the contract is concluded in more than one jurisdiction.55 This solution may simplify the difficulty in determining the place of offer and acceptance, but this approach is not appropriate for e-consumer contracts. Firstly, it applies in the absence of sufficient evidence to determine where a contract has been concluded. For example, a contract is concluded by telephone without any record, and none of the parties can prove who actually made the acceptance.56 This usually is not the case in e-contracts, where all the communication and the process are carried out online which can easily be recorded. The law also requires the business to provide the consumer the different technical steps to follow in order to conclude the contract in a clear, comprehensible and unambiguous manner.57 It is not difficult to find out the process to conclude the contract and to figure out who makes the acceptance. Secondly, this approach can be applied only where the parties intend to do so and they have adopted a procedure to reflect the intention.58 In website trading, however, the procedure is pre-established, and the contract is concluded semi or fully automatically. It seems that there will rarely be such intention indicated for an individual case. 53 There is no universal interpretation of the issue. English law should apply to decide what is an offer or an acceptance for the purpose of English traditional jurisdiction rules. 54 Pharmaceutical Society of Great Britain v Boots Cash Chemists [1953] 1 All ER 482. 55 Apple Corp Ltd v Apple Computer Inc [2004] ILPr 34. 56 Ibid, para 35. 57 E-Commerce Regs 2002, s 9(1), implementing the E-Commerce Dir, Art 10(1)(a). 58 Apple (n 55) para 42.

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d. Could the Parties Agree on the Place of Concluding Contracts? The parties can also make an agreement on the place of contracting,59 which could provide certainty and reduce difficulty in deciding the place of contracting in e-commerce. The problem is that the application of the freedom of agreement might be unsuitable for consumer contracts, where the consumer can hardly negotiate contract terms. One may argue that the place of contracting is not substantial to the interest of the consumer, and the rules to determine the place of contracting cannot be regarded as mandatory or protective in nature. It is not necessary to prohibit the parties from consenting on a place of contracting. Secondly, although the place could be arbitrary, the English court could exercise its discretion as to whether or not to serve out of the jurisdiction.60 Even if the place of contracting is also one of the factors considered in forum conveniens, it is never a weighty factor especially in e-commerce.61 The parties should be allowed to agree on the place of contract, which might make things much easier in e-consumer contracts. This interpretation, however, is not appropriate for consumer protection. A business could unilaterally provide a contract term which reads: ‘The contract is concluded in the principal place of business of the seller, which is in New York’. As a result, an English consumer cannot rely on this jurisdiction ground to bring the proceedings in England. Furthermore, besides the place of contracting, all other grounds, such as the place of a commercial agent, the applicable law, the jurisdiction agreement and the place of performance, may also be unilaterally chosen by a company. The same justification might equally be used to permit all the connections to be determined by agreement, which would eventually prevent an English consumer from using any grounds under the Civil Procedure Rules to bring proceedings against a foreign business in England. The current English law permits the contractual parties to choose the place where a contract is concluded as a ground to serve out of the jurisdiction, which is not appropriate for consumer contracts. e. The Application of this Ground to Electronic Consumer Contracts Based on what have been discussed above, the place of contracting in e-consumer contracts should be: (1) If a consumer shops in an online store and places an order, usually it is the business who makes the acceptance. (2) If the business sends email to confirm the order, this email constitutes an acceptance. The place of contracting is the place of posting, which is the business’s place of business. 59 UNCITRAL Model Law, Art 15 (4) ‘unless otherwise agreed between the originator and addressee’; UCITA, s 203; Fawcett, Harris and Bridge (n 37) para 4.35. 60 See s III.B below. 61 ibid.

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Jurisdiction in Electronic Consumer Contracts (2) (3) If the acceptance is indicated on the refreshed webpage soon after the consumer places his order, the place of contracting is the place of receipt, which is the consumer’s habitual residence. (4) If the acceptance is indicated by performance of the business, such as the automatic delivery of digital products, the place of receipt is the place of contracting, which is the consumer’s habitual residence. (5) If the acceptance is indicated by performance of the business, such as the delivery of a digital product by email, the place of posting is the place of contracting. (6) The current English law allows the parties to choose the place of contracting, but it is not appropriate for consumer contracts.

ii. An Agent Trading or Residing Within the Jurisdiction Jurisdiction can also be asserted on the ground that the contract is concluded by or through the defendant’s agent trading or residing within England.62 The contract can be either made by the agent on behalf of the defendant, or through the agent which simply obtains and transmits orders.63 As a result it includes an independent commercial agent, which is not under the direction or control of the parent company. The definition of ‘agent’ for the purpose of CPR thus is different from the definition of an ancillary establishment in the Brussels I Regulation. Suppose an Egyptian company rents an online store on Amazon.co.uk, which simply collects consumers’ orders and passes the orders on for the seller to conclude the contract. The Egyptian company has no ancillary establishment under the Brussels I Regulation, but it has an independent commercial agent trading or residing in England. English courts could base its jurisdiction on the jurisdiction ground under the common law. A controversial question is whether an ‘electronic agent’ can be regarded as the ‘agent’ for the purpose of the Practice Direction 6B para 3.1(6)(b). The nature of an e-agent is confusing and has been discussed quite often ever since the end of the 1990s.64 From a functional perspective, an e-agent is able to carry out similar commercial activities to a human agent. An e-agent works on behalf of the principal and its activities create the link between the principal and the third parties. The principal has to be legally responsible for the action of its e-agent, even if the programme might go wrong sometimes and the e-agent conducted ‘unauthorised’ actions, such as failing to obtain an order or sending a wrong acknowledgement. 62

Practice Direction 6B, para 3.1(6)(b). Citadel Insurance Co v Atlantic Union Insurance Co SA [1982] Lloyd’s Rep 543, CA; Dicey, Morris and Collins (n 7)377. 64 eg S Cross, ‘Agency, Contract and Intelligent Software Agents’ (2003) 17 International Review of Law, Computers and Technology 175; S Wettig and E Zehendner, ‘A Legal Analysis of Human and Electronic Agents’ (2004) 12 Artificial Intelligence and Law 111; F Andrade, P Novais, J Machado and J Neves, ‘Contracting Agents: Legal Personality and Representation’ (2007) 15 Artificial Intelligence and Law 357; E Weitzenboeck, ‘Electronic Agents and the Formation of Contracts’ (2001) 9 International Journal of Law and Information Technology 204; JF Lerouge, ‘The Use of Electronic Agents Questioned Under Contract Law’ (1999) 18 John Marshall Journal of Computer and Information Law 403; T Allen and R Widdison, ‘Can Computers Make Contracts?’ (1996) 9 Harvard Journal of Law and Technology 25. 63

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However, an e-agent should be ruled out from being an alternative ground to serve out of the jurisdiction based on legal and effect reasons. From a legal perspective, some legal concepts cannot be applied to an e-agent. First of all, no law in the UK has ever provided an e-agent legal capacity. It is simply a technical device or commercial tool in law.65 Secondly, an e-agent cannot carry legal liability towards the principal, or vice versa.66 Thirdly, there are no consents or agreements between an e-agent and its principal in order to create a traditional ‘principalagent’ relationship.67 A principal can terminate the employment of an e-agent or change the programme at any time without any legal restrictions. Fourthly, an e-agent works for free without any commission. From an effect perspective, using an e–agent to determine the jurisdiction ground could lead to unreasonable results. There is no express authority requiring an agent to hold an appearance of permanency, or have a fixed or physical appearance. The only requirement is that the agent has to trade or reside in England. An e-agent might ‘trade’ in a country without being located there. Simply programming an e-agent to receive orders from England might be sufficient for the ‘trade in’ requirement. A search agent,68 for example, which is able to search relevant English suppliers and provide its results to any English users, can also be regarded as ‘trading’ in England. More importantly, some e-agents are free to be employed by any internet users to provide agent-like services. Any consumers can use the search agent of google.com or google.co.uk to search products information and get a list of links to available products suppliers sorted and ranged by relevance. It is radical to argue that the contract is concluded through the consumer’s agent, which is the search engine used by him, trading or residing in England. Including the e-agent in para 3.1(6)(b) would make the coverage of the ground unreasonably wide.

iii. The Contract is Governed by English Law The English Courts could also serve out of the jurisdiction based on the fact that the contract is governed by English law according to English conflict of laws.69 In England, choice of law in consumer contracts is governed by Article 5 of the Rome Convention,70 which is to be discussed in detail in Part III. This section only examines how this ground would affect jurisdiction in an e-consumer contract. 65 S Cross, Agency, 179–80; Andrade, Novais, Machado and Neves, ‘Contracting Agents’, 359. Cf. Wettig and Zehendner, A Legal Analysis 122–32. 66 S Cross, (n 64) 178. 67 Andrade, Novais, Machado and Neves (n 64) 360. 68 There are different types of e-agents; some of them can make legal decisions and activities, such as receiving orders, sending confirmations, permitting downloading and providing passwords. These e-agents are called decision agents. Others are programmed to search relevant information over the internet and rank the information results according to its relevance, its date of publication, or the relevant price. These agents are named search agents. 69 Practice Direction 6B, para 3.1(6)(c). 70 It is implemented in the UK by the Contracts (Applicable Law) Act 1990 (1990 c 36). For detailed discussion, see Ch 8 below. It is followed in the Rome I Regulation, Art 6(2).

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a. Contracts with a Choice of Law Clause It is quite normal for an e-consumer contract to contain a choice of law clause. Although the choice of law clause is usually inserted unilaterally by the e-company and accepted without reading by the consumer in most cases, the Rome Convention permits enforcing the chosen law, providing it does not deprive the consumer of the protection in the mandatory rules of the consumer’s habitual residence.71 As a result, the first difficulty that the Practice Direction 6B para 3.1(6)(c) would encounter in consumer contracts is the problem generated by dépeçage (applying different laws to different issues of a contract). Suppose an English consumer enters into a contract with a Malaysian company, where the choice of law agreement chooses the law of Malaysia, some rules of which provide the lower standard of protection to consumers than the mandatory rules of English law. The English court would apply English mandatory rules to these specific issues and the Malaysian law to the rest of the issues of the contract. Would the consumer apply for a claim form to be served on the Malaysian company based on the ground that mandatory rules of English law have been applied? Or would the court reject the English consumer’s application to serve a claim form on the Malaysian company because the applicable law should be the law of Malaysia and English law is simply applied as an exception? Some writers suggest that if the dispute relates to the part that governed by English law, the English court can assert jurisdiction under CPR Part 6 Practice Direction B para 3.1(6)(c).72 It would be proper in business-to-business contracts where the existence of dépeçage is usually based on the parties’ agreement. Once there is an agreement designating English law for an issue, the jurisdiction ground based on the application of English law applying to that specific issue is fulfilled. However, it is not practical for consumer contracts, where the existence of dépeçage is based on the comparison between the chosen law and the mandatory rules of the consumer’s habitual residence. The courts have to decide first of all, whether the dispute in question relates to mandatory rules; secondly, whether English law should be applicable because it provides higher protection among the two. Sometimes, the dispute in question would include more than one issue, some of which are governed by the chosen law and others which are governed by the mandatory rules of the consumer’s habitual residence. The above approach would suffer practical difficulties in consumer contracts, where dépeçage exists more frequently and tough work has to be done to compare the law in different countries. It is thus suggested that a court is not required to make a definite decision on the issue of applicable law at the jurisdiction stage. What a court has to do is to decide whether there is a good arguable case that English law is the applicable law.73 As a 71

Art 5(2) of the Rome Convention. See Fawcett, Harris and Bridge (n 37) para 4.40. 73 J Fawcett, ‘Interrelationships of Jurisdiction and Choice of Law in Private International Law’ (1991) 44 Current Legal Problems 39, 42. 72

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result, an English court would not do the comparison between the mandatory rules of a consumer’s habitual residence and the chosen law, if they are different, to see whether the mandatory rules of the consumer’s habitual residence should apply eventually. An English court would simply decide if the English law should apply. If English law is chosen in the contract, the English court would simply consider English law the applicable law and decide the jurisdiction ground is met, though the effect of English law might be limited by the mandatory rules of the law of the consumer’s habitual residence. However, with this suggestion, the applicable law determined in the jurisdiction stage for the purpose of CPR would usually be the law of the company, which means an English consumer can never rely on this ground to sue a foreign company, and an English company, on the other hand, could rely on this ground to apply for the English court to serve a claim form on a consumer outside England.74 The result is unfriendly to consumers. b. Contracts in the Absence of a Valid Choice of Law Clause If there is no valid choice of law agreement in the contract, a consumer contract will be governed by the law of the consumer’s habitual residence.75 Suppose a consumer is habitually resident in England, English law will apply. The English court is able to exert jurisdiction under CPR Practice Direction 6B para 3.1(6)(c). The difficulty will be: in e-commerce, the business might not expect that the consumer is habitually resident in England, and would hardly predict that the English court will be the potential forum. The proper functioning of this jurisdiction ground is primarily based on whether the choice of law rules could provide reasonable certainty that both parties could expect that there is a good arguable case that English law should apply.

iv. Choice of English Court Agreement If a contract contains a choice of court agreement choosing English forum, the case usually falls within the scope of Article 17 or 23 of the Brussels I Regulation. This ground in the traditional jurisdiction rule applies only where the Brussels I Regulation does not apply, eg both parties have their domicile outside the EU. In this case, the English court could serve a claim form out of England in its traditional law based on the ground of an English jurisdiction clause, either exclusive or non-exclusive.76 The effect and validity of a jurisdiction agreement in e-consumer contracts will be considered intensively in Ch 7.

74 In the latter case, jurisdiction might either be asserted or be denied based on forum conveniens consideration. 75 Art 5(3) of the Rome Convention. 76 Practice Direction 6B, para 3.1(6)(d).

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v. Breach of Contract is Committed Within the Jurisdiction The English court could also serve a claim form out of England if the breach of contract is committed within England.77 The breach of contract in e-commerce usually takes two forms: the repudiation, and the failure to perform the obligation in question. The place of breach will be different according to different applicable law. English law should be applied to decide the place in traditional jurisdiction. a. The Breach of Contract by Repudiation If a defendant breaches a contract by repudiation, the breach is committed in the country where the repudiation takes place, which should be the place where the statement of repudiation has been communicated to the other party.78 In e-commerce, the place of repudiation depends on the communication instrument that the defendant chooses to express its intention of repudiation.79 Where the repudiation is communicated through an e-mail, the postal rule should be adopted and the repudiation takes place at the habitual residence or place of business of the sender. For example, after a contract is concluded the seller sends the consumer an email telling him the product which has been ordered could not be posted in the price shown on the website. Where the repudiation is communicated through any instantaneous communications programmes, such as a window messenger, the rule of receipt should be adopted and it takes place at the habitual residence or place of business of the receiver. b. Non-Performance or Defective Performance by the Business The failure to perform the obligation in question includes the non-performance or defective performance either by the business or the consumer. In a case of nonperformance by the business, the breach of contract is committed in the place where the obligation in question should be performed. In a case of defective performance, the breach takes place where the defective performance occurs. In this sense, it is important to identify the place where the concerned obligation has been performed or should otherwise be performed in order to apply this rule.80 Traditional rules apply where an e-contract is performed offline, for example the performance constituting a delivery of tangible goods and the provision of offline services. However, if an e-contract is performed online by the delivery of intangible products or the provision of online services, special difficulties are generated as to the place of performance.

77 78 79 80

Practice Direction 6B, para 3.1(7). Dicey, Morris and Collins (n 7) 382. s III.A.i above. Dicey, Morris and Collins (n 7) 383.

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(i) Classification The first issue is the uncertainty as to whether a digital product are ‘goods’, ‘services’, or something else under English law. The existing English case authority seems to hold the view that digital products are not ‘goods’.81 As a result, the domestic law concerning the place of delivery of goods shall not be applied for the purpose of service out of jurisdiction in cases where the business fails to deliver digital products or delivers defective products.82 Some commentators thus suggest that the type of contract should not be relevant and it is necessary to figure out the factual place where a digital product/information has been, or should have been, provided.83 (ii) Supplying Standard Digital Products As a result, deciding the relevant place where a contract is breached is complicated. Different circumstances will lead to different factual places where an obligation should be performed, or where a defective performance has taken place. Where a digital product is delivered through a website, it is the business’s obligation to upload the right product to the website server, and to set up a proper programme to carry out the delivery. If the business fails to upload the product, or uploads a defective product, the place of breach of contract would be the place where the business is expected to perform its obligation, which is the place of business. If the business uploads the right product to the server and the delivery fails because of an error in the electronic agent, it would be the place of the server where the contract is breached. If the business uploads the right product, and the product is delivered from the server but is damaged during the internet transmission, it is hard to know the exact location of the breach, for the digital product is transferred in small ‘packages’ through different routes, and the present technology does not provide the information on which particular ‘route’ the damage happens. Even if the technology is developed enough to provide the information, the damage may occur in more than one jurisdiction, and these jurisdictions may have fortuitous connections with this contract. In this case, the place of breach should be presumed to be the place of receipt, because it is the place where the defects have been noticed. In order to avoid further uncertainty,84 the place of receipt would be the place with close personal connections to the consumer, such as the consumer’s habitual residence. If a digital product is sent as an email attachment, it is the business’s obligation to attach the right product with the email, and send the email to the right address. If the business fails to send any email, sends an email without any attachment, or 81 St Albans City and District Council v International Computers Ltd [1997] FSR 251, 265. LS Sealy and RJA Hooley, Commercial Law, 3rd edn (Oxford, OUP, 2005) 248. 82 Sale of Goods Act 1979 (c 54) s 29(2) provides that in the absence of the parties’ agreement, the place of delivery is deemed to be the place of business or residence of the seller. 83 Fawcett, Harris and Bridge (n 37) para 10.104. 84 If the place of receipt is the place where the data is actually downloaded at the time of transaction, this may lead to further uncertainty. eg, the consumer can travel to different states and carry on this transaction, and the business will have no idea where the real destination of the product is.

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sends a defective product, the contract would be regarded as being breached in the place of business, where the right product is supposed to be uploaded. If the business attaches the right product with the email, but some data is lost during the transmission, the breach of contract would be assumed to take place at the place of receipt, which should be the consumer’s domicile/habitual residence. If the email is supposed to be sent by an e-agent installed on the server, the place of breach is the place of the server. (iii) Supplying customised digital products What if a business supplies customised software to the consumer? The business has two obligations to perform; one is to design the software according to the special requirement of the consumer, and the other is to make the software available to the consumer. The place where a contract is breached depends on the type of obligation which has been broken. Where a company fails to design the correct software, the breach is committed in the place where the software is or should be designed, which is the place of business or the residence of the company who is responsible for designing the software for the special purpose of a consumer. Where the software is properly designed and made by the company, but the right product has not been made available to the consumer, the place of breach depends on the method the business has used, or should use to deliver, and the reason that causes the non-delivery or the defective performance. The rules discussed in the section (ii) above can be used here. (iv) Supplying Specialised Skills or Expertise Suppose the content of the contract is providing the professional advice, the place of performance depends on the tool used to communicate. If the professional provides defective information by using instantaneous communications programmes, such as the Windows messenger, the breach of the contract is committed in the place where the defective information is received by the consumer, which is presumed to be the consumer’s habitual residence. If the consultation is carried out in the form of email, the defective information is communicated in the place where the business is located by using the postal rule. If the business does not provide any information, the contract is breached in the place of business or the residence of the company where the information should be provided. (v) Supplying the Capacity to Access Information If the contract is for access to online information, again, different situations might occur. Suppose a service is for accessing an e-library or other online databases. After receiving a consumer’s payment and register information, the business fails to email the consumer a valid username or PIN. The contract should be regarded as having been breached in the place of business from which the information should be sent. If the username and PIN are supposed to be shown in the refreshed webpage, the failure of showing any such information happens in the place of the server, where the programme for providing the username and PIN is

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located. If the consumer does get his username and PIN but cannot log in, owing to an electronic error of the website server, again, the place of breach of contract should be presumed to be the place of business. c. Non-Performance or Defective Performance by the Consumer The normal practice in an electronic consumer contract requires the consumer to pay in advance. After the purchase money is due, or the credit card number is provided, the business will supply the goods or services. The consumer’s breach of his obligation to pay would rarely happen in reality. It might happen, for example, where the consumer is paying for expensive goods or services by instalment, or the consumer is buying in a ‘buy now and pay later’ promotion. It is possible for the consumer to pay his purchase money through the traditional way, for example, by sending a cheque or by providing the credit card number through telephone. A consumer may also be required to pay online. For example, the information will be collected in the server, which is located in Texas, and then the business’s staff will view the information at the place of business, which is California. However, the place of payment is not different from that in traditional commerce, because in traditional English law the place of payment is not a question of fact but a question of law. According to traditional common law, the place of payment should be the place of the creditor, for it requires that the debtor seeks out the creditor in the creditor’s home state to make the payment.85 If the consumer fails to perform his obligation to pay, either in traditional way or through the internet, the place where the breach of contract occurs should be the place of the business. d. The Effect of this Ground in Electronic Consumer Contracts Generally, applying CPR Practice Direction 6B para 3.1(7) to foreign defendants in electronic consumer contracts may lead to the following result: (1) Where the contract is breached by repudiation, the place where the breach of the contract is committed is: a) the residence of the sender if the repudiation is communicated by email; b) the residence of the addressee if the repudiation is communicated through other electronic means that could provide instantaneous communication. (2) Where the contract is breached by non-performance or defective performance, the breach of the contract is committed where the performance should be, or has been carried out. 85 Mora Shipping Inc v Axa Corporate Solution Assurance SA [2005] EWHC 315 QBD (Comm); Definitely Maybe (Touring) Ltd v Marek Lieberberg Konzertagentur GmbH [2001] 2 Lloyd’s Rep 455 QBD (Comm Ct); Korner v Witkowitzer [1950] 2 KB 128. This is different from many continental European countries, where the place of payment is the place of the debtor. Again, it is held that English law would govern this issue as the lex fori.

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Jurisdiction in Electronic Consumer Contracts (2) a) Where the performance was or should be carried out by traditional methods, the place of breach of contract is determined according to the traditional law. b) Where the performance was or should be carried out online: If the business fails to carry out its obligation to upload the correct digital product or information, or to send an email with the correct digital product or information as an attachment, the breach of the contract takes place in the place of business; If the failure of performance by the business is because of the error of the computer programme which is designed to effect such a delivery, the breach of the contract takes place in the place where the server is located; If the failure of performance by the business is due to a network error during the transmission, the breach of the contract takes place in the place with the territorial connection with the consumer; If the consumer fails to carry out his principal obligation in question, for example, to provide a valid credit card number, or to make the necessary e-money transfer, the breach of the contract takes place in the place of business. (3) Under the current English law, the place of performance of an obligation in question can be determined by the parties. This can simplify the problem in e-commerce, but would provide unfair results for consumers.

B. Forum Conveniens Even if the claimant could prove that at least one of the grounds is satisfied and there is a real issue which is reasonable for the court to try, the court will not give permission unless it is satisfied that England is the forum conveniens, which is the forum ‘in which the case can be suitably tried for the interests of all the parties and for the ends of justice’.86 The test is substantially the same as that used to determine whether to stay the proceedings under forum non conveniens, except for the different procedural requirements. The relevant principles have been stated by the House of Lords in Spiliada Maritime Co v Cansulex Ltd.87 When applying for permission to serve the claim form out of the jurisdiction, the claimant has to show that England is the appropriate forum, or that justice will not be done in the foreign forum. This section examines how the test could be exercised in e-commerce, and whether this discretionary process could provide justice and fairness in consumer contracts.

i. Appropriate Forum Test To ascertain whether England is the appropriate forum, Lord Goff provides in Spiliada:

86 87

Spiliada Maritime Co v Cansulex Ltd [1987] AC 460, 480. CPR, r 6.37(3). Spiliada Maritime Co v Cansulex Ltd.

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[I]t is for connecting factors in this sense that the court must first look; and these will include not only factors affecting convenience or expense (such as availability of witnesses), but also other factors such as the law governing the relevant transaction . . . and the places where the parties respectively reside or carry on business.88

In general, four groups of factors can be considered:89 (1) the personal connections to the parties; (2) the factual connections between the event and the particular court; (3) the applicable law; (4) the choice of forum agreement, if there is such an agreement. a. Personal Connections to the Parties90 The place with personal connections to the parties, such as the parties’ domicile or habitual residence, usually holds a substantial connection with the contract, and can always be considered as one of the weighty connecting factors. However, in practice the personal connections to the parties usually cannot play a decisive role, because the consumer and the business reside in different states in most cases. Although the consumer holds the weaker litigation power than the business, the comparative power and the ends of justice are not one of the factors considered in the appropriateness test. The weight given to each state is the same in principle, and the weight given to each state counteracts each other. Nevertheless, the place with personal connections to the parties could be a very weighty factor if both parties have the same domicile/residence abroad. In this case, the court would be very reluctant to grant permission to serve a claim form out of the jurisdiction. In e-consumer contracts, the consumer normally will not voluntarily bring litigation in a country other than his home state. It would only be the case when the consumer has two residences, one of which is the same as the company’s, but the consumer brings an action in the other. In this case, the court is probably reluctant to hold England as the forum conveniens unless the consumer could successfully provide other more weighty factors pointing to England. On the contrary, an e-company might bring proceedings in a state other than the common domicile/habitual residence, either with or without the intention to deprive the consumer of his access to court. Even though the company claims that its foreign residence/domicile is acquired for tax reasons without any substantial connection with it or its business,91 the court would nevertheless take the common residence seriously and not grant the permission.

88 89 90 91

Spiliada (n 86) 478. For similar categories, see Briggs and Rees (n 2) 308. Spiliada (n 86) 478; Trendtex Trading Co v Credit Suisse [1980] 3 All ER 721, 734. Spiliada (n 86) 481.

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b. Factual Connections More difficulties will arise out of the factual connections in e-consumer contracts. In a dispute arising out of a contract, the traditional factual connections are usually as follows: the place where the contract is concluded, the place of performance of the principal obligation in question, the place where the breach of contract is committed, the place of payment, the place of negotiation, the place where the subject matter of the contract is located, the place where the relevant evidence is located and the place where the witnesses are located. Since most factors are still territorially oriented by connecting a fact with its physical territory, they are no longer effective in e-commerce. The distant nature of e-commerce weakens the nature of many of these factors, and the involvement of a server in every transaction separates the ‘formal connection’ and the ‘substantial connection’. The traditional nexuses mainly focus on the connection as to the form and the procedure of a transaction. Since in most cases the evidence is stored on the server, the electronic agent is located in the server, the offer or acceptance is received by and stored in the server, and the products are actually sent out from the server, the place of the server will be the centre of gravity conferred by the traditional nexuses. However, in most cases the nature of the server is simply providing technical service or mechanical support for the performance of e-commerce. It is not responsible for any action done through it, and carries no right or obligation over the relationship between the parties in e-commerce. The ‘natural forum’ conferred by the traditional factors will be fortuitous in most cases, unless in an exceptional case where the server can be regarded as the business’s branch or place of business. The UNICTRAL Model Law intends to provide the real connection between an online activity and a country, and suggests that some online activities should be deemed to occur in the habitual residence of the parties. As a result, an email message is sent from the residence of the sender and received in the residence of the addressee, the electronic product is delivered from the residence of the seller to the residence of the buyer, the payment is paid at the residence of the business, the product is made or designed in the business’s residence and is located in the business’s residence, and the website is managed in the business’s residence. The connecting factors would easily direct one to the business’s residence. A business would also be able to decide the location of many connecting factors, by locating the server or e-agent in its place of business. Furthermore, all these factual connecting factors could be agreed by the parties, which give a business great advantages by unilaterally selecting its home as the location of the factual connecting factors. The natural forum decided under such a circumstance would usually be the home of the business instead of that of a consumer. Some factual connections are less weighty in e-commerce. In traditional commerce, the locations of witnesses and evidence are very important factors in deciding the natural forum,92 but they are less important in e-commerce. For example, 92 Hamed el Chiaty & Co v Thomas Cook Group Ltd [1992] 2 Lloyd’s Rep 399; The Polessk and The Akademik Iosif Orbeli, [1996] 2 Lloyd’s Rep 40.

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in a transaction of digital products, all the processes are completed online and usually only between the parties without the involvement of any third party witnesses. The relevant records or evidence can be stored in a range of countries in different forms providing it is accessible, accurate and reliable.93 Some are stored on the internet server of the electronic business or the chips of any other person who provides services for retention of electronic records.94 The location of data records may be artificial, multiple, changeable or irrelevant to the dispute. The business might be obliged to send the consumer a copy. In this case, the same evidence will also be located in the consumer’s home country. Some companies just make records on the website, and all persons are entitled to access the information using their usernames and passwords. Irrespective of the location of the evidence, it is portable and accessible by courts everywhere. These traditional factors considered for practical convenience are no longer important in e-consumer contracts. c. The Applicable Law Whether the contract is governed by the English law is one of the grounds listed in the para 3.1 of CPR Part 6 Practice Directive B, and also a factor traditionally considered in the forum conveniens evaluation. The weight attached to this factor changes according to different cases and circumstances.95 It is suggested that this factor should be even weaker in e-consumer contracts for the following two reasons. Firstly, it is quite normal for an e-consumer contract to contain a choice of law clause. Although in most cases this choice of law clause is inserted unilaterally by the e-company, it is enforceable subject to the higher protection under the mandatory rules of the consumer’s habitual residence.96 Giving the chosen law much weight is unfriendly to the consumer and might be abused by the business. Secondly, the current English choice of law rules would result in dépeçage in some cases. The weight of the applicable law as a connecting factor decreases where different laws apply.97 Nevertheless, the applicable law could be an important factor in cases where there is no parties’ choice of law agreement. In this case, the law of the consumer’s habitual residence will apply if the business ‘targets’ the consumer’s habitual residence.98 Theoretically, if the ‘target’ test is satisfied the consumer’s habitual residence should be predictable for the business in most cases.

93

UNCITRAL Model Law, Art 10(1). ibid, Art 10(3) permits the party using the services of any other person to retain data message records, providing that the accuracy, re-accessibility, and integrity can be guaranteed. 95 Spiliada (n 86) 481; Cordoba Shipping Co v National State Bank [1984] 2 Lloyd’s Rep 91; Overseas Union Insurance Ltd v Incorporated General Insurance Ltd [1992] 2 Lloyd’s Rep 439; Compare Trade Indemnity v Forsakrings AB Njord [1995] 1 All ER 796. 96 Art 5(2). 97 Briggs and Rees (n 2) 309. 98 Arts 5(2) and (3) of the Rome Convention. See Ch 8. 94

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d. The Choice of Forum Agreement This element will only be considered in cases where the contractual parties are domiciled outside the EU because of the influence of the Brussels I Regulation. If there is an agreement between the contractual parties for an English court, either exclusive or non-exclusive, to hear any dispute that arises or might arise in a contract, it is traditionally a very strong factor indicating that the English court is appropriate.99 Similarly, if there is a foreign jurisdiction agreement, the English court requires strong reasons for exercising jurisdiction.100 The problem is that in e-consumer contracts, usually it is the business that unilaterally inserts a choice of forum clause into the contract, and the consumer is in a ‘take-it-or-leave-it’ position. It is doubtful whether strong weight should be given to this factor for consumer contracts.101

ii. Justice Test Even if England is not the appropriate forum, the claimant may still persuade the court to serve a claim form out of the jurisdiction. The court will take into consideration the factors concerning the ends of justice to make its decision. Jurisdiction would be exercised in cases where the judiciary of the foreign forum is not independent,102 where the otherwise competent forum court is seriously incompetent in dealing with the dispute,103 where the claimant will suffer prejudice in the foreign forum, for reasons of insecurity,104 where there is difficulty in enforcement of the judgment, or where there are religious, political, racial or other reasons which may deprive the claimant of a fair trial.105 Most of the traditional reasons could be equally applied to e-commerce. However, justice based on the fundamental public policy mentioned above is comparatively narrow to guarantee the necessary protection to consumers. The problem which consumers worry about most is the possibility of access to justice, which would be hampered by their weaker financial power. The weight attached to the financial power in the justice consideration was decided in Connelly v RTZ,106 where the claimant was an employee and also a victim, who sued the defendant employer in England, where the natural forum was Namibia. The key issue was whether the lack of financial assistance in Namibia 99 Gulf Bank KSC v Mitsubishi Heavy Industries Ltd [1994] 1 Lloyd’s Rep 323; Attock Cement Co v Romanian Bank for Foreign Trade [1989] 1 Lloyd’s Rep 572. 100 BP Pld v Aon Limited, Aon Risk Services of Texas Inc [2006] 1 Lloyd’s Rep. 549; ED & F Man Ship Ltd v Kvaerner Gibraltar Ltd [1996] 2 Lloyd’s Rep 206; City-March Ltd v Neptune Specialties Ltd [1997] 1 Lloyd’s Rep 72. 101 This issue is to be systematically examined in Ch 6. 102 Middle East Banking Co SA v Al-Haddad (1990) 70 OR (2d) 97. 103 Islamic Arab Insurance Co v Saudi Egyptian American Reinsurance Co [1987] 1 Lloyd’s Rep 315, 319. 104 Oppenheimer v Louis Rosenthal and Co AG [1937] 1 All ER 23. 105 Carvalho v Hull, Blyth (Angola) Ltd [1979] 3 All ER 280. 106 Connelly v RTZ [1998] AC 854.

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would persuade the English court to exercise jurisdiction based on the requirement of justice. It was agreed that as a general rule, the lack of financial assistance in the appropriate forum was not a decisive factor showing justice could not be done in that forum. However, Lord Goff of Chievely provided that: The question, however, remains whether the plaintiff can establish that substantial justice will not in the particular circumstances of the case be done if the plaintiff has to proceed in the appropriate forum where no financial assistance is available.107

Since the nature and complexity of the case was such that it could not be tried without the benefit of financial assistance, it was held that the English court should exercise jurisdiction for the justice consideration.108 According to the decision, the weaker financial power of the consumer is rarely a decisive factor for the court to exercise its discretion to take jurisdiction for justice reasons, unless the consumer can successfully argue that due to his limited financial power, requiring him to bring proceedings in a foreign country will inevitably force him to give up the litigation. However, it is hard to tell whether a consumer is suing in England simply for judicial advantages or the jurisdiction is necessary for the ends of justice. The pure judicial advantage and the requirements of justice due to the judicial advantage are hard to distinguish. With a flexible test, the consumer could simply show that compared with the value of the claim and his financial power, the foreign litigation is extremely oppressive and difficult. This test is unlikely to be favoured by the English courts. There is also a strict test, which requires the consumer to prove that the foreign litigation will without a doubt deprive him of access to justice. In this case, a simple ‘expensive’ and ‘oppressive’ trial is not enough to satisfy the justice test. The consumer may also raise other reasons. It is questionable as to what factors should be considered to prove that substantive justice cannot be achieved in another forum due to the financial issue. In the Connelly decision, the complexity of the case and the necessity of professional experts were factors proving that without the financial advantages litigation was impossible to carry out. This reason, however, has been objected to by Lord Hoffman: It means that the more speculative and difficult the action, the more likely it is to be allowed to proceed in this country with the support of public funds. Such distinctions will do the law no credit.109

Furthermore, these factors are rarely present in e-consumer contracts, which are usually simple contracts concerning a small amount of money. The issues that might be raised frequently by the consumer usually include the expense of travelling, the expense of acquiring a legal representative and other extra costs due to the foreign litigation. These factors, however, cannot be weighed much against the trial in a foreign country, unless the disadvantage is so serious that it would cause 107 108 109

Connelly v RTZ 873. Connelly v RTZ (n 106) 874. Connelly v RTZ (n 106) 876.

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a denial of justice. The consumer’s personal circumstances would be taken into consideration together with the value of the subject matter of the dispute and the comparative costs of domestic and foreign proceedings. However, the possible effect has been criticised by Lord Hoffman because: It means that the action of a rich plaintiff will be stayed while the action of a poor plaintiff in respect of precisely the same transaction will not.110

By using this approach, the consumer will not be protected as a category, but is protected according to his personal financial situation. Providing different decisions for different cases may be argued as reasonable, but can hardly provide legal certainty. Other aspects relevant to the consumer’s weaker litigation power can also be taken into consideration, such as the unfamiliarity with the foreign procedure and the language difficulty. But the factors have to be at the level which can prevent the ends of justice in order to be considered serious. For example, if it is impossible or difficult for the consumer to acquire a visa, which certainly will prevent him from bringing proceedings in a particular foreign country, the court might decide it is better for the ends of justice to exercise jurisdiction even if the natural forum is abroad. Furthermore, the consumer might wish to claim that due to his weak financial power or other reasons, requiring him to have litigation abroad denies his access to justice which breaches Article 6 of the European Convention on Human Rights.111 However, the effect of Article 6 of the ECHR in English jurisdiction is marginal and controversial.112 The English courts usually refuse to use Article 6 of the ECHR as a new ground outside the current justice consideration test.113 The consumer usually could not successfully persuade the court to assert jurisdiction simply based on the breach of rights under the ECHR. For the fairness and justice consideration, it is also suggested that the comparative litigation power of the defendant company has to be taken into consideration. There are a lot of small and medium sized companies in e-commerce, the litigation and financial power of which is not much greater than that of a consumer. When the natural forum is the business’s domicile, it is unreasonable to permit the consumer to sue the business defendant in the consumer’s home just because the consumer’s weaker litigation power would make it difficult for him to litigate abroad, because all the substantial disadvantages the consumer may face in a foreign court will be equally faced by the small company when it is required to litigate in England. 110

Connelly v RTZ (n 106).876. The ECHR has been implemented in the United Kingdom under the Human Rights Act 1998. The EctHR has made its decision in several cases that denial of access to justice constitutes a breach of Art 6 of the ECHR. eg Osman v United Kingdom (2000) 29 EHRR 245. 112 See Lubbe v Cape plc [2000] 4 All ER 268; R (Razgar) v Special Adjudicator [2004] 3 WLR 58; OT Africa Line Ltd v Hijazy (The Kribi) [2001] 1 Lloyd’s Rep 76. See also generally J Fawcett, ‘The Impact of Articles 6(1) of the ECHR on Private International Law’ (2007) 56 ICLQ 1. 113 In Lubbe v Cape, 281, Lord Bingham said: ‘I do not think article 6 supports any conclusion which is not already reached on application of Spiliada principles.’ 111

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As with the principle of the doctrine of forum conveniens, although the consumer can rely on the justice requirement based on his weaker litigation power, necessary consideration should be given to the comparative litigation power of the e-company. Only when the company clearly has stronger litigation power than the consumer, would the court grant permission. Where both parties hold similar litigation power, the court probably will not serve out of the jurisdiction based solely on the consumer’s weaker financial power. As a result, the standard test for the justice consideration in light of the consumer’s weaker financial or litigation power is very high.

iii. Conclusion The doctrine of forum conveniens aims to achieve the ends of justice. The court is required to consider all the circumstances to exercise its discretion. Although no specific rules have been designed to protect consumers, the doctrine of forum conveniens is believed to be able to provide reasonable protection to consumers and achieve fairness and justice between the parties. However, it is doubtful whether reasonableness and fairness could actually be achieved. The appropriate forum test is non-biased in nature. It is supposed to apply equally to consumers and businesses and each party has balanced rights and obligations. However, the test is more favourable to the business in practice, because the business could control the location of some factors. The company can choose to locate its website or e-agent on a server located in the place it chooses. The business can choose the means of concluding a contract and the manner of performance, as well as inserting a choice of law or jurisdiction clause into the contract,114 which would provide the business more chance to bring proceedings in the jurisdiction more convenient to it. The justice test would be another chance to protect consumers as the weaker party. The traditional justice test primarily focuses on the fundamental public policy,115 for example, the claimant cannot receive a fair trial abroad,116 the law that is meant to be applied by the foreign court is contrary to English public policy,117 or the foreign court lacks specialists concerning the specific issues.118 However, there is not much consideration to the judical advantage the claimant could get in the forum.119 As a result, the consumer’s weaker financial power and litigation power is barely a weighty factor in the justice test. The consumer’s weaker position could be important only if it is so weak that it would deprive him of access to 114

See Chs 6 and 8 below. Such as the claimant cannot receive fair trial abroad; see the law applied by the foreign court is contrary to the public policy, see the foreign court lacks specialists concerning the specific issue. 116 Oppenheimer v Louis Rosenthal. 117 Coast Lines v Hudig and Veder Chartering NV [1972] 2 QB 34 118 Islamic Arab Insurance v Saudi Egyptian. 119 Lord Goff said in Spiliada that if the court is satisfied that substantial justice will be done abroad, it should not be deterred from refusing leave simply because the claimant will be deprived of an advantage. (n 86) 482–4. 115

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justice.120 The court should also compare the consumer’s litigation power with the company’s litigation power to ensure that jurisdiction is exercised with a reasonable balance between both parties.

IV. Declining Jurisdiction—Forum Non Conveniens Even if England has jurisdiction, the court could exercise its discretion to stay the proceedings based on the doctrine of forum non conveniens upon the application of the defendant.121 According to the cornerstone case Spiliada Maritime Co v Cansulex Ltd,122 a two-limb test has been introduced: firstly, the defendant has to satisfy the court that there is another clearly more appropriate forum available;123 secondly, if the court is satisfied that the natural forum is abroad the claimant has to persuade the court that refusing to stay better serves the end of justice.124 Since the factors considered in forum non conveniens are the same as those in forum conveniens, this section only examines the process of discretion.

A. The Consumer as the Claimant When a consumer is the claimant, it is usually not normal for him to sue a foreign business in a court other than the one of the consumer’s home. Only the consumer who resides in England will resort to the English court to resolve disputes. The defendant company has to show that there is a natural forum abroad. Since the location of most connecting factors relating to the event are uncertain, the natural forum is hard to establish. However, since the business could decide the way of contracting and performance, or even insert a clause to decide the place of contracting and performance, it is easier for it to ‘choose’ the centre of gravity of the contract. It is estimated that the natural forum based on the nexuses would in most cases be the country with which the business has a close connection. After the business proves there is another available forum abroad which is clearly more appropriate, the consumer has to justify coming to England. The weaker litigation power and the heavy financial burden are rarely weighty factors to satisfy the court that the English trial is better for the end of justice.125 The consumer has to show that the weaker litigation power would lead to substantial injustice to him. For example, it will in no doubt deprive him of access to justice. 120

Connelly (n 106). It is important to note that after the controversial decision of Case C-281/02 Owusu v Jackson [2005] ECR I-1383, the doctrine of forum non conveniens is tremendously restricted. It may only be able to be used in limited circumstances, eg when the defendant is ‘present’ instead of domiciled in England. 122 Spiliada (n 86). 123 Spiliada (n 86) 474. 124 Spiliada (n 86) 478. For further discussion, see Cheshire, North &Fawcett (n 2) 427–40. 125 s III.B above. 121

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The burden of proof is high and not easy for a consumer. In most cases, the English court would refuse the consumer’s petition to lift the stay, and require the consumer to have litigation in the natural forum of the dispute, which is abroad.

B. The Business as the Claimant When a company sues a consumer in England, the consumer could apply for a stay by indicating that there is a natural forum abroad, which is usually not easy. For the same reasons stated above, in most cases, it is not clear how to locate the connecting factors in e-commerce. The consumer can hardly satisfy this requirement. It is possible that the court finds that no natural forum exists and refuses to stay the proceedings.126 In many other cases, the court will be more likely to find the natural forum is the place of the business, or the place of the server. The consumer usually cannot successfully persuade the court to stay the proceedings at the first stage.

V. Conclusion The discretion-based jurisdiction rule allows the English court to exert jurisdiction by considering all circumstances of the case. It aims to achieve both judicial efficiency and the ends of justice to both parties. Although there is no rule designed specially for consumer protection, the basic principle used to exercise discretion based on considerations of fairness and appropriateness is believed to be able to eventually provide reasonable results for both businesses and consumers. There will not be any doubt as to the righteousness of the fundamental principle. The problem is how the discretion can be exercised to achieve the aim that it is supposed to achieve. Difficulties arise in three issues. The first is the grounds where jurisdiction can be exercised. The determination of some jurisdiction grounds is complicated in e-commerce. The separation between the postal rule and receipt rule leads to inconsistent and sometimes unpredictable results in determining some jurisdiction grounds, such as the place of contracting and the place where a contract is breached in case of repudiation, which largely depends on the method used to conduct the communication between the parties. Furthermore, the current English law permits most of the grounds to be decided by agreement, which gives the business a chance to manipulate the law by unilaterally inserting contract terms choosing the place of contracting, the applicable law, the competent court, or the place where a contract is breached. It would give a consumer no chance to rely on the ground to apply for a claim form to be served on a defendant out of jurisdiction and would always give a business a chance to apply for the service out of England on a foreign consumer.

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The second difficulty is the application of the appropriate forum test. This has been exercised in the discretion process both in the forum conveniens and forum non conveniens tests. The traditional ‘appropriate forum’ is no longer the appropriate forum in e-commerce, because of the different method of conducting business and communication. Given the challenge e-commerce has brought to the connecting factors, the discretion-based approach based on the close and substantial connection is no longer effective. There is great difficulty as to whether the traditional connecting factors are equally important in e-consumer contracts, whether the new technology of e-commerce introduces new connecting factors which should be taken into account when deciding a reasonable forum, and where these connecting factors can be located in the physical world. This test should be updated in order to apply in e-commerce. It is suggested that only the factors that affect the substantial interests of the parties as well as the material efficiency of the proceedings should be taken into consideration. As to those factors that are difficult to locate and would lead to fortuitous results in e-commerce, the weight attached should be greatly weakened. They can no longer be the primary rules to decide jurisdiction in e-commerce, but supplementary rules instead. The third difficulty is the equally non-biased justice test. Since the appropriate test would in most cases be more favourable to the business than the consumer, it is thus suggested that the consumer’s interests should be protected in the justice test. Without case authorities specifically considering cross-border consumer disputes, it is uncertain how much weight can be attached to the consumer’s weaker litigation position. It is suggested that the comparative weaker litigation power of consumers should be specifically considered, and it would be a very weighty factor if the consumer could satisfy the court that he would be deprived of the right to access to justice in the foreign proceedings. However, the court is also required to consider the position of the business as well as the value of the amount in dispute in order to reach a decision. In general, the common law approach in England is insufficient to provide certainty and fairness to e-consumer contracts.

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5 Jurisdiction in Electronic Consumer Contracts (3) Critical Assessment of US Innovations I. Introduction Personal jurisdiction in the US is complicated.1 As with most other countries, personal jurisdiction principally rests on the doctrine of actor sequitur forum rei. For non-resident defendants, a US court can exercise jurisdiction if the following two requirements are met: first, the long-arm statute of relevant forum shall be met; second, the exercise of jurisdiction should accord with the due process under the Fourteenth Amendment of the US Constitution.2 Some long-arm statutes enumerate the cases to restrict jurisdiction over defendants, and others permit personal jurisdiction to be exercised to the broadest extent under the Constitution.3 This chapter aims to examine how discretion is exercised by the US courts for the due process requirement regardless of the specific rules in the long-arm statute of each State. It specifically analyses the innovative tests provided by the US courts in response to the development of e-commerce to see whether any inspiration can be provided by these tests to resolve the jurisdictional difficulty in e-consumer contracts.

1 The jurisdiction system in the US includes the Federal Court system and the State Court system. Different states have different personal jurisdiction rules. This chapter does not provide a detailed introduction to the general jurisdiction system in the US. For a detailed introduction see EA Farnsworth, An Introduction To The Legal System of The United States, 2nd edn (London, Oceana Publications, 1983); J Rutherford, ‘The Myth of Due Process’ (1992) 72 Boston University Law Review 1; DA Castleman, ‘Personal Jurisdiction in Tribal Courts’ (2006) 154 University of Pennsylvania Law Review 1253. 2 eg Bank Brussels Lambert v Fiddler Gonzalez &Rodriguez 171 F3d 779 (2d Cir 1999); Staff Network v Pietropaolo 764 A2d 905 (NH 2000); Fireman’s Fund Ins v National Bank of Cooperative 103 F3d 888 (9th Cir 1996); SC Yeazell, Civil Procedure, 5th edn (New York, Aspen, 2000) 191; T Appleton, ‘The Line Between Liberty and Union: Exercising Personal Jurisdiction Over Officials From Other States’ (2007) 107 Columbia Law Review 1944, 1949–50. 3 J Van Detta and S Kapoor, ‘Extraterritorial Personal Jurisdiction for the Twenty-First Century: A Case Study Reconceptualizing the Typical Long-Arm Statute to Codify and Refine International Shoe After Its First Sixty Years’ (2007) 3 Seton Hall Circuit Review 339, and fn 6; T Appleton, ‘The Line’.

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II. General Jurisdiction Due process is satisfied if a non-resident defendant has the minimum contact with the forum, and the court should exercise its discretion to decide whether the nonresident defendant has such minimum contacts that the maintenance of the suit will not offend ‘traditional notions of fair play and substantial justice’ in order to assert jurisdiction.4 In general, there are two types of personal jurisdiction that a court in the USA can take over non-resident defendants. One is general jurisdiction, where the court can take jurisdiction over a non-resident defendant for non-forum related activities only if the defendant’s contact with the forum is ‘systematic’ and ‘continuous’ enough.5 Given the existence of the systematic and continuous contact, jurisdiction can be established over a non-resident defendant even if the contact has no relation to the action.6 The test of substantial contact in general jurisdiction is rigorous for it requires the defendant to maintain such substantial, continuous and systematic contacts with the forum State that the forum can assert jurisdiction over the particular defendant regardless of the nature of the dispute.7 It is difficult to establish general jurisdiction in distance e-consumer contracts.8 The contact between an e-business and a State is usually established by two methods: through a server or through transactions.9 Simply choosing to locate the website on a server situated in the State is not sufficient to establish the pervasive and extensive contact, as the location of a website is changeable and fortuitous. It is not clear whether general jurisdiction can be established based on the fact that a server, which is under the direct control of the business and has been hosting the e-business’s e-agency for a substantial period of time, is located in the forum state in a permanent way. Under the Brussels I Regulation, this server could be regarded

4

International Shoe Co v Washington 326 US 310, 316 (1945). Ibid, 318; Helicopteros Nacionales de Colombia SA 466 US 408, 414–6 (1984). 6 Perkins v Benguet Consolidâtes Mining Co 342 US 437 (1952); Helicopteros Nacionales; Millennium Enterprises v Millennium Music 33 F Supp2d 907, 909 (D Or 1999). 7 Perkins v Benguet Consolidâtes Mining Co; Helicopteros Nacionales; Millennium Enterprises v Millennium Music. For more studies of the requirements of general jurisdiction, see H Stravitz, ‘Personal Jurisdiction In Cyberspace: Something More Is Required On The Electronic Stream Of Commerce’ (1998) 49 South Carolina Law Review 925; M Twitchell, ‘The Myth Of General Jurisdiction’ (1988) 101 Harvard Law Review 610; C Rhodes, ‘Clarifying General Jurisdiction’ (2004) 34 Seton Hall Law Review 807. 8 Several cases have reasoned that it was virtually impossible to establish general jurisdiction solely through internet contacts. Many cases have refused to hold that general jurisdiction exists even in apparently fully interactive business situations, such as Millennium v Millennium, in which the district court stated that it was ‘aware of no case in which a court asserted general jurisdiction based on the existence of an internet website’. Only one case Mieczkowski v Masco Corp 997 F Supp 782 (ED Texas 1998) held that general jurisdiction can be established on contacts primarily by the internet, however, even in this case, there were other traditional physical contacts besides the sole internet contact. 9 General jurisdiction can be asserted in the principal place of business or the place of incorporation, see Rhodes, Clarifying General Jurisdiction’, 809. This will not be specially examined as it has no e-commerce specific issues. 5

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as the business’s ancillary establishment in the given country under certain conditions, and jurisdiction can be exercised over the dispute relating to the performance of the business establishment.10 The same interpretation might not be proper for a US court to assert general jurisdiction, which would subject a non-resident defendant to the jurisdiction for non-related activities. The ‘dispute-blind’ jurisdiction requires the contact to be pervasive and extensive so that it is justifiable for the forum state to exercise jurisdiction over the specific defendant over any action.11 Although a server can be deemed as the business’s establishment in exceptional cases, the relationship of a server and its parent is not of such a nature that the parent is unconditionally subject to the jurisdiction of a state where a server is located. A server, at most, is a hypothetical ancillary establishment and its status in private international law differs from traditional ancillaries. Jurisdiction can only be justified where the dispute is related to the functioning of the server. Contact can also be established through transactions. It is argued by some writers that general jurisdiction can be established where a business systematically contacts a forum over a significant period of time,12 so that the contact is actually reaching a portion of the state’s population.13 It is questionable as to whether this test can be used in e-commerce. An open website is accessible in every state for as long as it exists and has not been blocked by any means. Should it be regarded as a systematic contact for a significant period of time? It is also hard to decide whether the e-contact is actually reaching a portion of the state’s population. Should the number of people who have actually viewed the website be taken into account? Or should the number of contracts that have been entered into be counted? As a result, general jurisdiction cannot play an important role in e-commerce.14 More attention thus has to be paid to specific jurisdiction, where the claim is one arising out of, or relating to, the defendant’s forum-related activities. For a court to assert specific jurisdiction, the defendant has to do the act which purposefully avails him of the privilege of conducting activities within the forum State, invoking the benefit and protection of its law.15 The defendant’s conduct with respect to the forum must be such that he would reasonably anticipate being 10

Brussels I Regulation, Art 15(2); Ch 3, s IV. Rhodes (n 7) 818ff. Of course, if jurisdiction is improper, US courts can use forum non conveniens to decline jurisdiction. 12 A Wright and A Miller, Federal Practice & Procedure (St Paul, Thomson West, 2005), s 1073.1 ‘Personal Jurisdiction and the Internet’. 13 Coastal Video Communications v Staywell 59 F Supp 2d 562 (EDVa 1999). 14 Unfortunately, many courts do not clearly separate the distinct nature of general jurisdiction and specific jurisdiction. Some tests, which have been established for specific jurisdiction, have been used to test general jurisdiction. See Mar-Eco Inc v T & R Sons Towing and Recovery Inc 837 A.2d 512 (Pa Super 2003) (general jurisdiction was asserted based on the contact through an ‘interactive’ website by applying a ‘sliding scale approach’). It has been rejected in other courts: Citigroup Inc v City Holding Co 97 F Supp 2d 549, 570–71 (SDNY 2000); Seldon v Direct Response Technologies WL 691222 (SDNY 2004), 4. This book supports the latter opinion. 15 Hanson v Denckla 357 US 235 (1958); Asahi Metal Industry v Superior Court of California 480 US 102 (1987). 11

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brought into that forum’s court.16 This ‘purposeful availment’ requires that the defendant has not only activities which target the forum, but also the intention or anticipation of targeting the forum. With the development of e-commerce, there are different authorities as to what constitutes the ‘purposeful availment’ of a business through establishing a website. This chapter only examines the innovative tests established by US courts as responses to how the discretion should be exercised in e-commerce.17

III. ‘Sustained Contact’ Test This test has been established by the comparatively early case concerning electronic commerce. In Inset System v Instruction Set,18 the Federal District Court in Connecticut asserted jurisdiction over the Massachusetts Company ‘Instruction Set’ by holding that the company’s website, which is accessible in Connecticut, purposefully availed the company of the privilege of doing business within Connecticut.19 The court based its decision on the analogy between a promotion website and a print, television or radio advertisement, and concluded that the internet advertisement is more powerful because it is continuously accessible, and assumed that thousands of Connecticut residents could access the site.20 This broad test has been accepted by some subsequent cases by basing specific jurisdiction on the fact that the accessibility of the internet is a ‘sustained contact’ which is purposefully directing to the State.21 The ‘sustained contact’ test is unfortunate. Firstly, it is not logic to compare the available time to access the advertisement in the website with that in print, on television, or on radio, to reach the conclusion that the website advertisement is more powerful, and that the powerfulness is sufficient for the court to exert jurisdiction. Jurisdiction should be based on the nature of the contact between the defendant and the forum, instead of on the effect of the advertising instrument. Secondly, the court’s decision was based on a presumption that thousands of Connecticut citizens can access the internet, and all of them actually have accessed the website 16

World-Wide Volkswagen Corp v Woodson 444 US 286 (1980). For this reason, this chapter does not examine other discretion-based jurisdiction rules in the US, such as forum non conveniens. 18 Inset System v Instruction Set, 937 F Supp 161 (D Conn 1996). 19 Ibid, 165. 20 Inset System (n18) 164–5. 21 eg Maritz v CyberGold 947 F Supp 1328 (ED Mo 1996) (jurisdiction was held for the defendant’s website was ‘continually accessible to every internet-connected computer in Missouri’); Telco Communications v An Apple a Day 977 F Supp 404, 407 (ED Va 1997) (a website available 24 hours a day in the forum State constituted ‘a persistent course of conduct’ in the State); Heroes v Heroes Found 958 F Supp 1, 5 (DDC 1996) (the existence of a website might be deemed a ‘sustained contact’ with the forum because ‘it has been possible for a . . . resident to gain access to it at any time since it was first posted’). 17

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of the defendant company ‘Instruction Set’. This presumption is clearly not scientific. If in fact no residents, or only a small number of residents, have actually accessed this website, jurisdiction can hardly be justified by the possibility of accessibility for all the residents. Thirdly, the continuous accessibility does not indicate the intention of the website owner, because it is the common character of all websites. Even if the website owner does not mean to target the jurisdiction, he cannot change the ‘continuous accessibility’ feature of his website. It is unreasonable to conclude that since the website has a ‘sustained contact’ with the forum, the website owner has purposefully availed himself of the benefit and law of the State.22 Fourthly, the ‘sustained accessibility’ does have any regard to the substantial nature and quality of the website to make such a contact sufficient for exercising jurisdiction. Finally, this test will lead to an unpleasant result for all e-businesses who own business websites, and potentially subject an e-business to all the jurisdictions in which the website can be accessed. Based on the above reasons, the decision has been criticized by many courts,23 and this test has very rarely been adopted in other cases.

IV. ‘Sliding-Scale’ Test The ‘sliding-scale’ test has been established by the milestone case Zippo Manufacturing Co v Zippo Dot Com,24 This test studies the nature and quality of commercial activity conducted over the internet, and separates internet trading into three categories: At one end of the spectrum are situations where a defendant clearly does business over the Internet. If the defendant enters into contracts with residents of a foreign jurisdiction that involve the knowing and repeated transmission of computer files over the Internet, personal jurisdiction is proper. At the opposite end are situations where a defendant has simply posted information on an Internet Web site which is accessible to users in foreign jurisdictions. A passive Web site that does little more than make information available to those who are interested in it is not grounds for the exercise personal jurisdiction. The middle ground is occupied by interactive Web sites where a user can exchange information with the host computer. In these cases, the exercise of jurisdiction is determined by examining the level of interactivity and commercial nature of the exchange of information that occurs on the Web site.25 (Citation Omitted)

22

Bensusan Restaurant v King 937 F Supp 295, 297(SDNY 1996). eg Digital Control v Boretronics 161 F Supp 2d 1183, 1186 (WD Wash 2001); Millennium Enterprises (n 6) 922; Rothschild Berry Far v Serendipity Group LLC 84 F Supp 2d 904, 908–10 (SD Ohio 1999); E-Data Copr v Micropatent Copr 989 F Supp 173, 177 (D Conn 1997); Clapper v Freeman Marine Equipment WL 33418414, 13–14 (Mich App 2000). 24 Zippo Manufacturing Co v Zippo Dot Com 952 F Supp 1119 (WD Pa 1997). 25 Ibid, 1124. 23

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The Zippo innovation may be seen as the ‘most comprehensive to date’,26 and has been followed by numerous later cases across the country.27 Compared with the ‘sustained contact’ test, the ‘sliding scale’ test is more appropriate in providing differential treatments to the varying nature and quality of commercial activities of the defendant on the internet. The test is based on the level of activity of the website and sets up objective criteria to measure the purpose of the business, which, compared to the total subjective criteria, are more practical and manageable. This test, or similar alternatives, is favoured not only by some later cases in the State court of the USA, but also by other jurisdictions.28 However, the efficiency of this test has been gradually doubted and re-examined by more and more professionals. Firstly, it is not always easy to draw a line between active websites, passive websites and interactive websites, and the definitions in the Zippo case are not precise enough to provide a one-stop guide for all cases in e-commerce. It was criticised in Winfield Collection v McCauley: However, the distinction drawn by the Zippo court between actively managed, telephone-like use of the Internet and less active but ‘interactive’ web sites is not entirely clear to the court. Further, the proper means to measure the site’s ‘level of interactivity’ as a guide to personal jurisdiction remains unexplained. Finally, this court observes that the need for a special Internet-focused test for ‘minimum contacts’ has yet to be established. It seems to this court that the ultimate question can still as readily be answered by determining whether the defendant did, or did not, have sufficient ‘minimum contacts’ in the forum state. The manner of establishing or maintaining those contacts, and the technological mechanisms used in so doing, are mere accessories to the central inquiry.29

For example, a website making the ‘pure’ advertisement on certain products seems to be ‘passive’ under the Zippo decision. If there is one sentence inviting enquiries on these products, and it provides an online inquiry form for this purpose, it has changed the website into an ‘interactive’ one. However, it is hard to say that this online form should change the nature of the website. It is simply used for the provision of further information on the products. The website is not for substantive commercial transactions but still functions as no more than advertising. This ‘interactive’ website hardly has such substantial differences from the ‘passive’ one. Moreover, if the same website invites consumers to place orders by calling the ‘toll free’ telephone number, it is still a ‘passive’ website, according to the Zippo 26

Morris Material Handling v KCI Konecranes PLC 334 F Supp 2d 1118 (ED Wis 2004), 1124. Best Van Lines v Walker 490 F3d 239, 251 (2nd Cir 2007); WebZero v ClickVU WL 1734702, 3 (CD Cal 2008); Brown v Kerkhoff 504 F Supp 2d 464, 504 (SD Iowa 2007); Burleson v Toback 391 F Supp 2d 401, 408 (MDNC 2005); Bombliss v Cornelsen, 824 NE 2d 1175 (App Ct III 3rd Dist 2005); Percle v SFGL Foods 356 F Supp 2d 629 (MD La 2004); Toys ‘R’ Us v Step Two SA 318 F 3d 446 (3d Cir 2003); Revell v Lidov 317 F 3d 467 (5th Cir 2002); Multi-Tech Systems v VocalTec Communications 122 F Supp 2d 1046 (D Minn 2000). 28 eg in Canada, it was followed in Braintech Inc v kostiuk [1999] WWR 133, and considered in Wiebe v Bouchard [2005] BCWLD 1593. cf the Council and the Commission, ‘Joint Statement on Articles 15 and 73’. 29 Winfield Collection v McCauley 105 F Supp 2d 746, 750 (ED Mich 2000). 27

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definition,30 despite the fact it is much more ‘active’ than the ‘interactive’ one with an online inquiry form. In addition, if a website contains information about the product and also provides links to other more active sites, with the mechanism to conclude the contract online, it is also not clear whether the additional link is substantial enough to transform the passive website into an interactive or active one. The ‘sliding-scale’ test established in Zippo case focuses too much on whether the website can directly exchange information with the customer, but not on the nature and characteristic of the information on the website. Special attention has to be drawn to the trickiest category of the three: the ‘interactive’ website. Introducing the ‘interactive’ website into this scale might be an attempt to simplify the distinction between the active website and the passive one. By providing a middle stage for all non-typical websites, or websites with combined or mixed characters, this introduction generates new difficulties. The interactive website stands between the active website and the passive one, and its ambiguous nature means that most websites, except the extremely straightforward active or passive one, fall into this category. Once a website is classified as ‘interactive’, it requires the further examination of the level of interactivity and the commercial nature of the exchange of information. It invites uncertainty. There is no clear guide to measure the level of interactivity and the commercial nature of an interactive website. It seems that we have to delineate the ‘sub-active’ and ‘sub-passive’ websites within the interactive scale, which brings us back to the original unsettled problem of classifying the characteristic of a website. Furthermore, with the development of technology, websites become more complex and sophisticated, and the line between active, passive and interactive websites will become harder to draw. It can be reasonably assumed that this difficulty is likely to increase in the future. As one writer states, in 1997, when the Zippo test was established, an active website might have little more than an email link and some basic correspondence functions. Today, sites with that level of interactivity would probably be viewed as passive, since the entire spectrum of passive versus active has shifted upward with improved technology.31 Secondly, it is doubtful how much this test, established in a trademark infringement case, would contribute to jurisdiction in electronic consumer contracts. By studying Zippo and the subsequent cases, one can see that most of the cases are in the context of alleged trademark infringements and domain name disputes instead of contractual disputes between businesses and consumers. Its application in contractual or contract related claims is put in doubt by some academic writers.32 However, applying the Zippo test to establish personal jurisdiction in contractual 30

Zippo (n 24) 1124. M Geist, ‘Is There a There There? Toward Greater Certainty for Internet Jurisdiction’ (2001) 16 Berkeley Technology Law Journal 1345, 1354. 32 J Hill, Cross Border Consumer Contracts (Oxford, OUP, 2008) 138–9; T Puurunen, ‘The Judicial Jurisdiction of States Over International Business-To-Consumer Electronic Commerce from the Perspective of Legal Certainty’ (2002) 8 UC Davis Journal of International Law and Policy 133, 225. 31

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or contract related claims has never been ruled out.33 Theoretically speaking, the Zippo test is not meant to be limited to tort cases only, as it was established with the purpose to ascertain whether the defendant has purposefully availed himself to the jurisdiction which is used to decide specific jurisdiction for all types of claims. If establishing a website shows a defendant’s purposeful availment to the privilege of one State, specific jurisdiction can be asserted regardless of the type of the claim. Thirdly, the principle under the ‘sliding scale’ test is the due process to the defendant, without any concern to protect the consumer as the weaker party. For this reason, the test focuses on the ‘purpose’ and ‘anticipation’ of the business, without taking the consumer’s bargaining power, litigation power and expectation into consideration. In addition, according to this test, it should be the plaintiff’s obligation to establish that the business’s website is an ‘active’ one, or an ‘interactive’ one, taking the level of interactivity and the nature of commerce into consideration. This burden of proof can be too high for the ordinary consumer. Where a business sues a consumer for a matter relating to the contract concluded in e-commerce, the Zippo test turns helpless, as the characteristic of a website cannot not indicate the intention of the consumer. It can be further argued that the ‘sliding scale’ test is not accurate enough to measure the ‘purpose’ of the e-business. In the international market, one business may wish to sell products or provide services to the consumer in a certain jurisdiction but not others. However, this business would welcome the consumer from other jurisdictions to access its website to make this company more well-known. It is difficult to hold that the nature of the same website will change in these different jurisdictions, though the purpose and intention of the business is definitely different. Even if the business in fact refuses orders from some consumers in some jurisdictions, the Zippo test examines the nature and quality of the website instead of quantity of contracts concluded with the company.34 Accordingly, this refusal might not be taken into account, but the ‘nature and quality’ of the website may instead subject the business to a jurisdiction beyond his intention. ‘Interactivity’ cannot be equivalent to ‘purposeful targeting’ in every case,35 especially where the business affects commercial activities through the website of the third party.36 It has been provided that: Website interactivity is important only insofar as it reflects commercial activity, and then only insofar as that commercial activity demonstrates purposeful targeting or residents of the forum state or purposeful availment of the benefits or privileges of the forum state 33 Thompson v Handa-Lopez 998 F Supp 738 (WD Tax 1998); Kloth v Southern Christian University 2008 WL 3165902 (CA3 (Del) 2008); Richter v Erwin WL 562147 (D Minn 2006); Quality Improvement Consultants v Williams WL 543393 (D Minn 2003); Brown v AST Sport Science WL 32345935 (ED Pa 2002); McGuire v Lavoie 2003 WL 23174753 (ND Tex 2003). 34 Zippo (n 24) 1124. 35 See the critique in Hy CITE Co v Badbusinessbureau Com 297 F Supp 2d 1154, 1160 (WD Wis 2004); Bancroft &Masters v Augusta National 223 F 3d 1082, 1087 (9th Cir 2000); Instabook Co v Instantpublisher.com 469 F Supp 2d 1120, 1125–6 (MD Fla 2006); Dynetech Co v Leonard Fitness 523 F Supp 2d 1344, 1347 (MD Fla 2007); Kloth v Southern Christian University. 36 Such as sales on eBay and Amazon. See s IV below.

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. . . there is no critical difference between operating a middle-category, ‘interactive’ website with an e-mail link or printable order form that allows customers to purchase at a later time, on the one hand, and operating an ‘active’ website that allows customers to complete the purchase online. The ultimate question remains the same, that is, whether the defendant’s contacts with the state are of such a quality and nature . . . that it could reasonably expect to be haled into the courts of the forum state.37

For these reasons, faith in the ‘sliding scale’ test has weakened as people gain a deeper understanding of e-commerce. This test has been described as ‘a way of establishing the “likelihood” that personal jurisdiction would be proper over a given defendant’,38 but not a personal jurisdiction litmus test. It is also said that the test should be understood ‘at best as a jurisprudential heuristic, and at worst as potentially misleading’.39 Furthermore, it is a weak test which cannot be used to decide jurisdiction in cases where an e-business sues a consumer. However, it does not mean that this test should be totally ignored. The level of ‘interactivity’ can be one relevant component, and sometimes an important component, to be taken into consideration when deciding whether the website owner has purposefully availed himself of the benefit of the foreign State, but the test is indecisive and has to be applied alongside other connections.

V. ‘Subjective Availment’ Test The ‘subjective availment’ test permits the court to exert specific jurisdiction over a non-resident defendant if the defendant has deliberately targeted the forum in question. Unlike the ‘sliding scale’ test, which is also based on the purpose of the defendant, the ‘subjective targeting’ test focuses more on the subjective purpose of the business instead of the objective purpose shown by the website. In Winfield Collection v McCauley,40 the court held that the seller who sold the products on auction sales on eBay did not ‘purposefully avail’ herself of the privilege of doing business in Michigan, where the buyer resided. The function of an auction is to permit the highest bidder to purchase the product, and the choice of the buyer is beyond the control of the seller.41 Regardless of the fact that eBay is an active website, the court based its decision on whether a defendant deliberately targets individuals in particular States. This approach has been followed by a number of subsequent cases concerning auction sales through an intermediate virtual market.42 37 Shamsuddin v Vitamine Research Products 346 F Supp 2d 804, 813 (D Md 2004); quoted in Instabook v Instantpublisher.com. See also Sayeedi v Walser 15 Misc 3d 621, 627 (NY City Civ Ct 2007). 38 Wright and Miller, Federal Practice and Procedure. 39 Ibid. 40 Winfield Collection v McCauley 105 F Supp 2d 746 (ED Mich 2000). 41 Ibid, 749. 42 Metcalf v Lawson 802 A 2d 1221 (NH 2002); Karstetter v Voss 184 S W 3d 396 (Tex Ct App 2006); United Cutlery Co v NFZ 2003 US Dist LEXIS 21664 (D Md 2003); Boschetto v Hansing WL 1980383 (ND Cal 2006) affd 539 F Supp 3d 1011 (CA(9)Cal 2008); Amini Innovation v JS Imports 497 F Supp 2d 1093 (CD Cal 2007); Sayeedi v Walser.

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This test is helpful for cases where an e-business does not have a website of its own but engages in business activities through the website of a third party. It is not proper to determine the business’s purpose by examining the nature and quality of the website, which is managed and run by the third party. The business seller is an ordinary ‘user’ of the website, and has no control of either the functioning or the nature of the auction website. It is insufficient to conclude the seller purposefully avails himself to the buyer’s jurisdiction according to the interactivity of the website.43 Secondly, the ‘subjective availment’ approach would be useful in the internet auction sale, where the highest bidder will be the final purchaser, the identity of which can hardly be predicted by the auctioneer. There is a concern as to whether the ‘subjective availment’ test is over generous to the business seller. Since an auction site is open for bid everywhere in the world, the seller simply enjoys the advantage of getting the highest bid, without being subject to the jurisdiction anywhere except his home. It is argued that by using an interactive auction website to sell its products or services, the business should have foreseen the possibility that a resident anywhere may be the highest bidder.44 It is also held that ‘foreseeability alone is insufficient to support the exercise of personal jurisdiction under the Federal Due Process Clause’,45 and the ‘real’ subjective position of the defendant should be determined. However, the real subjective position is hard to prove, and the inner intention of the parties usually has to be indicated by its external appearance. The factors considered are ‘prior negotiations and contemplated future consequences, along with the terms of the contract and the parties’ actual course of dealing’.46 These factors, however, are dated in e-commerce. It has also been noticed from the existent case law that the test standard for the ‘subjective availment’ is comparatively high. If the seller is contacted by the active buyer, the seller is deemed to have not purposefully availed himself to the jurisdiction of the buyer’s residence.47 Furthermore, the random, fortuitous, or attenuated contact might show a prima facie case that the seller does not avail himself of the jurisdiction of the named state.48 Does it mean that even though the seller might realise the location of the buyer and intentionally conducts the transaction, since the quantity of sale conducted with the resident of the state is so small, the seller is not subject to the jurisdiction there even though he is aware of the place of destination? If a positive answer is given, the objective standard supersedes the ‘subjective’ standard and leads to even more unreasonable result. Although the ‘subjective test’ has its own advantage over the ‘sliding scale’ test for ‘(i)t is the conduct of the defendants, rather than the medium utilized by them, to which the parameters of specific jurisdiction apply’,49 it is likely to generate uncertainty without practical standards for assessment. 43

United Cutlery v NFZ; McGuire v Lavoie; Sayeedi (n 37). Metcalf v Lawson, 1226. 45 Metcal (n 42) 1227. 46 Burger King v Rudzewicz 471 US 462, 479 (1985). 47 Ibid, 475. 48 Burger King (n 46) 475; Dagesse v Plant Hotel N V 113 F Supp 2d 211, 215 (DNH 2000); Metcalf (n 42) 1226; United Cutlery (n 42). 49 Millennium Enterprises (n 6). 44

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VI. ‘Effects’ Test The effects test determines the competent forum by analysing where the actual effects of the website occur. This test was established in the libel case Calder v Jones,50 where the court stated that personal jurisdiction might be appropriate if: (1) the defendant committed intentional actions, (2) the defendant expressly aimed at the State, and (3) these actions caused harm primarily in the State.51 These basic requirements of the effects test have been followed by some internet cases with certain restrictions,52 and have become another widely adopted test in the case of internet torts. The effects test can reasonably enable a country to protect its interests and its residents by permitting the State where the injury occurs to exercise jurisdiction. At the same time, the first two prongs of the test minimise the widespread influence of the internet, and protect the defendant from being subject to worldwide jurisdiction. Only when the defendant carries out intentional actions, which expressly aim at the State, can the jurisdiction be exercised reasonably. Since the effects test was originally created to decide jurisdiction in tort and later applied mostly in cases of internet torts, it is questionable whether the test, which bears characteristics especially for tort, is suitable for contractual actions. Although Calder v Jones did not say anything about whether the effects test can be equally applied to contractual obligations, the courts have shown reluctance in subsequent cases. There are cases clearly stating that the effects test does not apply to contract claims, because ‘there is less concern over the “effects” doctrine in contract actions than in tort claims’.53 However, taking ‘effects’ as one of the considerations for jurisdiction in contractual obligations has never been completed excluded.54 Some argue there are no doctrinal reasons to prevent the effects test from being applied to contractual claims, and a broad interpretation of the effects test could well encompass contractual claims.55 This argument is probably true, because the US jurisdiction methodology does not provide specific jurisdiction rules designed for contract and tort respectively. ‘Due process’ doctrine applies to 50

Calder v Jones 465 US 783 (1984). Ibid, 788–90. 52 Imo Industries v Kiekert AG 155 F 3d 254, 265 (3d Cir 1998) (the contacts should demonstrate that ‘the defendant expressly aimed its tortious conduct at the forum, and thereby made the forum the focal point of the tortious activity’); Bancroft & Masters v Augusta (the defendant had to ‘target a known forum resident’). 53 Resolution Trust Corp v First of America Bank 796 F Supp 1333, 1338 (CD Cal 1992). See also McGlinchy v Shell Chem 845 F 2d 802, 817 (9th Cir 1988) (holding that the effect test did not apply to a breach of contract); Roth v Garcia Marquez 942 F 2d 617, 621 (CA 9(Cal), 1991) (the purposeful availment in tort and in contract is different); Schwarzenegger v Fred 374 F 3d 797, 802 (CA 9 (Cal) 2004) (‘purposeful availment’ is for contract, while ‘purposeful direction’ is for tort); P Stephens, ‘The Single Contract as Minimum Contacts: Justice Brennan “Has It His Way”’ (1986) 28 William and Mary Law Review 89, 113. 54 Haisten v Grass Valley Medical Reimbursement 784 F 2d 1392 (9th Cir 1986) (insurance contracts); Investors Guar Fund v Compass Bank 779 Sa 2d 185 (Ala, 2000) (finance contract). 55 Puurunen ‘The Judicial Jurisdiction of States’, 201. See also the same argument for using ‘sliding scale’ test for contractual claims. See s IV above. 51

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all types of disputes. Furthermore, if a dispute concerns a tort arising out of a contract, or includes claims in tort and related contract, a forum should be allowed to take one test for both tort and contract.56 The fundamental rationale of ‘effects’ test is to assert jurisdiction over a non-resident defendant if the defendant purposefully directs its activities to the State and cause effects in the State. There is no reason to reject using this rationale to justify jurisdiction in contractual claims. However, when applying this test in contracts, a different quality and nature of the ‘effects’ is required. The ‘effects’ test in contractual claims may be formulated by requiring: (1) the defendant conducted intentional activities; (2) the defendant aimed at the forum State; (3) the activities cause effects in the forum State. The test is satisfied if the business defendant purposefully and successfully solicits consumers to enter into contracts.57 The effects in consumer contracts could cover both economic effects and consequences of contracts. Once the defendant intentionally has commercial activities expressly aimed at the forum, or the activities cause the economic effects and the consequences of the contract that occur or will occur in the forum, the court can exert jurisdiction. However, clarification is still necessary as to what constitutes ‘intentional activities’ and how to decide whether the business aims at the consumer’s home State. On the contrary, a consumer defendant will be easily subject to the jurisdiction of the business’s home under the new ‘effects’ test. Consumers usually actively access the website, which is an intentional action. Most businesses will publish their information on websites, which may show consumers are aiming at the businesses’ home state. If a consumer fails to pay, the effect of the activity is felt by the business in the business’s home state.

VII. Conclusion Since International Shoe,58 the US courts have adopted the ‘purposeful availment’ approach to assert jurisdiction over a non-resident defendant. This approach focuses on the purpose and intention of the defendant. With the development of e-commerce, many US courts have provided innovative tests to decide the ‘purposeful availment’ in e-commerce, but none of them are completely effective. Besides the weakness of each test in e-commerce, they share the following common difficulties when applying to disputes arising out of consumer contracts. Firstly, all of these tests struggle to determine the purpose of the seller—whether the e-company purposefully avails itself the privilege of the buyer’s home state. None of them really take care of the buyer’s intention and expectation. They could be used to decide whether, by conducting commercial activities through the internet, 56 Remick v Manfredy 238 F 3d 248, 260 (CA 3 (Pa), 2001) (tortious interference of contract); Shaw v North American Title 876 P 2d 1291 (Hawai’i, 1994) (tortious breach of contract); Warfield v Gardner 346 F Supp 2d 1033, 1041 (D Ariz 2004). 57 Snowney v Harrah’s Entertainment 35 Cal 4th 1054, 1066 (Cal 2005). 58 International Shoe (n 4).

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a business has purposefully availed himself of the benefit of the consumer’s home which gives the State personal jurisdiction over the business. They can hardly be applied to assess whether a consumer purposefully avails himself to the company’s residence where a business aims to sue a consumer. Secondly, most of these tests have originated from disputes of online non-contractual obligations, such as domain name disputes, defamation disputes or competition disputes. Although in principle, the specific jurisdiction does not require classification of claims and the same ‘due process doctrine’ is used to determine jurisdiction in all types of cases, there is doubt as to how effective the same tests can be in the context of consumer contracts. At least, the requirement of the ‘target’ and ‘purpose’ level in noncontractual obligations and contractual obligations is different. Although it is suggested that with certain adjustments these tests can be applied to contractual claims and some courts apply these rules equally to contractual claims in practice, uncertainty remains as how to adjust these tests in contract claims. More case authorities are required to clarify this issue. Thirdly, these approaches have no specific concerns for consumers. Although it is presumed that the general principles can guarantee a fair and reasonable result, these tests can hardly provide a certain and predicted result to protect the consumer as the weaker party. However, there is no doubt that these interesting tests are helpful and can provide some inspiration to the future development of law in e-commerce. It is more appropriate than basing the discretion on territorial nexuses and could be better applied to e-commerce. It is also necessary to consider whether these US test can help the interpretation of the Brussels I Regulation. The US approach and the Brussels I approach have substantive difference: the former is based on the ‘due process’ to the defendant, who can be the company or the consumer, and the same doctrine applies to decide jurisdiction over both. The Brussels approach is based on ‘protection’ and fundamentally different jurisdiction rules are used for the business and the consumer. However, the US tests and the Brussels protective model have a clear link which makes comparative study possible. In most cases, the protective jurisdiction of the Brussels I Regulation applies only when the business, no matter acting as a defendant or claimant, has targeted the consumer’s home.59 Although the whole protective model is based on the idea of protection, this specific condition requires the court to decide the direction and target of the unilateral activities of the business by using electronic technology. This ground coincides with the methodology of the US test, which aims to examine whether, by its unilateral activities, the business has purposefully availed itself to the benefit of a country, in other words, whether the business has targeted this country. All the above mentioned tests are all established to decide which online activities could justify jurisdiction. It is suggested that there is no logic or theoretic problem preventing the US tests from being considered when trying to interpret the targeting test in the Brussels I Regulation. These tests would provide some innovative views which could help the interpretation of Article 15(1)(c) in the context of e-commerce. 59

Art 15(1)(c), except cases falling within Art 15(1)(a) and (b).

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6 Electronic Consumer Contracts With Choice of Forum Clauses* I. Introduction In most e-consumer contracts, there will be a choice of forum clause assigning jurisdiction to a particular court or particular courts. There are two types of choice of forum clauses: exclusive and non-exclusive. An exclusive choice of forum clause is an agreement concluded by contractual parties, for the purpose of deciding disputes, for a chosen forum/fora to the exclusion of the jurisdiction of any other courts.1 It functions as to both prorogation by conferring jurisdiction on a forum which might not otherwise have jurisdiction, and derogation by precluding other fora which might be competent from asserting jurisdiction. A non-exclusive choice of forum clause acts only to prorogate but not derogate. This chapter studies the effect of both exclusive and non-exclusive choice of forum clauses in e-consumer contracts. Choice of forum agreements have been used for a long time in international commercial transactions and recognised by the courts in different jurisdictions. The acceptance and recognition of choice of court agreements should be extended in the internet age. Since electronic commerce challenges the concept of territory, which is the theoretical basis for many traditional jurisdiction rules, different rules that are able to avoid the concept of territorial nexus are welcome, which can be satisfied by permitting the contractual parties to choose the courts which they desire. However, the support for the application of jurisdiction clauses in e-commerce has been questioned in consumer contracts. With the inequality of bargaining power, a consumer contract is usually a standardised contract with the choice of forum clause unilaterally inserted by the business, and the consumer will be put in a take-it-or-leave-it position. It is questionable whether the specific advantage a jurisdiction clause can provide in e-commerce will change the traditional limitation regulating its application in consumer contracts. * This chapter is based on the author’s earlier article entitled ‘Exclusive Choice of Forum Clauses and Consumer Contracts in E-Commerce’ in (2005) 1 Journal of Private International Law 237, which concerns only the exclusive choice of court clause. This chapter discusses both exclusive and nonexclusive jurisdiction clauses and has taken a slightly different view from the article. 1 Some legislation permits an exclusive jurisdiction clause to choose more than one forum, eg the Brussels I Regulation, while some require only one forum to be chosen in an exclusive jurisdiction clause, eg the Hague Choice of Court Convention of 2005.

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II. Choice Of Court Clauses In The Rule-Based Systems Brussels I Regulation Rule-based systems establish hard-and-fast rules to decide the effect of a choice of court clause in consumer contracts. In general, a choice of court clause should be valid both as to form and as to substance. A valid choice of court agreement will be effective in ordinary contracts, but the effect of a valid choice of court agreement will be limited in consumer contracts where the protective model is adopted. Party autonomy has been accepted in the Brussels I Regulation as an important jurisdiction rule to confer jurisdiction to a Member State which may not otherwise be a competent forum. Article 23 of the Brussels I Regulation provides basic requirements as to the validity and effectiveness of a choice of forum agreement in an ordinary contract. Article 17 of the Regulation provides limitations to the effectiveness of a choice of forum agreement in consumer contracts. Generally speaking, the validity of a jurisdiction clause should be decided by conflict of laws. However, Article 23 of the Brussels I Regulation has partially simplified the problem by providing uniform formal requirements. Although the Regulation does not expressly indicate that the validity requirements in Article 23 should be read together with Article 17 and be applicable to consumer contracts, it is suggested that the pre-requisites for choice of forum clauses in ordinary contracts shall be applied to consumer contracts, because the purpose of the formal or substantive validity requirements is to protect contractors from being subject to an unauthentic choice of court which has not been freely agreed upon. This purpose is completely consistent with the protection of consumers.2 It is also necessary to know that these rules on the enforcement of a jurisdiction agreement have a strict geographic limitation. It can only reasonably apply where the contract is falling into the protective scope described in Article 15 and one of the EU Member States has been chosen. Where a non-EU court has been chosen, although the consumer may be eligible for protection under Article 15, the enforcement of this agreement is outside the scope of the Brussels I Regulation. According to the latest ECJ decisions,3 once a Member State has jurisdiction under the Brussels I regime it has to take jurisdiction instead of relying on the domestic law to decide the effect of the jurisdiction clause.

2 P 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’ [1979] OJ C59/71, 119. 3 According to Case C-281/02 Owusu v Jackson [2005] ECR 1383 and Opinion 1/03 [2006] ECR I-01145. This is contrary to the previous decision in Case C-387/98 Coreck Maritime GmbH v Handelsveem BV [2000] ECR I-9337.

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A. Pre-requisites of Choice of Forum Clauses Generally, the pre-requisites for the validity of a jurisdiction clause mainly concern the existence of consent and the safeguards in relation to consent. The present approaches of most jurisdictions are to regulate these issues either by rules of form, of substance, or of both. It is usually not easy to delineate form and substance, for both concern the existence of consent and act to provide the safeguards as to consent. The civil law tradition intends to determine the issue of substance according to the formal rules, while the common law tradition pays more attention to the substance instead of the explicit form. Since formal validity is more tangible and certain for the decision, it is suggested to classify all the expressed or external manifestations of consent as formal validity, and only those issues without tangible expression that need the evidence other than the contract as substantive validity.4

i. Formal Validity The purpose of formal requirements is to ensure the availability of proof that each party has given free and informed consent to the jurisdictional choice, and to protect the other party to a contract from the danger of being bound by this clause without realising it.5 All other issues not regarded as form, except capacity, will fall into the catch-all requirement of substantive validity, which encompasses the inherent authenticity and fairness of the indicated consent.6 Rule-based approaches usually impose explicit formal conditions. The Brussels I Regulation provides that a jurisdiction clause should be in a form: (1) which is in writing or evidenced in writing,7 (2) which is the regular usage between the parties,8 or (3) which is the common usage in the particular trade or commerce.9 The third condition can be applied only to the area where there are internationally recognised 4 This delineation provides a wide definition of formal validity for the sake of certainty. See eg: Giuliano-Lagarde Report, [1980] OJ C282/1, 22, 29; Cheshire, North & Fawcett, Private International Law, 14th edn (Oxford, OUP, 2008), 747; J Yackee, ‘A matter of Good Form: The (Downsized) Hague Judgments Convention and Conditions of Formal Validity for the Enforcement of Forum Selection Agreements’ (2004) 53 Duke Law Journal 1179, 1182, and fn 14 therein. Cf, J Fawcett, J Harris and M Bridge, International Sale of Goods in the Conflict of Laws (Oxford, OUP, 2005), para 21.38. 5 See Case 24/76 Estasis Salotti v RUWA [1976] ECR 1831; Case 25/76 Galeries Segoura v Bonakdarian [1976] ECR 1851. 6 AD Haines, ‘Choice of Court Agreements in International Litigation: Their Use and Legal Problems to Which They Given Rise in the Context of the Interim Text’ (Hague Conference on Private Int’l Law Prel Doc No 18 Feb 2002), 11. The issue of capacity of the parties differs from the issue relating to the authenticity of consent and should be separated from other issues of substantive validity. This book does not consider capacity. 7 Art 23(1)(a). See also the Hague Choice of Court Convention 2005, Art 3(c). 8 Art 23(1)(b). Cf US case: Nordyne v Int’l Controls & Measurements Co 262 F 3d 843, 847 (8th Cir 2001); New Moon Shipping Co v Man B & W Diesel AG 121 F 3d 24, 31–2 (2d Cir 1997). 9 Art 23(1)(c). Cf Circle Freight International Ltd (T/A Mogul Air) v Medeast Gulf Exports Ltd (T/A Gulf Export) [1988] 2 Lloyd’s Rep 427, 433.

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or authorised customs, which do not exist in consumer-oriented e-commerce. For this reason, this section only deals with the first two requirements to see how these requirements can be applied to electronic consumer contracts. a. In Writing or Evidenced in Writing (i) Writing in E-Contracts The traditional concept of ‘writing’ encompasses recording everything in the paper document by a text,10 which is qualified for its re-accessibility, legibility, durability, accuracy, and unchangeability. A choice of forum clause in an e-contract, however, is in the form of electronic data messages. It is held as a series of ‘on’ and ‘off’ switches in a chip and represents words on the computer screen.11 It is different from paper-based ‘writing’ both in form and in certain functions. The content of an e-document is shown in two forms, the visual form of which can only be available with a computer screen and with the application of a coding convention.12 The original e-contract terms are stored in the chip or other media. It is intangible in nature and can be easily destroyed or changed either deliberately or by mistake, without any trace left. Although an electronic choice of forum clause can be printed out on paper, which might amount to being ‘evidenced in writing’, for most e-contracts, the parties will not bother to do so, but only store it with its original forms. The choice of forum clause in an electronic form causes a question: is the application of the traditional requirement of ‘writing’ sufficient to cover e-contracts? In order to improve the development of e-commerce, the current tendency is to recognise the validity of an e-contract and any terms in the e-contract. Article 23(2) of the Brussels I Regulation specifically provides that: ‘Any communication by electronic means which provides a durable record of the agreement shall be equivalent to “writing”.’13 (emphasis added) This provision generally adopts the ‘functional equivalent’ approach to single out the basic function of the requirement of ‘in writing’ to form the criteria, which, once met by an e-clause, will enable this clause to enjoy the same legal recognition as its paper-based counterpart.14 The ‘functional equivalent’ approach seems effective because it avoids rigid and exhaustible lists of valid forms but focuses on the substantial function of different forms. However, not all the functions of the paper-based ‘writing’ requirement 10 eg: Swiss Private International Law of 1987, Art 5.1: ‘The agreement may be made in writing, by telegram, telex, telecopier, or by any other means of communication which evidences the terms of the agreement by a text.’ 11 UK Law Commission’s Advice, ‘Electronic Commerce: Formal Requirements in Commercial Transactions’, Dec 2001, 9. 12 ibid. 13 See also Arts 3(c)(i) and (ii) of the Hague Choice of Court Convention. 14 UNCITRAL Model Law, Art 6; UNCITRAL’s Guide to Enactment of the UNCITRAL Model Law on Electronic Commerce (1996). The ‘functional equivalent’ approach has been followed by most states. UK Law Commission, ‘Electronic Commerce’, 3–4.

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Choice Of Court Clauses In The Rule-Based Systems Brussels I Regulation 125 can be satisfied by electronic clauses, which makes further regulation necessary to ensure the security of e-clauses.15 Article 23(2) of the Brussels I Regulation focuses on the functioning of ‘writing’ to provide a permanent and unchangeable record of a choice of forum clause for future reference. This requirement, however, is criticised for its simplicity, because the ‘durable record’ alone cannot guarantee the choice of forum clause to be legible to both parties at the time of contracting. If an e-clause is simply stored in the chip without being shown on the screen, although the digital information is durable and can be accessed in the future, it cannot be the evidence of an agreement. Furthermore, with the programme or mechanical mistake, the visible form of an e-clause indicated on one computer screen with legible text may appear on another as the hash code. For example, the business who sends an e-mail containing a choice of forum clause, is able to view the text on its computer screen, while the consumer, who receives the email, without the corresponding decode programme, may find the whole or part of the email content representing an unreadable text. In this case, an electronic choice of forum clause, although durable and accessible for future reference, cannot prove the intention of the parties. On the contrary, some countries focus on the accessibility and readability at the time of contracting. For example, the Contract Law of the People’s Republic of China of 2001 defines ‘writing’ as ‘a memorandum of contract, letter or electronic message (including telegram, telex, facsimile, electronic data exchange and electronic mail, etc), which is capable of expressing its content in a tangible form.’16 The weakness is that a message which is tangible or accessible on screen can be temporary, such as RAM, which disappears when the machine is switched off. A proper definition of ‘writing’ should include requirements of both durability and readability at the time of contracting. The other problem is whether only the original contract, which is able to prove the consent of an agreement, can be regarded as formally valid, or whether a copy of the original contract is enough to meet the formal requirement if it is legible and durable. Although a data message can be copied very accurately as another data message or a hardcopy, a copy alone cannot satisfy the requirement of authenticity and reliability because an electronic data message is vulnerable to revision, damage or forgery. However, if there is reliable assurance as to the integrity of a data message from the time it is first generated to its final form, this information message, no matter whether it is the original or a copy, can be regarded as the original form.17 Furthermore, a copy does meet the ‘evidenced in writing’ requirement,18 if it satisfies the main purpose of the formality, and neither party raises any objection.19 15 For the functions of paper-based writing requirements, see UNCITRAL Guide to Enactment 1996, para 48. 16 Contract Law of the People’s Republic of China of 2001, Art 11. 17 UNCITRAL Model Law, Arts 8(1) and 8(3)(a). 18 Brussels I Regulation, Art 23(1)(a). 19 For the formal validity of the agreement evidenced in writing, the parties’ confirmation is required. See Galeries v Bonakdarian; Case C-221/84, F Berghoefer GmbH and Co Kg v ASA SA [1985] ECR 2699. Cf Case C-214/89, Powell Duffryn plc v Wolfgang Petereit [1992] ECR I-1745.

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(ii) Format Besides the requirement of ‘in writing’, a court may invalidate a choice of forum clause by additionally examining its format. A clause printed on the reverse side of a contract without an express reference directed to it,20 a clause written in a language unintelligible to one party,21 or a clause written in a tiny or fine print may be held invalid as to form.22 Some of the traditional format requirements can be applied to e-clauses, which can also be shown in an unfamiliar language, in a tiny or fine print, or in an unobvious place without any reference to it.23 Although electronic communication brings some new problems to format, it is assumed that the principle behind the traditional format requirement can be applied to e-contracts, namely the choice of forum clause should be indicated in a manner, which is obvious and convenient for the consumer to read. Any technique adopted which makes reading less attractive should be done for reasonable commercial purposes, and with the necessary reference requiring the consumer to read. For example, electronic clauses sometimes appear in the form of a ‘hyper text’, which means that the content of this clause has not been directly and fully shown in the contract terms on the screen, but has been referred to by a hyperlink label. The consumer has to click the label to view the content of the clause in a pop-up window or a refreshed window. More complicatedly, some webpages include multiple hyperlinks. The consumer has to follow the hyperlink to ‘Terms and Conditions’, then another hyperlink to ‘Dispute Settlement’, and the third hyperlink to ‘Jurisdiction Clause’, where the consumer can finally find the content of the clause. It is suggested that the business is obliged to make a clear and conspicuous disclosure to the consumer of the general conditions of the e-contract, make the consumer readily aware of the real content of the choice of forum clause and make the clause easily accessible, so that the content of the jurisdiction clause should usually be expressed immediately rather than in a hyperlink. However, since the hyperlink is widely adopted in e-commerce and has been approved of as efficient and effective, it is not a good idea to abandon this technique in e-contracts.24 It is assumed that the e-business can only adopt the hyperlink where the content of clause is lengthy or appears in more than one place of the business’s website. In this case there should be clear language on the hyperlink label to indicate the importance and general nature of this clause and to require the consumer to read the content of the clause. The access to the content of a hyperlink should be convenient, ideally without the need for the refreshment of the previous window, or 20

Estasis Salotti v RUWA. Yackee, A matter of Good Form, 1182; A Briggs, Agreements on Jurisdiction and Choice of Law (Oxford, OUP, 2008), para 7.43. 22 Briggs, Agreements. However, a pragmatic approach is adopted by some courts for b2b contracts. If a company is made know the existence of small print, the clause is held valid even if the resisting party does not read it. 7E Communications Ltd v Vertex Antennentechnik GmbH [2007] EWCA Civ 140. 23 eg, a jurisdiction clause can only be seen by scrolling down the screen, and there is no obvious reference directing the consumers to this clause. 24 UNCITRAL Model Law (n 14) Art 5 bis. 21

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Choice Of Court Clauses In The Rule-Based Systems Brussels I Regulation 127 it should allow a party to return to the previous window easily. Multiple hyperlinks should be avoided. (iii) Signature Although a signature is not required by all the States to ensure a clause is formally valid, most of the courts do regard it as a weighty factor for the authenticity of consent.25 Particularly for adhesion contracts, some countries specifically provide further formal requirements, requiring the adherent party to indicate the ‘expressed acceptance’ of the clause.26 It is suggested that the requirement of the consumer’s signature should be adopted for electronic consumer contracts for the following two reasons. Firstly, in an electronic business-to-consumer transaction, the e-business is usually unaware of the other party’s identity. The requirement to identify the contractual party is more necessary and important than the functioning of a signature in the paper-based world. Secondly, in a contract where the parties hold unequal bargaining power, it is necessary to protect the weaker party by requiring the express acceptance of the contractual terms to indicate his real intent. It is suggested that in an electronic consumer contract, a jurisdiction clause should be held formally invalid if without the necessary means to identify the consumer and to show the consumer’s approval to the agreement. The requirement of a signature in e-commerce generates a problem: what can be regarded as a signature in e-commerce? The traditional requirement of signature requires the parties to set their pens on paper, which is no longer the case in e-commerce. The development of e-commerce calls for the reform either by adopting the electronic equivalent of signature and providing it with the same legal effect, or by removing the requirement of signature from the recent legislation and replacing it with any means that can establish authentic assent,27 providing the method is reliable and secure enough. As to how to test the reliability and security of an electronic signature, the technique criteria in the Electronic Signature Directive can be borrowed.28 An electronic signature or any other means to prove the user’s consent is deemed reliable and safe, if the method used can ensure that the signature or other indication is uniquely linked to the signatory, is capable of identifying the signatory, is created by using means that the signatory can maintain under his sole control, and is linked to the data to which it 25 See: Case 71/83 Partenreederei ms Tilly Russ v NV Haven & Vervoerbedrijf Nova [1984] ECR, 2417, para 16; Italian Civil Code, Art 2702; German case Bundesgerichtshof [BGH] [Supreme Court] Feb 22, 2001. Cf Powell v Wolfgang, but this should not be applied in non-negotiable consumer contracts. The signature requirement has not been proposed in the Hague Choice of Court Convention of 2005. M Dogauchi and T Hartley, ‘Preliminary Draft Convention on Exclusive Choice of Court Agreements: Draft Report’ (Hague Conference on Private International law, Prel Doc No 25) para 78. 26 eg French case: Compagnie Generale Transatlantique v Peltier freres Cass req Mar 2, 1909, s 1909, 1-384. 27 P Nygh and F Pocar, ‘Preliminary Draft Convention On Jurisdiction And Foreign Judgments In Civil And Commercial Matters’ (Hague Conference on Private International Law, Prel Doc 11) 46. 28 Dir 1999/93/EC of the European Parliament and of the Council of 13 Dec 1999 on a Community framework for electronic signatures (Electronic Signatures Directive) which is implemented in the UK by the Electronic Signatures Regulations 2002 (No 318).

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relates in such a manner that any subsequent change of the data is detectable.29 According to these approaches, if a data message uses a reliable method to identify the party and to indicate the parties’ approval to the agreement, it can be regarded as satisfying the requirement of ‘signature’,30 or fulfils the requirement to establish the authentic assent. It could be a scanned manuscript signature incorporated into an email or other online documents; it could be the typing of a name of the signatory in an email or other online documents; it could be in any invisible form which confirms the identity and intention of the parties, such as using an encryption system, clicking on a website button, or even continuing purchasing or downloading. However, it could not be an email address automatically inserted by an internet service provider after the document has been transmitted, which is incidental and not intended as a signature by the sender.31 b. Regular Usage between the Parties The recognition of the regular usage between the parties as a valid form usually occurs in international business-to-business transactions, where there is a continuous, long-term and regular business relationship. It may be applicable in electronic business-to-consumer transactions, where the consumer is a frequent customer and the company provides him a shortcut channel after the first several transactions. Through the shortcut channel the consumer only needs to login and to confirm his name, address and account details to make the purchase, without being required to read the ‘terms and conditions’ again. Sometimes, the consumer does not even need to confirm any personal information, but simply sign in to continue the transaction.32 This suggestion, however, is unreasonable for consumers, who are not professional enough to expect the possible application of ‘terms and conditions’ to subsequent transactions. A consumer might one day surprisingly find himself being bound by a jurisdiction term in a click-wrap contract he ‘clicked’ to accept years ago. He may completely forget the content of the agreement; his financial situation may have already changed, which prevents him from taking foreign litigation; the nature of the transaction, including the quantity and total value of the subject matter, may be very different from the first time he dealt with the business. It is suggested that even if the ‘regular usage’ condition can be applied to online consumer contracts, there should be some regulations on it, depending on the frequency of transactions the consumer has had through the website, and whether the nature of the transaction is substantially different from the first time of transaction. The e-business also needs to notify the consumer that the previous agreed contractual terms will be applied.

29 30 31 32

ibid, Art 2(2). UNCITRAL Model Law (n 14) Art 7. J Pereira Fernandes SA v Mehta [2006] 1 WLR 1543, paras 26, 29–31 (per Judge Pelling QC). Such as the ‘One-click shopping’ programme adopted by Amazon.com.

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ii. Substantive Validity The Brussels I Regulation leaves the issue of substantive validity open. As a result, there are arguments as to how the substantive validity of a choice of forum clause should be decided. According to the existing ECJ decisions, it would be unlikely to permit each court to test the validity of a jurisdiction clause by applying the substantive requirements of a national law.33 There is a suggestion that no further rules on substantive validity are needed and the formal requirements are presumed to be full, perfect and sufficient to guarantee authentic consent.34 This suggestion is clearly unconvincing, as a jurisdiction clause which is concluded under fraud, mistake, misrepresentation, duress or undue influence, can satisfy all writing requirements and be formally valid. A more realistic suggestion is to provide a Community autonomous interpretation to the substantive requirements. In general, there should be the existence of authentic consent and good faith of the parties in order to make an ‘agreement’ on the competent forum.35 The difficulty is how the autonomous material validity requirements can be introduced and whether compromise and consensus can be achieved between all the Member States which have various substantive rules on contract terms.36 Although uncertainty remains in substantive validity of ordinary contracts, the Unfair Terms in Consumer Contracts Directive may provide useful guidance as to the substantive validity of a jurisdiction clause in consumer contracts.37 A uniform community standard as to ‘unfair’ terms has been provided in Article 3. A term can be regarded as ‘unfair’ if it has not been individually negotiated, contrary to the requirement of good faith, and causes a significant imbalance in the parties’ rights and obligations arising under the contract, to the detriment of the consumer.38 A contract term shall always be deemed as not individually negotiated where it has been drafted in advance and the consumer is not able to influence its substance.39 This would usually be the case in e-commerce. A non-exclusive jurisdiction clause, which does not deprive the consumer of his right of home litigation, would not be considered as unfair. On the other hand, an exclusive jurisdiction clause, which chooses the forum of the business’s home and derogates 33 Case C-269/95 Benincasa v Bentalkit Srl [1997] ECR I-3767; Case C-159/97 Trasporti Castelletti v Hugo Trumpy [1999] ECR I-1597. 34 Case C-106/95 MSG v Les Gravires Rhenanes SARL 1997 ECR I-911, para 15; Coreck v Handelsveem, para 13. See discussion in A Briggs and P Rees, Civil Jurisdiction & Judgments (London, LLP, 4th ed, 2005), para 2.97. 35 See Briggs and Rees, Civil Jurisdiction, para 2.105. This approach would more likely be favoured by the ECJ. See A Layton and H Mercer, European Civil Practice, 2nd edn (London, Sweet & Maxwell, 2004), 696–9. Also see A Briggs (n 21) para 7.28–7.35. 36 Providing a uniform rule for substantive validity is difficult. A vivid example is the Hague Conference on Private International Law which, though it has considered the possibility of harmonising the substantive validity rule in ordinary choice of court agreements, has finally given up and used the choice of law rules to decide the substantive validity of a jurisdiction clause. See Arts 5(1) and 6(a) of the Hague Choice of Court Convention of 2005. 37 Dir 93/13/EEC of 5 Apr 1993 on Unfair Terms in Consumer Contracts, [1993] OJ L 95/29, implemented in the UK by the Unfair Terms in Consumer Contracts Regulation 1999, SI1999/2083. 38 Art 3(1) of the Unfair Terms in Consumer Contracts Directive. 39 Art 3(2).

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all other fora of jurisdiction, might be considered as causing a significant imbalance in the parties’ rights to the detriment of the consumer. Annex 1 of the Directive provides an indicative and non-exhaustive list of the terms that may be regarded as unfair, point (q) of which indicates terms ‘excluding or hindering the consumer’s right to take legal action’. It has been interpreted to include an exclusive jurisdiction clause which requires consumers to sue in the business’s home.40 However, this interpretation can be too broad by holding all exclusive jurisdiction clauses as unfair. It is a common practice for a business to insert exclusive jurisdiction clauses into its e-contract. Making all such clauses invalid would be unreasonable for commercial practice. The key test here should be whether the insertion of an exclusive jurisdiction clause into a consumer contract is definitely ‘contrary to the requirement of good faith’.41 In most cases, an exclusive jurisdiction clause is an instrument to protect the business from unreasonable commercial risk rather than aiming at being detrimental to consumers. Inserting an exclusive jurisdiction clause simply for legal certainty and for reducing commercial risk is not contrary to the requirement of good faith. However, if the business has conducted other activities which aim to deprive the consumer of an opportunity to read it, this could be considered as being contrary to good faith. Furthermore, if a jurisdiction clause chooses a forum clearly with the sole intention to deprive consumers of the right to access to justice, this jurisdiction clause should be unfair. For example, the chosen forum has no factual relation with the transaction and it is selected simply to create difficulties and inconvenience for the consumer to sue.42

B. Enforceability of Choice of Forum Agreements in E-Consumer Contracts Once a choice of forum clause in ordinary contracts meets all the pre-requisites, theoretically, it is effective and binding on both parties. However, in practice the enforceability is far from certain in consumer contracts. The Brussels I Regulation establishes limitations to the effects of a valid choice of court clause in consumer contracts. Under the Brussels I Regulation, a choice of forum clause in consumer contracts are prima facie ineffective, except in three circumstances: (1) the jurisdiction clause is entered into after the dispute has arisen;43 (2) the jurisdiction clause broadens the consumer’s option;44 or (3) the jurisdiction specified is also the domicile/habitual residence of both the business and the consumer at the time of entering into the agreement.45 40 Joined Cases C-240-244/98 Oceano Group Editorial SA v Murciano Quintero [2000] ECR I-4941; para 23–4; Standard Bank London Ltd v Apostolakis [2001] Lloyd’s Rep 240. 41 Art 3(1). 42 See and compare the substantive validity test in the discretion-based system, s III.A.ii below. 43 Art 17(1). 44 Art 17(2). 45 Art 17(3).

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i. The Enforceability of an Exclusive Jurisdiction Clause a. A Jurisdiction Clause is Entered into After the Dispute has Arisen If an exclusive jurisdiction clause is effective, the chosen court shall exercise jurisdiction and the non-chosen court should by its own motion deny jurisdiction.46 A jurisdiction clause can be effective in a consumer contract if it was entered into after the dispute has arisen. It is presumed that after the dispute has arisen, both parties would be aware of their rights and obligations and make intelligent choices. However, this condition suffers the difficulty of deciding two important times in e-commerce: when the dispute has arisen, and when the jurisdiction clause has been agreed upon. (i) When the Dispute has Arisen It has been said that the dispute has arisen ‘as soon as the parties disagree on a specific point and legal proceedings are imminent or contemplated’.47 However, this explanation has been criticised for its vague and outdated nature.48 Unlike traditional commerce, where the parties can discuss problems face to face and get a feedback immediately, e-commerce separates the complaint procedure into several stages. For example, the e-consumer will send the business an email or fill an online electronic form to complain, and the business will reply with a possible solution after a period of time, which can be called the first negotiation. If the consumer is dissatisfied, he may directly resort to the third party or bring proceedings, or he will try to have the second negotiation. The same procedure might continue until finally the dispute goes to the court. It is not clear which stage can be regarded as the time when ‘the parties disagree on one special point’. If it is the first time the consumer sends the complaint, it is too soon to say the dispute has arisen without knowing the business’s response. If it is the first time the business makes an unsatisfactory answer, what if the business just ignores the consumer’s complaint and never replies? After the dispute has arisen, the consumer is presumed to be cautious to reach any agreement and the jurisdiction clause entered into at this stage is presumed to be able to show the consumer’s real consent. The time when a dispute has arisen should be interpreted consistent with the purpose, namely it indicates an event when a consumer is able to expect the dispute could go beyond the self-help communication. Only when a consumer realises the possibility of making use of the intervention of a third party, would he not randomly accept any terms provided by a business. It certainly is not the first time when a consumer complains to the business when most consumers would wish negotiation alone would resolve 46 This chapter does not discuss the relationship of prorogation and lis pendens, and prorogation and forum non conveniens in the European regime. 47 P Jenard, ‘Report on the Convention on Jurisdiction and the enforcement of judgments in civil and commercial matters’ (Jenard Report) [1979] OJ C 59/1, 32; Nygh and Pocar, Preliminary Draft Convention, 53. 48 Briggs and Rees (n 34) 97.

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the problem and have no intention to get help from a third party. Comparatively, it is more reasonable to suggest that the dispute has arisen at the time when the consumer has received the unsatisfactory answer. In cases when the business simply ignores the consumer’s complaint, the dispute arises when the consumer decides to take the next step, either by resending the complaint or by resorting to a third party to resolve the issue. (ii) When the Jurisdiction Clause is Entered Into Difficulty also arises in deciding when the agreement is concluded.49 An independent European interpretation should be provided to decide the time when the parties have agreed on jurisdiction under the Brussels I Regulation, which might differ from the English common law. There is no such interpretation being provided by the European authorities. Some guide may be drawn from the Principles of the European Contract Law. Although the Principles have no force of law in Europe, they are drafted with the purpose of serving as part of the European Civil Code and they are based on the common practice of most Member States. The Principles provide that an agreement is concluded when the acceptance or when notice of the conduct reaches the offeror.50 It applies the receipt rule systematically to all contracts, regardless of the way an acceptance is made. However, the Principles do not clarify ‘when’ the acceptance or the notice of conduct reaches the recipient if it is made through electronic means. Guidance can be drawn from Article 11(1) the E-Commerce Directive, which provides that if an order or acknowledgement is made through technological means, it is deemed to be received when the addressee is able to access it. However, it is still uncertain as to the meaning of ‘being able to access’ in email communication. One view is that a message is received when the recipient actually accesses it. However, according to the term used in the Directive, the actual access could be much later than ‘being able to access’. Technically, whenever an acceptance or a notice reaches the recipient’s mailbox, it is accessible regardless of when or whether the recipient chooses to log in to check email. A technical interpretation has been accepted in the US Uniform Electronic Transaction Act, which suggests that unless otherwise agreed, an electronic message is received by the addressee when: [I]t enters an information processing system that the recipient has designated or uses for the purpose of receiving electronic records or information of the type sent and from which the recipient is able to retrieve the electronic record51

The UCITA also suggests an electronic message is effective when received, even if no individual is aware of the arrival of a data message.52 49 This issue about the time when an e-contract is concluded is different from the issue concerning the place where an e-contract is concluded, though they are closely connected. See relevant discussion on the place where an e-contract is concluded in the common law, Ch 4, s III.A.i. 50 Arts 2-205(1) and (2). 51 s 15(b)(1). 52 UCITA, s 214(a).

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Choice Of Court Clauses In The Rule-Based Systems Brussels I Regulation 133 Compared to the ‘actual access’ interpretation, the technical interpretation is more appropriate. It is consistent with the practice in traditional approach, when a fax message is successfully received by the recipient’s fax machine, it is deemed to be received, regardless when staff actually manages to access it and read it. However, it does not answer two questions: (1) what if the recipient’s ISP wrongfully classifies the message as spam and delivers it to the trash folder or automatically deletes it? The recipient has a chance to access the message even if it is in the trash folder. The recipient, however, is not ‘able’ to access the message if it is deleted directly by the system. According to the technical interpretation, although the message has been blocked, it nevertheless has reached the recipient’s system, and the agreement is concluded; (2) What if the message is sent to an address other than the one designated by the recipient to receive the information? It has been suggested by the UNCITRAL E-Commerce Model Law that the ‘actual access’ approach applies if the data message is sent to an information system that is not designated by the addressee to communicate with the sender.53 It aims to protect the addressee who could not reasonably expect the arrival of the message in another system and may not access it for a long period of time. b. Common Domicile or Habitual Residence Qualification 3 is designed to protect the reasonable expectation of the business, where the subsequent change of domicile by the consumer cannot confer jurisdiction to the consumer’s new domicile. However, uncertainty will result in e-commerce, given the difficulty of identifying the other party. When dealing with an e-consumer, the business usually will not know which country the consumer’s domicile/habitual residence is. It cannot be judged from the consumer’s email address, which may be misleading, or the IP address of the information message, which is not accurate; nor the delivery information, which can be temporary; nor the consumer’s statement, which may be untrue. Without knowing the consumer’s origin, the business will have no idea about the enforceability of the jurisdiction clause. c. The Prima facie Ineffective Policy Since exclusive choice of forum clauses hold an important position in e-commerce, it is questionable whether the obviously conservative policy, by holding choice of forum clauses prima facie ineffective in consumer contracts, can work effectively in e-commerce.54 E-commerce exposes an e-business to litagation risk and it is necessary for the e-business to find a way to avoid highly oppressive global jurisdiction. E-commerce also needs a more positive model for its development. 53

Art 15(2)(a)(ii). ‘Electronic Commerce and International Jurisdiction’ (Hague Conference on Private International Law, Ottawa, 28 Feb to 1 Mar 2000, Prel Doc No 12) 7. 54

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The e-consumer, although in general still holding a weaker position, may be more reasonable and economically sensitive and may want to enjoy the convenience and competitive price the exclusive jurisdiction clause provides. From the economics point of view, without an effective and enforceable choice of forum clause, the e-business may incorporate the cost and risk of global jurisdiction into the price of the products provided online, which would eventually be transferred to e-consumers. The economic consideration has been adopted in a controversial US case Carnival Cruise Lines v Shute, which enforced a choice of forum clause in an adhesion contract. The court decided that that: [P]assengers who purchase tickets containing a forum clause . . . benefit in the form of reduced fares reflecting the savings that the cruise line enjoys by limiting the fora in which it may be sued.55

In other cases, though very rare, a consumer may have real consent to accept a jurisdiction clause for other benefits, such as a better price. The principle of regarding exclusive jurisdiction clauses in consumer contracts as prima facie ineffective regardless of the consumer’s real intention is too restrictive and unreasonable.

ii. The Enforceability of Non-Exclusive Jurisdiction Clauses Article 17 of the Brussels I Regulation does not clearly distinguish an exclusive choice of forum clause from a non-exclusive one. A literal reading of the text suggests that the two conditions to enforce an exclusive jurisdiction clause shall also apply to a non-exclusive jurisdiction clause. A non-exclusive choice of court agreement could have ordinary effects for both businesses and consumers if it is agreed after the dispute has arisen or if it chooses the common habitual residence or domicile of both parties at the time of contracting. In these circumstances, both businesses and consumers can choose to bring an action in the chosen court, or the court designated by Article 16 of the Regulation. However, Article 17(2) enforces a jurisdiction clause which broadens the consumer’s option without derogating any otherwise competent fora of jurisdiction, which is a non-exclusive choice of court agreement. The specific effect of a non-exclusive choice of court agreement in consumer contracts is that it can only be unilaterally applied in favour of consumers. Where a consumer acts as a claimant, he could sue the business in his domicile or the domicile of the defendant under Article 16 of the Regulation. He could also choose to sue in the forum designated in the choice of forum agreement. On the other hand, where a business acts as a claimant, it could only sue the consumer in the consumer’s domicile, and could not rely on the nonexclusive choice of court agreement to bring the action in any other forum. This rule is clearly established for the advantage of consumers. This condition can be reasonably applied in e-commerce. However, with the obvious biased effect, it is unusual for a business to conclude a non-exclusive jurisdiction agreement with its consumer. 55

Carnival Cruise Lines v Shute, 499 US 585, 594 (1991).

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III. Choice of Forum Clauses in Discretion-Based Systems A. Pre-requisites of Choice of Forum Clauses The applicable law issue in deciding the validity of choice of forum clauses is traditionally uncertain and ambiguous in a discretion-based system. Different courts would tend to adopt different approaches to decide the law that might govern the validity of a jurisdiction clause: (1) the lex fori of the seized forum; (2) the putative proper law that governs the contract in which the jurisdiction clause belongs; (3) the default law applicable in the absence of choice; (4) the law of the designated forum. The practice in discretion-based countries shows great ambiguity in the issue. In practice, many courts simply ignore the choice of law approach and directly use the contract law principle of the lex fori to decide the validity of jurisdiction clauses. In the case of substantive law governing the issue of validity, the discretionbased approaches generally do not impose explicit formal conditions for a contract, or any terms in a contract including a jurisdiction clause, to be valid. The courts usually look at the intention of the parties behind the form and is willing to recognise choice of forum clauses not finalised in writing, not signed,56 contained in small-print, or included in a purely oral agreement.57 As a result, the formal validity of a jurisdiction clause will not be challenged by electronic communications in a country with a discretion-based tradition. Although the courts are reluctant to enforce a choice of forum agreement without any evidence of the existence of and consent to such a choice, the validity of a choice of court agreement usually has been decided by substantive validity requirements. A choice of court agreement is valid if there is consent and the choice is fair and reasonable. i. The Existence of Consent Substantive validity generally aims to guarantee the existence of consent between the contractual parties and the authenticity of consent. The existence of consent can be shown by the signatures of both contractual parties or by other formal requirements,58 but the substantive validity goes beyond the appearance of a signature to confirm consent. In e-contracts, the existence of consent would be questioned based on the method of acceptance. In e-contracts, the indication of consent has been done through some activities carried out online. Unlike traditional commerce, where consumers are accustomed to the importance of signing their names on paper, in e-commerce consumers are less sensitive to the importance of those activities which can show their consent. To most e-consumers, the 56 57 58

Roberts & Schaefer Co v Merit Contracting 99 F 3d 248, 252–53 (7th Cir 1996). See Yackee (n 4) 1192–3. See s II.A above.

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behaviour of ‘clicking’ or ‘downloading’ might mean nothing more than the normal process of transaction, and they will be unaware that by doing these actions they are bound by the jurisdiction clause provided by the business. As a result, some courts use the discretion to invalidate contracts where the existence of consent is not clear. It would happen where the intention is shown by clicking a ‘download’ button, by continuing purchasing, by browsing a webpage, or by submitting delivery information. For example, in Specht v Netscape Communications Corp,59 the Second Circuit confirmed the decision of the District Court for the Southern District of New York that the click-wrap contract containing a dispute resolution agreement was invalid because it failed to require users to express assent. In Specht, internet users could download free software by clicking a ‘Download’ label without encountering information about the existence of terms and conditions governing the download. The court decided that: A consumer’s clicking on a download button does not communicate assent to contractual terms if the offer did not make clear to the consumer that clicking on the download button would signify assent to those terms.60

It fundamentally questions the validity of all browse-wrap contracts and some click-wrap contracts in electronic consumer transactions. It is assumed that in these circumstances, consumers more easily ignore what has been represented on the screen and they are not professional enough to predict that the behaviour of entering a website or downloading a product will result in a submission to a foreign jurisdiction. On the other hand, if a consumer indicates his intention clearly either by typing ‘accept’, ‘agree’, ‘consent’ or other unambiguous words in an online purchasing form or in an e-mail, or by clicking a button containing the clear words of acceptance, the existence of consent should be satisfied.61 However, some courts also prefer to use a relaxed test for the existence of consent in order to provide commercial security in e-contracts. Courts would decide differently for commercial contracts and consumer contracts. In most cases, business-tobusiness browse-wrap contracts were enforced which did not have specifically and certainly expressed consent.62 However, some courts also enforce consumer contracts without express consent. For example, in Druyan v Jagger the court enforced the online agreement where the terms were sufficiently conspicuous which warned the user of the legal consequence of clicking the botton ‘Look for Tickets’.63 However, even with the existence of both parties’ signatures or other evidence, the existence of consent might be questioned if a contract is concluded by mistake, which is not an unusual case in electronic commerce. The electronic error may lead to the defective consent in an electronic consumer contract. Concluding 59 Specht v Netscape Communications Corp, 150 F Supp 2d 585 (SDNY 2001), aff’d, 306 F 3d 17 (2d Cir 2002). 60 Specht, 306 F 3d 17, 29–30 (2d Cir 2002). 61 ProCV v Zeidenberg 86 F 3d 1447 (7th Cir 1996). 62 Cario v Cross-media Services WL 756610, 5 (ND Cal 2005); Register.com v Verio 126 F Supp 2d 238, 245 (SDNY 2000); Ticketmaster v Tickets.Com WL 21406289, 2 (CD Cal 2003). 63 Druyan v Jagger, 508 F Supp 2d 228, 237 (SDNY 2007).

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e-contracts primarily depends on the proper functioning of technology. A breakdown of the information processing system, a mistake in the information transmission system, or bugs in the computer programme can cause a jurisdiction clause to be concluded without authentic consent. An electronic error may also occur if the consumer makes mistake but has no chance to correct it in a reasonable period of time. Suppose a consumer wrongfully clicked an ‘agree’ button below the jurisdiction clause and quickly noticed the mistake. However, the system continued to the next step without any chance for the consumer to review and to correct.64 A jurisdiction clause concluded in this case should be regarded as substantively invalid for the lack of authentic consent. Thirdly, the non-localisation and non-identification nature of e-commerce may lead to the agreement short of consent, because some terms, which may be accurate in traditional contract, are considered ambiguous in e-commerce. The jurisdiction clause may state that ‘any dispute should be submitted to the court of the place of business/ the place where the contract was made/etc.’ Not only may the consumer have no idea which country these descriptions actually refer to, but also the business, the legal professional, even the court may have confused understanding of the described locations in e-commerce. Without the further explicit disclosure of what the designated place is, the choice of forum clause can be claimed by the consumer to be invalid for the lack of authentic consent. Finally, in most cases a consumer would present his assent without reading. Shall the choice of law clause be held invalid for the lack of authentic consent? It is generally held that the lack of reading alone is insufficient to prove the lack of authentic consent. The authentic consent is presumed to exist where a consumer has the chance to read before contracting.65 However, if a company establishes its contract in a manner which prevents consumers from being aware of the existence of some terms the consumer shall not be bound simply because he would unlikely read these terms any way.66 Fine printing, unreasonable adoption of hyper-links, excessively long contractual terms and the page division could be reasons to invalid a contract.67 Furthermore, an e-consumer might encounter a timelimit for reading the contract terms provided by the e-business, which may prevent the consumer from reading at his own pace and lead to the untrue consent. 64

See UCITA, s 213(b). Bickett v Buffalo Bills 472 NYS2d 245, 247 (NY Sup Ct 1983); Druyan v Jagger, 237. 66 eg, in Specht (n 59) the court held since the licence terms only appeared after the user downloaded the software, the downloaded software was not protected by the licence. Affinity Internet v Consol Credit Counseling 920 So 2d 1286, 1289 (Fla Dist Ct App 2006); Campbell v General Dynamics Government Systems 407 F 3d 546, 558 (1st Cir 2005); Mellon First United Leasing v Hansen 705 NE 2d 121, 125–126 (Ill App Ct 1998); Tandy Computer Leasing v Terina’s Pizza 784 P 2d 7, 8 (Nev 1989). 67 US Federal Trade Commission, Dot Com Disclosures, www.ftc.gov/bcp/conline/pubs/ buspubs/dotcom/index.html, accessed on 21 Jun 2005. Ticketmaster v Tickets.Com (the court held the user was not bound by the terms, because the website was in a form that the user could escape viewing the terms by linking to other pages, or needed a great effort in order to reach the terms to read them). Cf Caspi v Microsoft Network 732 A 2d 528 (NJ Super Ct App Div 1999) (the court held the terms binding despite the user being easily able to accept it without reading); Northwestern National Insurance v Donovan 916 F2d 372 (7th Cir, 1990) (Although fine print could support the claim for invalidity, a clause cannot be held invalid simply because of small print). 65

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An e-business may claim that this time-limit is provided for reasonable marketing. For example, there is a great amount of demand over the limited number of products, or the price of some products will increase as the time goes by.68 It is not wise to permit one consumer to hold the bargain for an unreasonably long time while other potential consumers cannot process this transaction. However, it is suggested that the permitted length of time to read should be reasonable. If there is no special business consideration behind it, and the limitation is simply provided to prevent the consumer from reading, for example, the time limit is set up for normal transaction without any convincing reason and/or together with an overlengthy draft of contractual terms, the authentic consent can be questioned. ii. Fairness and Reasonableness Discretion-based approaches also invalidate a choice of forum clause if it is unfair or unreasonable. Presently, there are three possible approaches as to the fairness of a choice of forum clause. The first one is to look at the result of the agreement to see if there is unfairness or unreasonableness.69 For example, if the effect of a choice of forum clause is obviously one-sided, with all the disadvantages on one party, it can be announced unfair and might be held void or avoidable. However, this approach is not favoured in practice, because if the parties genuinely consent to the effect of the agreement at the time of contracting, especially where the party carrying the disadvantages agrees to accept the unpleasant result in exchange for some other advantages, such as the more attractive price, there is no sound reason to invalidate the clause based on ‘unfairness’. It is also possible to study the process to conclude the clause. If the clause has been concluded in an abusive manner, including an abuse of economic power, or by other unfair means, for example, taking advantage of the other party’s weaker position, such as the poor bargaining power and low education level, the clause can be held invalid.70 The problem is that no criteria have been established to determine what manner can be called abusive or unfair in e-commerce. Clickwrap and browse-wrap contracts are widely used in e-commerce and have been accepted for their convenience and economy. When we look at the process only, the contract terms are provided unilaterally by the business who is the party with stronger economic power. The terms are standard and non-negotiable in nature. The consumer, being the party with poorer bargaining power, is in a ‘take it or leave it’ position. In this process, the business does make use of their economic power, and the consumer does have no other choice but to accept all the terms or 68 Such as the tickets for transportation, eg National Express fun fare ticket purchasing procedure, www.gobycoach.com, studied on 24 Jun 2005. 69 Burke v Goodman 114 S W 3d 276, 280 (Mo App ED 2003); Swain v Auto Services 128 S W 3d 103, (Mo App ED 2003). 70 Colonial Leasing Co of New England v Pugh Brothers Garage 735 F 2d 380 (9th Cir 1984). See also Inter-American Convention on Jurisdiction in the International Sphere for the Extraterritorial Validity of Foreign Judgments of 24 May 1984, (La Paz Convention) Art 1(D). Hague Choice of Court Convention of 1965, Art 4(3). The US Uniform Commercial Code, s 2-302(1).

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be refused the transaction, due to his weaker position. If the process of concluding a click-wrap or browse-wrap contract is regarded as unfair, unjust or unreasonable, and all click-wrap or browse-wrap contracts will be invalid, e-commerce will be seriously impeded. To judge the process alone cannot be a reasonable way to decide the fairness and reasonableness of a choice of forum clause in e-commerce. The possible alternative is to connect the process with the result and other relevant elements to determine whether the choice of forum clause is reasonable and fair. Under this approach, the court should consider: (1) whether the choice of forum clause has been individually negotiated, or has been agreed to, without any other economic or other pressure on the consumer. If the clause has been individually negotiated in an equal and reasonable way, the clause can be regarded as reasonable; or (2) whether the procedure to enter into an agreement is reasonable. For example, the consumer has the opportunity to review the clause,71 the consumer is given a clear choice between accepting or rejecting the clause,72 the consumer has the chance to correct errors and change his mind any time during the procedure, and the consumer has adequate notice of the consequence of acceptance and rejection.73 If either of these procedural requirements are fulfilled, the procedure is fair and reasonable and the jurisdiction clause should be valid. If the answer to the above two questions is negative, the court needs to consider whether the effect of the choice of forum clause is unreasonable and unfair, if it is unreasonably one-sided, oppressive, or unfavourable to the weaker party. If it is better for the benefit of the consumer, even if the clause is designed by one party and puts the other party in a ‘take it or leave it’ position, the clause would not be regarded as unfair and unreasonable.74

B. Enforceability of Choice of Forum Agreements in E-Consumer Contracts Discretion-based approaches have no special rules to govern the consumer protection issue raised by jurisdiction clauses. However, more flexible but also more uncertain approaches are adopted so that the enforceability of a valid jurisdiction clause primarily depends on the courts’ discretion. The effects given to a choice of forum agreement in discretion-based legal systems vary between court to court, and depend on the nature of the choice of forum clause.

71 UCITA, s 113(a) defines ‘opportunity to review’ as a term ‘available in a manner that ought to call it to the attention of a reasonable person and permit review’. 72 Caspi v Microsoft; Specht (n 59). 73 Rudder v Microsoft [1999] 2 CPR (4th) 474 (Ont Super Ct Justice 1999). 74 This approach can be used to interpret Art3(1) of the Unfair Terms in Consumer Contracts Directive, s II.A.ii. For the discussion on US unconsciouablility test, see Ch 10, s III.

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i. The Enforceability of Exclusive Choice of Forum Clauses a. Being Effective without Exceptions The federal courts of the USA adopt the approach to give full effectiveness to a valid exclusive jurisdiction clause even in consumer contracts. Three steps will be taken to decide jurisdiction in a contract with a jurisdiction clause:75 (1) the court should begin by deciding whether an exclusive jurisdiction clause is valid. A clause is presumed valid except in cases where it is incorporated into a contract as a result of fraud, where the enforcement of a clause would contravene a strong public policy of the forum, where it is so declared by statutes or precedent judicial decisions, or where the selected forum is so difficult and inconvenient that the complaining party will in effect be deprived of his day in court;76 (2) If the exclusive jurisdiction clause is valid, it is directly enforceable. The resisting party cannot try to challenge it by any means including the traditional common law doctrine of forum non conveniens.77 As a result, a party can only challenge the jurisdiction clause on its validity. The concept of validity here is broad, which covers not only the issues that have been discussed in the previous sections but also issues relating to public policy and the claimant’s access to justice. A consumer might like to rely on these issues to invalidate a jurisdiction clause but the standard is comparatively high.78 Once the clause is determined valid, its enforceability cannot be deprived, regardless of the witnesses’ inconvenience and expenses,79 and the protection of a weaker party.80 The strict approach fails to give the consumer necessary relief nor to ensure the ends of justice in a case-to-case basis. 75 This principle originated from M/S Bremen v Zapata Off-Shore 407 US 1 (1972). It has been followed in cases concerning adhesion contracts, eg Carnival v Shute; Cal-State Business Products & Services v Ricoh 12 Cal App 4th 1666 (Cal App 3 Dist 1993); Arthur Young v Leong 40 NY2d 984 (NY 1976); Smith, Valentino v Superior Court 551 P 2d 1206 (Cal 1976); Reynolds-Naughton v Norwegian Cruise Line 386 F3d 1 (CA1(Mass) 2004); Harden v American Airlines 178 FRD 583 (MD Ala 1998); Lee v New Seaescape Cruise 1998 WL 730873 (ND Cal 1998). 76 Knierim v Siemens 2008 WL 906244 (DNJ 2008); Calix-Chacon v Global International Marine 493 F3d 507 (CA5(La) 2007); Bonny v Society of Lloyd’s 3 F 3d 156 (7th Cir 1993); AAR Int’l v Nimelias Enterprises SA 250 F 3d 510 (7th Cir 2001); Sun Trust Bank v Sun International Hotels 184 F Supp 2d 1246 (SD Florida 2001). 77 Coastal Steel v Tilghman Wheelabrator, 709 F 2d 190, 204 (3d Cir 1983), ‘because we hold that the forum-selection clause should have been enforced, the forum non conveniens ruling need not be addressed in detail’; Oliver v Third Wave Technologies WL 2814598, 5 (DNJ 2007), ‘having found the forum selection clause in the instant matter to be valid, the Court need not engage in an extensive analysis as to whether venue would otherwise be proper here’. 78 Cal-State v Ricoh (a choice of forum clause in a contract of adhesion did not defeat its enforcement, where there was no evidence of unfair use of superior power). 79 Arthur Young v Leong (the existence of a choice of court clause obviated the considerations of inconvenience to a witness); Smith, Valentino v Superior Court (Pennsylvania jurisdiction clause was enforced though the plaintiff’s witnesses were in California). 80 Ware Else & Ware Enterprises v Susan Ofstein 856 So 2d 1079 (Fla App 5 Dist 2003)(a Minnesota jurisdiction clause was enforced though it required the employee to litigate out-of-state); Nowland v Hill-Rom 2008 WL 1909217 (D Or 2008) (a forum-selection clause was held valid although it required the employee to bring an action in the employer’s place of business).

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b. One Factor Considered in Forum Non Conveniens The second approach does not give a valid jurisdiction clause direct effect, but accounts it as one of the factors considered in forum non conveniens. When the courts deal with a case where there is a valid exclusive jurisdiction clause, and the defendant applies for a stay on forum non conveniens ground, the courts will consider the defendant’s application and take the choice of forum clause as one factor in exercising its discretion. Where an exclusive choice of forum clause favours the forum court, it is a strong factor against the stay; where the exclusive choice of forum clause designates a forum other than the trial court, it is a factor in favour of the stay. This approach has been adopted in a small number of cases in the USA,81 England,82 Canada,83 and Australia.84 The result might change according to how much weight should be given to an exclusive choice of forum clause. For example, in England and Canada, a foreign exclusive jurisdiction clause is a strong factor showing that the appropriate forum is abroad and operates as a weighty factor in favour of a stay; an exclusive jurisdiction clause choosing the trial forum is a weighty factor against a stay.85 Some New Zealand courts, however, hold that a jurisdiction clause alone is not sufficient and other elements are needed for the final decision.86 More uncertainty will occur in consumer contracts. Some courts might like to specifically consider the consumer’s weaker position and give less weight to the choice of forum clause if it requires a consumer to take an action abroad. Others may have more concerns on the commercial security and economy, thus providing full effectiveness to a jurisdiction clause without evaluating other connecting factors including the consumer’s situation. This approach cannot ensure enough weight is given either to jurisdiction clauses or consumer protection.87 It is assumed that this approach, which might be appropriate to decide the enforceability of a non-exclusive jurisdiction clause, is not appropriate for an exclusive jurisdiction clause. 81 Royal Bed & Spring v Famossul Industria e Comercio de Moveis 906 F 2d 45, 51 (1st Cir, 1990); Mercier v Sheraton International 981 F 2d 1345 (1st Cir, 1992). This approach has been widely applied to non-exclusive choice of forum clauses. 82 JP Morgan securities Asia Private Limited v Malaysian Newsprint Indusctries Sdn Bhd 2001 2 Lloyd’s Rep 41, where the Chambers QC agreed with the approach in Mercury Communications Ltd v Communication Telesystems International [1999] 2 All ER 33, that a non-exclusive jurisdiction clause made it appropriate to approach the issue of forum conveniens. Although in the Morgan case, the judge held the jurisdiction clause is a non-exclusive one, he continued to state that there is ‘no difference between an exclusive and a non-exclusive jurisdiction clause.’ 83 Frymer v Brettschneider (1994) 19 OR (3d) 60 (Ont CA); Amchem Products Lnc v British Columbia Worker’s Compensation Board [1993] 102 DLR (4th) 96 (SCC). 84 World Firefighters Games Brisbane v World Firefighters Games Western Australia [2001] QSC 164 (the court based its discretion on the Jurisdiction of Courts (Cross-vesting) Act 1987, which provides a new scheme of discretion to stay and transfer proceedings. An exclusive jurisdiction clause is only a relevant factor in consideration). 85 Spiliada Maritime Co v Cansulex Ltd [1987] AC 460. P North and J Fawcett, Cheshire and North Private International Law, 13th edn (London, Butterworths, 1999), 339, and fns 15 and 16 therein. 86 Apple Computer Inc v Apple Corps Sa High Court Of New Zealand, 17 IPR 123, 19 Feb 1990 (Auckland). 87 For criticism over this approach, see ZI Pompey Industrie v ECU-Line [2003] 1 SCR 450.

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c. Prima Facie Effective Unless Strong Reasons Shown to the Contrary Presently, most common law jurisdictions adopt the approach of holding a valid exclusive jurisdiction clause prima facie effective unless strong reasons have been shown for the contrary. The approach has been set up in an English cornerstone case The Eleftheria,88 repeated in Aratra Potato Co Ltd v Egyptian Navigation Co (‘The El Amria’),89 and been accepted by a large number of cases in the Commonwealth thereafter.90 If the claimant brings proceeding in the court stipulated in the exclusive jurisdiction clause, the court will assert jurisdiction by law,91 or by discretion.92 Although the defendant can apply for a stay on forum non conveniens, it is hard for the court to refuse to exercise the prorogated jurisdiction conferred by a valid exclusive jurisdiction clause, which creates a prima facie case that the chosen forum is appropriate and that proceedings elsewhere are inappropriate. On the other hand, if the trial court is not the chosen forum, it is a prima facie case for the court to stay the action brought in breach of the clause, unless the claimant can meet his heavy burden to show strong reasons for not doing so.93 This approach is assumed at least in part to achieve the ‘order and fairness’, because it ensures the court gives full weight to the parties’ agreements and also provides sufficient leeway for the ends of justice.94 Bastarache J provides the following comments to this approach: This test rightly imposes the burden on the plaintiff to satisfy the court that there is good reason it should not be bound by the forum selection clause. It is essential that courts give full weight to the desirability of holding contracting parties to their agreements. There is no reason to consider forum selection clauses to be non-responsibility clauses in disguise. In any event, the ‘strong cause’ test provides sufficient leeway for judges to take improper motives into consideration in relevant cases and prevent defendants from relying on forum selection clauses to gain an unfair procedural advantage.95

This general rule can be applied to e-commerce, for it satisfies the criteria for an appropriate approach in electronic consumer contract, by ensuring certainty and predictability, as well as providing the proper protection for the weaker party. However, although the general principle is quite suitable and can be properly

88

The Eleftheria [1970] P 94, 110. Aratra Potato Co Ltd v Egyptian Navigation Co (The El Amria) [1981] Lloyd’s Rep 119, CA. Akai Pty Ltd v People’s Insurance Co [1998] 1 Lloyd’s Rep 90; Citi-March v Neptune Orient Lines [1996] 2 All ER 545; Voth v Manildra Flour Mills Pty 171 CLR 538; Oceanic Sun Line Special Shipping Co Inc v Fay (1988) 165 CLR 197, 230–231, 259; ZI Pompey v ECU-Line. 91 In New York, the New York Civil Practice Law and Rules even provides that the court shall not stay or decline any action on forum non convenies, when the contract contains a New York choice of forum clause, a New York choice of law clause, and the transaction involved exceeds $1,000,000. See New York Civil Practice Law and Rules, s 327(b). 92 CPR Pt 6 Practice Direction B, para 3.1(6)(d) provides that a jurisdiction clause is a ground for an English court to serve a claim form out of jurisdiction. 93 The Elefheria, 110; Donohue v Armco [2002] 1 Lloyd’s Rep 425. 94 ZI Pompey (n 87) para 20. 95 ZI Pompey (n 87). 89 90

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applied to e-commerce, the test therein for the courts to exercise their discretion whether to uphold the clause needs further consideration. (i) Strong Causes Theoretically, the test and criteria to buttress the court’s discretion in enforcing an exclusive choice of forum clause are not different in the case of the chosen court facing a prorogation jurisdiction clause and the non-contractual forum facing a foreign jurisdiction clause.96 The same factors as those taken into consideration in forum conveniens/forum non conveniens,97 including natural forum factors and justice factors, will be considered. These factors, especially factors considered to decide the natural forum, generate difficulties in e-commerce.98 Furthermore, the current approach provides no more than a very basic and ambiguous principle for the test, without a clear guide for how the test should be applied, or how much weight should be given to the natural forum fact or justice fact against enforcing a valid agreement. The discretion thus becomes too flexible to be certain. With different weight given to the factors, and different understandings of the ‘important factors’, the enforceability of a valid jurisdiction clause, which is supposed to be respected in most cases, turns out to be uncertain. In some cases, the courts permit the enforceability of a valid jurisdiction clause to be denied simply on the ‘natural forum’ ground.99 In some cases, it is held that the natural forum test is not enough, and the courts only permit the party to escape the effect of a valid jurisdiction clause by relying on the factors they cannot foresee at the time of conclusion of the contract.100 In other cases, the courts held that ‘strong causes’ should be shown beyond mere ‘natural forum’ claims and the courts have to consider the ends of justice.101 Allowing a valid jurisdiction clause to be avoided only by the reason that the noncontractual forum is clearly more appropriate is not reasonable because it will reduce the enforceability a jurisdiction clause would otherwise have. The relevant merits comparison between the current forum and the chosen forum should have already been considered at the time of contracting, so taking that into account in exercising discretion may make the choice of forum clause too vulnerable. Furthermore, the ‘natural forum’ consideration is not appropriate for e-commerce, as the location of connecting factors is hard to decide and would be fortuitous in most cases.102 96

Akai Pty Ltd v People’s Insurance, 52. Ch 4, s III.B. 98 ibid. 99 See Aratra Potato Co Ltd v Egyptian; Citi-March v Neptune; New Zealand case: Apple Computer v Apple Corps. 100 See British Aerospace Plc v Dee Howard Co [1993] 1 Lloyd’s Rep 368, 376; The Society of Lloyd’s v Peter Everett White (No 2) [2002] I L Pr 11. 101 See Mercury v Communication Telesystems; Sinochem International Oil (London) Ltd v Mobil Sales and Supply Corp [2000] 1 Lloyd’s Rep 670, 679–80; JP Morgan v Malaysian, 185–6. Although these cases are dealing with non-exclusive prorogation jurisdiction clauses, the principle can be applied to exclusive jurisdiction clauses. 102 Chapter 4, s III.B. 97

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As a result, a new test combining the ‘unforeseeable factors’ and the ‘ends of justice’ sounds more appropriate. According to this test, if the resisting party can show unforeseeable factors which are material for the convenience and expense of the action and the interest of the parties, the relief might be given. Without the unforeseeable factors, the reason that justice will be denied by enforcing the jurisdiction clause can also lead to relief. The unforeseeable test, which has been regarded as extremely rare and impractical in commercial contracts, can work better in electronic consumer contracts. Based on the contract’s adherent and non-negotiable nature, as well as the consumer’s inadequate knowledge, limited time for consideration and non-access to professional consultation, the consumer could often claim there is something reasonably unforeseen at the time of contracting. However, this unforeseeable event should be reasonable. Simply having unexpectedly high travel expenses cannot be sufficient to deny the effect of a jurisdiction clause. Only subsequent changes which are unforeseen at the time of contracting meet the unforeseeable requirement, such as the additional requirement for travelling,103 the subsequent change in consumer’s financial or physical situation,104 or the change of the consumer’s residence.105 The consumer can also rely on the ‘justice test’ to escape the effect of a valid jurisdiction clause. Besides the factors buttressing the justice claim in traditional commerce,106 the consumer should be permitted to challenge the enforcement of the jurisdiction clause, by claiming that the litigation is unreasonable and excessively expensive and inconvenient so that forcing him to litigate in the chosen forum will deprive him of his right to access to justice. The relief can only be granted by comparing the possible litigation cost and the value of the subject matter and the comparative financial or litigation power between the parties.

ii. Non-Exclusive Choice of Forum Clauses The effect of a non-exclusive jurisdiction clause is uncertain in common law countries, too.107 Some decisions prefer to treat it as an exclusive jurisdiction clause which creates a prima facie case for the chosen court to take jurisdiction and the normal forum conveniens/forum non conveniens ground has no room to play, while the resisting parties shall carry overwhelming burden to argue to the contrary. As a result, if a non-exclusive jurisdiction clause designates an English forum, English courts shall take jurisdiction. The resisting party has to show very strong reasons, which do not include factors of convenience that were foreseeable at the time of 103 eg after the parties have made the agreement, the chosen forum changes its immigration policy to require the foreigner to get a visa for entry. 104 eg the consumer suffers bankruptcy afterward, or suffers some physically disability, which makes foreign litigation oppressive. 105 eg the consumer subsequently changes his residence which is more distant from the chosen forum which makes the litigation unpredictably expensive and inconvenient. 106 The Eleftheria (n 88) 110. 107 For the differences between exclusive and non-exclusive jurisdiction clauses, and the effects of non-exclusive jurisdiction clauses, see J Fawcett, ‘Non-Exclusive Jurisdiction Agreements’ (2001) LMCLQ 234.

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contracting. Only those factors which cannot be foreseeable at the time of contracting, or the reasons relating to the interest of justice can be considered.108 If there is a non-exclusive jurisdiction clause choosing another forum, the English courts should stay its jurisdiction unless overwhelming reasons indicate to the contrary.109 More importantly, some courts express that the effect of jurisdiction clauses has no difference no matter whether the clause is an exclusive or nonexclusive one, and the rule is not weakened where the clause is a standard clause and not one freely negotiated.110 It seems that even in a consumer contract, strong effect will be given to a non-exclusive jurisdiction clause. This approach is inappropriate. Firstly, the purpose of a non-exclusive jurisdiction clause is to provide an additional alternative option to the parties, which does not exclude any otherwise competent jurisdiction. It is improper to equalise a non-exclusive jurisdiction clause with an exclusive one. Secondly, the original purpose of the business is not to deprive the consumer of his rights to choose other competent fora to bring the action, but to create a wider latitude for the possible competent forum for its own security. This approach creates more difficulties to consumers than what a business plans in using a non-exclusive jurisdiction clause. Another approach treats a non-exclusive jurisdiction clause as a factor to be considered when a court exercises its discretion. Although this approach is not appropriate for an exclusive jurisdiction clause, it is considered appropriate for a non-exclusive one.111 For example, the existence of a non-exclusive English jurisdiction clause satisfies one of the grounds to serve out of England under the CPR.112 However, the English courts shall consider whether jurisdiction can be asserted under forum conveniens. The non-exclusive jurisdiction clause is only one factor for taking jurisdiction. On the other hand, the existence of a non-exclusive jurisdiction clause designating another court is just one factor against English courts from taking jurisdiction. The problem is that it is unclear how much weight should be given to a non-exclusive jurisdiction clause. Shall a non-exclusive jurisdiction clause be treated as a very strong factor or an ordinary factor in forum conveniens/ forum non conveniens consideration? Although some earlier English cases treated a non-exclusive jurisdiction clause as a very strong factor when exercising discretion, some later English cases and Scottish decisions regarded it as a normal factor.113 The party who tries to depart from the chosen forum is not required to 108 HIT Entertainment v Gaffney International Licensing [2007] EWHC 1282 (Ch); Amtech International v Biosafety USA [2006] EWHC 47, para 7; Bas Capital Funding v Medfinco Ltd [2004] 1 Lloyd’s Rep 652, 678; Import Export Metro v Compania Sud Americana [2003] 1 Lloyd’s Rep 405, 410–411; Morgan (n 82) 47; S & W Berisford Plc v New Hampshire Insurance [1990] 1 Lloyd’s Rep 454, 463; British Aerospace Plc v Dee Howard. 109 In ED & F Man Ship Ltd v Kvaerner Gilbraltar Ltd (The ‘Rothnie’) [1996] 2 Lloyd’s Rep 206, Cresswell J held that English proceedings should be stayed because of a non-exclusive Gibraltar jurisdiction clause, though English court was the first selected one to hear the case. 110 Import Export Metro v Compania Sud Americana, 411. 111 s i(b) above. 112 CPR Pt 6 Practice Direction B, para 3.1(6)(d). 113 BP Plc v AON Ltd (No 1) [2006] 1 Lloyd’s Rep 549, paras 23 and 31; Royal Bed v Famossul. Also see the Scottish decision, Morrison v Panic Link Ltd 1993 SLT 602, affd 1994 SLT 232.

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establish overwhelming or very strong reasons. It is sufficient to show the English court is appropriate by balancing connecting factors according to the Spiliada test.114

IV. Conclusion Based on the above discussion, rule-based jurisdiction and discretion-based jurisdiction have very different approaches to treating choice of forum clauses in consumer contracts. The Brussels I Regulation largely limits the effect of a jurisdiction clause in a consumer contract, while the discretion-based approach usually upholds the enforceability of such a clause, providing it is fair and reasonable. The distinct approaches probably result from the different contexts for their application. The Brussels I Regulation approach is established in the scenario where a business has targeted the consumer’s home, and it is presumed that it is reasonable for the business to be subject to the jurisdiction of that country. The discretion-based approach is used in all cases where the business may or may not target the specific market where the consumer resides and the business should be able to rely on the jurisdiction clause for commercial security. Under the European model, a business has to delimit its market and to be fully aware of the risk in its choice. Under the discretion-based model, the law does not establish additional barrier for a business to choose its market, but the business should be responsible for its commercial activities and should act bona fide. The approach adopted in the Brussels I Regulation may provide certainty and protection to consumers, but it is hard to tell whether the protection is appropriate and whether the certainty can be maintained in e-commerce. The formal requirement, although it has already been partially reformed for the development of e-commerce, is not detailed enough and needs further interpretation. The absence of corresponding rules on substantive validity undoubtedly opens the door for unfairness and injustice. If an agreement is entered into after the dispute has arisen but is substantively unfair for the consumer, it might be enforceable under the Brussels I Regulation. It is suggested that for consumer contracts the uniform test in the Unfair Terms Directive should be relied upon to decide the substantive validity of a jurisdiction clause. More importantly, the limit on a jurisdiction clause raises concern. What if the consumer knows the jurisdiction clause before entering the contract and decides to take a chance for an attractive offer? What if the jurisdiction clause entered into before the dispute has arisen is the result of free negotiation (though it is very rare)? The rule-based approach is criticised for its rigidity and restriction, which does not meet the criterion for the development of consumer-oriented e-commerce. 114

eg Plc v AON Ltd; Royal Bed v Famossul.

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The flexible discretion procedure of discretion-based approaches creates uncertainty. First of all, the choice of law consideration in deciding the validity of the jurisdiction clause is traditionally blurred. In considering the substantive law, although no specific rules of formal validity are required in discretion-based jurisdiction, the courts will be reluctant to enforce a choice of forum agreement without any tangible evidence of the existence of and consent to such a choice. It has been assumed that the approaches in rule-based and discretion-based jurisdictions are very different in method, but not always in effect.115 More consideration is made on the substantive requirements on the existence of authentic consent and fairness of the consent. The test, however, is uncertain. It is unrealistic to require the existence of genuine consent as it is a common practice that consumers would not bother to read contract terms before accepting them. The authentic consent thus is defined as the ‘presumed’ consent. If all the circumstances relating to the conclusion of the contract indicate that the business is bona fide to provide contract terms in an unambiguous and conspicuous way, and the consumer clearly shows consent, the existence of authentic consent and fairness can be presumed. The difficulty with discretion-based approaches is that firstly, there are different methods to decide the enforceability of an exclusive jurisdiction clause, and secondly, they do not provide for specific concerns for consumer protection.

115

J Yackee, (n 4) 1205.

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7 Online Dispute Resolution for Electronic Consumer Contracts* I. Introduction Although the previous chapters try to work out proper jurisdiction rules to settle the difficulty created by e-commerce, it is necessary to notice that most online business-to-consumer transactions are of small value, which will make the cost of international litigation unreasonable. Ordinary cross-border litigation is characterised as slow, expensive and difficult to deal with. This has been recognised by the European Commission: The smaller the claim is, the more the weight of these obstacles increases, since costs, delay and vexation (the ‘three-headed hybra’) do not necessarily decrease proportionally with the amount of the claim.1

The imbalance will lead to at least three negative results. Firstly, the consumer will be discouraged from taking litigation against the e-business, even if the competent forum is in his home country. Secondly, the litigation cost will discourage businesses, especially small and medium sized businesses, from participating in e-commerce. Thirdly, high cost litigation for small claims is not reasonable for the total social economy, and it will greatly reduce the benefit that e-commerce can bring to the society. For these reasons, some authorities, academics and legal practitioners are trying to find a way which would be fair, effective, cheap and fast, to settle disputes arising from electronic consumer contracts. The European Commission has mentioned three approaches to help the individual consumer’s

* This chapter is based on an earlier conference paper presented in the International Conference on Business, Law and Technology (IBLT) in Copenhagen from 5–7 Dec 2006, organised by the International Association of IT Lawyers, University of Southern Denmark Faculty of Law, with support from the EU Commission and the International Court and the City of Lyngby. It was first published in S Kierkegaard (ed) Business Law and Technology: Present and Emerging Trends, Vol 1 (2006) 418, and then published with permission in (2007) 23 Computer Law and Security Report 42. This chapter is updated with deletions and additions. 1 Green Paper on a European order for payment procedure and on measures to simplify and speed up small claims litigation (COM/2002/0746 final), 4. Pt III: Measures to simplify and speed up small claims litigation.

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access to justice:2 (1) the simplification and improvement of legal procedures;3 (2) the improved communication between consumers and professionals to help consumers find an amicable solution to their disputes with professionals;4 and (3) the alternative dispute resolution procedure to resolve disputes out-of-court.5 These three approaches provide a basic idea of the fundamental structure of an ideal legal system for the efficient resolution of disputes arising in relation to consumer contracts, which involves the self-help mechanism of efficient communication between the consumer and the business, the mechanism with the independent third party to make the decision, and the mechanism of simplified legal procedures for small value claims. It is suggested the hybrid dispute resolution system can be adopted in e-commerce, to promote the confidence of both consumers and businesses, and improve the development of e-commerce. One of the most difficult problems in resolving disputes in e-commerce is that globalisation of the e-commerce makes face-to-face dispute resolution highly troublesome. Furthermore, e-commerce provides the possibility for international transactions to be carried out in a speedy and convenient way. The comparative slow and complex dispute resolution system cannot keep up with the requirement of e-commerce. E-commerce calls for an equally speedy, convenient and internationally accessible dispute resolution system. It is suggested that since electronic technology can provide a channel to pursue commercial activities, it can also provide a channel to resolve disputes arising out of the electronic market. It would be effective to build online alternatives to the physical dispute resolution system to resolve disputes arising out of electronic contracts.6 The online dispute resolution has also been supported in the E-Commerce Directive which provides that: Member States shall ensure that, in the event of disagreement between an information society service provider and the recipient of the service, their legislation does not hamper the use of out-of-court schemes, available under national law, for dispute settlement, including appropriate electronic means.7 (Emphasis added) 2 Communication from the Commission on ‘the out-of-court settlement of consumer disputes’, and Commission recommendation on the principles applicable to the bodies responsible for out-ofcourt settlement of consumer disputes (COM(1998)198) [1998] OJ L 115/31. 3 eg, the Green Paper on a European order for payment procedure and on measures to simplify and speed up small claims litigation (COM/2002/0746 final); Reg (EC) No 861/2007 of the European Parliament and of the Council of 11 Jul 2007 establishing a European Small Claims Procedure, [2007] OJ L 199/1. 4 Such as the ‘European Consumer Complaint Form’ with a view to guiding and orienting consumers wishing to formulate claims. forbrukerportalen.no/filearchive/klageskjema_engelsk.pdf, accessed on 11 Apr 2008. 5 Recommendation of 1998, n 2. See also, DTI (UK), ‘Cross Border Consumer Contractual Disputes within the European Union: Which Country Has Jurisdiction’, www.dti.govacp/ca/consultation/ jurisdiction.htm, accessed on 16 Apr 2004. 6 See US-EU Statement on E-commerce: Alternative Dispute Resolution, 18 Dec 2000. Available at: www.useu.be/SUMMIT/ecom1218.html, accessed on 16 Apr 2004. ODR is said to be the ‘only appropriate tool’ to deal with business-to-consumer disputes online. See V Crawford, ‘A Proposal to Use Alternative Dispute Resolution as a Foundation to Build an Independent Global Cyberlaw Jurisdiction Using Business to Consumer Transactions as a Model’ (2002) 25 Hastings International and Comparative Law Review 383, 384. 7 Art 17(1).

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Besides the availability of online out-of-court schemes, the E-Commerce Directive also takes the innovative view of encouraging the possibility of online judicial proceedings. Recital 52 states that ‘Member States should examine the need to provide access to judicial procedures by appropriate electronic means.’ However, it does not insist that judicial procedures by electronic means must be made available. More work has to be done to assess the feasibility of electronic judicial procedures. This chapter is to examine how to build up an online dispute resolution system involving the three mechanisms described above.

II. Online Self-Help Communication Mechanism In practice, very few contractual parties will think about resorting to third parties at the early stage of a conflict. In most cases, self-help communication is the first step that a contractual party normally takes to resolve a dispute. There are hardly any legal regulations on it, and the self-help communication usually has been organised completely freely, flexibly and optionally. It could be commenced by post, telephone, email, or any other means. There are not any time limits on it, but usually the consumer would do it soon after he encounters a problem with the transaction. The responses from the other party may vary as to its duration, content and form. Usually, there is no legal assistance or representative involved at this stage. As most e-commerce targets a cross-border market, the most efficient way to carry out the communication is by electronic means. The self-help communication mechanism has already been widely adopted by most e-businesses as one of their commercial and customer service strategies. For example, most e-businesses provide the consumer with their email addresses to deal with the consumer’s complaints. Some e-businesses also have electronic forms to provide a much easier way for the consumer to make the communication. It is said that this stage of dispute resolution should be primarily governed by the policies of the concerned business. However, since a business’s customer service policy is likely to be very different from one another, it is necessary and helpful if authorities produce guidelines or regulations concerning efficient communication. For example, the European Commission has drawn up a ‘Consumer Complaint Form’ to help consumers effectively communicate with businesses.8 This form provides multiple choices for each question about the nature and details of the complaint. It seeks to overcome the difficulty facing the ordinary consumer when trying to formulate his complaint clearly. Since e-commerce is international in nature, a uniform standardised model for self-help communication can be helpful for both consumers and businesses. The consumer can be more confident and effective in formulating his communication and the business will deal with the complaint more quickly and 8

n 4 above.

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conveniently. However, the business is not required to provide this form to its consumer and the consumer has to search for it himself. Most consumers have insufficient knowledge as to the existence and function of this form. This form was designed in the traditional commercial environment so that the consumer has to print it and send the hardcopy in the traditional way. For this reason, the value and effect of this approach in e-commerce is questionable. It is suggested that this form could be more widely used if it is involved in some site certification systems as one of the dispute resolution options. Or it could be revised into an online complaint or feedback form incorporated in the business’s website that could be filled or submitted online by the consumer. The business could make a statement on its website that the communication system is regulated by the European standard, which could in return increase the consumer’s confidence. Furthermore, it should be available to the consumer in more flexible ways; it should be able to be downloaded from the website, filled out online, sent by email, or printed out and posted as a hardcopy, depending on the consumer’s choice.

III. Online Alternative Dispute Resolution Scheme Generally speaking, alternative dispute resolution (ADR) is any procedure to settle a dispute other than litigation.9 In this sense, it does not only include negotiation, mediation and arbitration, but also many alternatives with the intervention of third parties to resolve disputes.10 A wider definition also involves the procedure arranged privately between the parties without the involvement of an independent third party, such as self-help communication and negotiation between the parties, but this section prefers to discuss it separately because different criteria and principles will be applied to the dispute resolution arranged solely between the parties and the dispute resolution with the intervention of the third party. Compared with judicial procedure, ADR is cheaper, quicker and more flexible. However, in e-commerce, the traditional means of ADR have been to a great extent replaced by online dispute resolution mechanisms (ODR), which are simply transposing the traditional ADR mechanisms online without substantive differences from their traditional counterparts except of being more convenient and effective.11 This section examines the most commonly used and typical online ADR mechanisms, namely mediation, arbitration, and chargeback. 9

BA Garner, Black’s Law Dictionary, 8th edn (Thomeson West, 2004). H Perritt, Jr, ‘Dispute Resolution in Cyberspace: Demand for New Forms of ADR’ (2000) 15 Ohio State Journal on Dispute Resolution 675, 676. 11 Some commentators claim that there are sui generic ODRs, eg T Schultz, G Kaufmann-Kohler, D Langer, and V Bonnet, ‘Online Dispute Resolution: The State of the Art and the Issues’ www.online-adr. org/reports/TheBlueBook-2001.pdf, 1, accessed on 07 Sep 2006. However, although there are some special ODRs which are designed specifically for the needs of internet users, such as the Trustmark scheme, they are not completely new from a legal perspective. 10

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A. Online Mediation Mediation has been defined in the European Mediation Directive as ‘a structured process . . . whereby two or more parties to a dispute attempt by themselves, on a voluntary basis, to reach an agreement on the settlement of their dispute with the assistance of a mediator.’12 In mediation, an active third-party is invited to help the contractual parties come to an agreement without formally expressing an opinion or possible solution to the dispute. The Directive clearly permits the use of modern communication technologies in the mediation process to conduct it online.13 In mediation relating to consumer disputes, the Directive specifically encourages mediators to respect the principles set up in the 2001 Commission Recommendation on consumer mediation.14 The Recommendation clearly requires ‘particular attention to be paid to generating the confidence of consumers, in particular by ensuring easy access to practical, effective and inexpensive means of redress, including access by electronic means’.15 It further stresses that: New technology can contribute to the development of electronic dispute settlement systems, providing a mechanism to effectively settle disputes across different jurisdictions without the need for face-to-face contact, and therefore should be encouraged through principles ensuring consistent and reliable standards to give all users confidence.16

According to the Recommendation, online mediation/conciliation is welcomed by the Commission, given that it satisfies the four principles provided by the Recommendation, which are impartiality, transparency, effectiveness, and fairness. Impartiality is the basic guarantee to ensure that all parties have confidence in the fairness of online mediation. This principle has later been confirmed by the European Code of Conduct for Mediators.17 The problem is that the online mediation institute is usually unilaterally selected by the business, and probably paid for by the business. In order to ensure their future incomes, online mediation suppliers might lean towards favouring the business. Even if the online mediation supplier does work impartially, the consumer might still exercise some scepticism. Fortunately, this potential partiality does not fundamentally affect the use of mediation in consumer disputes, because the mediators only work to help the parties to reach agreement depending on their own will, without imposing or proposing any solution. Transparency means that information about the contact details, functioning and availability of the mediation procedure should be available to both parties in 12 Dir 2008/52/EC of 21 May 2008 on certain aspects of mediation in civil and commercial matters, [2008] OJ L 136/3, Art 3(a). 13 Mediation Directive, recital 9. 14 Mediation Directive, recital 18. Commission Recommendation of 4 Apr 2001 on the principles for out-of-court bodies involved in the consensual resolution of consumer disputes, [2001] OJ L109/56. 15 Recommendation of 2001, recital 2. 16 Recommendation of 2001, recital 6. 17 Para 2: independence and impartiality.

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simple terms.18 The proper disclosure of relevant information is necessary to improve consumers’ confidence. The consumer needs to understand how the procedure is unfolding in order to decide whether to have such a mediator act in his dispute. Furthermore, any agreed solution should be recorded on a durable medium which is available to both parties.19 The phrase ‘a durable medium’ implies that it could be retained as an electronic data message, providing necessary techniques are used to keep it durable. This requirement is helpful to avoid uncertainty or misunderstanding.20 Effectiveness requires the procedure be easily accessible and available to both parties wherever they are situated. The most efficient way to provide effectiveness might be carrying out the procedure by electronic means.21 However, in the case of online mediation, effectiveness should also require that the basic techniques needed to support the use of the mechanism are not too demanding. For example, the parties are not required to use new software. The technique required should be basic to every internet user so that no party will encounter any difficulty in using the online mediation mechanism. Furthermore, it requires that the procedure be either free of charge to consumers, or that any necessary costs be proportionate to the amount of dispute and therefore moderate.22 Fairness primarily aims to protect the consumer as the weaker party. It allows the parties to resort to judicial procedures or other dispute resolution systems before, during, or after the mediation procedure. The flexible interrelation between mediation and judicial procedure would further encourage consumers to take part in the out-of-court dispute resolution system, without worrying that their rights might be eroded in any way. Consumers will also be informed as to their basic rights in clear and understandable language before agreeing to any suggested solution.23 It seems that these four principles could be equally applied to e-commerce, which would guarantee the quality of the online mediation procedure, and encourage the contractual parties to access justice in a more effective way. Online mediation is simply the online form of traditional mediation.24 The fact that the parties communicate by electronic means does not vary the nature of this traditional dispute resolution mechanism, or diminish the consumer’s confidence. Although there are no accurate statistics on the caseload of online mediation, research on Square Trade shows that online mediation does in fact work successfully to resolve disputes in e-consumer contracts. One report about SquareTrade provides that SquareTrade has handled over 800,000 disputes since February 2000 18

Recommendation of 2001, n 14, Art II B.2. ibid, Art II.B.4. 20 ibid, recital 11. 21 ibid, Art II.C.2. 22 ibid, Art II.C.3. 23 ibid, Art II.D.2. 24 Schultz, T, ‘Online dispute resolution: an overview and selected issues’ Geneva, 6–7 Jun 2002 para 2.3. www.online-adr.org/SCHULTZ_ODR_UNECE_DRAFT_site.pdf, accessed on 4 May 2008. 19

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to 2003, with over 80 success rates in online mediation and 98 per cent followthrough after agreement.25

B. Online Arbitration The online arbitration procedure is similar to traditional arbitration arrangements. Thus, the problems that affect the application of online arbitration in consumer contracts are almost the same as those affecting traditional arbitration. Although the European Commission published its recommendations on arbitration in 1998,26 the principles therein, namely independence, transparency, adversary, effectiveness, legality, liberty and representation have not been found to be sufficient enough to improve consumers’ confidence. Compared with mediation, arbitration is a strong device. Arbitration is closer to a quasi-judicial procedure than to other forms of ADR as arbitrators’ awards replace judicial decisions.27 This procedure could be abused by the business, which can unilaterally insert an arbitration clause into a contract, and unilaterally choose which arbitrators to use. In the US, an arbitration clause will be enforceable if it is valid and not contrary to the public policy of the forum or the public policy of the applicable law.28 The validity issue will be decided by the choice of law rules in the forum. Some States invalidate an arbitration clause if it prevents the consumer from exercising the right to enter into class actions.29 Arbitration agreements could also be rendered unenforceable under the general contract principle, where the protection could lie. For example, in Brower v Gateway,30 an arbitration clause in a consumer contract was held substantively invalid because it required arbitration to take place in Chicago, which would result in excessive costs, and under the rules of the International Chamber of Commerce, which was uncommon for consumer matters. In Trujillo v Apple Computer, the District Court refused to enforce an arbitration agreement in a contract between a mobile phone purchaser and the phone seller by holding the procedure to conclude the agreement was unconscionable because the buyer could not access the agreement before concluding the contract, 25 S Abernethy, ‘Building Large-Scale Online Dispute Resolution and Trustmark Systems’, in E Katsh and D Choi (ed) Online Dispute Resolution (ODR): Technology as the ‘Fourth Party’ Papers and Proceedings of the 2003 United Nations Forum on ODR (Palais des Nations, Geneva, June 30–July 1, 2003), www.odr.info/unece2003>, accessed on 25 Aug 2008. The 80% success rate in mediation is also claimed in T Schultz, ‘Connecting complaint filing processes to online resolution systems’ (2003) 10 Commercial Law Practitioner 307, 313. 26 Commission Recommendation on the principles, 1998. 27 Green Paper on alternative dispute resolution in civil and commercial law, COM(2002) 196 final. 28 Federal Arbitration Act (9 USC S 2, 2000), s 2. eg Case Handyman an Remodeling Services v Schuele 959 A2d 833 (Md App 2008). 29 Oestreicher v Alienware 502 FSupp2d 1061 (NDCal 2007); Kaltwasser v Cingular Wireless LLC 543 FSupp2d 1124 (NDCal 2008); Cf Carideo v Dell 520 FSupp2d 1241 (WDWash 2007); Discover Bank v Superior Court 134 Cal App 4th 886 (Cal App 2005). As to how the choice of law rules could invalidate such an arbitration clause, see Ch 10, s III. 30 Brower v Gateway 246 AD2d 246 (NYAD 1998).

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and the relative bargaining power of the parties was taken into account.31 However, the standard used to test the validity differs between different courts. In Hill v Gateway,32 for example, an arbitration clause was held binding on the consumer who bought a computer from the manufacturer. The clause was made available to the consumer after concluding the contract, but the consumer did not return the goods or cancel the contract. In a large amount of cases, where consumers equally sign without reading, the court held the arbitration clause valid and enforceable.33 Comparatively, stronger and more effective protection is provided in Europe, where the use of arbitration in consumer contracts is widely restricted,34 mainly by the Unfair Terms Directive,35 which requires Member States to invalidate any unfair term, ‘which has not been individually negotiated’, ‘contrary to the requirements of good faith’ and ‘causes a significant imbalance in the parties’ rights and obligations . . . to the detriment of consumer’.36 Annex 1 further provides examples of unfair terms, one of which is the terms that ‘excluding or hindering 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’.37 (emphasis added) However, it is unclear whether all compulsory arbitration agreements must be held as unfair in consumer contracts. Annex 1 is only an indicative list for terms that ‘may’ be regarded as unfair.38 What if a business inserts the compulsory arbitration agreement with ‘good faith’?39 According to the definition of unfair terms in Article 3(1), such an agreement, though not being individually negotiated and causing imbalance in the parties right to access to justice, would still be ‘fair’. However, the Commission Recommendation of 1998 stresses that ‘out-of-court alternatives may not deprive consumers of their right to bring the matter before the courts, unless they expressly agree to do so in full awareness of the facts and only after the dispute has materialised.’40 It seems that once an alternative dispute resolution agreement deprives consumers of the right to resort to the court, it 31 Trujillo v Apple Computer 578 F Supp 2d 979, 992–994 (NDIll 2008). See McKee v At &T 164 Wash 2d 372 (Wash 2008); Specht v Netscape Communications Corp 306 F 3d 17 (2d Cir 2002). 32 Hill v Gateway 105 F 3d 1147 (CA7(Ill) 1997). 33 eg Grimm v First National Bank of Pennsylvania 578 F Supp 2d 785 (WDPa 2008); Olle v 5401 Western Ave Residential 569 F Supp 2d 41 (DDC 2008); US ex rel Wilson v Kellogg Brown 525 F3d 370 (CA4(Va) 2008); Falbe v Dell WL 1588243 (NDIll 2004); MA Mortenson v Timberline Software 140 Wash 2d 568 (Wash 2000); Morternson v Timberline Software 83 Wash App 819 (Wash App Div 1999). For more on the US approach, see J Hill, Cross Border Consumer Contracts (Oxford, OUP, 2008), 208–11. 34 MS Martin, ‘Keep it online: the Hague Convention and the need for online alternative dispute resolution in international business-to-consumer e-commerce’ (2002) 20 Boston University International Law Journal 125, 155. 35 Unfair Terms Directive 93/13/EEC. 36 Art 3(1). 37 Annex 1(q). 38 Art 3(3). 39 Art 3(1). 40 Commission Recommendation 1998 (n 2) 33

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would be unfair unless it is expressly agreed by consumers. Using compulsory arbitration agreements in consumer contracts is not a common practice and such agreements cannot be treated as exclusive jurisdiction agreements, the latter of which does not completely deprive consumers of the right to sue. All businesses by inserting compulsory arbitration agreements into contracts should be presumed to be acting ‘contrary to the requirements of good faith’.41 Although compulsory arbitration agreements are prohibited in Europe, other ‘soft’ forms of arbitration might be permitted. Reading the Commission Recommendation together with the Unfair Terms Directive, it is concluded that in consumer contracts arbitration is permitted only when (1) it is individually negotiated, or (2) it does not affect consumers’ right to resort to court.42 Businesses could insert a non-compulsory arbitration agreement into the contract where the consumer could choose either to use arbitration or to go to the court. The agreement can also choose a ‘non-binding’ arbitration service, which is provided by most online arbitration providers. However, the non-binding feature makes the nature of this type of dispute resolution mechanism obscure.43 Traditional arbitration is characterised by its binding feature, which makes it a quasi-judicial procedure, and more effective than other types of out-of-court dispute resolution mechanisms. Nonetheless, even with the non-binding procedure, statistics shows that online arbitration works unsuccessfully.44 The non-binding arbitration award will face the problem of enforcement. Contractual parties may be more willing to enforce the agreement reached by themselves, instead of solutions made by the third-party. Compared with totally non-binding arbitration, partial non-binding arbitration would work more successfully. The advantage of arbitration, compared to mediation, is that arbitration awards can be enforced and binding, which may reduce the prospects of court proceedings. However, in order to protect consumers as the weaker party, it is agreed that an arbitration award usually should not bind consumers. It is thus suggested that online arbitration in consumer contracts could be partially binding, which means it binds businesses only, while consumers could be free to pursue other actions, including judicial proceedings.

C. Chargeback Chargeback can be regarded as a specific dispute resolution procedure with the intervention of financial organisations. This method has been widely and successfully used in the United States, under the Fair Credit Billing Act.45 When the 41

Hill,(n 33) 211–16. Hill (n 33) 216. 43 Schultz, ‘Online dispute resolution’ (n 24) para 2.4. 44 eg, ‘Square Trade’ has cooperated with eBay to provide online ADR services, but despite the successful online mediation services, the online arbitration service has never been used by eBay users in electronic business-to-consumer transactions. 45 Fair Credit Billing Act 15 USC, s 1666 (1994). 42

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cardholder claims non-acceptance or non-delivery of the products according to his transaction agreement, the corresponding card issuer has to investigate the issue and can only allow the charge if it is proven that ‘goods were actually delivered, mailed or otherwise sent to the obligor.’46 It provides the consumer with leverage over the business and equalizes the unequal bargaining power. The consumer need not search for a lawyer or a third-party dispute resolution forum, but need just write to his credit card issuer, and there is no dispute resolution fee involved.47 This procedure can also protect the business in its receipt of the payment, for if the delivery is proved, the credit card issuer will allow the charge. Paying by credit card is considered safer than paying in other ways, such as personal cheques.48 Since this specific dispute resolution mechanism satisfies both the consumer and the business, it would increase customer confidence in the credit card issuer and encourage more customers for the issuer.49 This method is very efficient and practical for small value transactions, and is regarded as a ‘winwin-win’ approach.50 The chargeback mechanism has all the speed, convenience and low-cost of online arbitration or mediation, but it can also guarantee the efficient enforcement at the first place. Chargeback has been proved a successful dispute resolution mechanism for small value transactions between the business and the consumer, and it has also been widely adopted in Europe, though it is not mandatory.51 Despite all these advantages this mechanism can provide, there is also strong opposition to it in Canada. They are concerned that the proceeding costs will be too high for the credit card issuer, especially since it is assumed that in e-commerce the number of relevant disputes will increase significantly.52 It is also said that financial companies are not always in a good position to determine whether the goods have been delivered or whether the services have been provided. Extra costs and burden will be caused if the chargeback procedure leads to a boom in the number of disputes. Furthermore, the dispute resolution by financial companies is limited to some extent by the card agreement between the card issuer and the card holder. Financial companies will only be competent to deal with disputes with comparatively simple facts. Chargeback is more likely in cases of fraud or billing disputes, and some card companies are reluctant to offer chargeback in case of dispute about misrepresentation or non-conformance of goods.53 In this sense, 46

ibid, s 1666(a). Perritt, Dispute Resolution, 691. 48 Perritt (n 10) 692; Crawford, A Proposal, 393. 49 Crawford (n 6) 393. 50 Crawford (n 6) 394. 51 See OECD, ‘Consumer Redress in the Global Marketplace: Chargebacks’ (Report From the Roundtable on Consumer Redress in the Global Marketplace, Held in London, 10 Jun 1996) www.oecd.org/LongAbstract/0,3425,en_2649_34267_2385248_1_1_1_1,00.html, accessed on 4 May 2008. In Europe, the debit card is more widely used in electronic consumer transactions; most card issuers apply the chargeback services for both debit and credit card holders. 52 See also Perritt (n 10) 692. 53 OECD, Consumer Redress, 5. 47

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notwithstanding the successful experience of the chargeback procedure in the past in the USA and Europe, it is questionable how far this mechanism could go in the future highly developed e-commerce world.

D. The Criteria and Suggestions for a Successful Online ADR Mechanism Adopting ODR in electronic consumer contracts would provide specific advantages over the traditional litigation procedure. It can avoid difficult problems regarding the competent forum; it can avoid the oppressive difficulties of travelling for cross-border litigation; it is much easier to access; and it is faster and cheaper, which is desirable for both parties.54 However, there are concerns as to whether these non-court institutes are competent enough to resolve the dispute, whether the decision is fair for the consumer, whether the solution is effective in the sense that it can be enforced, and whether there are other limitations on ADR such as the scope of the subject matter. Since there are different characteristics with different ADR, it is hard to give a specific rule which is suitable for all the ADR. However, general criteria can be provided for the more effective and widelyaccepted ADR in e-commerce.55 Firstly, an ADR system should be very flexible. It should be optional, based on agreement and capable of being initiated at any time by the parties or withdrawn at any time by the consumer. There should be no requirement for the ADR system to be accessed only after a consumer has sought redress through a business’s internal complaint/communication mechanism. An ADR mechanism should not affect the consumer’s right to seek remedies through other dispute resolution system. For example, there should not be a requirement preventing the consumer from submiting a claim to an ADR system prior to seeking remedies in court,56 or a requirement restricting the consumer’s right to pursue court proceedings after initiating an ADR procedure.57 Secondly, the ADR provider should be impartial, independent and reputable. In order to make sure that the e-business is choosing an impartial and competent ADR provider, a site certification process can be adopted, which is the process whereby a website is labelled with a logo or ‘trustmark’ which constitutes a seal of approval signifying a website’s compliance with business practice standards, privacy protection and a guarantee of a fair and effective mechanism for resolving

54 OECD, ‘OECD Conference to Examine Alternative Dispute Resolution Mechanisms for Online Commerce’ (the Hague, 11–12 Dec 2000); United Kingdom Department of Trade and Industry, ‘European Commission Proposals for Changes to Article 13 of the 1968 Brussels Convention’. 55 For some more detailed suggested principles on out-of-court dispute settlement, see the Commission Recommendation 1998 (n 2). 56 The consumer might have the right to choose which process to initiate. 57 It means even if the consumer has initiated the arbitration process, he still should have the right to seek remedies in court, though he can only do so after the arbitration process has completed.

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disputes.58 A typical example is the service provided by TRUSTe,59 which is a website certification provider. Companies can register with TRUSTe and receive a label on their website guaranteeing to comply with the TRUSTe requirements. However, since the policy and standard of site certification providers vary widely, further regulation and unification of the site certification standards has to be provided.60 Thirdly, the cost of the ADR procedure must be reasonable. It is suggested that the ADR mechanism should be free, or of very low cost, to the consumer. The e-business obtaining ‘site certification’ would pre-pay the annual fee for dispute resolution by the ADR provider. This annual fee could be increased or reduced each year according to the number and nature of the disputes arising in the previous year. This proposed approach could benefit not only the consumer, but also the business. It would promote consumer trust in businesses with the ‘trustmark’ and increase the business’s commercial profits accordingly; it would be a regulation of the e-business, determining the annual fees according to the number of disputes between this business and its consumer, which will encourage the business to improve its services; it will also reduce the total cost of dispute resolution by requiring the business to pay in advance and create a variable charge according to previous records. Fourthly, the ADR mechanism should be effective. As for accessibility, the parties should be able to access it anywhere and at anytime. There should be no requirement for legal representatives, so that the parties can be free to decide whether they need to be represented or assisted by third parties. As to the timing of the decision, there should be only short and reasonable periods between the referral of a matter and the decision. The ADR provider should provide the estimated time of decision making in advance. Fifthly, since the chargeback procedure is an effective and successful innovative ADR by financial companies, the usage of it could be extended in e-commerce. However, due to the weaknesses described above, the scope of chargeback is limited. It is suggested that financial companies and other ADR institutions can cooperate to provide a more effective dispute resolution. Financial companies would only provide chargeback with the recommendation of other ADR institutions, which would take into consideration the facts of the dispute. This approach would reduce the cost and burden to financial companies, and provide more efficiency to the online ADR system.

58

Martin, Keep it online, 149. TRUSTe helps consumers identify trustworthy online businesses primarily through its Web Privacy Seal. For more on the company, see www.truste.org. For other companies providing this service, see BBBOnLine, Inc, www.bbonline.org. 60 For further discussion and proposals for site certification schemes, see Martin (n 34) 148–50; Hague Conference on Private International Law, Geneva Round Table on Electronic Commerce and Private International Law (25 Oct 2000). 59

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IV. Online Litigation—Simplified Procedure For Small Value Claims No matter how well the ODR scheme works, it cannot completely replace judicial procedures.61 In order to increase convenience and efficiency, it is suggested that not only could ADR be built online, so could the court procedure. Presently, although the use of electronic technology in the courtroom has been adopted in some nations, real online-litigation either does not exist, or exists in pilot format only.62 For example, the Austria Redesign Project is attempting to adopt e-technology into judicial proceedings. In 2002, 85 per cent of civil cases and 60 per cent of civil enforcement actions went through the electronic filling process. In England and Wales, civil proceedings can be issued electronically if under the jurisdiction of the County Court Bulk Centre or Moneyclaim Online.63 The Federal Court of Australia adopted not only the ‘eFilling’ programme, enabling litigants or legal representatives to lodge applications and other court documents electronically and pay any filling fees by credit card online, but also provides an ‘eCourt Forum’ which is a virtual courtroom assisting in the management of pre-trial matters by allowing directions and other orders to be made online.64 The e-court project has also been adopted in some States in the USA, which enables many traditional court activities to be carried out by electronic techniques.65 However, all these so called e-courts actually are adopting electronic technology in one or more part of the court proceedings, in order to simplify the court’s activities. These ‘e-courts’ may enable citizens to search and download courts’ documents, the parties to lodge or submit necessary litigation documents online, the judges to send their decisions online, but they will not enable the whole litigation proceedings to be carried through fully on the internet. The e-court which is considered in this section is a court which enables the litigation proceedings to be carried out online completely, without the requirement of face-to-face procedures between the parties and the courts, and without the necessary physical presence of the parties and their legal representatives. The following section will discuss the feasibility and difficulty of establishing an electronic court. 61 EURIM Network Governance Working Party, ‘Response to DTI Consultation Paper: European Commission Proposals for Changes to Article 13 of the 1968 Brussels Convention’, 3 www.eurim.org. uk/activities/netgov/005consresp_dti.pdf, accessed on 4 May 2008. 62 See generally, I Giuffrida, ‘Legal, Practical and Ethical Implications of the Use of Technology in European Courtrooms’ (2004) 12 William and Mary Bill of Rights Journal 745. 63 www.moneyclaim.gov.uk/csmco2.indx.jsp, accessed on 17 May 2004. 64 www.fedcourt.gov.au/ecourt/ecourt_slide.html, accessed on 4 May 2008. 65 eg, the New York State Unified Court System has completed a 3 year project overhauling and modernising the technology in the courthouse and courtroom in 1999. The Oregon Supreme Court offers eFilling and ePayment and is developing e-content management in the Oregon Supreme Court eCourt. Michigan had planned to establish a full virtual court in 2003, but this plan was never implemented due to a government budget problem. For more information, see www.michigancybercourt. net, accessed on 16 Apr 2004.

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A. Possibility and Advantages At first glance, the idea of building e-courts sounds like an illusion. However, after further analysis, it seems not totally unrealistic. Firstly, there exists simplified procedures for small claims in many jurisdictions including the UK. Generally, for these simplified procedures, the introduction of the claim is facilitated through a specific form; the rules concerning the taking of evidence are relaxed; the possibility of a purely written procedure exists; and the possibility of appeal is excluded or restricted.66 These existing simplified procedures are examples for the possibility of even more simplified electronic procedures. In 2007, a European Small Claim Procedure Regulation was adopted by the Parliament and the Council,67 which enters into force from 1 January 2009.68 It applies to civil and commercial matters where the value of a claim does not exceed EUR 2000.69 The claim form can be filled by post or by any other means of communication, including fax or email.70 The procedure shall be a written procedure,71 which can be easily converted to the internet environment. An oral hearing will be held only when it is necessary or if a party so requests,72 and the oral hearing can be held through video conference or other communication technology if the technical means are available.73 The evidence can be taken through written statements, which, in no doubt, can be submitted through electronic communications or through video conference or other communication technology if the technical means are available.74 Since all these simplified procedures can be performed online, it is possible to establish an e-court with a complete electronic procedure. Secondly, with the development and wide adoption of the internet, many jurisdictions have updated their civil procedure legislation to induce procedures involving use of internet. E-filling has been adopted in practice by the courts in many states of the USA, Australia, etc. Even a virtual courtroom is not completely impossible.75 With the development of electronic technology, it is possible to go one or more steps further to take the whole procedure online. In 2001, the European Commission funded an eCourt project in order to incorporate technology into the judicial system.76 Although the project only studied the criminal court, there is no reason why electronic technology could not be used in civil courts to computerise court proceedings. Thirdly, in electronic consumer contracts, especially contracts for the transaction of digital products or the provision of online services, the important evidence and the 66 67 68 69 70 71 72 73 74 75 76

Green Paper on a European order for Payment Procedure (n 3). Small Claim Regulation (n 3). Art 29. Art 2(1). Art 4(1). Art 5(1). Art 5(1). Art 8. Art 9(1) and Recital 20. Michigan virtual court plan document (n 65).. laplace.intrasoft-intl.com/e-court/src/homePage.htm, accessed on 07 Jun 2004.

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subject matter are all in the form of electronic digital data messages, stored in the computers of the business or/and the consumer, or in the hardware of the third party.77 It is easy and practical to require all the evidence to be submitted online to the trial court. Fourthly, even if it is required for the parties to have a ‘debate’, this can be held on online chat programme, either by audio or by typing. With the development of electronic information technology, the net-meeting programme and instantaneous chat programme make this virtual court possible. Fifthly, as for witnesses, providing that they can access the internet, there is no reason why they cannot be called online and access the court online. The establishment of an e-court will provide at least six advantages. Firstly, compared with litigation in conventional courts, the cost to access the e-court will be lower; it will be easier to access and more convenient to both parties. Especially in cross-border litigation, no matter where the trial court is, the parties could enter into litigation without travelling. Secondly, the procedure of the e-court will be more speedy and efficient than traditional courts. The submission of documents online could be done in seconds, and the data could be easily stored and accessed in a desirable way. It is also easier to refer to or search the necessary part of the document by using a search programme.78 Thirdly, to submit the dispute to the e-court, instead of other ADR organisations, will help to improve the consumer’s confidence. Due to the shortage of clear and consistent guidance for its service and procedure, there are concerns over the quality of ADR services. No such concern would arise for e-courts, which simply transforms the procedure of traditional courts online with no less authority. It seems that the establishment of e-courts is feasible, at least in the near future. Presently, even if full e-courts cannot be built, partial e-courts or specific e-courts can be built to deal with the dispute arising online.

B. The Difficulties of, and Suggestions for, Establishing E-courts i. Necessary Technical Requirement—Security and Confidentiality To establish e-courts is possible but not easy. Unlike other Online Dispute Resolution (ODR), online litigation has much higher requirements of security and confidentiality. Firstly, without the presence of the parties, there should be a reliable identification system to clarify the genuine identification of the parties. Secondly, since it requires the genuine information of the parties being provided, there should be corresponding technology to protect the confidentiality of the data. Thirdly, in online litigation, all the documents and evidence are submitted by electronic data message. There should be a reliable and confidential channel other than ordinary email for the submission. Fourthly, there should be technology to 77 Such as the business’s server or some e-company specially providing the storage service for the records of online transactions. 78 Such as the ‘find’ function provided by Acrobat Adobe, which permits the user to localise the key words easily.

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recognise the origin and authenticity of electronic data messages. In order to establish an e-court, at least six technology supporting systems are required: the e-filling system, the document management system, the case management system, the evidence and media presentation system, the digital recording system, and the e-payment system.

ii. The Possibilities of Increasing E-actions The second concern is that if online litigation is available, the number of actions in electronic consumer contracts might substantially increase. Currently, the high litigation expenses and the comparatively low claim value greatly discourage the e-parties from taking proceedings. However, once an e-court is available, the convenience and low-cost will act as a double-edged sword. It will improve the parties’ confidence to participate e-commerce but it will also provide a heavy burden to the court.

iii. Scope of Litigation The functioning of an e-court will also be limited by the nature of the disputes. It is only available for disputes where all the evidence is in the form of data messages. If the transaction is performed offline, such as the delivery of tangible goods, or the provision of offline services, total online litigation is hard to carry out. If the facts of the case are complex and require the presence of witnesses, carrying out the online litigation is not very likely, unless the witnesses can be present online, and the identity of the witnesses can be ensured, which requires higher standards of technology and might increase the cost of the e-court. Although the ideal e-court in the future might be so developed that it can be the alternative of the traditional court, and can hold the full court procedure online for any disputes, presently the possible e-court is only appropriate for disputes arising out of e-commerce where the decisions can be based totally on electronic documents.

iv. Cost Although the cost of online litigation should be lower than traditional litigation, especially for parties who are required to litigate abroad, the cost of an e-court will not be very low. Compared with the traditional court, an e-court has to employ more highly qualified technicians to ensure its functioning; it has to spend extra money on the establishment of a strong and efficient network; it might need more website designers and programme designers to supplement its performance. These costs will not only be a burden to the government’s budget but also will be added to the litigation charge.79 79 According to the Michigan Cybercourt Plan Document 2002 (fn 65) the total one-off start-up cost for an e-court is approximately $2,030,000, the total annual on-going operating cost is approximately $1,033,000.

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v. Social Psychology The fifth difficulty is the psychological difficulty of public and society. Actions carried out online usually will give the public an impression of rashness and lack of caution. Some citizens still hold concerns over the reliability of online transactions and online financing, though the suspicion has decreased gradually with the development of e-commerce and the improvement of security technology. It is assumed that the public trust rate on an e-court might also be low.

C. How to Build an E-Court E-courts can be built on three models. Firstly, it can be build on the basis of a traditional court, which requires the traditional court to establish an e-court website and to set up a branch to deal with online litigation. The advantage of this approach is that the authority of the e-court would unlikely be questioned because it is simply part of the traditional court. However, in this case, there will be a lot of e-courts in one single state. It is questionable whether this is necessary and economic.80 The e-court can also be built separately from the traditional court. A country can establish a new independent e-court to deal specifically with small value disputes arising in e-commerce. The judges in the e-court would be specially qualified in both law and technology, and the e-court would have its own server to deal with the online litigation. In this case, one e-court in each jurisdiction would be enough for online litigation. However, this approach will break the traditional jurisdiction system by inserting a newly-built court. It is also said that this kind of e-court will be harder to be accepted psychologically by the society. If such a a total new court was established, there might be further difficulties concerning the recognition and enforcement of the decision in a foreign country. The third approach is to establish an international e-court as the one stop resolution to deal with e-commerce disputes. This e-court can be built on the basis of one of the existing international organisations, such as OECD, United Nation, Hague Conference in Private International Law, etc. Otherwise, the international e-court can also be established separately as an independent institution from other existing organisations. This approach will help to avoid the difficult problem of determining jurisdiction. However, the authority of the international e-court is of concern. The establishment of an international e-court needs the support of many individual states. It is estimated that total consensus on the procedure and structure of e-court will be hard to reach, and even if an international e-court is built, the scope of its services will be limited.

80 In practice, most jurisdictions adopt this approach to building an e-court based on one traditional court. See the practice in the New York Supreme Court, the Michigan Supreme Court, the Federal Court of Australia, and the Supreme courts in some individual states in Australia.

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V. Conclusion Although the book primarily focuses on private international law issues, it is necessary to examine the alternative dispute resolution methods with the purpose of building a proper system for consumer redress in e-commerce. The special characteristic of consumer disputes requires a well-established dispute resolution system with multiple choices. The ordinary procedure to resolve disputes in consumer contracts is that: first of all, the consumer will always try to resolve the dispute through the internal channel of a company. A large number of disputes usually can be resolved at this stage. If the self-help communication does not work, the consumer would have recourse to the third party. Rarely, a dispute could go directly to the court. As a result, a proper dispute resolution system should have a balanced development of different dispute resolution mechanisms. It is unreasonable to pay all the attention to the judicial redress and to ignore the importance of out-of-court resolution, which in practice has played a more important role than litigation in contract-related consumer disputes. With the development of e-commerce, many traditional dispute resolution mechanisms can be conducted online, and there are e-commerce specialised variations, such as the site-certificate system, which embodies different ADR into its code of practice. These ODR, in fact, have not brought substantive challenges in law, though it may bring some technical or security difficulties in practice. Court litigation is not the only, or the best, method to resolve a dispute, but it should always be available to provide the last redress. This chapter considers the possibility of conducting traditional judicial litigation online. This idea sounds radical and unreal, but it is not completely without foundation. As with most ODR, which simply generates technical and psychological difficulties by conducting traditional ADR online, the challenges an e-court may generate could also be superficial instead of substantial. Online litigation could be a step forward in protecting consumers in e-contracts and reducing costs of dispute resolution.

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8 Protective Choice of Law in E-Consumer Contracts in the Current European Choice of Law Regime I. Introduction Unlike jurisdiction rules, the gaps between modern civil law and common law on choice of law in ordinary contracts are not wide. Generally, the basic choice of law principles are as follows: (1) the primary and basic principle of choice of law in contract is party autonomy, which means that parties have the freedom to choose the law governing their contracts. This basic principle can be found in the legislation and case law of most states,1 as well as many international and regional treaties;2 (2) The backup principle for contracts in the absence of parties’ choice is the principle to apply the system of law with which the contract is most closely connected;3 (3) The general escape principle applies the mandatory rules and public policy of the relevant states to limit or restrict the dominance of the applicable law directed by all the above principles in order to protective the fundamental order of the forum or international society.4 However, it has been questioned whether these principles can work appropriately in consumer contracts,5 and some legislators have started to sort out distinct choice of law principles for

1 Most European States adopted this principle before the enactment of the Rome Convention 1980. See M Giuliano and P Lagarde, Report on the Convention on the law applicable to contractual obligations [1980] OJ C282/1, 15–16. The English common law has recognised this principle since at least 1796, Gienar v Mieyer (1796) 2 Hy Bl 603. For countries outside Europe, see eg American Law Institute, Restatement 2nd of Conflict of Laws (St Paul, American Law Institute, 1971) s 187 and cases therein; General Principle of the Civil Law of the People’s Republic of China 1987, Art 145; Japan Law on the Applicable of Laws (1898), Art 7(1), and Japanese Private International Law 1990, Art 7. 2 eg, Rome Convention, Art 3(1); Hague Sale of Goods Convention of 1955, Art 2; Hague Sale of Goods Convention of 1986, Art 7. 3 Rome Convention, Art 4; American Law Institute, Restatement, s 188; Guiliano-Lagarde Report, 20. 4 Rome Convention, Arts 3(3), 5(2), 6(1), 7(1), 7(2), 9(6) and 16; for public policy in English case law, see Foster v Driscoll [1929] 1 KB 470; Lemenda Ltd v African Middle East Co [1988] QB 448. In Europe, there are many harmonised mandatory rules on consumer protection, such as Distance Selling Directive 97/7/EC, Unfair Contract Terms Directive 93/13/EEC. Mandatory rules are also recognised in Canada eg Bank of Montereal v Snoxell (1982) 143 ELR (3d) 349 and USA, see Ch 10 below. 5 See Ch 1, s IV above.

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consumer contracts in order to resolve disputes in consumer contracts in an effective and fair way. This purpose has been indicated in the Rome Convention, which is a typical, and by far the most influential, choice of law treaty with specific choice of law rules for consumer contracts.6 The Rome Convention adopts the protective principle to protect the weaker party in contracts involving unequal bargaining power. Compared with the above three principles, the protective principle is not adopted by a great number of countries, and can only be found in those which are quicker to respond to the weaker party protection in private international law. This Chapter aims to study the protective choice of law rules in the Rome Convention and in particular aims to examine their application in e-commerce. Although the Rome I Regulation is going to enter into force from 17 December 2009 in most Member States, the Rome Convention continues to apply to contracts concluded before that date. It is expected that the rules of the Rome Convention will continue to have importance in practice for some time before it is completedly replaced by the Rome I Regulation.

II. Protective Default Law The Rome Convention provides that in the absence of parties’ choice, the default applicable law will be the law of the country where consumers have their habitual residence. The default law is clearly protective in nature and aims to protect consumers as the weaker party. A similar approach has been accepted in some other jurisdictions in their legislative acts to provide a distinct choice of law for consumer contracts.7 It is widely believed to be the law that could most reasonably and effectively protect consumers in international contracts. Firstly, the law is the one with which a consumer is most familiar. Usually, an ordinary individual will be more familiar with the law of his own country than that of any other countries. An opposite opinion is that a consumer rarely pays attention to the substantive law either of his own country or of a foreign country,8 so that applying any law other than that of the consumer’s habitual residence cannot deprive the consumer of the claimed familiarity. The answer to the objection is that a consumer may not know every rule of the substantive law in his habitual residence, but compared with the foreign law, of which the consumer has absolutely no idea, the rule of his habitual residence will provide him with some degree of familiarity. It is also easier and more convenient for a consumer to acquire legal advice on the law of his habitual residence than a foreign law after the dispute has arisen.

6

Art 5 of the Rome Convention. eg s 1-301(e)(2)(A) of the UCC (US); Civil Code of Quebec, Art 3117. 8 EA O’Hara, ‘Choice of Law for Internet Transactions: the Uneasy Case for Online Consumer Protection’ (2005) 153 University of Pennsylvania Law Review 1883, 1938. 7

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The second reason is that applying the law of a consumer’s habitual residence is the best way to protect the consumer’s reasonable expectation.9 A consumer does not need to be familiar with the content of the law of his country, but only to expect this law to be applicable.10 There is an argument indicating that a consumer would expect the law of the other country to apply when the consumer has some basic knowledge of the different substantive laws, and knows that the law of his habitual residence generally provides the lower standard of protection. The answer to this argument is that the legislation is to create a general rule for the most usual situation. In most cases, it is only the expectation of ordinary consumers which counts. A particular consumer’s expectation in a specific case is exceptional and is not considered in the legislation. Since the general psychology of a consumer is to have the law of his habitual residence to protect him, regardless of the substantive content of the applicable law, this approach could be justified. The third reason is that applying the law of a consumer’s habitual residence will encourage the consumer to take part in international commerce, for it provides the consumer with no less protection than he can get in purely domestic transactions.11 Especially in e-commerce, where a consumer can hardly anticipate the potential applicable law of another country, systematically providing the consumer the same protection he can acquire in domestic commerce could reasonable increase the consumer’s confidence and encourage him to engage in e-commerce. However, there is also a theory arguing that the consumer-protective default law should be the law that could substantively provide the highest standard of protection to a consumer.12 It says that to apply the law of a consumer’s habitual residence would make an e-company very reluctant to engage in commercial activities with a consumer who habitually resides in the country with the high standard of protection. This approach will result in another type of ‘race to the bottom’, where an e-company will try to limit the scope of commerce and provide its products or services to consumers who are habitually resident in a country with the low standard of protection. It is thus suggested that since an international consumer contract inevitably has connections with more than one country, the law of the country that could provide the highest standard of protection to consumers shall apply. It could be justified, as the approach could provide real and substantial 9 eg Uniform Law Conference of Canada, ‘The Determination of Jurisdiction in Cross-Border Business-To-Consumer Transactions: A Consultation Paper’ (Report to the ULCC and CMC Joint Working Group, Aug 18–22, 2002) strategis.ic.gc.ca/epic/internet/inoca-bc.nsf/vwapj/ca01862e.pdf/ $FILE/ca01862e.pdf 9, accessed on 06 May 2006. 10 Max Planck Institute for Foreign Private and Private International Law, ‘Comments on the European Commission’s Green Paper on the Conversion of the Rome Convention of 1980 on the Law Applicable to Contractual Obligations into a Community Instrument and its Modernisation’ (Max Planck Response) 55. 11 Uniform Law Conference of Canada, ‘Uniform Jurisdiction and Choice of Law Rules For Consumer Contracts’ www.ulcc.ca/en/us/Unif_Jur_Choice_Law_Consumer_Contracts_En.pdf 57, accessed on 11 Jun 2008. 12 P Nygh, Autonomy in International Contracts (Oxford, OUP, 1999) 159; A Giardina, ‘The Impact of the EEC Convention on the Italian System of Conflict of Laws’ in P North (ed), Contract Conflicts (Oxford, North-Holland Publishing, 1982) 243.

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protection to consumers, and businesses could in no way escape the consumer protective law. This opinion is nevertheless without practical value. It requires contractual parties to study and to compare the laws in all the relevant countries and to choose the one providing the highest standard of protection. The work would be hard, complicated and time-consuming. Comparatively, application of the law of the country with the closest personal connection to consumers will be the more reasonable consumer-protective default law. Applying the law of a consumer’s habitual residence as the default law can protect the consumer’s reasonable expectation and increase the consumer’s confidence in international transactions. There is criticism from business associations insisting that this approach is hostile to businesses, especially in e-commerce, where a business can hardly predict which country will be involved in a transaction.13 Furthermore, one of the benefits of e-commerce is to enable a business to access the global market with very low costs. Requiring a business to apply different laws in different countries would inevitably increase the expense. A business has to study all potential laws, and to tailor its website according to different applicable laws, which will discourage businesses, especially small and medium sized companies, from taking part in e-commerce, and will prevent the further development of e-commerce. In order to reach a balance between consumer protection and business improvement, almost all the statutes, which adopt the consumer-protective approach, design the pre-conditions to limit the scope of protection. The scope of protection plays a crucial role to ensure the proper functioning of the consumer-protective approach.

III. Scope of Protection The scope of protection is covered under Article 5 of the Rome Convention. Article 5(1) of the Rome Convention is a general condition that the protective rules apply only to contracts for the supply of goods or services.14 Its following provisions provide more precise conditions, including both the white list, in which the protective choice of law will be applied, and the black list, in which the protective choice of law shall not be applied. In general, in the following three situations, a consumer will be protected by the protective rule: (1) the conclusion of the contract was preceded by a specific invitation addressed to the consumer, or by advertising, in the consumer’s habitual residence, and the consumer had, in that country, taken all the steps necessary on his part for the conclusion of the contract; (2) the business or its agent received the consumer’s order in the consumer’s habitual residence; (3) if the contract is for the sale of goods, and the business 13 eg International Chamber of Commerce, ‘Jurisdiction and Applicable Law in Electronic Commerce’ www.iccwbo.org, accessed on 06 Jun 2001. 14 Art 5(1).

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arranged for the consumer to travel from his habitual residence to another country and induced the consumer to give his order in that other country.15 A consumer will not be protected by the protective default law in the following situations: (4) the contract is a contract of carriage; or (5) in the contract of provision of services, the services are to be supplied to the consumer exclusively in a country other than that in which the consumer has his habitual residence,16 except the contract of package tour.17 Because the exclusive scope is largely maintained in the Rome I Regulation and will be discussed systematically in Chapter 9, this Chapter will only consider the inclusive scope of the Rome Convention, which has been proved unsatisfactory and has been reformed in the Rome I Regulation.

A. Supply of Goods and Services The first difficulty arising out of the general protective scope is that the protective provision only applies to the contract of supply of goods or services.18 No official definition has been provided for the term ‘supply of goods and services’, but the European Commission in its Green Paper to convert the Rome Convention into a Community instrument states in a footnote that it only covers the supply of tangible goods or services.19 According to the interpretation, e-contracts for the supply of digital products would be classified as the supply of services, or they are excluded from the scope of protection. Excluding the contract for the supply of digital products would make the scope of protection unduly narrow, which would greatly damage the development of e-commerce and preclude many consumers from being protected. However, classifying the supply of digital products of every kind as the supply of services would not be considered realistic and reasonable.20 It seems that two approaches can be used to settle this problem. The first is to provide a flexible interpretation to the term ‘supply of goods or services’ in Article 5(1) in order to extend the scope of protection to include all digital products transactions.21 The supply of digital products could be classified as either the supply of goods or services, but not a sui generis transaction.22 The second approach requires this provision to be reformed completely by deleting the requirement for the ‘supply of goods or services’ in order to extend the scope of protection to all forms 15

Art 5(2) of the Rome Convention. Art 5(4). 17 Art 5(5). 18 Art 5(1) of the Rome Convention; Giuliano-Lagarde Report (n 1) 24. 19 European Commission, ‘Green Paper on the conversion of the Rome Convention of 1980 on the law applicable to contractual obligations into a Community instrument and its modernization’ COM(2002) 654 final, fn 56. See also French version of Art 5 of the Rome Convention, which covers ‘objets mobiliers corporel’. 20 For further discussions, see Ch 3, s III. 21 C Riefa, ‘Article 5 of the Rome Convention on the Law Applicable to Contractual Obligations of 19 June 1980 and Consumer E-contracts: The Need for Reform’ (2004) 13(1) Information and Communications Technology Law 59, 63. 22 See Ch 2, s 2.3. Cf Beta Computers (Europe) Ltd v Adobe Systems (Europe) Ltd [1996] FSR 367. 16

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of transactions.23 This approach could avoid the difficulties associated with characterising the nature of digital products. It is worth noting that the Rome I Regulation has employed the second approach to delete this requirement.24 Before the Rome I Regulation enters into force, the courts in all Member States need to provide a flexible interpretation specifically to cover contracts of supply of digital products in Article 5 of the Rome Convention.

B. Active Business vis-à-vis Passive Consumer The first condition of Article 5(2) can be summarised as a requirement combining active businesses and passive consumers. On the one hand, the business has to be active enough to target the consumer’s habitual residence, either by addressing a specific invitation to the consumer, or by advertising in that state. On the other hand, the consumer has to be passive enough to take all necessary steps on his part to conclude the contract in his habitual residence, rather than in any other countries. This indent is justified as it requires a business to be subject to the law of a consumer’ habitual residence ‘where the trader has taken steps to market his goods or services in the country where the consumer resides’.25 It could both protect the business’s reasonable expectation and applies the law that has the close connection to the contract. However, this requirement suffers difficulty in e-commerce: firstly, it is problematic to define all these activities, such as advertising, addressing an invitation and taking steps to conclude a contract, in e-commerce. Secondly, it is hard to localise all these activities in e-commerce. Thirdly, the requirement is no longer relevant to determine the intention and expectation of the parties in e-commerce.

i. Specific Invitation to the Consumer in His Habitual Residence It is traditionally assumed that the definition of ‘specific invitation’ is comparatively easy.26 The Guiliano-Lagarde Report interprets that it covers ‘business proposals’ made ‘individually through a middleman or by canvassing’ and ‘mail order and door-step selling’.27 This interpretation is very meagre, but it does indicate that a specific invitation is commercial promotion communicated to a specific person as its target. This specific person does not need to be named, or predefined.28 Once a 23 Max Planck Response, 52; Nordic Group for Private International Law, ‘Proposal for Amendments to the Convention on the Law Applicable to Contractual Obligations’ (Nordic Response), 32. This is also the option adopted in the Brussels I Regulation, Art 15(1)(c). 24 Art 6(1). For more discussions on the Regulation, see Ch 9 below. 25 Giuliano-Lagarde Report (n 1) 22. 26 CGJ Morse, ‘Consumer Contracts, Employment Contracts and the Rome Convention’ (1992) 41 ICLQ 1, 6. 27 Giuliano-Lagarde Report (n 1) 22. 28 M Foss and L Bygrave, ‘International Consumer Purchases through the Internet: Jurisdictional Issues pursuant to European Law’ (2000) 8 International Journal of Law and Information Technology 99, 116.

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person receives a proposal delivered specifically to him instead of the wide variety of undefined population, the business has addressed the specific invitation to this person. In this sense, it is hard to define website promotion as a specific invitation to a particular consumer. On the contrary, a promotion email received by a consumer might be more confidently interpreted as a ‘specific invitation’, which is analogous with traditional mail. Even if the business sends group emails to undefined consumers, the specific invitation still occurs to each single consumer, because the promotion email in the consumer’s emailbox specifically targets the particular recipient. However, a specific invitation not only has to specifically target the consumer, but should also be linked with the consumer’s habitual residence.29 As to this ‘link’, the text of the Rome Convention reads that ‘in that country [consumer’s habitual residence] the conclusion of the contract was preceded by a specific invitation addressed to him [the consumer]’. It appears as that the specific invitation has to ‘occur in’ the consumer’s habitual residence.30 In traditional commerce, the specific invitation can be provided by the business’s representative or a middleman, where the invitation occurs at the place where the salesperson has the personal contact with the consumer. Particularly in an email order, it is not easy to tell where the specific invitation has taken place. The business makes the promotional material at its place of business in country A and sends it to the consumer, who receives it in country B. It is unclear whether the invitation has taken place in country A, where the invitation has been prepared and posted, or in country B, where the invitation has been received. Things may become more complicated in e-commerce; for example, a company may have its head office in Connecticut, marketing department in New York and internet server in New Jersey. The consumer who is habitually resident in England may have an emailbox located in a server in Japan. In this case, the promotional material is created in Connecticut, uploaded to the server in New Jersey, and passed to the marketing department in New York. This department drafts the email and attaches the promotional material to the email in New York. In a technological sense, the attachment has been done in the server in New Jersey. The group email is then sent to the consumer to his emailbox in Japan, and finally downloaded by the consumer to his computer in England. Since all these different activities have been involved in addressing the specific invitation, and these activities have all occurred in all different States, it is hard to say in which specific State the specific invitation ‘occurs’. 29 T Puurunen, ‘The Judicial Jurisdiction Of States Over International Business-To-Consumer Electronic Commerce From The Perspective Of Legal Certainty’ (2002) 8 UC Davis Journal of International Law and Policy 133, 156; Foss and Bygrave, International Consumer, 177; P Kaye, Civil Jurisdiction and Enforcement of Foreign Judgments (Professional Bks, 1987) 835–836. 30 This interpretation has been accepted by Foss and Bygrave as one assumption; see Foss and Bygrave (n 28) 117. See also Collins, L, Morse, CGJ, McClean, D, Briggs, A, Harris, J, McLachlan, C and Hill, J, Dicey, Morris & Collins: The Conflict of Laws, 14th edn (London, Sweet & Maxwell, 2006) 1638.

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Another suggestion is that this condition should be interpreted as the specific invitation having been received in the consumer’s habitual residence.31 In traditional mail order, if a consumer temporarily stays in a country other than his habitual residence, the promotional mail he receives at his temporary address does not satisfy the requirement of this condition. Only when the consumer receives a specific invitation in his habitual residence, is this requirement met. The difficulty is that the place of receipt is also hard to determine in e-commerce. It has been provided before that for the purpose of certainty, the place of receipt should be presumed to be the recipient’s habitual residence.32 However, if the same interpretation is adopted, a consumer will always be deemed to receive an email in his habitual residence, and the requirement that the specific invitation has to be addressed in the consumer’s habitual residence will always be satisfied. A business thus will be subject to the protective rule even if it does not intend to target the state where a recipient has his habitual residence, and has taken activities to avoid that result.33 On the other hand, if the place of receipt could be anywhere other than the consumer’s habitual residence, such as the place of the consumer’s computer where the email is downloaded, the place of the server where the consumer’s emailbox is located, and the place where the email has been read by the consumer,34 the business can easily evade the protective law. It is more accurate to interpret this condition in such a way that it requires the specific invitation to ‘target’ the state where the consumer has his habitual residence.35 In traditional mail order, promotional mail will arrive at the consumer’s physical address, and can be held as targeting that particular country shown on the address. If a consumer has his habitual residence in another country, the simple fact that he receives the specific invitation is not enough to conclude that the business is targeting the consumer’s habitual residence rather than the country shown in the mail address. The ‘targeting’ criterion can be more easily incorporated into e-commerce to interpret whether a specific invitation occurs in the consumer’s habitual residence. By sending an email with an email address involving country specific indicia,36 the specific invitation is targeting the country directed to by the country specific indicia.37 However, what happens if the email address contains no country specific indicia, or with misleading country specific indicia? According to the interpretation of ‘advertising . . . in’ by the Giuliano-Lagarde Report the business needs to show a clear and undoubted intention of targeting a particular 31

Puurunen, The Judicial Jurisdiction, 157–8. Ch 4, s III.A. See also the suggestion in UNCITRAL Model Law on e-commerce, Arts 15(3), and 15(4)(b). 33 eg, the business may carefully select email addresses with country-specific indicia and announce in its email that it does not intend to have business transactions with consumers in some states. 34 C Reed Internet Law: Text and Materials, 2nd edn (Cambridge, CUP, 2004), 224–5. 35 Although the Giuliano-Lagarde Report (n 1), does not explain what a specific invitation in the consumer’s habitual residence is, from its interpretation of ‘advertising in’ the consumer’s habitual residence, it can be reasonably concluded that the business’s intention is important. Puurunen (n 29) 156. Cf Foss and Bygrave (n 28) 117. 36 In email, this mainly means the country specific TLDs, such as ‘.fr’ and ‘.uk’. 37 Foss and Bygrave (n 28) 122. 32

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state,38 it is very likely that a business will not be responsible for the disadvantage caused by the misleading country specific indicia. If a consumer uses an email address ending with ‘fr.’ because he is a French national, but he is actually habitually resident in England, the business will not be regarded as addressing a specific invitation to the consumer in England, since the business has indicated its intention and has carefully arranged its activities to target France only.39 However, with regard to email addresses ending with a generic TLD,40 can we conclude that the business is not targeting any state where the consumer is habitually resident, simply because the business has not indicated its intention or arranged its activities to target certain specific countries? What if the business sends an invitation to a consumer, as a result of the customer’s approach?41 It seems that according to the language of the provision and the reasoning of the Giuliano-Lagarde Report, since this is a one-to-one communication, the business has the obligation and possibility to know the habitual residence of the consumer and decide whether to send the consumer the information required by him. Once the business sends the consumer any information with the intention of inviting him to trade, it has addressed a specific invitation to the consumer to his habitual residence, no matter where it is and no matter where the business expects it to be.

ii. Advertising in the Consumer’s Habitual Residence More difficulties arise out of the requirement that the business advertises in the consumer’s habitual residence. Strictly speaking, a specific invitation is one type of advertising. A business could advertise either on its website or by sending email. It is hard to draw an artificial line separating a specific invitation from advertising. However, since some types of email trading are regarded as specific invitations and have been discussed above, this subsection discusses other online commercial activities, including website advertising and email advertising that is not covered by specific invitation. The Giuliano-Lagarde Report provides a narrow and restrictive interpretation as to what constitutes advertising in a consumer’s habitual residence. It covers ‘advertising in the press, or on radio or television, or in the cinema or by catalogues aimed specifically at that country’.42 Although the text of the provision uses the word ‘in’, the Report clearly interprets it as requiring the advertisement to target the consumer’s habitual residence. Controversial interpretations have been provided for different scenarios: if a German consumer concludes a contract after reading an advertisement in a German publication, the protective rule is applied; if a German consumer enters into contract in response to an advertisement in an 38 See Giuliano-Lagarde Report (n 1) 23; Morse, Consumer Contracts, 7; Foss and Bygrave (n 28) 118. For further discussions on this point, see Ch 8, s I. 39 The interpretation taken for ‘direct . . . to’ is more restricted in the case of a business. See Ch 3, s III.B. 40 Such as ‘.com’, ‘.net’, and ‘.org’. 41 Foss and Bygrave (n 28), 116–7; see also Ch 3, s III.B. 42 Giuliano-Lagarde Report (n 1) 24.

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American publication which is sold in Germany, the protective rule does not apply because the company is not targeting the German market; if the advertisement is published in an American publication but in a special edition intended for European countries, the protective rule can be applied.43 Morse criticises this interpretation for three reasons: first, it is unsuitable for cross-border publication; second, the place of publication does not necessarily indicate the business’s intention; third, it is easily abused by the business.44 Obviously, e-commerce makes the problems worse. The examples in the Giuliano-Lagarde Report show that: firstly, whether the promotional information can be accessed in a certain country is not decisive; secondly, whether a vendor can expect the information to be accessed in a certain state is not decisive; thirdly, only the express intention of the business should be taken into account.45 As a direct result, the interpretation in the Guiliano-Lagarde Report is quite favourable for businesses. For example, a business can choose to advertise on a website owned by an English company located in England, knowing that the advertisement can be viewed by English-speaking consumers all over the world, and be happy to conclude contracts with all those potential consumers without being held as advertising in the habitual residence of consumers other than those habitually resident in England. The business can also advertise by sending email, which cannot be covered under a specific invitation to a particular consumer. A company can send promotional email to a particular institution and request the institution to forward the advertisement to its individual members. Some organisations are international in nature, holding members habitually resident around the world. According to the interpretation in the Giuliano-Lagarde Report, a business only advertises in the habitual residence of the international organisations, disregarding the fact that it knows these organisations will spread the email to their members everywhere in the world. It is thus suggested that the interpretation in the Giuliano-Lagarde Report is unduly narrow.46 A wider interpretation is thus required for e-commerce. However, the terms used in this provision exclude many recent innovative approaches. For example, the European Commission was once very keen on the test based on the activity of the website. It suggested that a business is targeting the consumer’s habitual residence if it has its active website accessed in that state.47 The problem is that this approach barely contributes to the interpretation of ‘advertising’ in e-commerce, for the advertisement can hardly be classified as an ‘active’ one versus a ‘passive’ one. According to the formula of Article 5 of the Rome Convention and the Giuliano-Lagarde Report, where a broader test is adopted, the interpretation would inevitably be friendly to businesses. A business’s 43

Giuliano-Lagarde Report (n 1) 24. Morse (n 26) 7. See also Riefa Article 5, 67; Puurunen (n 28) 159. 45 Foss and Bygrave (n 28) 118. 46 Morse (n 26) 7. 47 But cf the Council and the Commission, ‘Joint Statement on Articles 15 and 73’. This approach has its own weaknesses. See Ch 3, III.B.ii.a. 44

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statement to limit its service scope, the website domain, the language and currency used, the block technology, etc could all effectively exclude the business from being subject to the protective rule.

iii. Necessary Steps Taken in the Consumer’s Habitual Residence In addition to the above requirements for the business, the consumer is also required to take all necessary steps to conclude the contract in his habitual residence. The ‘necessary steps’ indicate the necessary factual measures towards the conclusion of contracts.48 There will be no doubt that activities to place an order or to accept an offer are relevant, such as clicking the ‘accept’ or ‘agree’ link, sending an email to place an order or to confirm the order, filling the electronic order form, providing the credit card number, etc. There will be different opinions as to whether other activities, such as browsing a website or searching for information, are also necessary steps. It is suggested that the ‘necessary steps’ should directly lead to the conclusion of contracts. This term involves all those activities undertaken after the consumer starts to negotiate with the business with a view to a possible contract, and it does not involve any activity prior to the negotiation. In this sense, the activity, such as collecting information or comparing prices, is not relevant. What if a consumer uses an agent to conclude a contract? The consumer’s activity to employ or customise an e-agent to conclude a contract on his behalf is not a necessary step, as it takes effect far before the conclusion of a contract. The e-agent’s function to collect the information on products or services is also irrelevant. Only when an e-agent directly sends out an order or acceptance, is this measure the necessary step taken to conclude a contract. Furthermore, it is hard to decide where these necessary steps take place. It is obvious from the text of the provision that only the physical location of the consumer or the consumer’s computer when doing these measures counts, so that one no longer needs to struggle with the difficult problem of locating online activities. To decide the physical location of a person, however, is still a tough issue in e-commerce, because the other party is unlikely to know where the consumer takes steps to contract nor can the other party prove it.49 More importantly, it requires all the necessary steps to be taken in the consumer’s habitual residence. Clearly, it covers more than just the click to place an order. The consumer must, for example, fill out the online order form, or draft the acceptance email, in his habitual residence. Suppose an English consumer drafts an email in Germany and stores it in his laptop. He clicks to send it when he returns to England. According to this provision, he cannot be protected since he has not taken all the necessary steps in England. Of course, the business almost has no chance of proving that the consumer drafts the email in a country other than his 48 Giuliano-Lagarde Report (n 1) 24; Morse (n 26), 7; Foss and Bygrave (n 28) 124; F Debussere, ‘International Jurisdiction over E-Consumer Contracts in the European Union: Quid Novi Sub Sole?’ (2002) 10 International Journal of Law and Information Technology 344, 355. 49 F Debussere, International Jurisdiction, 355.

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habitual residence,50 and the consumer certainly will not bring it out against himself. Applying this requirement thus is not feasible in practice. Given all the above interpretational and practical difficulties, to require a consumer to take all necessary steps to conclude a contract in his habitual residence is unnecessary in e-commerce. In traditional commerce, it may work well to prevent a business from being subject to the foreign law when a foreign consumer travels to the business’s home to place an order. Applying the business’s domestic law in such a case will meet the expectation of both parties. The common expectation, however, does not exist in distance contracts. Also, in traditional commerce, this requirement may help to create some connections between the consumer’s habitual residence and the contract, which again cannot be justified in e-commerce.51 Some suggest eradicating this requirement completely in e-commerce.52 Furthermore, there is more and more criticism of this requirement which holds out a general idea of excluding ‘mobile consumers’ from protection. This exclusion is irrational, for there is no reason why a mobile consumer should hold different bargaining or litigation power from a static consumer in order to justify depriving the mobile consumer of the protection he might be given.53 One might justify the application of this requirement in e-commerce where a business employs technology to block access by internet users from certain territories, or to localise the coming order.54 In this case, if the business blocks the access in the consumer’s habitual residence, the consumer who travels to another country and enters a contract should not be protected.55 Also, in this case, the business can easily prove that a consumer must enter the contract from somewhere other than his habitual residence because the localisation programme has blocked the access from the consumer’s habitual residence. The reasoning is convincing in this specific case. However, this justification is superficial as it considers this requirement alone, without necessary consideration of the other two requirements in this provision, namely the business must first address specific invitations or advertise in the consumer’s habitual residence. Once a business has targeted the consumer’s home by electronic means, it would usually have no intention of blocking access from that country.56 In addition, if a business does target the consumer’s habitual residence, it must reasonably expect the possible application of 50 The business has to carry the burden of proof to show the consumer takes steps in other States to conclude the contract. It can hardly be done. 51 Nordic Response (n 23) 34; Magnus, U and Mankowski, P, ‘Joint Response to the Green Paper on the Conversion of the Rome Convention of 1980 on the Law Applicable to Contractual Obligations into a Community Instrument and Its Modernisation COM (2002) 654 final’, 25. 52 See eg Nordic Response (n 23) 34; S van der Hof, ‘European Conflict Rules Concerning International Online Consumer Contracts’ (2003) 12 Information & Communication Technology Law 165, 172. 53 Max Planck Response (n 10) 53. 54 Hof, European Conflict Rules, 172. 55 The case where the consumer drafted an email in the other country still cannot be justified by the reasoning. 56 eg if a business establishes a website targeting the consumer’s habitual residence, it is illogical for this business to block access from that state.

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the law in that country. Where the business has addressed specific invitation or advertised in the consumer’s home, even if the consumer enters into the contract in another country, the consumer should still be protected.

iv. Active Business versus Active Consumer The first indent of Article 5(2) of the Rome Convention intends to protect passive consumers against active businesses. The reason behind it is that if a consumer is active enough to target a business and the business is passive, excluding the consumer from specific protection will not deprive the active consumer of his reasonable expectation,57 and will, of course, meet the business’s expectation. The first difficulty with the reasoning is to define an active business and a passive consumer. The current text of the first indent of Article 5(2) of the Rome Convention clearly fails to provide reasonable and practical criteria for the definition. The second difficulty exists where an active consumer happens to deal with an active business. Since the business is also active and could reasonably expect the foreign law to apply, applying the law of the consumer’s habitual residence does not deprive the business of his reasonable expectation. When both parties could expect the application of the law of the other country, which law shall apply? It seems that the first indent of Article 5(2) fails to undertake a comprehensive consideration of the relationship between a business and consumer. When an active business targets a passive consumer, the consumer should be protected by the protective law. When an active consumer targets a passive business, the business will be excluded from the protective law for both parties would expect the law of the business’s home to apply. When both business and consumer are active, it is suggested that the consumer’s interests should have priority, as it is fair to protect the weaker party and it does not go against the business’s expectation.

C. Order Received in the Consumer’s Habitual Residence The second indent of Article 5(2) applies where a business or its agent receives a consumer’s order in the consumer’s habitual residence. Besides the fact that this provision overlaps with the first indent,58 two specific e-commerce difficulties also arise. Firstly, what is an e-company’s agent? Secondly, where is the place of receipt?

i. The Business’s Agent The ‘agent’ here should be given a uniform community meaning, and it could be different from the concept of ‘agent’ in English domestic law.59 A community 57

F Debussere (n 48) 351. In some cases, a business addresses specific invitations or advertises in the consumer’s home and also receives the order in the consumer’s home either by itself or by its agent. Guiliano-Lagarde Report (n 1) 23. 59 See the discussion of this concept in CPR Pt 6 Practice Direction B para 3.1(6)(b), Ch 4, s III.A.ii. 58

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definition of a business’s branch, agency, or other establishment has been given for Articles 5(5) and 15(2) of the Brussels I Regulation.60 The question is whether this interpretation could be equally applied in Article 5(2) of the Rome Convention. Literally, the second indent of Article 5(2) only adopts one establishment, which is the business’s agent. It is unsure whether an order received by the business’s branch, or establishment other than its agent, could trigger the protective provision. If a strict interpretation is adopted, only the ‘agent’ that receives the order meets the requirement of the second indent. Although an agent should meet all the requirements of a business establishment,61 more work has to be done to separate the ‘agent’ from any other ancillary establishments in e-commerce. An agent is different from other establishments for it is comparatively independent from the principal and is authorised to act on behalf of the principal.62 In this sense, a server owned or leased by the company is more akin to the business’s branch than its agent. This interpretation, which recognises only the behaviour of the principal and the agent, is too narrow, and is considered difficult and inconsistent with the relevant rules in the Brussels I Regulation. Fortunately, the Guiliano-Lagarde Report adopts a wide interpretation, which provides that ‘(t)he word “agent” is intended to cover all persons acting on behalf of the trader’, which include both the agency and the permanent branch of a foreign company.63 According to the wide construction, the discussion on the concept of ‘branch, agency, or other establishment’ can be used here to interpret the concept of ‘agent’ in the second indent. Although the Report uses the word ‘person’, it seems that it does not intend to mean only the natural person, as the report clearly mentions the legal person that is covered in the concept of agent.64

ii. The Place Where the Consumer’s Order has Been Received Secondly, it is necessary to have a look at the place where the consumer’s order has been received. It has been suggested before that the place which holds personal connections with the recipient should be the place of receipt because the place has substantial connections with the party and the transaction.65 However, the business can easily evade the second indent, because in most cases the business has its habitual residence outside the consumer’s home. It is thus suggested that this indent is not effective in e-commerce and should be reformed, which has been done in the Rome I Regulation. The Regulation has 60

Ch 3, s IV. Ch 3, s IV. Cf R Schu ‘The Applicable Law to Consumer Contracts Made Over the Internet: Consumer Protection Through Private International Law?’ (1997) 5 International Journal of Law and Information Technology 192. 62 See generally, LS Sealy and RJA Hooley Commercial Law: Text, Cases and Materials, 3rd edn (OUP, 2003) 97. 63 Guiliano and Lagarde Report (n 1) 23. See also German case, Bundesgerichtshof (BGH), 26 Oct 1993, which held that an agent is a person who gives a consumer the opportunity to conclude a contract in a domestic market and who is acting in the name and upon request of the principal. 64 Guiliano and Lagarde Report (n 1). 65 s III.B.i above, and see Ch 4, s III.A. 61

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adopted the same condition as that in the Brussels I Regulation by subjecting a business to the consumer protective law when it pursues commercial activities in the consumer’s habitual residence, or directs such activities to that state.66 Within the scenario of the Rome I Regulation, it is no longer necessary to keep the second indent. The existence of any forms of establishment including an agent in the consumer’s habitual residence would clearly indicate the business’s intention to pursue commercial activities in that country. It is not necessary to decide where an order is received.

D. Arranged Journey for the Purpose of Inducing Consumers to Buy The third indent of Article 5(2) of the Rome Convention provides that if a contract is for the sale of goods and the consumer travelled from that country to another country and there gave his order, provided that the consumer’s journey was arranged by the seller for the purpose of including the consumer to buy, the protective choice of law rules shall apply.67 This condition can be justified that since the journey was arranged by the business for the purpose of inducing the consumer to buy, the business shall have sufficient expectation of the habitual residence of the buyer and be active enough to target the country. Although the consumer is ‘active’ under the standard provided by the first indent of Article 5(2), the consumer shall be protected. Since this type of transaction is conducted in an offline manner, no many e-commerce specific issues will arise. However, it is problematic to limit the scope of this indent to the sale of goods. If a business arranges a one-day trip for consumers in the neighbour country for the supply of goods and services in the business’s habitual residence, the contract for the provision of services concluded in the trip have no substantive difference from the contracts for the sale of goods concluded in the same journey. There is not sufficient reason to protect the consumer in a sale of goods contract but then exclude the consumer in a services contract concluded under the same conditions from protection.68 Secondly, the purpose of the journey should be the one to induce consumers to buy. How to decide the purpose depends on the content of the advertisement or invitation provided by the business. If the advertisement or invitation letter clearly indicates that the journey is a ‘shopping trip’, or ‘bordercrossing excursion-selling’, the condition is satisfied. But what if a journey is arranged for multiple purposes? Shall the contracts concluded in the trip be excluded from the protective scope all together? Thirdly, the text of the provision requires the journey to be arranged by ‘the seller’. What if a shopping journey is not directly arranged by a ‘seller’, but by a market manager or a local government? For example, the manager of a shopping mall or the local council arranges a journey for consumers in a neighbouring country to shop in the mall. The journey is 66 67 68

Rome I Regulation, Art 6(2). See Ch 9. Art 5(2). Art 5(4)(b), and s F below.

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not directly arranged by the seller of each store. Shall the buyers in the journey be protected by Article 5? It is suggested that the sellers are not required to arrange the journey in person. If a journey is arranged on their behalf and by their representatives, the condition shall be satisfied. Finally, the seller does not need to take care of the transportation. If the seller makes an agreement with a transportation company to take care of the journey, the condition should be satisfied.69

E. Conclusion The inclusive scope of protection designated in Article 5 of the Rome Convention is outdated and inappropriate for e-commerce. Firstly, it must be noted that many concepts adopted in Article 5 can apply only in traditional commerce. Further interpretation is required in order to apply those concepts, such as ‘special invitation’, ‘advertising’, and ‘sale of goods’, in e-commerce. Secondly, the current tests for the scope of protection are clearly outdated for e-commerce. Many requirements do not accord with the reality of e-commerce. For example, to require a consumer to take all necessary steps to conclude contracts in his habitual residence can hardly apply in e-commerce, because a business could not know where these steps of the other party were actually taking place nor provide evidence. Thirdly, the current rules exclude ‘mobile consumers’ from being protected. Although it may be sound in traditional commerce, in e-commerce, the mobility of a consumer and the physical location of the consumer when concluding contracts have less effects on either the parties’ expectations, or the country with the closer connection to the contract.70 Since the centre of gravity of the contract, as well as the parties’ expectation as to the applicable law, no longer depends on the physical location of the parties, the exclusion of ‘mobile consumers’ from the protective scope cannot be justified. Fourthly, the current rules provide protection only to ‘passive’ consumers.71 In traditional commerce, a mobile consumer is usually an active one, who voluntarily seeks out the business for transactions. In e-commerce, many active consumers do not need to travel to another state to place their order. Instead, they can simply stay in their country to contact any foreign companies. Furthermore, as a matter of principle, it is the consumer who pulls the website onto his computer screen, instead of being pushed by the business to view the website. It is quite clear that the psychological situation of the consumer in e-commerce is much more ‘active’ than before. It is thus submitted that it must be the business’s attitude rather than the consumer’s attitude that counts. If an active consumer happens to deal with an active business, since the business can expect the application of the protective rule, the consumer should reasonably be protected. 69

Giuliano & Lagarde Report (n 1) 23. Unless the business has adopted effective technology to block contracting from some states. 71 ‘Mobile’ consumers and ‘passive’ consumers are related, but not identical. An active consumer can be actively contacting a company without travelling to another country and not be a mobile consumer. 70

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It has been suggested that the weakness of the scope of protection established in Article 5 of the Rome Convention is substantial rather than superficial. Simply leaving it for updated interpretations is not an effective option. E-commerce calls for reform of the protective scope of the Rome Convention, which has been done in the Rome I Regulation.

IV. E-Consumer Contracts and Party Autonomy Freedom of choice is the primary principle almost unanimously accepted by the majority of countries. The contractual parties are usually granted more freedom to designate the applicable law than the competent forum. Even though the choice of forum clause may be deprived of its effect for many reasons, the effect of choice of law clauses will normally be respected. Even for consumer contracts, the principle of party autonomy still has some effect.72 However, in order to protect the weaker party, it is necessary to provide certain restrictions on the freedom of choice.73 The Rome Convention essentially recognises the parties’ choice but permits the mandatory rules of a consumer’s habitual residence to limit the effect of the chosen law. This section focuses on how these provisions, including other relevant rules, can be applied to e-consumer contracts.

A. Validity of an Express Choice of Law Clause Article 3(1) of the Rome Convention states that ‘a contract shall be governed by the law chosen by the parties’. The agreement on the choice will normally be indicated in the contract expressly as a choice of law clause. Once there is a valid choice of law clause in consumer contracts, the chosen law will be applied with a few limitations. The Rome Convention has set up uniform choice of law rules to determine the validity of choice of law clauses.

i. Formal Validity Normally each state has its own rules concerning the formal validity of a choice of law clause in contracts. Currently, there are three approaches adopted for this issue, namely rules protecting consumers, rules encouraging the validity of

72 In very rare cases, the freedom of choice principle is excluded from consumer contracts, such as Swiss Private International Law of 1987, Art 120.2. However, this option has been criticised as ‘hardly designed to protect the interests of the weaker party’, and may even exclude the application of the chosen law that is more favourable to consumers. See P Nygh, Autonomy, 155–6. 73 There is no such restriction in the US, where the state and federal courts will recognise parties’ choice even in contracts with unequal bargaining power. See Fricke v Isbrandtsen Co 151 F Supp 465, 467 (DCNY 1957); Siegelman v Cunard White Star Limited 221 F 2d 189 (2d Cir 1955).

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contracts as to form,74 and uniform rules relating to formal validity. As an example of the first category, the Rome Convention provides that for a consumer contract which lies within the scope of protection, the law of the country in which the consumer has his habitual residence shall govern the formal validity of the choice of law clause.75 This approach is neither practical to businesses nor beneficial to consumers. As e-commerce is a comparatively new business model, the legal status of electronic contracts remains undecided in some countries. Applying the law of the consumer’s habitual residence in any case to decide formal validity of a choice of law clause will prevent a business from pursuing business opportunities in those countries where the legal effect of contracting in electronic means is uncertain or not recognised by law.76 Furthermore, different countries may have different requirements and interpretations of the form and format of e-contracts. For example, some states may recognise the validity of an e-contract involving more than one page and requiring the usage of a scrolling bar, some may regard it as formally invalid, while some others may have no certain answer to it. It seems that requiring a company doing e-commerce to comply with the laws of all the countries where the potential consumers have their habitual residence is burdensome. First of all, the company must know the different requirements of all the possible countries with which it is dealing. Secondly, this company might have to establish different websites with different forms of contracts for different countries. Thirdly, this company will have no idea as to what contracts should be designed for those countries where the formal validity of e-contracts is uncertain. One of the advantages of e-commerce is to enable a business to enter the potential market internationally by establishing just one, or a few, websites. The requirement in the Rome Convention increases the costs of business promotion and would be an obstacle for the further development of e-commerce. This provision would also be a disadvantage to consumers. It could invalidate the choice of law clause by applying the law of the consumer’s habitual residence, even if the consumer tries to enforce the clause against the company. It will also be a disadvantage to consumers whose domestic law responds slowly to the development of e-commerce.

ii. Substantive Validity As to the substantive validity, complex rules have been set out in the Rome Convention. It states that the existence and validity of a contract and contract 74 Rome Convention, Art 9(1)-(4); Hague 1986, Art 11. See also Restatement 2nd (n 1) s 199, comment c. See also Swiss Private International Law, Art 124 (b)(2) 75 Rome Convention, Art 9(5). See also Swiss Private International Law, Art 124 (b)(3). 76 According to the E-Commerce Directive, Art 9(1), the EU Member States shall ensure that their legal systems allow contracts to be concluded by electronic means; the Member States shall ensure that the legal requirements applicable to the contractual process neither create obstacles to the use of electronic contracts nor result in such contracts being deprived of legal effectiveness and validity just because they have been made by electronic means. However, for countries outside the EU, where there is no similar regulation to expressly protect e-communications, the formal validity of an e-contract would be uncertain.

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terms shall be determined by the law which would govern it under this Convention if the contract or term were valid.77 It is suggested that the putative law should be decided in the following procedure: first, assume that all terms are valid, and decide the applicable law accordingly; second, use the decided applicable law to determine the existence and validity of the contract and any term therein.78 If there is an express choice of law agreement, the putative law is the law chosen. If there is no express choice, the putative law could be the implied choice of law or the default law which is the domestic law of the consumer’s habitual residence. The Rome Convention also provides that the existence of consent to the contract and contract terms may be questioned according to the law of the habitual residence of the party who raises this challenge.79 According to this provision, both the business and consumer can challenge the existence of consent relying on the law of their habitual residence. In traditional commerce, this provision is usually applied to determine the legal effect of ‘silence’. However, the way to indicate consent in e-commerce is very different to that in traditional commerce. This may lead to a much wider scope of the application of this provision. The court may have to decide whether the action by clicking the button ‘continue’ instead of ‘accept’, the simple action of ‘downloading’, or simply continuing to browse the website, can be regarded as consent. Since uncertainty exists worldwide as to the legal effect of many online activities, the validity of an electronic contract thus becomes very vulnerable. The consumer, by relying on the law of his home country, may easily challenge the validity of a clause agreed by ‘clicking’, by showing that in this law ‘clicking’ has not yet been regarded as consent. The business might also use this provision to evade a contractual clause by referring to the law of its habitual residence when the consumer tries to enforce this agreement.

iii. Classification In addition, there are specific classification difficulties concerning the validity of contract. Since no uniform definition of formal validity and substantive validity has been provided, and there is also no uniform conflicts rule as to which law to decide the classification, different countries take different approaches, which leads to further uncertainty. The question of whether a problem is a matter of form or of substance may be decided by the court according to the domestic law of the forum, the putative applicable law,80 or the law of the consumer’s habitual residence. In e-commerce, the issue as to form or substance becomes more obscure, 77

Rome Convention, Art 8(1). Fawcett, J and Carruthers, J, Cheshire, North & Fawcett: Private International Law, 14th edn (Oxford, OUP, 2008) 744. 79 Rome Convention, Art 8.2: ‘Nevertheless a party may rely upon the law of the country in which he has his habitual residence to establish that he did not consent if it appears from the circumstances that it would not be reasonable to determine the effect of his conduct in accordance with the law specified in the preceding paragraph.’ 80 Such as the traditional common law approach in England. 78

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because normally the business will unilaterally establish the contract terms, the contracting process and the method of giving consent. Unlike the traditional contract which shows nothing more than the contract terms, the electronic contract is a multifunctional tool. It shows not only the contractual terms, but also the whole process of contracting, which includes elements of both form and substance. The contracting parties, at the time of contracting, may be confused because what is a question of form, may be governed by the law of the consumer’s habitual residence, while a question of substance could be governed by the putative applicable law, or the law of the party who raises the challenge. The silence on classification leaves more difficulties for applying those provisions regarding validity in e-consumer contracts. It is suggested that a uniform European Community meaning should be given to the classification, but until such an interpretation is provided, uncertainty continues to exist. Unfortunately, the difficulties relating to the validity of contracts or contract terms, including the validity of choice of law clauses, remain unresolved in the Rome I Regulation.

B. Implied Choice of Law The parties’ choice of law in contracts can be not only express but also implied.81 The implied choice has been accepted in the Rome Convention, which states that the choice of law can be ‘demonstrated with reasonable certainty by the terms of the contract or the circumstances of the case.’82 However, the validity of implied choice in consumer contracts is not recognised everywhere. For example, the Hague draft Convention on law applicable to certain Consumer Sales of 1980 requires that ‘(t)he choice of law must be express’.83 It raises a question of whether in e-consumer contracts the choice of law could be implied. If so, how can the implied choice be determined? Recognising a tacit choice is not easy, even in traditional commercial contracts. The choice should be ‘real’ instead of ‘hypothetical’. The problem is that the borderline between tacit choice and a hypothetical one is vague.84 For this reason, an objective test has been established which weighs the indicators of the contract and all the circumstances as a whole to determine a ‘real’, instead of a ‘reasonable’, choice.85 These relevant factors can be summarised as follows: the contract is in a 81 The existence of an express choice is comparatively easy to decide. See the discussion about the existence and validity of choice of forum agreements, Ch 6. 82 Rome Convention, Art 3.1. 83 Art 6. This draft has never become a convention. 84 European Commission, ‘Green Paper’, para 3.2.4.2; Nygh (n 12) 105–11. 85 American Motorists Insurance Co v Cellstar Corporation [2003] ILPr 370, 391:

[The implied choice] must have been intended or was so obvious that it went without saying and was one to which the parties would have said ‘of course’ if anyone had suggested it. The mere fact that it would be ‘reasonable’ will not suffice. Giuliano-Lagarde Report (n 1) 17; J Hill, ‘Choice of Law in Contract Under the Rome Convention: The Approach of the UK Courts’ (2004) 53 ICLQ 325, 327–8. See also, Marubeni Hong Kong & South China Ltd v Mongolian Government [2002] 2 All ER (Comm) 873, 885.

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standard form known to be governed by a particular system of law;86 the contract contains certain terms or legal doctrines which are particular to the domestic law of a particular state;87 the previous dealings or relevant transactions between the parties contain an express choice of law clause;88 in certain circumstances, subject to the other terms of the contract, the choice of forum or arbitration clause may indicate the implied choice of law;89 and the conduct of the parties after conclusion of the contract could imply their tacit choice.90

ii. Traditional Indicators a. Standard Forms; Terminology; Legal Doctrines It is said that if a contract is in a standard form which is known to be governed by a particular system of law, the parties’ implied choice can be inferred. It can be said to be self-evident that the parties should be very familiar with the standard form they have chosen for their contracts. This reason, however, does not work for consumer contracts.91 Consumers usually do not have sufficient knowledge as to what kind of standard form has been used for their contracts. Even if a contract indicates what standard form has been adopted, the consumer would not have any substantive knowledge and do not know what law usually applies. It is suggested that even if a consumer contract is in a standard form, the business still needs to indicate the explicit choice of law in the terms of the contract. A simple reference is not enough to decide that a consumer has inferred an applicable law. Similar reasons can be given for factors such as terminology and legal doctrines. Electronic consumer contracts are normally standardised contracts, which are drafted unilaterally by the business, which can insert the terminology or legal doctrines that are particular to one system of law. The consumer, on the contrary, usually does not have enough knowledge to know this. He might either not understand the meaning of these terms, or presume that these terms are also used in the state of his habitual residence. With a ‘take-it-or-leave-it’ position, the consumer usually easily clicks and accepts the contract terms, without intentionally choosing any applicable law. It is suggested that these factors are not sufficient to infer the choice of law in consumer contracts.

86 Giuliano- Lagarde Report (n 1) 17; Gill and Duffus Landauer Ltd v London Export Corp GmbH [1982] 2 Lloyd’s Rep 627; J Graham, ‘European Private International Law and E-commerce: Comments to the Draft Final ABA Report’, available at www.kentlaw.edu/cyberlaw/docs/foreign/ luxembourg-Graham3.rtf, accessed on 17 May 2004. 87 Giuliano- Lagarde Report (n 1) 17. See also Restatement 2nd (n 1) s 187, comment a. 88 Giuliano-Lagarde Report (n 1) 17; Gan Insurance Co Ltd v Tai Ping Insurance Co Ltd [1999] ILPr 729, CA. 89 Giuliano-Lagarde Report (n 1) 17; SAIL v Hind Metals Inc [1984] 1 Lloyd’s Rep 405; Egon Oldendorff v Libera Corp (No 1) [1995] 2 Lloyd’s Rep 64. 90 Fawcett, J, Harris, J and Bridge, M, International Sale of Goods in the Conflict of Laws (Oxford, OUP, 2005) para 13.56. 91 There is no specific e-commerce issue here.

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b. Previous Courses of Dealing in Related Transactions In traditional business-to-business commerce, the court would find that the existence of a previous courses of dealing that are all governed by the same law is convincing evidence that the parties want the same law to apply to their subsequent, related transactions.92 This situation would happen frequently in e-consumer contracts, where a typical practice of e-businesses is the use of a ‘convenient channel’ for its existing or returning customers.93 By using the ‘convenient channel’ to place an order, the consumer does not need to provide information and is not required to read the ‘terms and conditions’. However, it is suggested that even in business-to-business transactions, the unfamiliarity of a party to the relevant industry would make the implied choice hard to prove.94 With regard to consumer contracts, consumers as laymen would be even less likely to realise the relation between all their transactions. Nor could they expect the possible effect of any express choice of law agreement in their previous dealings. It is submitted that the existence of previous courses of dealing could not be a strong indicator as to the existence of an implied choice of law in e-consumer contracts, the implied choice could only be found with great certainty when the consumer is both aware and agrees that the choice of law in the previous courses of dealing be equally applied in a particular transaction. Consideration should be given to the frequency with which the consumer deals with the business, the time between the current transaction and the previous dealing, the differences between the current transaction and the previous dealing in terms of both value and nature of the subject matter involved, whether the business makes relevant reference to the terms in its previous contracts, and whether the consumer has any chance to review the previous contracts whenever he wants.95 c. Jurisdiction/Arbitration Clause The existence of a jurisdiction/arbitration clause is a very weighty, though not conclusive, indicator, demonstrating the parties’ ‘real’ intention as to the applicable law.96 The European Commission in the proposed Rome I Regulation has suggested inserting the following text into the Article:

92

Gan Insurance Co v Tai Ping. eg, the 1-click order service provided by the Amazon. See www.amazon.com/gp/help/customer/ display.html?nodeId=468480, accessed on 25 Oct 2006. 94 Fawcett, Harris and Bridge (n 90) para 13.46. 95 It is similar to the regular usage between the parties, which is a condition to prove the formal validity of a jurisdiction clause in Art 23(1)(b) of the Brussels I Regulation. See Ch 7, s II.A.i.b. 96 See English case law: Egon Oldendorff v Libera Co (No 2) [1996] 1 Lloyd’s Rep 380; Australian case law: Oceanic Sun Line Special Shipping Co Inc v Fay [1988] 165 CLR 197, 224–5; Tzortzis v Monark Line A/B [1968] 1 WLR 406, 413. 93

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If the parties have agreed to confer jurisdiction on one or more courts or tribunals of a Member State to hear and determine disputes that have arisen or may arise out of the contract, they shall also be presumed to have chosen the law of that Member State.97

This provision, however, has been deleted in the final version of the Rome I Regulation. It could provide too strong a weight to the dispute resolution clause and equalise it as the choice of law clause in practice. Although the Rome I Regulation has generally kept the text of the old provision, the importance of a dispute resolution clause in deciding the implied choice of law has been restated. Recital 12 of the Regulation expressly indicates that: An agreement between the parties to confer on one or more courts or tribunals of a Member State exclusive jurisdiction to determine disputes under the contract should be one of the factors to be taken into account in determining whether a choice of law has been clearly demonstrated.

Although this is a recital introduced in the Rome I Regulation, it has not brought changes in ascertaining the implied choice of law in the Rome Convention, but simply clarified its application.98 It shows that an exclusive dispute resolution agreement should be one factor, and maybe an important one, taken into consideration to decide the implied choice of law of the chosen country. However, the proper weight given to the dispute resolution clause is uncertain. What if there are other indicia pointing to a country different to the chosen jurisdiction? How to weigh the dispute resolution clause against other factors that should also be taken into account in determining the existence of an implied choice of law? The recital does not provide a proper answer. Secondly, the recital only refers to the situation where the parties have chosen the forum of a Member State. It does not consider the situation where the forum of a non-Member State is chosen. Should it be interpreted that no considerable weight should be given to the choice of a non-Member State forum? Since the effect of a non-Member State jurisdiction clause is not addressed in the Brussels I Regulation, the recent authorities suggest that each Member State has to take jurisdiction irrespective of the clause choosing a nonMember State court, if jurisdiction is otherwise provided by the Brussels I Regulation.99 The same problem can occur in consumer contracts, where the effect of a non-Member State choice of court agreement is uncertain.100 How much weight should be given to a non-Member State jurisdiction agreement when deciding the implied applicable law, even if this agreement would be overridden in the 97 Proposal for a Regulation of the European Parliament and the Council on the law applicable to contractual obligations (Rome I), COM(2005)650 final, Art 3(1). 98 As a result, although this is a new provision of the Rome I Regulation, it will be discussed in the Rome Convention Chapter in order to provide a systematic study. 99 Case C-281/02 Owusu v Jackson [2005] ECR 1383; Opinion 1/03, Competence of the Community to conclude the new Lugano Convention on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters [2006] ECR I-01145, paras 143–51. See also Cheshire, North & Fawcett (n 78) 328. 100 Although the text of Art 17 seems to apply to non-EU jurisdiction clauses, this article should be read together with Art 23, and should be interpreted to govern the effect of EU jurisdiction clauses only. See Ch 6, s II.

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Brussels regime? Thirdly, it is uncertain whether different weight should be given to an exclusive jurisdiction clause and a non-exclusive one, or to a compulsory arbitration agreement and a non-compulsory one. One may suggest that the same weight should be given to all types of dispute resolution clauses. It is suggested that the dispute resolution agreement cannot be used to decide the tacit choice in e-consumer contracts. First of all, it is against the consumer’s reasonable expectation. Consumers cannot predict that the fact of a choice of court clause would affect their substantive rights and obligations by determining the applicable law. Consumers have no adequate knowledge as to the content of the domestic law of the chosen forum. In most cases, consumers are not aware of even the existence of an express choice of forum clause. As a result, it is thus suggested that the choice of law in e-consumer contract should not be inferred simply from the jurisdiction/arbitration clause. Secondly, many states with protective rules for consumer contracts give limited effect to dispute resolution agreements in consumer contracts in order to protect consumers as the weaker party. For example, according to the Brussels I Regulation, an exclusive jurisdiction clause is not enforceable in consumer contracts except in two specific circumstances.101 The same difficulty occurs in arbitration agreements where some countries prohibit enforcing pre-dispute compulsory arbitration agreements against consumers.102 The recital does not clearly indicate the effect of an unenforceable or invalid exclusive dispute resolution clause in determining the existence of an implied choice of law. A literal reading suggests that an exclusive dispute resolution clause could be referred to as a factor to be considered in determining the implied choice of law disregarding its enforceability, but its weight would be hampered by its nature of its unenforceability or invalidity. This interpretation is unfortunate. It would be a surprise if a jurisdiction clause has been held ineffective to allocate jurisdiction whereas effective to demonstrate the existence of an implied choice of law. Only when an exclusive jurisdiction clause is concluded after the dispute has arisen, or when both parties have a common domicile or habitual residence and it designates the tribunal of that country, could it indicate the parties’, including the consumer’s, real intention. Even in the above two cases, the consumer may not expect the possible application of the law of the jurisdiction chosen in the agreement.

ii. Country-Specific Indicia—Specific Factors in E-commerce Besides the traditional factors, e-commerce may introduce new factors which may be relevant to decide an implied choice of law. For example, some companies, especially multi-national companies, will provide a choice of different languages for 101 Arts 17(1) and (3) of the Brussels I Regulation. Art 17(2) enforces a jurisdiction clause where it provides consumers with additional choice, which should be considered as a non-exclusive jurisdiction clause. See Ch 6, s II above. 102 In Europe, a compulsory arbitration clause may be considered as an unfair term and cannot bind a consumer, see Ann (q) of the Unfair Terms Dir 93/13/EEC, and discussion in Ch 6, s II.A.ii. For jurisdictions outside Europe, some countries, such as Japan, also prevent enforcing pre-dispute arbitration clauses against consumers.

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their consumers.103 A consumer will choose the language that can be understood by him in order to conduct the transaction. For this reason, there is a suggestion that once the language, especially if it points to only one country, is ascertained and agreed upon by the parties, it can be equivalent to a term which refers to a particular legal system.104 However, it is not said that consumers thus agree that the choice of language is equivalent to a choice of law. It might be an indication that consumers are familiar with the language chosen and are willing to conclude contracts with it. This is also the case even if the language is used by a minority of the population and points to one state only. It can, at most, show the intention of the party, who might expect to communicate with a specific language, but it cannot be decisive to indicate that the parties have already chosen an applicable law. The same interpretation can be given to other country-specific indicia, such as the domain name of the website, the company’s email address and the accepted currency. It is common practice for a business to own several mirror sites located in different states, in order to increase the speed and security of transactions. Once the consumer accesses the business’s ‘homepage’, he is required to choose to enter one of the ‘branch’ sites. It is, however, not reasonable to conclude that by choosing a mirror site called ‘X branch’, the consumer implicitly chooses to apply the law of state X. Sometimes, there are very strong country-specific indicia that all the relevant factors are pointing to one particular country. For example, the company has several different websites, which are in different languages, have different currencies, and are hosted on different servers located in different countries. In this case, even if the consumer chooses one ‘branch’, such as the ‘German branch’, it can only show a connection between Germany and this contract, but it does not mean that the consumer agrees to have the German law apply.

iii. Conclusion It seems that to determine whether there is an implied choice of law in e-consumer contracts, the court should be very cautious. In electronic business-to-consumer transactions, most contracts are standard ones and the contracting procedures are usually similar for all different consumers, where hardly any particular contract terms or specific surrounding circumstances could be found to show the parties’ specific implied intention. Secondly, in e-commerce, the parties could be located in very distant places with totally different business habits and cultures, so that the parties are hardly able to reach any implied agreement as to the governing law. Thirdly, since the consumer will usually have a lower education and knowledge 103 Art 10(1)(d) of the E-Commerce Directive also requires the business to state the languages offered for the conclusion of a contract. 104 Fawcett, Harris and Bridge (n 90) para 21.46–7. See also German case, Oberlandesgericht (OLG) Dusseldorf, 9 Jun 1994, where a German tourist concluded a sales contract with a Turkish company. The contract was formed in German without a choice of law clause. The court held that the language can be considered as an implied choice of law, but it should be considered with other connecting factors. The court, however, wrongfully held that an implied choice could be confirmed if all factors showed the country had the closest connection with the contract.

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level, the ordinary commercial usage, standard business forms, or certain general terms, which would be sufficient to show the parties’ implied agreement in business-to-business transactions, might mean nothing to consumers. It is suggested that the implied choice will be adopted for e-consumer contracts only in very exceptional cases. Very stringent requisites should be applied. The implied choice of law, however, can be indicated if it accords with regular practices between the business and the consumer subject to the general conditions containing the jurisdiction or choice of law, and all the following requirements are satisfied: (1) the business clearly notifies the consumer of the general conditions; (2) the consumer can easily access the general conditions for his reference; (3) The nature of the transaction is not substantially different from the first transaction when the clause was entered into; and (4) the transaction between the consumer and the business is frequent enough to make the application of ‘regular usage’ reasonable.

C. The Effect of Choice of Law Agreements The Rome Convention adopts the preferential law approach for the effect of a valid choice of law agreement in consumer contracts. Article 5(2) provides that: [A] choice of law made by the parties shall not have the result of depriving the consumer of the protection afforded to him by the mandatory rules of the law of the country in which he has his habitual residence.

It generally allows the parties to choose the applicable law, but protects the consumer from being deprived of the protection afforded to him by the mandatory rules of the law applicable in default of choice, which is the law of the consumer’s habitual residence. If the chosen law provides lower protection to the consumer than the mandatory rules of the default law, the mandatory rules of the default law would prevail over the chosen law.105 This approach tries to make a compromise between contractual freedom and consumer protection. However, more and more criticism has been raised against this resolution, especially its application in e-commerce.

i. Mandatory Rules in Article 5(2) ‘Mandatory rules’ has been defined by Article 3(3) of the Rome Convention, ie laws which cannot be derogated from by contracts.106 They are mandatory rules in a broad sense. They are not limited to overriding mandatory rules/international mandatory rules that apply irrespective of the applicable law, but include all other rules that cannot be contracted out within the system of law where the rules belong.107 According to the specific purpose of Article 5(2), the mandatory rules 105

The Rome Convention, Art 5(2); Hague Consumers Sales, Art 6; Civil Code of Quebec, Art 3117. Rome Convention, Art 3(3). 107 For further discussion on basic theories on mandatory rules, see generally Cheshire, North & Fawcett (n 78) 729–38; Fawcett, Harris and Bridge (n 90) para 21.38, 760–4. 106

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herein should be protective in nature.108 Article 5(2) says that the chosen law cannot deprive the consumer of the ‘protection’ that he could get under his domestic law. The word ‘protection’ suggests that only those rules that are protective to consumers would be used in Article 5(2). Some rules, such as the rules preventing a business from inserting unfair terms to the detriment of a consumer, are protective, but some other rules, such as the common law on consideration, are not. The latter, however, are mandatory rules in Article 3(3),109 but they are not relevant in Article 5(2) because no protection would be provided to consumers by using the non-protective mandatory rules. a. Rules that are Mandatory and Specifically Aim to Protect Consumers There are many rules which expressly state that they are meant to be mandatory, specifically for consumer protection. For example, the Electronic Commerce (EC Directive) Regulations 2002110 provide that where a contract is concluded by electronic means, the business should provide information concerning the procedure of contracting and the language offered in a clear, comprehensible and unambiguous manner to the consumer before the consumer places an order;111 where the consumer places his order through electronic means, the business should acknowledge the receipt of the order without undue delay and also by electronic means and make available to the consumer technical means to identify and correct input errors before placing the order.112 For these two provisions, the Regulations clearly indicate that they are applicable ‘unless parties who are not consumers have agreed otherwise’, which expressly means that they cannot be contracted out in consumer contracts though they have no such effect in ordinary commercial contracts. b. Rules that are Mandatory and Protective to the General Public Some rules, which are mandatory but do not specifically aim to protect consumers, would also lead to the result of benefiting a consumer. For example, some provisions of the Unfair Contract Terms Act 1977 apply to all types of contracts to limit the effect of contract terms excluding or limiting liability. According to Section 2(2) of the Act a party cannot use contract terms to exclude or restrict his liability for negligence in the case of loss or damage unless such a term is reasonable. This term would be important to protect a consumer if such a term is not 108 Collins, Morse, McClean, Briggs et al, Dicey, Morris and Collins, 1640; A Jaffey, ‘The English Proper Law Doctrine and the EEC Convention’ (1984) 33 ICLQ 531, 538; Morse (n 26). Art 5(2) provides that a consumer will not be deprived of the ‘protection’ provided to him in the mandatory rules of his habitual residence. 109 Nygh (n 12) 220. 110 SI 2002/2013, which implements the E-Commerce Directive into the UK. 111 Reg 9(1). 112 Reg 11(1).

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considered unfair under the Unfair Terms in Consumer Contracts Regulations 1999, eg this term is individually negotiated while the consumer expressly accepts it either because of insufficient knowledge or because of other pressure. Regulation 2(2) does not specifically aim to protect consumers but could provide protection to consumers in practice. Such rules should be within the mandatory rules of Article 5(2) as although they are not established specifically for consumer protection, they are mandatory and protective in nature and could benefit consumers. c. Rules that could Protect Consumers but are not Mandatory It is generally believed that any domestic rules, including common law or statutory rules, with the purpose of protecting consumers are by their very nature mandatory.113 However, there are exceptions. Sometimes, a rule, which is protective to consumers, may not be mandatory. For example, Regulation 15 of the Electronic Commerce Regulations provides that where a business has not made available means of allowing a consumer to identify and correct input errors prior to the placing of an order, the consumer is entitled to rescind the contract. However, the competent court that hears the case can order otherwise.114 It is uncertain in what circumstances a court could order otherwise. Should the court order otherwise according to the parties’ express agreement, or according to the applicable law? The Regulations provide no clear guidance to this issue. The formula of the provision suggests that it is not mandatory. It cannot be used as a shield for consumers under Article 5(2) though it is protective. d. Rules that are Mandatory but not Protective If a mandatory rule of the law of the consumer’s habitual residence is not protective to consumers, it will not be used to override a chosen law in consumer contracts. Article 5(2) permits the application of the mandatory rules of the consumer’s habitual residence only when it provides a higher standard of protection than the chosen law on the same issue. Where the mandatory rule of the consumer’s habitual residence does not provide ‘protection’, it is not applicable under Article 5(2) even if it is more familiar to the consumer.

ii. Mandatory Rules in E-Commerce E-commerce brings another challenge to the application of mandatory rules. Some traditional mandatory rules may turn out to be inapplicable in e-commerce. Most mandatory rules were established prior to the development of e-commerce. In some cases, the terms and usages in traditional mandatory rules are hardly 113 114

Nygh (n 12) 210 Reg 15.

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applicable in e-commerce.115 A typical example is some provisions in the Unfair Contract Terms Act 1977, which are relevant mandatory rules where the consumer is habitually resident in the United Kingdom. However, many of the mandatory rules are applied to ‘consumer goods’ or ‘sale of goods’.116 The existing English case law authority suggests that the supply of digital products is not ‘the sale of goods’, but the sui generis supply.117 As a result, these mandatory rules cannot be applied to all consumer contracts including the online performance, which is unreasonable for consumers in e-commerce. It is suggested that a more updated interpretation has to be provided to remove the additional barrier when applying mandatory rules in e-consumer contracts.

iii. Comparison and ‘Dépeçage’ The preferential law approach requires the comparison between the chosen law and the mandatory rules of the consumer’s habitual residence for the ‘better’ law to apply to the specific issue governed by that rule.118 The determination of ‘better’ law is not always easy. For example, State A gives its consumers the right to withdraw from contracts within fourteen working days of receipt, and requires businesses to reimburse within ninety days; State B permits its consumers to withdraw within seven days, but requires businesses to reimburse within thirty days.119 It is hard to decide which law is better concerning the specific provision. One may suggest that the consumer should get the higher protection in each issue. As a result, the law of State A applies for the time for cancellation (14 days), and that of State B applies for thee time for reimbursement (30 days). This is criticised as bringing double protection to the consumer. A consumer taking part in cross-border transactions thus is better off than a consumer in his domestic market. The double protection will not be considered reasonable for a business and has provided unjustifiable advantages for a cross-border consumer. Furthermore, unless the chosen law provides systematically higher protection to consumers, the direct result of the preferential law approach is dépeçage, ie different applicable laws apply to different issues of one contract.

iv. Effects on Both Parties The preferential law approach has been criticised as both bringing obstacles to businesses conducting e-commerce and providing difficulties for consumers. It is 115 It has to be noted that this is also the problem of applying most substantive law created before e-commerce to e-contracts. 116 See ss 5, 6(2), and 7. However, although s 26 states that this Act does not apply to the contract of sale of goods in the international sense, it only indicates that ss 2–7 of the Act are not international mandatory rules, which will still be applied as domestic mandatory rules if providing higher protection to the consumers according to the preferential law approach. 117 St Albans City and District Council v International Computers Ltd [1997] FSR 251, 265. 118 Dicey, Morris and Collins (n 30)ch 33; Morse (n 26) 8–9; Nygh (n 12) 156–8. 119 Z Tang, ‘Parties’ Choice of Law in E-Consumer Contracts’ (2007) Journal of Private International Law 113, 125.

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not difficult to understand the difficulty on the part of a business, which has to study relevant consumer law of the consumer’s habitual residence and has to separate mandatory rules from non-mandatory rules. It increases the commercial cost and will discourage small and medium sized companies from entering into e-commerce.120 Furthermore, an important commercial advantage of e-commerce is to reduce the cost for a business to enter into a wide market by establishing an easily manageable commercial websites. The preferential law approach would inevitably require a website to be subject to multiple mandatory rules of different countries in which the business aims to have commercial activities. It prevents the simple commercial practice to establish a ‘one-stop’ virtual shop for all, and prevents e-commerce from being exploited to its full advantage.121 More importantly, different from the presumption of the legislator, the rule cannot provide the expected protection to consumers. It could only prevent the rather extreme situation where a business intentionally chooses the system of law with the lowest standard of protection to govern their contracts, with the only purpose to deprive the consumer of their rights under the contract. This situation, however, would be very rare in reality. Most businesses simply choose the law of their home for the reason of convenience and predictability. The chosen law may or may not provide the higher standard of protection to consumers than the mandatory rules of the consumer’s habitual residence, which, however, is not the real concern of the business. In order to avoid the risk brought by this approach, e-businesses would intend to limit the territorial scope for supplying goods or services, which would negate many of the potential benefits a consumer could obtain in e-commerce, including maximising the availability and the range of different goods and services. The European Commission has pointed out that 47 per cent of businesses claimed the need for compliance with different national requirements in each States is a huge barrier, and that as a result 55 per cent of EU consumers have not heard or seen foreign advertising or information in one year.122 Furthermore, it has been justified above that applying the domestic law of the consumer’s habitual residence would satisfy the consumer’s expectation. However, the preferential law approach does not require the application of the law of the consumer’s home as such but requires the ‘better’ law to apply after the comparison. The final applicable law could be the law of the consumer’s home, the chosen law, or the hybrid of both laws for different issues of a contract. It is hard to say this is better for the consumer’s expectation. A consumer, without sufficient expertise in law, cannot decide which rule is mandatory, cannot compare it with the chosen law, and cannot predict which law would eventually be applicable.123 120

Z Tang, ‘Parties’ Choice, 125–6. Tang (n 119) 126. 122 Commission’s explanatory memorandum to Proposal for a Directive concerning unfair business-to-consumer practices Directive June 2003, paras 10 and 22. 123 Tang (n 119) 126–7. General Council of the Bar of England &Wales, response to Green Paper, europa.eu.int/comm/justice_home/news/consulting_public/rome_i/doc/bar_council_england_wales_ en.pdf, 5, accessed on 06 May 2008. 121

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The preferential law approach may increase a consumer’s confidence in entering into e-transactions, because he is reassured that he will always be protected by the law to his best advantage. However, the complex, demanding and uncertain rule would eventually lead to relatively high litigating costs which is unreasonable for small claims and provides difficulties for consumer in getting redress.124

V. Interrelationship of The Rome Convention And European Protective Directives A. Introduction Besides the Rome Convention, supplemental choice of law rules can also be found in some consumer protective Directives. These Directives have established the harmonised European standard on some substantive issues relating to consumers’ rights. The European standards are implemented by each Member State and enforced as part of domestic law. With the effect of the Rome Convention, a consumer habitually resident in any Member State will always be protected by the standard no less than that harmonised at the Community level, if the contract falls within the scope of protection. However, there is still a risk that in other cases the law designated under the Rome Convention would be the law of a non-Member State and the consumer will be deprived of the protection under the European Directives. In order to ensure the European standard is to be always applicable to contracts having close connections to the territory of the Member States, some Directives establish choice of law rules to provide overriding effects to the Community mandatory rules established under the Directives. For example, Article 6(2) of the Unfair Terms in Consumer Contracts Directive provides that: Member States shall take the necessary measures to ensure that the consumer does not lose the protection granted by this Directive by virtue of the choice of the law of a nonMember country as the law applicable to the contract if the latter has a close connection with the territory of the Member States.125

The same provision can be found in the Distance Selling Directive126 and the Directive on consumer sales and guarantees.127 The special choice of law in the Directives applies where (1) the parties have chosen the law of a non-Member State in a consumer contract, (2) the non-Member State law shall be applicable as the governing law, (3) the non-Member State law provides the consumer less 124

Tang (n 119) 125–7. Dir 93/13/EEC, [1993] OJ L 95/29. The Directive is implemented in the UK by the Unfair Terms in Consumer Contracts Regulations 1999, SI 1999/2083. 126 Dir 97/7/EC, [1997] OJ L 144/19, Art 12(2). 127 Dir 99/44/EC, [1999] OJ L 171/12, Art 7(2). 125

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protection than he could get under the Directives, and (4) the contract has a close connection with any Member States. The special choice of law rules contained in the consumer protection Directives prevail over choice of law rules in the Rome Convention. Article 20 of the Rome Convention provides that: This Convention shall not affect the application of provisions which, in relation to particular matters, lay down choice of law rules relating to contractual obligations and which are or will be contained in acts of the institutions of the European Communities or in national laws harmonized in implementation of such acts.128

B. A Close Connection The Directives have overriding effect if the contract has ‘a close connection’ to the territory of the Member States. It generates difficulty as to the interpretation of the condition. A literal reading of the text shows a wide meaning of connections where any factual elements of a contract may be taken into consideration, such as the place where the contract is concluded, the place where the contract is breached, the place where the performance is conducted, and the place which has the personal connection with the party. It has been submitted before that some of the factors are not easy to locate in e-commerce. More importantly, it is very vague what connection can be considered ‘close’ enough to justify the application of the Community mandatory rules in the Directives. Since the Directives do no require the contract to have the ‘closest’ connection with the territory of the Member States, any connection may be interpreted as close enough. Secondly, it does not require the contract to have a close connection to the Member State which is the consumer’s habitual residence. In other words, the mandatory rules of the Directives could apply even if the consumer has his habitual residence in a nonMember State. The interpretation of the ‘close connection’ requirement can be very wide and make the Directives far-reaching.

C. Limiting Party Autonomy The special choice of law in the Directives applies to limit the application of the law of a non-Member State only when it is designated by party autonomy. In other words, if such a law applies as a default law, it will not be overridden by the Community mandatory rules. It intends to prevent a consumer from being deprived of the protection by the choice of law clause unilaterally inserted by the business. However, this rule will lead to an unfortunate result in practice. Where the protective choice of law in the Rome Convention applies, a nonMember State law may still apply if the consumer has his habitual residence outside the Member States. Where the choice of law clause has chosen the law of the 128

The similar provsion is adopted in the Rome I Regulation, see Art 23 and Recital 40.

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consumer’s habitual residence, it cannot derogate from the Community mandatory rules of the Directives. If the contract includes no choice of law clauses, the default law in the absence of the choice is also the law of the consumer’s habitual residence, which, nonetheless, can be applied without any limitation. Where the protective choice of law in the Rome Convention is inapplicable, the law applicable to the contract will be designated by the general choice of law in Article 3 and 4. In the absence of the parties’ choice of law, the law applicable to a contract is the law of the characteristic performer, or the law of the country with the ‘closest’ connection to the contract. Again, it raises a conflict, in that if the contract has the closest connection with a non-Member State and also designates the law of that state to apply, the mandatory rules of the Directive will override the chosen law; if the same contract does not include a choice of law clause, the law of the non-Member state will apply without limits.

D. Interrelation of the Directives and the Rome Convention The special choice of law rule introduced in the Directives complicates the choice of law issue within the European Community. No consideration has been given to the existing choice of law in the Rome Convention when drafting the Directives. The protective choice of law in the Rome Convention generally uses the targeting approach to justify the application of the protective law. The consumer’s habitual residence is taken as the most important connecting factors to decide the applicable law. The Directives on the other hand use the ‘close connection’ to justify the overriding effect of the Directives. If the contract has a close connection with the Member State, application is required, regardless of the consumer’s habitual residence. The two different systems interweave in practice and create uncertainty. It is necessary to consider the issue in different scenarios. The first scenario is where both parties have their habitual residence within the Member States and the protective choice of law rules under the Rome Convention do not apply. It could happen where the consumer concludes a contract other than the contract for the sale of goods or provision of services, where the consumer has not taken necessary steps to conclude the contract within his habitual residence, where the consumer has entered into a contract to receive services that are applied exclusively outside the consumer’s habitual residence, where the consumer enters into a carriage contract, or where the business is held not to be advertising in the consumer’s habitual residence. Since both parties are European residents, the connection to the Member States is overwhelming. If the law of a non-Member State is chosen, the Community mandatory rules should be able to apply. The second scenario is where the consumer has his habitual residence within the territory of the Member States and the contract is outside the scope of protection under the Rome Convention. In this case, the non-EU business may not be aware of the connection between the contract and the EU. The consumer’s residence

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alone cannot justify the application of the Community mandatory rules. There must be other connections available. For example, although the New York company has not advertised in Europe, the product is physically posted to the consumer in Europe; although the services are provided exclusively outside the Europe, the company has marketed in Europe. Both cases are outside the protective choice of law of the Rome Convention, but have shown sufficient connections with the territory of the Member States to justify the application of the Community mandatory rules. The third scenario is where only the business has its habitual residence within the Member State and the contract is outside the scope of protection under the Rome Convention. The business certainly knows that the contract has connections with the Member State. In most cases where the business has not targeted the consumer’s home, or the consumer has not taken steps to conclude the contract in his home, such a contract usually has a close, if not the closest, connection to the habitual residence of the business, which will be one of the Member States. According to the text of the Directives, it is a strong case where the Community mandatory rules could apply. By choosing a non-Member State law, the business shows an intention to escape from the Community mandatory rules. It should reasonably be prevented if the contract has a close connection with the Community. However, on the other hand, the Community mandatory rules have worked to protect the non-EU consumer and it is doubtful whether this is within the intention of the legislation. The fourth scenario is where the contract is within the scope of protection under the Rome Convention but the applicable law designated by the protective rules is the law of a non-Member State. This can only happen where the consumer has his habitual residence outside the Member States. If there is a choice of law clause choosing the law of a non-Member State, it cannot derogate from the protection of the consumer that he might otherwise get under the law of his habitual residence, which is also a non-Member State. The application of non-Member State law might nevertheless provide a lower standard of protection than the Community mandatory rules. The close connection to the Member States may be founded on the ground that the business has its place of business within the Member States, the subject matter is made within the Member State, or the product is delivered from the Member State. However, even if the contract has a close connection to the Member States, it is hard to justify the application of Community mandatory rules. The application of the Rome Convention has created a prima facie case that both parties should reasonably expect the law of the consumer’s habitual residence to apply. It is uncertain whether the purpose of the legislator is to make the Directives apply in a case where the protective choice of law permits the application of the law of a non-Member State and the consumer is resident outside the Member States. Furthermore, if the same contract has no choice of law clause, applying the law of the consumer’s habitual residence will not be affected even if the contract has a close connection with one of the Member State.

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VI. Conclusion Although the effort to establish specific choice of law rules to protect consumers in international contracts is praised by most states, and the choice of law model in the Rome Convention has been adopted by or considered in consequent legislative reforms in many other jurisdictions,129 it is submitted that the rules under the Rome Convention are outdated and do not promote the development of e-commerce. They unreasonably increas businesses’ risks and commercial costs, and do not provide sufficient protection to consumers. A reform is necessary, which has been done in the Rome I Regulation. In general, the basic legislative principle can still be maintained, which is to provide a protective default law, the law which is most closely connected with the consumer and with which the consumer is most familiar, to apply in the absence of choice. There is not much controversy as to the application of this rule to e-consumer contracts as it presumably provides sufficient protection for consumers. However, the efficiency of all other rules has been questioned. Firstly and most importantly, the scope of protection in the Rome Convention is unreasonable. Generally, it is unduly narrow. The protection is limited to those contracts concerning supply of goods or services. The mobile consumer has been unreasonably deprived of protection. It requires the advertisement to be made clearly targeting the market of the consumer’s habitual residence, which would exclude many online businesses from being subject to the protective rules. Secondly, many terms and concepts adopted require the interpretation as to their application in e-commerce. For example, what are ‘goods’ and ‘services’ in e-commerce?130 What is an e-company’s agent?131 What is ‘specific invitation’ or ‘advertising’ in e-commerce?132 What are ‘steps necessary for the conclusion of the contract’ and where do they take place in e-commerce?133 Relevant rules in the Rome Convention cannot be applied without the necessary interpretation. Thirdly, the overriding effect of the domestic mandatory rules of the consumer’s habitual residence has also been questioned as to its efficiency. It is not clear what rules are mandatory, or how to interpret some traditional mandatory rules in e-commerce. It is also difficult to contrast the substantive laws in two States to determine which provides the higher standard of protection. This approach is also criticised for its complexity, which is unreasonable to resolve consumer disputes that usually are small claims. This approach will increase the cost of dispute resolution. 129 Quebec Code Civil, Art 3117; Uniform Law Conference of Canada, ‘Uniform Jurisdiction and Choice of Law Rules For Consumer Contracts’, www.ulcc.ca/en/us/Unif_Jur_Choice_Law_ Consumer_Contracts_En.pdf, accessed on 04 May 2008; UCC, s 1-301(e)(2)(A); the Brazil proposal in the 7th Inter-American Specialized Conference on Private International Law from Dec 2–4, 2006. 130 Arts 5(2) and 5(4)(b) of the Rome Convention. 131 Art 5(2). 132 ibid. 133 ibid.

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Fourthly, the current rules on the existence and validity of choice of law agreements in consumer contracts are also not satisfactory. It has been submitted that given the special characteristics of e-consumer contracts, some general rules as to the existence and validity of choice of law agreements in ordinary contracts cannot be regarded as reasonable in e-consumer contracts. The current rules to decide the existence of an implied agreement, in particular, must be treated with caution in consumer contracts.134 Finally, it is necessary to note that the special choice of law rule introduced in some of the consumer protection Directives further complicates the choice of law issue in the Community. The special choice of law intends to compensate the protection gap left by the Rome Convention but it does not take the consistent methodology of that in Article 5 of the Rome Convention. Its effect could be farreaching by using the Community mandatory rules to protect non-Member State consumers, even if these consumers do not need such protection. The interplay between the different systems would lead to great uncertainty and confusion. It is suggested that if the Rome Convention could be revised in a manner that is sufficient to provide reasonable and comprehensive protection to consumers, where the application of the governing law of either a Member State or a non-Member State, is justifiable, it is unnecessary to provide the European Directives with the overriding effect of providing double protection to consumers.

134

This issue, unfortunately, has not been reformed in the Rome I Regulation.

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9 Choice of Law Evolution in the Rome I Regulation I. Introduction—From the Rome Convention to the Rome I Regulation The Rome Convention has not been revised since it was established in 1980. However, the need to revise certain rules, especially Article 5 of the Convention, has been considered by some Member States since 1996.1 In January 2003, the European Commission published a Green Paper to convert the Rome Convention into the Rome I Regulation.2 The choice of law rule in consumer contracts was one of the key issues subject to revision, for which around eight alternative suggestions were provided:3 (1) maintenance of the solution in the Rome Convention, with a general clause guaranteeing the use of the Community minimum protection standard; (2) maintenance of the current solution, but enlarging the scope of protection to include mobile consumers and some other types of contracts; (3) systematically extending the general choice of law rules for ordinary contracts to consumer contracts with the limitation of the mandatory rules of the habitual residence of consumers; (4) permitting party autonomy for rules harmonised at the Community level and applying mandatory rules of consumers for matters not harmonised at the community level; (5) systematic application of the law of the consumer’s place of residence; (6) keeping the scope of protection in line with Article 15 of the Brussels I Regulation; (7) applying the law of the habitual residence of consumers only when the business is aware of it; and (8) applying one set of rule for all consumers by permitting the parties the freedom of choice from a limited scope of laws. This list is not exhaustive and there may be more options available. Some of these options are not strictly alternative and the possibility of 1 The Member States started to consider revising the consumer protective choice of law rules under the Rome Convention at the time of Austrian accession to the Rome Convention with the explanatory report specifying that this must be done in the near future. See: Explanatory Report on the Convention on the Accession of the Republic of Austria, the Republic of Finland and the Kingdom of Sweden, [1997] OJ C 191/11, 12. 2 European Commission, ‘Green Paper on the conversion of the Rome Convention of 1980 on the law applicable to contractual obligations into a Community instrument and its modernisation’, 14.1.2003, COM(2002) 654 final. 3 European Commission, ‘Green Paper’, 28–32.

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overlapping among them would create more options by combining two or more of them together.4 Due to the complex nature of the variations, most respondents did not provide detailed examinations of each of these options. Most responses clearly favoured the option of enlarging the scope of protection to consumers by adopting the same scope of Article 15 of the Brussels I Regulation.5 Some responses, generally consumer groups, support the alternative of systematically applying the law of the habitual residence of consumers and exclude party autonomy all together from consumer contracts.6 Many commercial groups, especially those companies engaging in online transactions or associations representing telecommunication related businesses, as well as some legal practitioners, wish to adopt a more business-friendly approach in order to encourage commercial activities.7 Based on information derived from the Green Paper, public hearings, the replies from governments, universities, legal professions and economic actors,8 the European Commission published a proposal to reform the current rules under the Rome Convention in 2005 (Commission proposal),9 which provides straightforward and ambitious choice of law rules for consumer contracts. Three issues in particular should be mentioned from the proposal. One is that the proposal adopts the so-called ‘exclusion of choice’ approach, under which the freedom of choice is excluded in consumer contracts which fall within the scope of protection, and the law of the consumer’s habitual residence will apply systematically. The second is that the proposal redesigns the scope of protection, which is a combination of objective test and subjective test. On one hand, it focuses on analysing the conduct of the business and follows the footsteps of Article 15(1)(c) of the Brussels I Regulation which provides that if the business pursues commercial activities in the consumer’s habitual residence, or directs such activities to that country, the protective rule applies;10 on the other hand, it also examines the subjective situation of the business. Only when the business was aware of the place of the consumer’s 4 U Magnus and P Mankowski, ‘Joint Response to the Green Paper on the Conversion of the Rome Convention of 1980 on the Law Applicable to Contractual Obligations into a Community Instrument and Its Modernisation COM(2002) 654 final’ 26,, 24. 5 eg the Ministry of Justice of the Czech Republic, the Dutch government, the Ministry of Justice of Norway, the government of the UK, the Consumer Council of Norway, Max Planck Institute for Foreign Private and Private International Law. 6 eg the European Consumers’ Organisation (BEUC), Nordic Group for Private International Law, the Eurocouncil of the Alliance Internationale de Tourisme. 7 eg the EuroISPA (the world’s largest association of Internet Service Providers and a major voice of the internet industry), the International Chamber of Commerce, Deutscher Sparkassen- und Giroverband, Amazon Europe, EuroCommrce (an association for retail, wholesale and international trade interests), the General Council of the Bar of England and Wales, Council of the Bars and Law Societies of the European Union. 8 These responses are published on the European Commission Justice and Home Affair website, see ec.europa.eu/justice_home/news/consulting_public/rome_i/news_summary_rome1_en.htm last accessed on 12 Jan 2007. 9 Proposal for a Regulation of the European Parliament and the Council on the law applicable to contractual obligations (Rome I), COM(2005)650 final. 10 It is also suggested by the Green Paper on Rome (n 2) vi.

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habitual residence on the basis of the consumer’s conduct, will it be subject to the protective provision.11 In general, the scope of protection designated in the second paragraph of Article 5(2) of the proposed Rome I Regulation takes two principles, namely a general ‘targeting’ criterion,12 as well as the reasonable expectation test. The third is that the proposal limits the protective choice of law rules to consumers who are habitually resident in a Member State. However, this proposal for consumer contracts has not been adopted and all three issues have been amended in the final Rome I Regulation. After the Commission’s initial proposal was published, the proposed Article 5 encountered vigorous debate. It has been criticised as its possible negative effects on internal markets and the economy, especially the barrier to small and medium sized companies in e-commerce. In May 2007, a compromise amendment to Article 5 of the proposal has been provided by the European Parliament.13 The amendment rejected the exclusion of choice approach and re-adopted the preferential law approach in the current Rome Convention.14 And in the Parliament Final Compromise Amendments released in November 2007,15 the ‘awareness’ test and the geographic limitation has been removed. The final compromised amendment in consumer contracts has been accepted in the Rome I Regulation, which has been adopted by the Council in June 2008, and will enter into force from 17 December 2009 and replace the current choice of law rules in the Member States except Denmark.16 The UK government decided not to adopt the Rome I Regulation in 2006, but after a long debate and following a public consultation,17 the UK government has changed it mind and expressed the wish to adopt the rules under the Rome I Regulation in 2008.18 The new choice of law rules on consumer contracts are within Article 6 of the Rome I Regulation. It is interesting to notice that although the Rome I Regulation intends to address the difficulties generated by the Rome Convention, the final version of the Rome I Regulation does not go very far from the current law. The general choice of law rules in the Rome I Regulation are kept consistent with the current Rome Convention, where party autonomy is effective in consumer 11

Green Paper on Rome (n 2) vii. Explanatory Memorandum of the Commission Proposal (n 9) 6. 13 European Parliament, Committee on Legal Affairs, presented by Rapporteur Ian Dumitrescu Compromise Amendment 1, PE 390.306v01-00, 23.5.2007. 14 Art 5(2a). 15 European Parliament Committee on Legal Affairs, Compromise Amendment 87, DT\Rome IEN.doc, PE 000.000v01-00, 14.11.2007. 16 Recital 46. 17 Ministry of Justice, ‘Rome I—Should the UK opt in?’, Consultation Paper CP05/08 of 2 Ap 2008, 14. 18 European Council, Press Release, 2887th Council Meeting, 11653/08 (Presse 205), 24 and 25 Jul 2008, 26. European Commission, ‘Commission Opinion on the request from the United Kingdom to accept Regulation (EC) No 593/2008 of the European Parliament and the Council of 17 June 2008 on the law applicable to contractual obligations (Rome I)’ COM(2008) 730 final; ‘Commission Decision of 22 December 2008 on the request from the United Kingdom to accept Regulation (EC) No 593/2008 of the European Parliament and the Council on the law applicable to contractual obligations (Rome I)’ [2009] OJ L10/22. 12

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contracts to the extent that it does not derogate from the protection provided to consumers by the domestic mandatory rules of their habitual residence. The default law continues to be the law of the consumer’s habitual residence, which is presumed to provide sufficient protection for the consumer. The protective choice of law rule applies to universal consumers. The only recommended changes exist in the pre-requisites for the scope of protection: (1) to make the scope of protection more effective and updated by adopting the same ‘pursue . . . in’ and ‘direct . . . to’ test in Article 15(1)(c) of the Brussels I Regulation;19 (2) to provide a more complicated and detailed list exempting five specific types of contracts from the scope of protection, namely a contract for the supply of services where the services are to be supplied to the consumer exclusively in a country other than that in which he has his habitual residence; a contract of carriage other than a contract relating to package travel; a contract relating to a right in rem in immovable property or a tenancy of immovable property other than a timeshare contract; a contract relating to financial instruments; a contract concluded within the multilateral system.20 This chapter aims to analyse the new Article 6 of the Rome I Regulation and compare it with the current Article 5 of the Rome Convention to figure out the feasibility and appropriateness of adopting the new rules. Special attention will be paid to the justification and rationale of the revised rules and their functioning in e-commerce.

II. Exclusion of Choice vis-a-vis Preferential Law Approach The Rome I Regulation refuses to adopt the proposed ‘exclusion of choice’ approach proposed by the Commission’s initiative proposal and keeps the preferential law approach in the current Rome Convention. It has been criticised that the preferential law approach adopted in the current Rome Convention is complicated and hard to apply in practice.21 In order to address the difficulty caused by the preferential law approach, the European Commission proposed the ‘exclusion of choice’ approach. It refuses to allow the parties to choose the applicable law in consumer contracts and systematically applies the law of the habitual residence of consumers. This approach has usually been regarded as too radical and could be found only in the Swiss Federal Code on Private International Law of 1987.22 The European Commission justifies this approach for its simplicity, fairness and practicality. However, all these three reasons are not convincing enough for the radical 19

Arts 6(1)(a) and (b). Art 6(4). 21 Ch 8, s IV. Z Tang, ‘Parties’ Choice of Law in E-Consumer Contracts’ (2007) Journal of Private International Law 113, 125–7. 22 Art 120.2. 20

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revision. As a result, the current preferential law approach has been maintained as a compromise between business development and consumer protection.

A. Simplicity In terms of simplicity, the Commission criticises the preferential law approach in the explanatory memorandum of the Commission proposal for the Rome I Regulation: The solution adopted in the Convention was widely criticised in the responses to the Green Paper as it often produced hybrid solutions in which the law applicable to the professional and the mandatory provisions of the law applicable to the consumer were applied in parallel. In the event of a dispute, this complex solution entails additional procedural costs that are all the less justified as the consumer’s claim will tend to be quite small.23

As a result, the approach to prevent the hybrid solution by systematically applying the law of the consumer’s habitual residence has been proposed, which is said to be ‘new, simple and foreseeable’ and it works ‘without affecting the substance of the professional’s room for manoeuvre in drawing up his contracts’.24 This justification is established on the weakness of the current approach adopted in the Rome Convention, which has been criticised for its complexity and additional procedural costs that have negative effects, particularly on consumer disputes, which are usually small claims.25 However, it is also necessary to point out that the Rome Convention does not always lead to the hybrid result. A hybrid result exists only in cases where the parties have chosen the law other than that of the habitual residence of the consumer, and where the chosen law provides lower protection to the consumer than the mandatory rules of the consumer’s habitual residence. It is true that in international commercial practice, a business tends to choose its own law for mass market contracts, but this law may not be the one provides the lower protection to consumers than the law of the habitual residence of consumers. The real difficulty arises in the procedure to decide whether the chosen law and the mandatory rules of the consumer’s habitual residence should apply in parallel. The court has to decide what rules are mandatory in nature and which law provides higher standard of protection to consumers. Even if in some cases the current approach does not cause the hybrid result, the court still has to make efforts to figure these issues out. Comparatively, the proposed Rome I Regulation approach provides a straightforward solution, where no such a difficult process exists. However, although the proposed approach is superior to the current Rome Convention approach in terms of simplicity, it is not the only, or the most appropriate, approach to improve simplicity. Although it is provided by the European Commission: 23

Commission proposal (n 9) 6. Commission proposal (n 9). 25 Commission proposal (n 9), Recital 10; Nordic Group for Private International Law, ‘Proposal for Amendments to the Convention on the Law Applicable to Contractual Obligations’, 37; Ch 8, s IV. 24

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There are two possible solutions to prevent this hybrid situation—full application of the law applicable to the professional or the law applicable to the consumer—only the latter would be truly compatible with the high level of protection for the consumer demanded by the Treaty.26

The statement, however, ignores the third possibility, namely the full application of the law chosen by the parties. It is true that the chosen law usually is the law of the professional, but there may be exceptions. The chosen law, in certain circumstances may also show the real intention of both parties, for example, when the choice is made after the dispute has arisen. One may doubt the reasonableness of systematically applying the law of the consumer’s habitual residence and ignoring the consumer’s intention. Furthermore, it is also possible that the parties’ chosen law provides the higher standard of protection for consumers. It is hard to claim that full application of the law of consumers would be truly compatible with the high level of protection for consumers, when such a rule deprives consumers of the protection they may otherwise get under the chosen law.

B. Fairness The European Commission also justifies the exclusion of choice and the systematic application of the law of the consumer’s habitual residence for the reason of fairness. The European Commission says: It also seems fair in economic terms: a consumer will make cross-border purchases only occasionally whereas most traders operating across borders will be able to spread the cost of learning about one or more legal systems over a large range of transactions.27

This argument is unfortunate, because it fails to consider the reality of e-commerce, where most business participants are small and medium-sized companies. Those companies may have a limited number of transactions in every single state, and it is hard for them to ‘spread the cost of learning’ over a large range of transactions. Secondly, it fails to consider the real economic impact of the cost of learning by e-companies. It has been discussed before that the normal practice for e-companies is to establish one website for all potential markets. Only multinational companies would establish different websites for each country. Even if a company learns the law of each potential market, this company has to establish different websites with different terms and conditions for each market in order to substantively avoid potential risk. The cost would go far beyond ‘the cost of learning’ and make it economically unrealistic for small and medium-sized e-companies.28 26

Commission proposal (n 9) 6. Commission proposal (n 9) 6. The negative effect on traders have caused strong criticism. See European Parliament Committee on Legal Affairs Amendments 32–85, PE 382.371v01-00, 7.12.2006; Amendments 53 by J Fourtou and 56 by KH Lehne; European Parliament Committee on Legal Affairs Amendments 86–96, PE 386.328v01-00, 5.3.2007, Amendment 92 by K Lehne, 27 28

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Furthermore, it is necessary to know that the burden of learning is usually on the side of businesses. In practice, no consumer would bother to learn the law before each purchase. In domestic transactions, consumers expect the law of their own habitual residence to apply, but they do not necessarily have any idea as to the content of the law. Only after disputes occur would consumers start to study the law. On the other hand, businesses should usually acquire substantial understanding of the law before engaging in professional activities. The proposed reform only adds an additional burden of learning on the business, but does not affect the situation of the consumer in terms of the cost to learn. The so-called fairness on the cost of learning is in fact unrealistic.

C. Practicality In terms of practicality, the European Commission says: Finally, in practice this solution does not substantially modify the situation of the professional, for whom the initial difficulty in drafting standard contracts is to comply with the mandatory provisions of the law in the country of consumption; under the Convention, the mandatory provisions are already those of the country of the consumer’s habitual residence. Regarding other clauses, which the parties are free to draft as they wish, the freedom of the parties to draft their own contract is the rule that continues to prevail; it therefore matters little whether they are governed by the law of one or other party.29

It is absolutely true that under the current Rome Convention, the business must also acquire sufficient knowledge of the mandatory rules of the country where the consumer has his habitual residence. However, the Commission has not conducted a comprehensive regulatory assessment as to the possible impact on commercial costs and e-commerce by abandoning party autonomy and requiring businesses to learn those rules other than mandatory rules of the habitual residence of consumers. The possible effect of the exclusion of choice approach on the economy, as a result, is uncertain. The Commission provides a rather superficial statement saying that the law that governs those issues other than mandatory ones matters little, because the current Rome Convention permits the parties to be free to choose any law to apply to these issues.30 The reasoning is problematic. These non-mandatory issues are generally not protective in nature and party autonomy can continue to apply; it does not mean parties, especially businesses do not consider these issues at all when drafting contracts. Some issues, such as the formation of contracts, are not mandatory in Article 5(2) but have substantive impacts on the enforcement of e-contracts. The European Commission’s justification has been widely questioned. The Financial Markets Law Committee (UK), for example, considers that ‘(t)he law governing the contract is a matter of great significance, 29 30

Commission proposal (n 9) 6. Commission proposal (n 9).

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which can have a substantial impact on the nature of the contractual relationship between the parties’,31 and by systematically applying the law of the consumer’s habitual residence, ‘the due diligence necessary to be able to conclude a contract with a consumer is exceedingly large, so as to become intolerable’.32

D. Arguments against the Exclusion of Choice Approach It is clear that the European Commission’s justification for the proposed reform is not convincing. On the contrary, many arguments can be found to criticise the exclusion of choice approach. The first argument claims that this approach is contrary to the freedom of contract principle, which is supposed to be the cornerstone of the Rome I Regulation.33 Although unfettered party autonomy proves inappropriate for contracts with the inequality of bargaining power, completely depriving the parties of such freedom is unreasonable. Even in consumer contracts, parties may likely make a choice showing both parties’ authentic intention; for example, the parties choose the applicable law after the dispute has arisen.34 It is also possible for the consumer to agree on the business’s standardised contract in two circumstances: the consumer has some knowledge and knows that the chosen law provides better protection than the law of his home; the consumer intends to be bound by less favourable contract terms in exchange of the lower purchase price or better services. More importantly, the exclusion of choice approach may deny the possible win-win situation, where the e-business has its habitual residence in a state with a higher level of consumer protection and chooses the law of its habitual residence. Applying the chosen law will reduce costs and risk for the business and will provide the higher level of remedies for the consumer. The exclusion of choice approach thus has been criticised as ‘hardly designed to protect the interest of the weaker party’.35 Another argument against the proposed approach is that it would act as a disincentive to transnational trade.36 The massive marketing power of e-commerce 31 Financial Markets Law Committee, ‘Legal assessment of the conversion of the Rome Convention to a Community instrument and the provisions of the proposed Rome I Regulation’, Apr 2006, www.fmlc.org/papers/April06Issue121.pdf, accessed on 02 Jul 2007, para 7.11. 32 ibid, para 7.9. The Luxembourg delegation also commented that ‘the economic impact of this proposal has not been evaluated’ and ‘(i)ts consequences for the internal market and for consumers have not been analysed.’ See ‘Competitiveness Council meeting on 21 and 22 May 2007 Note from the Luxembourg delegation’ 15 May 2007, 9670/07, 3. 33 Commission proposal (n 9) recital 7; Green Paper on Rome I (n 2) para. 1.5. 34 It is also interesting to compare Art 17(1) of the Brussels I Regulation and Art 14(1)(a) of the Rome II Regulation, where party autonomy is allowed in cases where the parties have inequality of bargaining power if the choice is made after the dispute has arisen. 35 See P Nygh, Autonomy in International Contracts (Oxford, OUP, 1999) 155–6; AE Von Overbeck, ‘Contracts: the Swiss Draft Statute Compared with the EEC Convention’ in P North (ed) Contract Conflicts (Oxford, North-Holland Publishing, 1982), 273. 36 City of London Law Society Financial Law Sub-Committee, ‘Submission to the European Commission: The 1980 Rome Convention’ ec.europa.eu/justice_home/news/consulting_public/ rome_i/doc/city_london_law_society_financial_sub-committee_1_en.pdf, accessed on 30 Jun 2007, 18.

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requires the wide use of standardised contracts for maximum economic efficiency. Adopting this approach would likely result in businesses concentrating on their home market, or on a limited number of states, where the cost of compliance would be relatively limited. It would thus perpetuate the existing division of national markets and impede the development of e-commerce.37 The commercial cost and risk will eventually be transferred to consumers, who would either pay for the higher price or have limited suppliers to choose from, which will not substantially improve the position of consumers.38 The exclusion of choice approach proposed in the Commission’s proposal may be superior to the existing rules in the Rome Convention in terms of simplicity and certainty. However, without previous practice and statistics, the influence of the exclusion of choice approach in business practice, especially in e-commerce, is unknown. On one hand, it may simplify the procedure to determine the applicable law and reduce litigation costs. On the other hand, it would increase risk and costs for businesses engaged in e-commerce. It has been accepted that in the modern commercial world, the standard contract including a standard choice of law agreement has its potential advantages to improve efficiency and economy. The reduced commercial costs would benefit consumers by enabling businesses to provide more attractive price, more available services, and more options to consumers. Considering the uncertainty generated by the exclusion of choice approach and the objection primarily from commercial and legal practitioners, the Rome I Regulation finally decided to abandon this proposal and kept the current preferential law approach.

III. Scope of Protection The Rome I Regulation provides a complicated scope for the application of specific choice of law rules. Firstly, there is an ‘inclusive scope’. Contracts satisfying the conditions in Articles 6(1)(a) and (b) shall be included in the protective scope. Secondly, there is an ‘exclusive scope’. Article 6(4) of the Regulation excludes some contracts out of the protection where general choice of law rules39 or specific choice of law rules shall apply.40

A. Inclusive Scope Three important changes have been made in the Rome I Regulation as to the inclusive scope of protection compared to that in the Rome Convention. Firstly, there is 37

City of London Law Society, ‘Submission’, 18. City of London (n 36). Tang, ‘Parties’ Choice of Law’ (n 21) 128–9. 39 Arts 3 and 4 of the Rome I Regulation, which apply to consumer contracts covered in Arts 6(4)(a), (c), (d) and (e). 40 Art 5 of the Rome I Regulation applies to contracts of carriage other than package tour contracts. 38

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no longer a requirement for the protective choice of law to be applied only in contracts of the supply of goods or services. It does not provide definition to what constitutes ‘goods’ or ‘services’ in e-commerce, but simply deletes the unnecessary restriction to expand the application of this Article to all types of consumer contracts providing that contract satisfies the conditions in the second paragraph of Article 6(1). Secondly, there is no longer the requirement that the consumer should take necessary steps to conclude the contract in his habitual residence. In other words, the conditions for the application of the protective choice of law rules have been expanded to include the mobile consumer.41 Thirdly, it focuses on analysing the conduct of the business and follows in the footsteps of Article 15(1)(c) of the Brussels I Regulation which provides that if the business pursues commercial activities in the consumer’s habitual residence, or directs such activities to that State, the protective rule applies.42 Although the technical analysis of the new provision shows certain improvement in terms of e-commerce, it is suggested by some that the new Article 6(1) brings no substantive changes in terms of practice.43. The interpretation of the inclusive scope has been examined in detail in the previous chapter concerning the same terms in the Brussels I Regulation.44 This section will not discuss this issue in order to avoid repetition. However, one specific issue that needs to be considered is the attitude the legislator gives to the ‘awareness’ of the business in order to include a business into the scope of protection. Article 5(2) of the Commission proposal provides that a business is not subject to the protective jurisdiction rule if it ‘did not know where the consumer had his habitual residence and this ignorance was not attributable to his negligence’.45 This so called ‘safeguard clause’ intends to protect the professional against the unpredictable effect of the internet. It proves that the European Commission intends to adopt a combination of objective and subjective tests of the business to determine the scope of protection; only when the professional is, or ought to be, aware of the effect of his commercial activities, will the protective rules apply. The Rome I Regulation deletes the content of the ‘awareness’ test provided in the Commission proposal. It is not clear whether it means that a purely objective test should be accepted to create a factual connection between a business’s marketing activities and a country. The reason for the deletion probably is because of the practical difficulty of the awareness test. First of all, how to decide whether or not a professional knows the consumer’s habitual residence? Even in a face-to-face contract, the question is hard to answer. For example, would the foreign accent, the colour of skin, or the mode of dress, suffice to make the seller aware of a foreign habitual residence?46 This question would become more difficult in 41

This is the suggestion provided by the Green Paper on Rome (n 2) para 3.2.7.3, ii. It is also suggested by the Green Paper on Rome (n 2) vi. 43 Ministry of Justice, Rome I, para 64. 44 Ch 3, s III. 45 Commission proposal (n 9) Art 5(2). 46 Max Planck Institute for Foreign Private and Private International Law, ‘Comments on the European Commission’s Green Paper on the Conversion of the Rome Convention of 1980 on the Law Applicable to Contractual Obligations into a Community Instrument and its Modernisation’, 55. 42

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e-commerce which is characterised by the non-identification of the contractual parties.47 Secondly, it is questionable who would be the relevant person to become aware of the consumer’s habitual residence.48 In e-commerce, many e-companies have adopted e-agents. The electronic programme has no human based intention and has no ‘awareness’ of the consumer’s habitual residence. The manager or employees of the company does not directly deal with the electronic order and will have no direct ‘awareness’ of the consumer’s real identity. Could one simply conclude that the business has no awareness at all as to the consumer’s habitual residence and enable the e-company to easily escape the protective rules? Thirdly, it is not clear what criteria could be used to decide whether ignorance is attributable to the business’s negligence. The European Commission mentions in the Explanatory Memorandum that the misrepresentation of the consumer is able to release the business from the protective rule,49 which indicates that when the business requires the consumer to reveal his habitual residence, the business should be confident to rely on the information given by the consumer. It implies that the European Commission intends to admit the efficiency of this ring-fencing method.50 Although the European Commission mentions nothing about whether the business could use other ring-fencing methods to escape the protective rules, it is presumed that it can, as long as those methods provide equal effects to this one. However, the European Commission’s interpretation would be too lenient for the business and unfair for the consumer. Although the European Commission explains it is necessary to protect the business that enters into a contract by relying on the consumer’s lies,51 it is also possible to argue that the business should expect the possibility that some false information may be given. After all, the misrepresentation of consumers might be completely innocent, for most of them do not know the legal concept of habitual residence. This ignorance thus should be attributable to the business’s negligence. However, it does not mean the subjective issue should not be considered at all. As it has been discussed before,52 although an objective test should usually be adopted in order to decide whether a company should be subject to the protective jurisdiction or choice of law, the objective test should be interpreted as ‘external reflect of the subjective intention of the business’. Although the subjective test is not expressed in the Rome I Regulation, it is suggested that when interpreting Article 6(1) of the Rome I Regulation, the reasonable expectation of the business should be one important factor in deciding whether the business directs its commercial activities at the consumer’s habitual residence.53 47

See Ch 1, s III.A. Max Planck Response, 54–5. 49 The Explanatory Memorandum of the Commission proposal (n 9) 7. 50 The Commission refused to adopt the ring-fencing approach for the Brussels I Regulation in 2000, see the Commission Amended Brussels I Proposal, 6–7. The proposal for the Rome I Regulation in 2005 suggests that the European Commission started to change its attitude towards the ring-fencing approach. 51 The Explanatory Memorandum of the Commission proposal (n 9). 52 Ch 3, s III.B. 53 ibid. 48

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B. Contracts Excluded From the Scope of Protection The Rome I Regulation excludes five types of contracts from the scope of protective choice of law. The wide exclusive scope is necessary as the Rome I Regulation extends the scope of protection from contracts for the ‘supply of goods or services’ to all types of contract. As a result, it is suggested that ‘special consideration should be given to certain transactions where it was particularly important that only a single law should apply.’54

i. Services Supplied Exclusively outside Consumers’ Habitual Residence a. Background Whether to exclude service sectors from the scope of protection is a controversial issue in the negotiation of the Rome I Regulation. This exclusion exists in the current Rome Convention and has been criticised by some commentators. From a policy perspective, it is said that since the service sector is one of the fastest growing sectors in Europe, the exclusion is inconsistent with the development.55 To protect consumers in the service sector is important for a well-developed internal market within the EU. From a legal perspective, this exclusion may not be appropriate in e-commerce, where it is hard for an e-business to effectively provide its online services in certain states exclusively. Although the Commission’s initiative proposal contains the same exclusion clause,56 this clause has not been included in the two following Presidencies proposals,57 and has been suggested being deleted by the Committee on Legal Affairs of the European Parliament.58 It is argued that all consumer contracts for the supply of goods or services should follow the same rule. It is also consistent with the Brussels I Regulation, where consumer contracts for the provision of services are not excluded.59 The inclusion of services provided exclusively outside consumers’ habitual residence has generated strong criticism from service providers, especially hotel and restaurant associations.60 The business is of such a nature that it would not be free to choose its customers’ origin as part of the characteristic of such services is to 54

Ministry of Justice, ‘Rome I’, para 65. Nordic Response (n 25) 32. 56 Art 5(3)(a). 57 The Finnish Presidency Proposal, 13853/06 and the Finnish Presidency and incoming German Presidency, 16353/06, both do not include the exclusion of services contracts from the scope of protection. 58 Amendment 62 by Jean-Paul Gauzes and Amendment 63 by Diana Wallis (n 28). Committee on Civil Law Matters (Rome I), Summary of discussions, 16 Feb 2007, 6260/07, JUSTCIV 27 CODEC 111, 3. See also Nordic Response (n 25) 32; Max Planck Response (n 46) 111; Magnus and Mankowski Response (4) 25–7. 59 Amendments 62 and 63 (n 28). 60 eg, see German Hotel and Restaurant Association, ‘ “Rom I-Verordnung”: Anwendbarkeit ausländischen Rechtsthe’ www.dehoga-bundesverband.de/home/newspage_1549_mn1.html, accessed on 06 Jul 2008. 55

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earn profits from global residents. It is also unreasonable to require a hotel or a restaurant to adjust its services to each customer under different applicable law. The burden will be so high that it is impossible to enforce. Even if a hotel has website advertisements targeting each country, applying different laws to contracts with different customers is impractical. Management of a hotel or a restaurant located in one country should follow one set of rule and be consistent to all customers buying services in that country. Service providers fear that by applying the Rome I Regulation, the law of each guest would be applied, which is clearly unrealistic and unfeasible for the industry, and would be a serious barrier to smalland-medium sized businesses. As a result, the Rome I Regulation eventually kept this exclusion to protect service sectors. b. Offline Services Some services, such as hotels and restaurants, will not cause many e-commerce specific issues. They are in general traditional services and can only be provided offline. The only process that may be electronised is the way to conclude a contract. A hotel may manage a website in a foreign language, targeting consumers who have their habitual residence in the country, and enabling consumers to conclude contracts online. One might argue that for all contracts concluded through the website, the hotel has targeted the particular country and should predict being subject to the law of that country. However, the Giuliano-Lagarde Report justifies the exclusion in these cases that the contract for service exclusively provided in a territory or territories is more closely connected with the place where the service is provided, even if the business performed some actions to target the consumer’s habitual residence.61 According to the justification, even if a business advertises in a consumer’s home and the consumer concludes the contract in his home, this consumer will not be protected by his own law if he travels to the other country to enjoy the service. With the exception of the package tour, this provision clearly protects hotels and other services aiming at attracting foreign consumers for travel. The tourism business can thus evade the protective rule in most cases. The closest connection reason, however, could only justify applying the law of the place where the service is provided to govern the issue relating to the performance of the contract, namely the provision of services. It is true that the performance aspect of the contract has the closest connection with the place where the service is provided and a hotel, for instance, cannot provide different standard of accommodation services to different consumers. However, the hotel can at least expect different laws to apply to other issues relating to the contract, including the formation of the contract, the consumer’s right to withdraw and the policy of reimbursement. In e-commerce, most hotels advertise online and persuade foreign consumers to book rooms or to order other supplemental services in advance. The hotel knows, or ought to know the habitual residence of many consumers. It 61

ibid.

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is doubtful whether there is a strong reason to deprive a consumer in such a contract of the protection he may otherwise get relating to issues other than the performance of service. For example, if an English consumer concluded a contract to book a room in a hotel in South Africa, the English consumer would expect he has the right to cancel within 7 days under the Consumer Protection (Distance Selling) Regulations 2000,62 though South African law would apply to govern the performance of the hotel to provide accommodation services. c. Online Services More difficulties exist in online services. The first difficulty is the definition of online services. There is no consensus as to how to categorise online transactions, especially the transaction of digital products.63 A uniform European definition should be provided to interpret this term. It has been submitted before that the transaction of intangible specialised ability and the transaction of customised software where labour is predominant would be classified as a supply of services.64 Some online services are the electronic equivalent of traditional offline services. Others are electronic-specific, which can only be conducted by electronic means, and they hardly have traditional equivalents. These services can only be conducted online with the characteristic that enables service providers to deal with consumers habitually located in different countries. Regardless of which category an online service belongs, applying this exclusion clause is hard to justify. According to the Giuliano-Lagarde Report, for services provided exclusively in a country applying the law in the place of service should be reasonably expected by both the service provider and the consumer.65 The justification could work for the provision of online services only if it is possible and efficient for a business to provide its services ‘exclusively’ in a territory and to block the consumer from getting it anywhere else. However, in practice the international nature of online services makes it difficult for e-services to be provided or performed exclusively in certain territories. The Giuliano-Lagarde Report says that even if a business targets a consumer’s habitual residence, if the service is provided exclusively in other states, the protective rule will not apply.66 The e-business can thus send its promotional e-mail to the consumer habitually resident in state A, or advertise on a website clearly targeting the market in state A. The consumer can even access the business’s website to conclude the contract when the consumer is physically located in state A. Once the service in question cannot be acquired in state A, the business can escape the protective rule. According to the explanation report, the subjective 62 SI 2000/2334, which implements Dir 97/7/EC on the protection of consumer in relation to distance contracts [1997] OJ L 144/19, with the exception of Art 10. 63 Ch 3, s III.A. 64 ibid. 65 Giuliano, M and Lagarde, P, Report on the Convention on the law applicable to contractual obligations [1980] OJ C 282/1, 25. 66 Giuliano & Lagarde Report, 25.

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intention of the business does not matter. Only the objective effect of the business’s activity determines whether the business can evade the protective rule. Applying the objective test proves difficult in e-commerce. Under the objective test, services should be provided exclusively in certain territories. It would be difficult in e-commerce, where it cannot guarantee that the online services are provided exclusively in the pre-designated area. The current most effective way relies on technology.67 It is also not clear why distinct approaches have been adopted for the provision of services and the sale of goods. What if a business supplies goods exclusively in some countries other than the consumer’s home? According to the Article 6(1) of the Regulation, in sale of goods, as far as the business has targeted the consumer’s habitual residence, the protective rule should apply regardless where the country of destination is. It is thus suggested that comprehensive exclusion of services contracts where services are provided exclusively in a country other than the consumer’s habitual residence is not an appropriate solution. The exclusion works well on issues relating to the performance of offline services, but is not sound for online services, or for certain contractual issues that can be adjusted according to different applicable laws.

ii. A Contract of Carriage The Rome I Regulation also excludes contracts of carriage from the scope of protective choice of law, which substantially maintains a similar exclusion in the Rome Convention. Article 6(4)(b) provides that ‘a contract of carriage other than a contract relating to package travel within the meaning of Council Directive 90/ 314/EEC of 13 June 1990 on package travel, package holidays and package tours’. This is a restatement of Article 5(4)(a) and Article 5(5) of the Rome Convention.68 a. Justification Giuliano-Lagarde Report does not provide any reason for the exclusion of a contract of carriage.69 A possible justification is that there are plenty of international conventions on contracts of carriage because the industry is international in nature and requires sufficient uniformity and cooperation between different countries. These international conventions provide uniform mandatory requirements and 67 Some big companies may try to use technology to localise the IP address of every web user, in order to block the consumer located outside its intended market from access to the website, eg Tesco’s online store indicates that it only provides service within the UK, Isle of Man and Channel Islands, and they may use technology to verify the user’s location to prevent unwanted contracts. www.tesco.com/termsandconditions/termsconditionsDownloads.htm, accessed on 21 May 08. 68 Ch 8, s III. 69 Giuliano &Lagarde Report (n 65) 24. Morse, CGJ, ‘Consumer Contracts, Employment Contracts and the Rome Convention’ (1992) 41 ICLQ 1, 5.

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substantive rules for such contracts, which exclude the application of normal choice of law rules. Applying the protective choice of law for such contracts with one party as a consumer would complicate the situation and hamper the development of international carriage industry.70 However, the justification is not convincing. First of all, contracts of carriage are not completedly excluded from the choice of law regime. Despite the harmonised rules in international conventions, differences still exist and the general choice of law in contracts continues to apply in areas not covered by international conventions. Secondly, from a consumer’s point of view, such exclusion is unfortunate, especially in e-commerce, because a large amount of e-contracts are contracts of carriage, especially contracts for the carriage of passengers. Almost all carriers have developed websites for potential passengers to book transport tickets. Online booking services have proved to be swift, convenient and cheap, which is welcomed by most consumers. Depriving consumers who buy travel tickets online from necessary protection is unwelcome and contrary to the policy to protect the weaker party.71 However, carriers might claim that requiring all carriage contracts to be subject to the mandatory rules of consumers’ habitual residence can damage the industry and increase risk, because the international nature of the industry decides that consumers could have their habitual residence everywhere in the world. Since the service is applied to all consumers with the same standard and cannot be specifically justified to different consumers in different countries, it is important to permit the same law applies to all contracts for the reason of certainty and economy.72 b. Package Travel Package travel contracts are separated from other carriage contracts and are included in the scope of protection. The legislators have considered that the exclusion of services provided exclusively outside the consumer’s home and of contract of carriage may be too wide and would be detrimental to consumers’ rights, especially to those consumers taking holidays abroad. Most package travel contracts 70 eg Warsaw Convention For The Unification Of Certain Rules Relating To International Carriage By Air of 1929; Montreal Convention for the Unification of Certain Rules for International Carriage of 1999; Athens Convention relating to the Carriage of Passengers and their Luggage by Sea (PAL) of 1974; Berne Convention concerning International Carriage by Rail (COTIF) of 1980. Cf P 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’, [1979] OJ C59/71, 119. 71 Some members of the European Parliament also hold the view that the protective rule should be extended to the contract of carriage. See Amendment 54 and Amendment 62 (n 28). 72 Comments of the European Community Shipowners’ Associations (ECSA), the International Chamber of Shipping (ICS), the Baltic and International Maritime Council (BIMCO) and the International Group of P&I Clubs to the Rome I Proposal clearly state that the representatives of the carriage industry do not wish to include contracts of carriages into the scope of protection for consumers. D2867/07 SF 2.240, www.marisec.org/submissions.htm, accessed on 19 May 2008.

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are concluded between consumers and their local travel agents or travel operators. Both parties would reasonably expect the law of their common residence would apply to the contract. Article 5(5) of the Rome Convention does not use the term ‘package travel’, but defines such contracts as something ‘for an inclusive price, provides for a combination of travel and accommodation’.73 It is criticised for its narrowness, as there are also contracts combining travel and/or accommodation with other tourist services.74 If a consumer concluded a contract with a travel operator which included an air ticket to Italy and an opera ticket, this contract is not covered in the narrow scope of the Rome Convention. Compared with the Rome Convention, which does not establish a proper definition of the term ‘package tour’, the Rome I Regulation has made its scope clear. It refers to the definition in the Directive 90/314/EEC, which defines ‘package travel, package holidays and package tours’ as: [T]he pre-arranged combination of not fewer than two of the following when sold or offered for sale at an inclusive price and when the service covers a period of more than twenty-four hours or includes overnight accommodation: (a) transport; (b) accommodation; (c) other tourist services not ancillary to transport or accommodation and accounting for a significant proportion of the package.75

Under the Rome I Regulation, contracts combining transport/accommodation and other tourist services other than transport/accommodation are ‘package tour’ contracts and are included in the scope of protection, though they are outside the scope of protection under the Rome Convention if these other tourist services are provided exclusively in a country other than the consumer’s habitual residence. The extended and clarified scope is helpful for consumers. However, the formulation of Article 6(4)(b) suffers a classification problem. It excludes the contract of package travel from the contract of carriage, but the contract of package tour, according to the definition, could simply be a contract of services without any components of transport. For example, a contract combining accommodation and other tourist services not ancillary to transport or accommodation in a foreign country is a contract of package travel, but it has nothing to do with a contract of carriage, and it is hard to see how it can be excluded from a contract of carriage. If such a contract does exist, the business probably would try to argue that it is a contract for the provision of services exclusively in a foreign country, which is excluded from the scope of protection in Article 6(4)(a). However, according to 73 Such uncertain definition has been criticised by some academics. See Giuliano-Lagarde Report (n 65) 25; P Kaye, The New Private International Law of Contract of the European Community (England, Aldershot, 1993) 207. 74 See also Kaye, The New Private Law, 206. 75 Dir 90/314 EEC of 13 Jun 1990 on package travel, package holidays and package tours [1990] OJ L 158/59, Art 2(1).

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the purpose of the legislation, which is to protect consumers in package tour contracts, such a contract should be included in the scope of protection. The express protection to consumers under the package travel contracts intends to soften the negative effects of the exclusion of the service sector and the carriage industry. However, the inclusion of package travel into the protective regime cannot help much. E-commerce opens opportunities for consumers to make their own package by putting together the travel components chosen by them instead of the pre-arranged package sold by travel agencies or operators. For example, after booking an air ticket the airline’s website usually will provide consumers the opportunity to book accommodation with lower fees. By clicking relevant links consumers will be directed to the website of a hotel to continue arranging accommodation. In most cases consumers follow the instructions and conclude contracts of accommodation as the result of the airline’s promotion. However, the so-called ‘dynamic packaging’, where consumers have concluded separate contracts with different companies which are paid separately, is not a package travel contract. A package travel contract, according to the definition, must be one single contract combining both travel and accommodation. The existence of ‘dynamic packaging’ in e-commerce reduces the number of typical package travel that can be protected in choice of law.76 It is doubtful as to whether it is sufficient by using ‘package travel’ to protect holiday consumers, or whether the protection should be extended from the traditional package tour defined in the Directive to these new forms of ‘package’ in e-commerce. c. Contracts for the Carriage of Passengers Although carriage contracts are excluded from protective choice of law in Article 6, it does not mean consumers in all carriage contracts, except those in package travel, would be subject to the law designated under general rules. The Rome I Regulation separates carriage contracts into contracts for the carriage of goods and contracts for the carriage of passengers, and provides specific choice of law rules for the latter.77 This has been justified by recital 32 of the Regulation, which provides: Owing to the particular nature of contracts of carriage and insurance contracts, specific provisions should ensure an adequate level of protection of passengers and policy holders. Therefore, Article 6 should not apply in the context of those particular contracts.

Providing specific choice of law rules to protect passengers is another improvement of the Rome I Regulation compared to the Rome Convention. This arrangement intends to achieve a compromise between consumer associations and the 76 European Commission, ‘Working Document on the Council Directive 90/314/EEC of 13 June 1990 on package travel, package holidays and package tours’, Brussels, 26.07.2007, available from ec.europa.eu/consumers/rights/commission_working_document_final26-07-2007.pdf, 5–6, accessed on 20 Jul 2008. 77 Art 5(2).

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transport industry.78 Article 6 keeps the original narrow scope of protection by excluding contracts of carriage from the protective provision, but Article 5 provides special choice of law rules. These rules in Article 5 can be accepted by carriers because they are less radical compared to the rules in Article 6, to the functioning of carriage industry. They also pay special consideration to protecting passengers, most of them consumers.79 (i) The Limited Choice Approach As to a contract for the carriage of passengers containing a choice of law agreement, Article 5(2) adopts the limited choice approach which permits party autonomy in principle, but provides a straightforward restriction by limiting the scope of laws which could be chosen.80 The contractual parties can only choose between the law of the passenger,81 the law of the carrier,82 or the law of the country with the direct connection to the carriage, namely the place of departure or the place of destination.83 The limited choice approach aims to achieve a balance between the protection of passengers and the development of business. By limiting the scope of law that can be chosen, this approach prevents the carrier from choosing the law of a country with the fortuitous connections to the contract. The listed countries, the law of which can be chosen, are all closely connected to contracts and predictable by both parties. However, one may wonder how effective this provision could be, because in practice only a few, if any, carriers would choose the law of foreign passengers as the governing law to their contracts. Most carriers will choose the law of its habitual residence either before or after the introduction of the special rule. The limited choice will not bring much difference in practice. (ii) Contracts in the Absence of Choice For contracts in the absence of choice, the law applicable would be determined by the following two steps: (1) if the passenger’s habitual residence is either the country where the place of departure or the place of destination is situated, the law of that country applies;84 (2) otherwise, the law of the country where the carrier has his habitual residence would apply.85 78

For opinion of transport industry, see n 72. Passengers in Art 5 cover a wider scope than consumers in Art 6. If a company purchases a flight for its employee for a business trip, this contract is not a consumer contract in Art 6 but is a contract of carriage of passengers under Art 5. 80 A similar approach can be found in Art 121(2) of the Swiss Private International Law, which restricts party autonomy in employment contracts by permitting the contractual parties to choose between the law of the state where the employee has his habitual residence, and the law of the state where the employer has his establishment, domicile or habitual residence. 81 The country where the passenger has his habitual residence, Art 5(2)(a). 82 The country where the carrier has his habitual residence, or the carrier has his place of central administration, Arts 5(2)(b) and (c). 83 Arts 5(2)(d) and (e). 84 Art 5(2). 85 ibid. 79

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The first step is welcome. It certainly satisfies the requirement of consumer protection and of protecting carriers’ reasonable expectation. In most contracts for the carriage of passengers, the passenger’s habitual residence would be coincident with the place of departure or the place of destination, which enables the law of the passenger’s habitual residence to apply. On the other hand, it will not cause too many difficulties to carriers, as both the place of departure and the place of destination are certain to carriers at the time of contracting. The second step is also reasonable because where a consumer books transport travelling between two foreign countries, the company cannot predict the consumer’s habitual residence and cannot expect the law of that country to apply. Although the place of departure and the place of destination can be expected and have close connections to the performance of the contract, it can be fortuitous, as the consumer might stay in both places for a couple of days for holiday purposes. Comparatively, the law of the country where the carrier has its habitual residence should be a more proper option, and in practice it usually would coincide with either the place of departure or the place of destination. Although this rule cannot claim to protect consumers, it can be justified as it only applies to rare cases where a passenger books transport between two foreign countries, none of which have substantive personal connections to him. Although both rules are justifiable, the problem is that sometimes a carrier cannot anticipate which rule to apply. With the popularity of booking transport online, more and more transports are booked without the clear identification of the habitual residence of a passenger. A passenger personally located in state A could book a flight departing from state A to state B, and another from state B to state C. This consumer could have his habitual residence in state B, but it is unknown to the carrier, who would, in most cases, presume the place where the consumer is located when booking the ticket is the consumer’s habitual residence. Although the carrier clearly knows where the place of departure or the place of destination is, it would not expect the law of those countries to apply. For the example mentioned above, the consumer would claim that the law of country B shall apply to both contracts, but the company may expect the passenger is habitually resident in state A, and, according to Article 5(2), the law of country A should apply to the first contract and the carrier’s habitual residence should apply to the second. (iii) Escape Clause Article 5(3) provides an escape clause, which permits the above rules to be disregarded by applying the law of the country with manifestly closer connections to the contract. It is uncertain as to how the ‘manifestly closer connection’ can be identified and whether generating such an escape clause considers the expectation and protection to consumers. The escape clause, as usual, causes uncertainty.

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iii. A Contract Relating to Immovable Property A contract relating to a right in rem in, or a tenancy of, immovable properties, has been excluded from the scope of protection. This is a new exclusion compared with Article 5 of the Rome Convention, which applies only to contracts for the provision of services or sale of goods. Since the Rome I Regulation extends the inclusive scope to all types of contracts instead of merely contracts for the supply of goods and services, corresponding extension of the exclusive scope is understandable. There is no e-commerce specific issue arising out of this exclusion. The exclusion is necessary as such a contract usually has the closest connection with the country where the property is located. States also want to use their own law to govern immovable properties located in their territory owing to the social and economic administration of a country.86 Applying the mandatory rules of the consumer’s habitual residence in this case is clearly impractical because the lex situs claims to have the privilege over all other applicable law, including the law of the consumer’s habitual residence. The lex situs does not apply where a contract is for the private, short tenancy of immovable property and both parties have the same domicile, the law of the common domicile has a closer connection to the claim and applying the law could meet both parties’ expectation. It is also necessary to note that the exclusion does not apply to a loan contract with the purpose of funding the purchase of an immovable property.87 Article 6(4)(c) specifically exempts timeshare contracts from the exclusion, which means the protective choice of law in Article 6 continues to apply to timeshare contracts.88 Timeshare contracts give rise to substantial financial commitments from consumers and likely generate more litigation than other small value consumer contracts.89 The European Community pays special consideration to protecting purchasers of timeshare products and has established the European minimum standard of protection for consumers in such contracts. Regardless of the harmonised minimum standard, the protective level for consumers in timeshare contracts varies among the Member States, and consumers would still expect the protection afforded to him in a cross-border timeshare agreement is the same as that in their habitual residence.90 To include timeshare contracts in the protective scheme of the Rome I Regulation is consistent to the Community policy. It also clarifies the uncertainty provided by the Rome Convention, which requires a contract to be the contract for the supply of goods or services in order to be covered within the scope of protection. Since the characteristic of time-share contracts differs in each Member State, and no uniform Community definition 86

Green Paper on Rome (n 2) 26, s 3.2.6.1. eg French case, Rousseau v Commerzbank, Tribunal d’Instance de Niort, 1 July 1998. 88 eg. Federal Act governing the Acquisition of Time Share Estate in Immovable Property (Austria), Federal Law Gazette I no 32/1997, s 11. Also see S Knofel, ‘EC Legislation on Conflict of Laws’ (1998) 47 ICLQ 439, 443. 89 European Commission, ‘Consultation Paper: Review of the Timeshare Directive (94/47/EC)’, 11; J Hill, Cross Border Consumer Contracts (Oxford, OUP, 2008) 113. 90 European Commission, ‘Consultation paper’, 13. There are no e-commerce specific issues here. 87

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has been given, it is unclear whether a timeshare contract is within the scope of protection under the Rome Convention. For example, the German Court had held in one case that a contract to buy a time-share right was not a contract for the supply of goods or service as stated in Article 5(1) even when this contract contained some elements of services, such as management and maintenance of the property.91

iv. A Contract Relating to Financial Context a Contracts Relating to Financial Products The exclusions relating to financial context are also new in the Rome I Regulation due to its enlarged scope.92 The first main area of the exclusion from the scope of protection is contracts relating to financial instruments or related financial products. Excluding financial instruments and other financial products from the protective scope of consumer contracts is justified as applying the protective choice of law may change the actual nature of a financial instrument, namely the rights and obligations that constitute its essence.93 Recital 28 of the Regulation justifies the exclusion, which is largely based on the presentation from the Services of the Commission to the Committee on Civil Law Matters. It says: It is important to ensure that rights and obligations which constitute a financial instrument are not covered by the general rule applicable to consumer contracts, as that could lead to different laws being applicable to each of the instruments issued, therefore changing their nature and preventing their fungible trading and offering. Likewise, whenever such instruments are issued or offered, the contractual relationship established between the issuer or the offeror and the consumer should not necessarily be subject to the mandatory application of the law of the country of habitual residence of the consumer, as there is a need to ensure uniformity in the terms and conditions of an issuance or an offer.94

The justification can equally apply in e-commerce. The habitual residence of potential consumers of financial instruments or other financial products traded online is likely to spread over many countries and be barely known to the issuer or offeror. Applying multiple laws depending on the habitual residence of investors to the financial products issuer would inevitably prevent cross-border retail and online trade of such products,95 or create irresolvable barriers to the financial market. As a result, a single law is going to be applied to the contract buying and selling financial instruments, contracts relating to the issuance of transferable securities, and subscription and redemption of units in collective investment 91

eg German case, Bundesgerichtshof (BGH), 19 March 1997. Services of the Commission to the Committee on Civil Law Matters (Rome I), ‘Proposal for a regulation of the European Parliament and the Council on the law applicable to contractual obligations (Rome I)—Certain financial aspects relating to the application of Articles 4 and 5’ 7418/07, JUSTCIV 55 CODEC 228, 15 March 2007, 4. 93 Services of the Commission. 94 Recital 28. See also Services of the Commission (n 92). 95 Services of the Commission (n 92). 92

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undertakings. All the relevant contractual aspects, including terms and conditions relating to the issuance of transferable securities and subscription and redemption of shares include the allocation of securities or units, rights in the event of oversubscription, withdrawal rights, similar matters in the context of the offer, formal and material validity of the contract, capacity, and the scope governed by the applicable law, are all governed by a single law determined by ordinary choice of law rules of the Regulation.96 Finally, it is necessary to point out that the exclusion relates to financial instruments and other financial products, and does not cover contracts for the sale of units in collective investment undertakings, and financial services such as investment services and activities and ancillary services provided by a financial professional.97 Financial services include reception and transmission of orders in relation to financial instruments, execution of orders on behalf of clients, dealing on own account, portfolio management, investment advice, underwriting of financial instruments, placing of financial instruments on or without a firm commitment basis, operation of Multilateral Trading Facilities, safekeeping and administration of financial instruments for the account of client, granting credits or loans to an investor, advice to undertakings on capital structure, industrial strategy and related matters, foreign exchange services, investment research and financial analysis, services relating to underwriting, etc.98 For all these issues, the protective choice of law in Article 6 shall continue to apply. b Contracts Concluded within a Multilateral System The second exclusion in the financial context is contracts concluded within a multilateral system which brings together or facilitates the bringing together of multiple third-party buying and selling interests in financial instruments.99 This exclusion is essential because such multilateral trading systems need to operate under a single law, and all transactions carried out within the system shall accord with the governing law of the system, which is ‘an intrinsic feature of organised multilateral trading systems and necessary for legal certainty for the market participants.’100 Furthermore, the operator of the system is entitled to choose the law governing contracts concluded within the system, regardless of whether or not the other party is a consumer.101 96

Recital 29. Recital 26. 98 Sections A and B of Ann I to Dir 2004/39/EC of 21 Apr 2004 on markets in financial instruments amending Council Dirs 85/611/EEC and 93/6/EEC and Dir 2000/12/EC of the European Parliament and of the Council and repealing Council Dir 93/22/EEC (MiFID), [2004] OJ L 145/1. 99 Art 6(4)(d). 100 Services of the Commission (n 92) 2. 101 Recital 31 of the Regulation provides that: 97

Nothing in this Regulation should prejudice the operation of a formal arrangement designated as a system under Article 2(a) of Directive 98/26/EC of the European Parliament and of the Council of 19 May 1998 on settlement finality in payment and securities settlement systems.

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c Conclusion The exclusions are considered welcome, necessary and adequate by the UK government,102 because they should ‘adequately address the concerns of the financial sector and avoid any undesirable fragmentation of the applicable law in this important sector.’103 In light of the special nature of certain contracts concluded in financial sectors, applying a uniform law to all contracts is essential for the appropriate functioning of the financial sector.

C. Geographic Scope: Universal Protection or EU Protection Whether a geographic scope should be established to provide protection only to European consumers is another controversial issue in the negotiation for Rome I. The Commission’s initiative proposal sets up a geographic limitation to protect consumers who have their habitual residence within the European Community.104 However, the final revision of the Rome I Regulation has eventually adopted the universal approach to provide protection to all consumers including those having their habitual residence outside one of the Member States.105 If a geographic scope is adopted in the Rome I Regulation, contracts entered into between businesses and non-EU consumers would be governed by the law designated by the general conflicts rules of the Regulation: the contract will be governed by the law chosen by the parties,106 or in the absence of choice, by the law of the habitual residence of the business.107 A non-EU consumer thus cannot get specific protection at all. Requiring a geographic limitation to the applicable law is unrealistic. One of the main purposes of the Rome I Regulation is for the proper functioning of the internal market,108 but discriminated protection depending on the consumer’s habitual residence would fragment the market and damage the development of internal market. From the perspective of a company, commercial activities conducted within the internal market are subject to more regulations, challenges and risk compared with such activities in an open market. Since e-commerce conquers the difficulty of distance, which is no longer a barrier in 102

Ministry of Justice, ‘Rome I’ (n 17). Ministry of Justice, ‘Rome I’ (n 17). Art 5(1) of the Commission Proposal (n 9) which says: ‘Consumer contracts . . . shall be governed by the law of the Member State in which the consumer has his habitual residence.’ (emphasis added), and Art 5(2) also says for the application of the protective rule, the business should target the Member State where the consumer has his habitual residence. 105 This is a result after a prolonged debate. This limitation has been deleted in the Finnish Presidency Proposal and the Finnish Presidency and incoming German Presidency (n 57). Most delegations supported the universal application, see ‘Outcome of Proceedings from the Committee on Civil Law Matters (Rome I)’, 16 Feb 2007, 6260/07, 2. However, even in a later stage, the geographic scope has been introduced again in amendment 1 (n 13). 106 Art 3. 107 Art 4. 108 Recital 1 of the Rome I Regulation. 103 104

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international commerce, policy and regulation play a more important role for a business in choosing its market. Businesses would be reluctant to undertake transactions with consumers who have their habitual residence in other Member States. On the contrary, they would be more enthusiastic to conduct commercial activities with non-EU consumers. Even a European business might intend to avoid transactions within the internal market and turn to the open market for benefits.

IV. Conclusion The Rome I Regulation aims to update the Rome Convention and to provide better protection to consumers in choice of law. However, the debate during the negotiation and the final result indicate the difficulty in taking further steps in this area. Although it has been argued by some commentators that the choice of law is not of practical significance,109 businesses are reluctant to give in, considering the potential risk under the more ambitious protective choice of law. Article 6 of the Rome I Regulation is the result of a compromise. Although it has addressed some technical issues, such as the general manner to decide whether a business has targeted a consumer’s habitual residence, it leaves more substantive issues untouched. The difficulty in the reform shows European legislators and practitioners are reluctant to change. The most controversial issue is the decision to keep the preferential law approach instead of the exclusion of choice approach for party autonomy. It should be noted that the final outcome of the Rome I Regulation does not necessarily mean that the preferential law approach is superior to the exclusion of choice approach, but because the economic effect of the exclusion of choice approach is hard to assess at this stage. The Commission’s justification, at the same time, is unconvincing. The uncertain impact causes widespread concern and fear among business sectors, which forces the authorities to restore the current law. Although the preferential law approach is also unsatisfactory, its effect is claimed to be predictable after decades of application. However, the predictability could be the result of the shortage of cases in the area and may even be the result of the inappropriateness of the choice of law rules. The conservative attitude is also shown in other issues concerning the consumer choice of law rules. Wherever the practical effect of a proposed revision is hard to assess, the old rule is maintained. The Rome I Regulation is not a dramatic improvement compared to the current Rome Convention. However, it does make a modest but noticeable development. Besides adjusting the general scope of protection in line with the Brussels I Regulation, the Rome I Regulation has provided a compromised protective rule for contracts of carriage of passengers, has clarified 109

eg Hill, Cross Border, 325–6.

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and extended the scope of package travel contracts where the protective rules can apply, and has expressly included timeshare contracts in the scope of protection, which clarifies the confusion in the Rome Convention. The Rome I Regulation has not brought exciting innovation to the current choice of law, but the cautious and moderate revision shows the slow and gradual development moving towards the direction of a more consumer friendly choice of law.

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10 Neutral Choice of Law in E-Consumer Contracts The Common Law Approach in the US 2nd Restatement I. Introduction The legislative work in the European Community is a typical example of the protective approach, where distinct choice of law rules have been designed with the specific purpose of protecting consumers as the weaker party. Besides the protective approach, there is a different approach which decides the default law in a comparatively neutral way. Although the recent international tendency to protect the weaker party in private international law leads to a departure from the neutral approach, this approach has still been followed in a number of important jurisdictions.1 This approach provides the following advantages. Firstly, it does not require the establishment of the scope of protection, which is complicated and hard to design. Secondly, it does not artificially separate consumers into two groups, one deserving protection, but the other not, even if both groups are actually in the same situation: weak in bargaining power, poor in finance, and acting outside their profession.2 Thirdly, the protective default law approach is based on a premise that the default law would either damage the business’s interests, or damage the consumer’s rights. This is, in fact, not always true. The conflict of interests in choice of law is different from that in jurisdiction. As for jurisdiction, consumers would be better off if they were protected by the court of their home, while as to choice of law, due to the different standards of protection, the 1 The neutral approach exists in the common law rules in US and Canada. See, American Law Institute, Restatement of the Law, Second: Conflict of Laws (St Paul, American Law Institute, 1971) s 188; J Castel, Canadian Conflict of Laws, 4th edn (Toronto, Butterworths, 1997) 596–8. See also the Contract Law of the People’s Republic of China, Art 126, the Hague Sales Convention 1955. 2 The European Consumers’ Organisation criticises the solution to separate consumers into two groups one of which is eligible for protection while the other is not. The European Consumers’ Organisation, ‘Rome I—BEUC Position Paper concerning the Commission’s Green Paper’, europa.eu.int/comm/justice_home/news/consulting_public/rome_i/doc/beuc_en.pdf, accessed on 21 Nov 05.

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application of foreign law would not inevitably be more detrimental to the consumer’s interests than the application of the law of the consumer’s home. As to jurisdiction, there is no alternative method to smooth the conflict between the consumer’s home forum and the business’s home forum—one party has to be subject to the foreign court no matter what approach is established.3 Jurisdiction in international contracts faces a ‘no-way-out’ situation. Nonetheless, as to the applicable law, it is possible that a win-win situation can be achieved. For example, the business may expect that the law of his habitual residence should be applied and this law may also provide the higher standard of protection to the consumer, compared with the law of the consumer’s habitual residence. It is thus held that the neutral approach might be better to ensure a win-win result. This chapter examines whether the neutral choice of law could work as effectively as it is presumed to do in e-consumer contracts. This approach was adopted in English common law before 1 April 1991. Since the Contracts (Applicable Law) Act 1990 came into force, the neutral law approach has not been applied in most consumer contracts.4 In the contemporary world, the neutral choice of law has been adopted in some discretion-based countries. This chapter focuses on the relevant rules in US common law. At first, it has to make clear that the US is not a ‘legal district’ in the private international law sense. Different States do not have completely identical choice of law rules, but most of them share close choice of law doctrines. The choice of law rules in contracts in the Restatement 2nd Conflict of Laws 5 have been accepted by more than half of the States in the US, and have great influence on the rest of the States. This section examines particularly the application of the neutral rules in the Restatement 2nd to e-consumer contracts.

II. The Neutral Default Law The Most Significant Connection Test To apply the law of the country that holds the most significant connection with the contract is a popular choice of law approach for contracts in the absence of choice of law agreements. In a dynamic academic revolution of the choice of law rules during the 1950s and 60s, most US courts have abandoned their traditional choice of law rules based on rigid connecting factors,6 and adopted more flexible choice

3

Unless the parties choose to resolve their dispute by using online dispute resolution. Ch 7 above. It only applies to contracts concluded before 1 April 1991, and contracts excluded by the Rome Convention. 5 American Law Institute, Restatement 2nd. 6 eg for the rigid rules, see generally the American Law Institute, Restatement 1st Conflict of Laws (St Paul, American Law Institute, 1934). 4

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of law rules generally based on the most significant connection principle.7 This approach requires consideration of all the circumstances, and is primarily based on the connecting factors, as well as the significance of certain relationships.8 The Restatement 2nd has provided an extensive list of all the factors that would be taken into consideration, namely: the place of contracting, the place of negotiation of the contract, the place of performance, the location of the subject matter of the contract, and the place with personal connection to the parties.9 It has been submitted before that determining the centre of gravity by locating the factual connecting factors could be a problem in e-commerce. The location of some places is a question of law, instead of a question of fact, and the Restatement suggests that the court could use the lex fori to decide the location.10 However, in practice, some courts would not bother to figure out where the place of contracting or the place of performance was in law. Instead, these courts simply decide the factual location of each activity to decide the centre of gravity of a contract. For example, in Specht v Netscape,11 the internet users downloaded free software from the defendant’s website, which contained a license agreement. When deciding which law applies to decide the validity of the online agreement, the court used the most significant connection principle. However, instead of deciding where the place of contracting or the place of performance is by applying the forum law, the court examined the factual location of each activity, such as the place where the product at issue was designed, the place where a website was maintained by the company’s employees. Compared to the tricky and confusing issue to decide the location of online activities as a question of law, it is easier to simply consider the location of the parties’ conduct as a question of fact. For example, it is not necessary to decide when and where an acceptance takes place, but to consider where the acceptance has been sent and received by the parties. Furthermore, the Specht only considered the physical place where a person has conducted the activity, instead of where a virtual event happens in technology. It suggests that the functioning of a server or the performance of an e-agent is not significantly relevant to decide the applicable law, unless this place has real connections to the person relating to the transaction; for example, the business’s employees are located at the place of the server to maintain the information processing system.

7 See the Restatement 2nd (n 1) s 188. Around 29 States in the US have adopted the 2nd Restatement approach or a similar significant contact approach for contract claims. There are also other approaches, such as government interest analysis, etc. Since these alternative approaches have not been widely applied in practice, only the most significant approach will be discussed here. 8 SC Symeonides has continuously criticised the US choice of law rules for contracts without choice of law agreements as ‘the least interesting’ from the private international law perspective. SC Symeonides, ‘Choice of Law in the American Courts in 2005: Nineteenth Annual Survey’ (2005) 53 AJCL 559, 631; ‘Choice of Law in the American Courts in 2004, Eighteenth Annual Survey’ (2004) 52 AJCL 919, 973. 9 s 188(2). 10 eg the Restatement 2nd (n 1) s 188, comment e provides that the place of contracting is the place ‘where occurred the last act necessary, under the forum’s rules . . ., to give the contract binding effect’. 11 Specht v Netscape, 150 F Supp 2d 585 (SDNY 2001).

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This simplified approach is adopted by the Uniform Electronic Transactions Act (UETA), which was established by the National Conference of Commissioners on Uniform State Laws (NCCUSL) in 1999 and has been adopted by 48 States.12 All states that have adopted the conflicts rules in the Restatement 2nd have adopted the UETA, except Washington. It clearly states that for the purpose of the conflict of laws, the place of sending or receipt should be the location of the sender or recipient and not the location of the information processing system.13 Although there are very limited cases concerning the most significant connection principle in e-contracts and it is uncertain whether other courts would likely use the simplified test implied in Specht, it is suggested that this test could be more realistic than finding the location designated by law,14 which could be complicated and fortuitous.

A. Place of Contracting and Place of Negotiation The place of contracting is an unimportant factor when standing alone.15 It is fortuitous, artificial, and hardly bearing substantial relations with the parties and the contract. In traditional commerce, the place of contracting has been taken into account usually because it rarely stands alone but would at the same time be the place of negotiation, or the place where steps are taken for the contracts to be concluded.16 This is no longer the case in e-commerce, where the place of negotiation would usually be in different states, and the steps taken for contracting could be carried out in different states, both of which no longer have real connection with the place of contracting. No much, if any, weight should be given to the place of contracting/negotiation. What the court would like to consider is the place where the parties are located during the negotiation when each of them takes steps to enter into contract. For example, where a consumer clicks the ‘agree’ button to enter into an e-contract, the court will consider where the consumer has accessed the website and click the button, where the order is received by the business, and where the consumer receives the company’s acknowledgement if there is any.

B. Place of Performance The place of performance includes the performance of the business’s obligation to provide products or services, and the consumer’s obligation to pay. The place of performance traditionally is considered an important factor, which bears an 12 NCCUSL website, www.nccusl.org/Update/uniformact_factsheets/uniformacts-fs-ueta.asp, accessed on 11 Dec 2008. 13 s 15(d), and accompanied comment para 4. 14 See Ch 4, s III.B, which discusses the location of some online factors under English law. 15 Restatement 2nd (n 1) s 188, comment e; J Fawcett, J Harris and M Bridge, International Sale of Goods in the Conflict of Laws (Oxford, OUP, 2005), para 21.75. 16 Restatement 2nd (n 1).

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obvious relation to the nature of the performance and the party who performs his obligation.17 However, it is also said that the place of performance is not important, if it is not decided at the time of contracting, or if it is equally divided among two or more states.18 In contracts where digital products are automatically downloaded by consumers, it is not necessary for the business to provide information on where the products are delivered or uploaded from. A party’s performance in e-contracts would include more than one activity. Taking the transfer of information products online as an example, the business’s performance includes the creation or designation of the product, uploading the product to the website, employing relevant software or the so-called e-agent to enable the automatic delivery and receiving the consumer’s payment. Where the business has only one place of business, all the activities occur in that country and it is the place of performance of the company. In some cases, a business will have more than on place of business and carry out these activities in different places, the place of performance is then divided among multi-states and should not be an important factor. A consumer’s performance includes providing credit card information and clicking the relevant button to generate downloading or accept the downloaded product. The physical activities usually occur in one country, and this country is the place of performance of the buyer.

C. Location of the Subject Matter The location of the subject matter would be a weighty factor if the subject matter was immovable or localised.19 Where the subject matter is movable, less weight will be attached to it. As a result, in a contract of supply of physical movable goods, the location of the subject matter is insignificant. Things are different in a contract of supply of intangible products. The subject matter is the digital product which can be copied and downloaded by millions of consumers. The item delivered to the consumer is a copy of the original digital product updated by the business. Hardly any weight can be attached to the location of the copy delivered to the consumer, but some consideration should be given to the location of the original digital product, which is the ‘mother’ of the subject matters of all the following transactions.20 The location of the original digital product usually is the place of the server, which acts as the business’s warehouse hosting the subject matter of the transaction.

17

Restatement 2nd (n 1). Ibid. 19 Ibid, comment e. 20 Specht v Netscape, 591 (the subject matter ‘SmartDownload’ programme was designed in California, distributed from the website located in California, and maintained by the employees in the Californian office). 18

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D. Factors Related to the Parties Personal connecting factors related to the parties are significant in e-commerce. They become even more important in e-commerce than in traditional commerce. Although e-commerce brings many challenges to most locations relating to contracts, it does not change the place holding the personal link with the parties. Compared to other factors, this factor is the one that bears the most enduring relationship to the parties, and is less likely to be chosen artificially. The place usually will not stand alone and will combine with other connecting factors.

III. Choice of Law Agreements In E-Consumer Contracts The common law approach recognises the enforcement of a choice of law agreement, without specific limitations for consumer contracts.21 It holds that the choice of law clause by the parties is effective unless it is illegal, contrary to public policy, or made in bad faith. In many States of the US, the law chosen by the parties will apply unless it is unconscionable.22 The approach is summarised in section 187 of the Restatement 2nd of Conflict of Laws, which pragmatically attempts to reflect the real practice of the courts.23 Section 187 provides: (1) The law of the State chosen by the parties to govern their contractual rights and duties will be applied if the particular issue is one which the parties could have resolved by an explicit provision in their agreement directed to that issue. (2) The law of the State chosen by the parties to govern their contractual rights and duties will be applied, even if the particular issue is one which the parties could not have resolved by an explicit provision in their agreement directed to that issue, unless either (a) the chosen State has no substantial relationship to the parties or the transaction and there is no other reasonable basis for the parties’ choice, or (b) application of the law of the chosen State would be contrary to a fundamental policy of a State which has a materially greater interest than the chosen State in the determination of the particular issue and which, . . ., would be the State of the applicable law in the absence of an effective choice of law by the parties.24 21 Other general limitations are permitted, such as the limitation provided by the mandatory rules and public policy of the forum. 22 The general requirement as to a valid choice has been made in the landmark case M/S Bremen v Zapata Off-Shore Co (1972) 407 US 1. Although this is a case concerning the choice of forum clause, the general pre-requisites are equally adopted to choice of law agreement. See Ch 6, s III.A. 23 L Ribstein, ‘From Efficiency to Politics in Contractual Choice of Law’ (2003) 37 Georgia Law Review 363, 371. The Restatement 2nd (n 1) has been embraced by the vast majority of American courts in contractual obligations. See SC Symeonides, ‘The Judicial Acceptance of the Second Conflicts Restatement: A Mixed Blessing’ (1997) 56 Maryland Law Review 1248. For cases, see eg Henriksen v Younglove 540 NW2d 254 (Iowa 1995); Young v Mobil Oil Co 85 Or App 64 (Oregon 1987); Instructional Sys v Computer Corriculum Cor 614 A ed 124 (NJ 1992). 24 Restatement 2nd (n 1) s 187.

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It further indicates: A choice-of-law provision, like any other contractual provision, will not be given effect if the consent of one of the parties to its inclusion in the contract was obtained by improper means, such as by misrepresentation, duress, or undue influence, or by mistake.25

The Second Restatement approach in the US thus could be generally summarised as follows: (1) the court has to examine whether the choice of law clause is unconscionable. If it is, the clause will be struck down for it is invalid; (2) if a choice of law clause is valid, the court has to find out whether the matter is one that could be resolved by the parties’ agreement. The choice of law agreement will be enforced when choosing the non-mandatory rules; (3) for the choice of mandatory rules, the following rules apply: A. the chosen State must have a substantial relationship to the parties or the transaction, or there is any other reasonable basis for the choice. If the tests are not satisfied, the choice of law clause cannot be enforced; B. if either test is met, the court is to examine whether the chosen State’s law is contrary to fundamental policy of the State that would have its law applied as the default law in the absence of choice. If there is no such conflict, the choice of law clause shall be enforced; C. if there is such a conflict, the court will determine whether the default State has a ‘materially greater interest’ than the chosen State. If so, the parties’ choice shall be struck down on a public policy basis; otherwise, it shall be enforced.26 The following sections examine these issues and their application in e-commerce.

A. Conscionability of Choice of Law Clauses Like all other contract terms, the choice of law clause has to be valid and concluded in a proper manner. It is said that choice of law clauses in consumer contracts are usually respected, but they will be scrutinised with care and will not be enforced if doing so would result in substantial injustice to the consumer.27 However, it is not easy to decide conscionability in practice. First of all, the US courts use different approaches to decide the validity of a choice of law clause. Some courts use the chosen law, some use the default applicable law in the absence of choice, and some fail to decide the choice of law issue and directly use the lex fori. The Second Restatement comments that whether such a choice is conscionable will be determined by the forum in accordance with its own legal principles, which apparently supports the third approach by directly applying the lex fori.28 However, the approaches adopted in different courts have not been consistent in practice. Secondly, with regard to the circumstances in which the choice of law clause 25

Restatement 2nd (n 1) s 187, comment b. It has to be noted that this chapter provides a survey of the general common law rules in the US. In practice, each State may have leeway on each of these principles, and slightly different rules apply. However, it could be submitted that the divergence would be small. 27 Restatement 2nd (n 1) s 187, comment b. 28 Restatement 2nd (n 1) s 187, comment b. 26

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should be considered unconscionable, the courts have made controversial decisions. In the early case of Siegelman v Cunard White Star,29 the choice of law clause in a voyage ticket was enforced, while in Fricke v Isbrandtsen Co,30 the court held that the unilaterally imposed choice of law clause should not be enforced unless the party urging enforcement provided the other with knowledge of what was intended. It seems that it is uncertain how the unconscionability test should be carried out in consumer contracts. Although the detailed practice of each State differs, some general principles have been followed in most States. Unconscionability includes both substantive and procedural elements.31 In Szetela, the court stressed that: Procedural unconscionability addresses the manner in which agreement to the disputed term was sought or obtained, such as unequal bargaining power between the parties and hidden terms included in contracts of adhesion . . . Substantive unconscionability addresses the impact of the term itself, such as whether the provision is so harsh or oppressive that it should not be enforced.32

i. Procedural Unconscionability A restrictive interpretation has been taken by some courts, which held that once the weaker party is presented with the clause and told to take it or leave it without the opportunity for meaningful negotiation, procedural unconscionability is present.33 The result would be unpleasant for the business. If the concept of ‘procedural unconscionability’ is construed restrictively, most choice of law clauses in e-consumer contracts are procedurally unconscionable, because unequal bargaining power is presumed to exist in all contracts between businesses and consumers, and the e-contract is usually a standard-form contract. Fortunately, most courts held that procedural unconscionability alone cannot invalidate a choice of law clause. It has to be considered together with the substantive element.34

ii. Substantive Unconscionability Substantive unconscionability addresses the fairness of the choice of law clause. If it is so one-sided as to ‘shock the conscience’, or it is harsh or oppressive, the choice of law clause is substantively unconscionable.35 The problem is the extent to which the choice of law clause is ‘one-sided’, ‘harsh’, or ‘oppressive’. If a choice of law clause simply chooses the law of a country other than the consumer’s home, it is not necessarily one-sided, for the law of that country might provide a higher 29

221 F2d 189 (CA2 1955). Fricke v Isbrandtsen Co, 151 F Supp 465 (DCNY 1957), 468. 31 A Leff, ‘Unconscionability and the Code—the Emperor’s New Clause’ (1967) 115 University Of Pennsylvania Law Review 485; Szetela v Discover Bank 97 Cal App 4th 1094 (Cal App 4 Dist, 2002). 32 Szetela v Discover Bank, 1099. 33 Szetela (n 31); Flores v Transamerica HomeFirst 93 Cal App 4th 846 (Cal App 1 Dist, 2001). 34 Craig v Brown & Root 84 Cal App 4th 416 (Cal App 2 Dist 2000); Carideo v Dell 492 FSupp2d 1283 (WD Wash 2007); Jones v Genus Credit Managemnt 353 FSupp2d 598 (D Md 2005). 35 24 Hour Fitness v Superior Court 66 Cal App 4th (Cal App 1 Dist 1998). 30

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standard of protection for the consumer than the law of the consumer’s home. Even if a choice of law clause designates the law of one country, with a lower standard of protection for the consumer, it would also not be oppressive, for it might not be intended to deprive the consumer of his interest. The purpose of this clause would simply be to create certainty and efficiency, and reduce commercial cost. Especially in e-commerce, the business would like to insert a choice of law clause designating the law of its home or the law with which it is more familiar, in order to create a standard webshop for all states. It is reasonable and commercially desirable, and thus can hardly be held to be harsh or oppressive. It has to be noted that the substantive unconscionability must be construed to cover only the direct effect and purpose of the disputed terms. As to a choice of law clause, the court needs to consider the fairness of the clause itself, instead of the effect caused by the applicable law. Even if the chosen law would deprive the consumer of the right he might otherwise have under the default law in the absence of choice, the effect of the applicable law would be regulated by imposing the doctrine of public policy.36 As a result, substantive unconscionability could rarely be used to invalidate a choice of law clause even in an e-consumer contract.

iii. Interrelationship of Procedural and Substantive Unconscionability It is held that procedural unconscionability and substantive unconscionability need not be present to the same degree. ‘The more substantively oppressive the contract term, the less evidence of procedural unconscionability is required . . . and vice versa.’37 As a result, the fact that the clause is ‘drafted unilaterally by the dominant party and then presented on a “take-it-or-leave-it” basis to the weaker party who has no real opportunity to bargain about its terms’38 is not sufficient to invalidate this clause. Attention should be paid to the ‘manner’ in which the choice of law clause is present. As it has been stated before, most choice of law clauses would be considered procedurally unconscionable but substantively conscionable. It is necessary to observe the interrelationship between the procedural element and the substantive element to ascertain when a choice of law clause in an e-consumer contract could be struck down on the ground of unconscionability. If a choice of law clause can only be invalidated with the co-presence of both procedural and substantive unconscionability, a choice of law clause usually cannot be struck down even if the procedural element is so oppressive. However, in Specht v Netscape,39 the court invalidated the browse-wrap agreement, because there was ambiguous indication of assent, the terms had not been present in a noticeable way, and the language ‘please review’ did not constitute a clear requirement noting the existence of an agreement. In William v American Online,40 the 36 37

See s IV below. Szetela (n 31) 1100; Armendariz v Foundation Health Psychcare Services, 24 Cal 4th 83 (Cal 2000)

144. 38 39 40

Restatement 2nd (n 1) s 187, comment b. Specht (n 11). William v American Online, 2001 WL 135825 (Mass Super 2001).

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court refused to enforce a choice of court clause included in a click-wrap agreement owing to the complicated process of reviewing the contract terms to indicate acceptance. The consumer could not read the terms unless twice overriding ‘I agree’ by twice clicking ‘Read now’.41 In both cases, the court refused the enforcement without analysing the substantive element of the agreement. It seems that the distinction between procedural unconscionability and substantive unconscionability could help the court to make a decision, but it is not a rigid principle. Sometimes the court can hardly separate the procedure from the substance when making its decision. It is suggested that even if a choice of law clause is not substantively unconscionable, a court still can invalidate a choice of law clause when it is reasonable to do so, especially when the manner of the business is so oppressive. In e-commerce, it usually occurs when the choice of law clause (1) has not been clearly presented, (2) has not been required to be read by the consumer, or (3) has not been unambiguously assented to by the consumer. However, some courts are reluctant to invalidate a contractual clause if it is substantively conscionable. In Pollstar v Gigmania Ltd,42 although the agreement was a browse-wrap contract and the terms appeared in small gray print on a gray background, the court refused to hold the agreement unconscionable based on the fact that there are many situations where people entered into contract without first seeing the terms.43 This dispute was between two professionals. It is suggested that this decision cannot be equally applied to e-consumer contracts, where there is inequality of bargaining power. Although it is common in practice that many buyers accept contract terms without reading them, the business should act in good faith by making the terms easy to access and read.

iv. Conclusion The general consideration of the conscionableness test could apply to e-consumer contracts. However, a specific guide has to be provided as to its application in an electronic communication environment. For example, there will be further research on whether a choice of law clause included in ‘terms and conditions’ in a click-wrap contract or a browse-wrap contract can be held completely conscionable or reasonable. What legal effect will be provided to the employment of innovative electronic communication technology, such as hyperlinks? Is there any specific regulation for the e-business as to the manner in which a choice of law clause should be presented?44 41

William v American Online, 2. Pollstar v Gigmania Ltd, 170 F Supp 2d 975 (ED Cal 2000) 981. 43 Ibid. See also Meridian Project System v Hardin 426 F Supp 2d 1100 (ED Cal 2006); Adobe v Stargate Softwar 216 F Supp 2d 1051 (ND Cal 2002); Lexmark v Static Control 387 F 3d 522 (6th Cir 2004). 44 For more details, see C Kunz, J Ottaviani, E Ziff, J Moringiello, K Porter and J Debrow, ‘Browsewrap Agreements: Validity of Implied Assent in Electronic Form Agreements’ (2003) 59 Business Lawyer 279; C Kunz, H Thayer, D Duca and J Debrow, ‘Click-Through Agreements: Strategies for Avoiding Disputes on Validity of Assent’ (2001) 57 Business Lawyer 401. 42

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Many scholars believe that the unconscionable test is sufficient even in consumer contracts.45 The unlimited freedom of choice would be desirable to protect commercial security, especially in e-commerce. E-businesses would no longer need to seek out the origins of their potential consumers, or study the substantive law in all potentially relevant countries. All these efforts are considered impractical and financially undesirable. Consumers’ interests could be protected by strict formal and substantive validity requirements. If a choice of law clause is presented in such a way that the consumer readily realises its existence and makes his choice accordingly, the choice of law agreement is valid. The problem is that even if a consumer has been given sufficient notice as to the existence of a choice of law agreement, he would be unable to make an authentic choice.46 The consumer usually has insufficient knowledge of the content of foreign law, and could hardly be expected to compare the chosen law with the law of his habitual residence in order to make a reasonable decision. This approach alone cannot provide sufficient protection to the consumer.

B. Reasonable Grounds of the Chosen Law Furthermore, the parties should have reasonable grounds for their choice. Requiring the chosen law to bear reasonable connections to the contract could be justified as it could help to protect the parties’ expectation, prevent the choice in the spirit of adventure,47 and it could prevent choice in bad faith. The reasonable ground could be either the ‘substantial relationship’ or ‘any other reasonable basis’.48 The Restatement 2nd does not provide a precise definition for these concepts. However, it states that a ‘substantive relationship’ exists when the chosen State is the place of performance, the place of contracting, or the place with personal connections to the parties.49 Once a State holds one of the traditional connecting factors with the contract, it has the substantial relationship to the parties or the transaction. Other reasonable bases exist when, for example, the parties contract in countries whose legal systems are strange to them as well as relatively immature, and they should be able to choose a law that is sufficiently developed and that they know well.50 It generally indicates the parties’ reasonable expectation based on something other than the territorial connection to the

45 R Hillman and J Rachlinski, ‘Standard Form Contracting in the Electronic Age’ (2002) 77 New York University Law Review 429, 456–60; EA O’Hara, ‘Choice of Law for Internet Transactions: The Uneasy Case for Online Consumer Protection’ (2005) 153 University of Pennsylvania Law Review 1883, 1936. 46 O’Hara, ‘Choice of Law’, 1938. 47 Restatement 2nd (n 1) s 187, comment f. 48 Restatement 2nd (n 1) s 187(2)(a). Nedlloyd Lines v Superior Court 3 Cal 4th 459 (Cal, 1992), 466; Brack v Omni Loan 164 Cal App 4th 1312 (Cal App 4 Dist, 2008); Washington Mutual Bank v Superior Court 24 Cal 4th 906 (Cal 2001). 49 Restatement 2nd (n 1) s 187, comment f. 50 Ibid.

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contract.51 However, it is hard to know what these reasonable bases are. According to the comment made in the Restatement 2nd, they may include the parties’ expectation and knowledge of the applicable law and the relevant convenience and expense to have the law applied. This test opens a door for the choice of a neutral law, as well as a ‘mature’ or best law. In the age of electronic communication, the development and maturity of the law governing e-transactions vary greatly between different states. For example, many States have no updated rules for the validity and enforcement of e-contracts. In this case, the parties would reasonably expect to have the more updated law apply to their contracts. The difficulty is the criterion for the reasonable basis test. For example, should the expectation be both parties’ factual expectation? Since the consumer lacks professional knowledge, he can rarely have real expectation and knowledge of any law other than the law of his country to apply. It is suggested that in order to apply this test, the expectation will not be the factual expectation of both parties. If applying any law other than the chosen law would lead to an unreasonable result, or would contravene the parties’ purpose for the transaction, it is sufficient to presume that both parties have the reasonable expectation to have the chosen law applied. Furthermore, in e-commerce, the most updated rules might not have been implemented in many countries, such as the UNCITRAL model law and the substantive rules in the UCITA and UETA. If the above rationale is justified, the parties could also choose these non-state laws. However, it is generally agreed that non-state norms cannot be chosen by the parties as the applicable law to govern their contracts, especially consumer contracts.52 Non-state norms could be vague, unsystematic, and, more importantly, they may not provide practical protection for consumers. Allowing the parties to choose non-state norms would be a detriment to consumers.53 The requirement for the parties to have reasonable grounds for their choice of law may protect the consumer. Since the choice is usually designated by the business, the business could choose a law bearing no connection with the contract, for the sole purpose of its lax consumer law. With this requirement the business has to choose among the laws either with a substantial relationship to the contract, or for other reasonable grounds. For this reason, many consumer organisations

51 eg In Duskin v Pennsylvania-Central Airlines Co 167 F 2d 727 (6th Cir 1948) (the court upheld the choice of law agreement, despite the fact that the chosen State had no physical connection with the contract, based on the fact that the chosen State is common to professionals in this field). Cf Consul Ltd v Solide Enterprises 802 F 2d 1143, 1147 (9th Cir 1986) (the parties’ residences are other reasonable bases), cited by Nedlloyd Lines v Superior Court. 52 The Restatement 2nd (n 1) s 187(1) uses the term the ‘law of the State chosen by the parties . . . will be applied.’ A similar term has also been used in the Uniform Commercial Code, when the parties are allowed to choose ‘the law of either this State (the State which holds reasonable relationship with the transaction) or of such other State or national’ to govern their rights and obligations. For other jurisdictions, eg, the choice of non-state law as a governing law is suggested in Art 3(5) of the proposed Rome I Regulation (Commission proposal 2005), but has been rejected in the final Rome I Regulation. 53 See S Symeonides, ‘Contracts Subjects to Non-state Norms’ (2006) 54 AJCL 209, 225.

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strongly criticise UCITA, as it removes the ‘reasonable relation’ requirement for a valid choice of law clause in consumer contracts.54 However, it is submitted that this requirement is not effective from the perspective of either e-commerce or consumer protection. Firstly, although it is not completely impossible, it is not easy to determine whether a chosen law holds the substantial relationship with the contract. The locations of factual factors are challenged in e-commerce. Secondly, the requirement can barely contribute to protect consumers against improper choice. If a business intends to use the choice of law clause to deprive the consumer of his rights, the business could still try to find the law with the lowest standard of protection among all the states that have connections with the contract. Furthermore, establishing a substantial relationship between the chosen state and the contract is very easy, which is satisfied if one of the parties resides in the state. In most cases, the business simply chooses the law of the state with the substantial connection to the business, which may be unfamiliar to consumers or may provide a lower standard of protection.55 Thirdly, if the consumer sincerely agrees to the choice, and this choice does not violate the relevant public policy, it is not necessary to have this additional requirement to strike down this agreement.

C. Fundamental Policy Even if a choice of law agreement has been regarded as conscionable and reasonable, its effect could still be questioned on the grounds of fundamental policy of the state, which has a materially greater interest than the chosen state in determining the particular issue, and the law of which will be applied as the default law in the absence of choice.56 In recent years, there have been plenty of cases concerning the use of fundamental policy to override choice of law clauses which govern class actions waiver clauses in consumer contracts. In America Online v Superior Court,57 subscribers brought a class action against the Internet Service Provider (ISP). There was a choice of law clause in the subscriber agreement designating Virginia law, which did not allow consumer litigation to be brought as class actions. The court refused to enforce the choice of law agreement because 54 Such as Americans for Fair Electronic Commerce Transactions, ‘AFFECT opposes changes to UCC Article 1 Choice of Law Section’ www.ucita.com/pdf/article 1.pdf, accessed on 11 Oct 2006. 55 See eg Gay v CreditInform 511 F3d 369, 389 (2007) (the Virginia choice-of-law clause in a consumer contract was enforceable because Virginia had a substantial relationship to the defendant company which was located in Virginia); Thomas v Guardsmark 381 F3d 701, 706 (7 Cir 2004) (in an employment contract, there was reasonable grounds to choose Tennessee law, as the employer company’s principal place of business was Tennessee). 56 Restatement 2nd (n 1) s 187(2)(b). Bush v National School Studios 139 Wis 2d 635 (Wis 1987), 642; SG Cowen Securities Co v Messih 00 Civ 3228 (HB) (SDNY 2000); Massengale v Transitron Electronic Corporation 385 F 2d 83 (1st Cir 1967); Forney Industries v Andre 246 F Supp 333 (DN Dak 1965). 57 America Online v Superior Court, 90 Cal App 4th 1 (Cal App 1 Dist 2001). Although the case does not concern substantive rights and obligations in contract, it uses the same choice of law approach to decide the enforceability of a dispute resolution clause.

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Virginia law violated ‘an important public policy underlying California’s consumer protection law’.58 Consumers can rely on justice considerations to challenge an otherwise enforceable choice of law agreement to a particular case. However, two issues have to be addressed: first, whether the fundamental policy of the state of the default law would be violated by applying the chosen law; second, how to weigh the competing interests of two states?

i. Violating the Fundamental Policy The fundamental policy, or public policy, is a vague concept. No precise definition can be found in statutes or judicial decisions. It is believed that the absence of definition is intended because the concept of public policy is variable and should be determined differently according to different situations. A precise definition may induce difficulties in practice. However, many courts have provided guidelines as to the determination of whether a rule constitutes public policy and whether a chosen law violates the alleged public policy. It is necessary to observe these guidelines on how to decide public policy. It has to be noted that public policy in traditional commerce applies equally in e-commerce, and there are not many specific e-commerce challenges to the traditional concept. a. The Sources of Public Policy Pubic policy can be found in the constitution, legislative enactment, and judicial decisions.59 As to the legislative enactment, attention should be paid to its purpose, scope, effect, and the language used. Public policy is usually the cornerstone of a legislative act. If, in a particular case, the application of a chosen law would contravene the main purpose of the legislation, it would be held as infringing the public policy. Sometimes, a statute could simply use strong language to indicate its purpose to be treated as public policy. Public policy could also be found in judicial decisions, which, however, is hard to ascertain, if a decision does not clearly state that the relevant rule constitutes public policy. Judicial decisions are not intended to create new public policy, but merely to fill in small gaps between the existing legislative acts and the spirit of the legislation. As e-commerce has come to play in the commercial world very recently, there is rarely mature legislation on it. However, many countries have embodied the encouragement of e-commerce into their basic economic policy.60 It seems that the development of e-commerce and removing barriers to it are economic public policy in many states. It is suggested that without the relevant legislative announcement, at least the court

58

America Online v Superior Court, 4–5. Building Serv Employees International Union Local 262 v Gazzam 339 US 532, 537–8 (1950). 60 Industry Canada, ‘Electronic Commerce in Canada: Canadian Strategy’ www.ecom.ic.gc.ca/english/ 60.html, accessed on 14 Feb 01; A Framework for Global Electronic Commerce, www.ecommerce.gov/ framewrk.htm, accessed on 01 Jul 97. 59

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could use its discretion to uphold this policy and derogate from the applicable law if it would act to impede e-commerce.61 b. The Characteristics of Public Policy The Restatement 2nd indicates that the policy has to be fundamental in order to strike down the applicable law chosen by the parties. In other words, it has to be ‘strong’, which means that only when there is a provision in the constitution, legislative enactment or judicial decision showing that the default law is ‘strong and of a fundamental nature’,62 that the chosen law is ‘contrary to pure morals and abstract justice’,63 or the enforcement of the chosen law ‘would be of evil example and harmful to its people’,64 can overriding the choice of law by the parties be justified.65 The court is not willing to enforce the choice of law agreement in cases where there are differences in the scope of two states’ consumer protective law,66 even if the chosen law might provide less protection to consumers than the law of the forum.67 Public policy should have a high threshold so that it would not be used frequently against the certainty provided by party autonomy.68 c. Public Policy and Protection of the Weak Party Public policy will be initiated more often in contracts with inequality of bargaining power.69 As the Restatement 2nd clearly provides that: ‘A fundamental policy may be embodied in a statute which is designed to protect a person against the oppressive use of superior bargaining power.’ In Szetela v Discover Bank,70 the court held the class action waiver clause violated public policy, because it was presented on a ‘take it or leave it’ basis without the opportunity for meaningful negotiation, was one-sided in favour of the stronger party, and intended to deter 61 eg if the chosen law set up too hostile rules to regulate e-commerce, which may make the contract unenforceable, it would be regarded as a contravention of the economic public policy of the state of the default law. 62 Potomac Leasing Co v Chuck’s Pub 156 Ill App 3d 755 (2nd Dist 1987). 63 Champagnie v WE O’Neil Constr Co 77 Ill App 3d 136 (1st Dist 1979). 64 Ibid. 65 Meinerz v Treybig 245 So 2d 557, 559 (La App 3d Cir), writ denied, 247 So 2d 395 (La 1971); Twin Civy Pipe Line Co v Harding Glass Co 283 US 353, 365–367 (1931). 66 See eg Demitropoulos v Bank One Milwaukee 915 F Supp 1399 (ND III 1996) 1414; Midway Home Entertainment Inc v Atwood Richards Inc 1998 WL 774123, 3 (ND Ill 1998). 67 Scheifley v Capitol One Bank No CV 03-2801RBL (WD Wash 2004). Also see Kelly Service v Marzullo WL 4941612, 10 (ED Mich 2008) (the law preventing non-compete clauses in employment contract is not public policy). 68 Giuliano, M and Lagarde, P, Report on the Convention on the law applicable to contractual obligations [1980] OJ C 282/1, 38. 69 s 187, comment g. eg in Dearborn v Everett J Prescott 486 F Supp 2d 802 (SD Ind 2007) (the weaker bargaining power between the employer and employee has been taken into account when using public policy to rebut the chosen law). Cf Kelly Service v Marzullo. 70 Szetela (n 31).

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customers from seeking redress for small amounts of damages.71 Although the court admitted that such a clause was not unenforceable in all cases, it ruled that in the case where the amount of damages was small, and the business deliberately cheated a large number of consumers out of individually small sums of money, public policy had to be initiated to protect consumers. Although this clause was enforceable under the chosen law, the court refused to apply the chosen law but rejected enforcing this clause based on California public policy.72 In another case, the court held the application of the chosen law would not violate the public policy of the state of the default law, because it was not an adhesion contract but a contract with fair bargaining power.73 It indicates that public policy would be easier to initiate in consumer contracts than in ordinary contracts. However, not every law that is protective of the weaker party can be regarded as ‘public policy’. Even in contracts with unequal bargaining power, public policy will be used with caution.74 A mere difference between the chosen law and the default law cannot be regarded as violating public policy. For example, if the consumer can get the higher level of protection under the default law, the court cannot decide that the chosen law violates the public policy of the state of the default law. Only when the chosen law is comparatively offensive according to the purpose of the default law, and harms the general interest of a group of people, could it be held as violating public policy.

ii. Competing Interests Even if applying the chosen law would violate public policy of the state of the default law, the court would still enforce this agreement if the state of the chosen law holds greater interests than the state whose public policy was to be violated.75 It is questionable how to compare the interests in two states. Usually, a court will first consider the factual connecting factors to decide which country has the closer connection to the particular issue in question. Factual connecting factors include all factors connecting the dispute with a state, such as the territorial connections of the parties, the place of contracting, the place of enforcement, the place of breach of contract, and all other surrounding issues. The court will consider the extent to which the connecting factors are grouped in each of the states. In Klussman v Cross Country Bank,76 the Californian residents brought the class action against the Delaware bank, its credit card serving company, and the owner of both entities. The cardholder agreements between the parties stated that Delaware law governed, and included arbitration clauses incorporating rules which prohibited classwide arbitration. The class action waiver agreement was 71 72 73 74 75 76

Szetela (n 31)1101–102. Szetela (n 31). Banek v Yogurt Ventures 6 F 3d 357, 361 (6th Cir 1993). Lowery v Zorn 243 Ala 285 (Ala 1942); Banek v Yogurt. Nedlloyd (n 48). Klussman v Cross Country Ban123 Cal App 4th 1283 (Cal App 1 Dist 2005).

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enforceable under the Delaware law, but not enforceable in California. When deciding whether California’s interests outweighed that of Delaware, the court took all the circumstances into consideration. California had a number of significant contacts with the subject matter of the action. The contract was concluded in California; the plaintiff were residents in California; the credit cards were received in California, used in California, and paid bills from California; the plaintiffs were harassed at their homes and jobs in California by the defendant; the plaintiff’s complaint involved primarily California laws.77 The court thus held the chosen law could not apply because California, the state of the default law, held a materially greater interest than the state of the chosen law, which was Delaware. However, the grouping of factual connecting factors brings one into a logic circle. Since the default law is decided by the most significant connection principle, it implies that the state designated by the principle should prima facie hold more significant connections to the contract and thus have greater interest than any other state. Although the principle only requires the court to decide the competing interest of a particular issue instead of a whole dispute, in practice few courts have tried to distinguish the factual connections between one contractual issue and the whole contract. A pure factual connection test would render all choice of law clauses unenforceable if the chosen law is contrary to the public policy of the default law. As a result, the more important element in deciding the competing interest is the government interest test, where the court has to decide between the comparative interests of the two governments in relation to the disputed issue. For example, in Klussman, besides comparing the significant connection in each state, the court further stressed that California’s interests became even more intense when it was protecting its citizens from ‘take it or leave it’ agreements.78 It is interesting to compare the Klussman decision with Discover Bank v Superior Court to see the importance of the government interest test in deciding the competing interest.79 A California resident, Boehr, brought a putative class action against a Delaware Bank on behalf of a putative nationwide class. The Delaware law was chosen in the contract, which restricts the class action brought by consumers. Boehr claimed that California law should be applied to invalidate the class action waiver clause, because it is against the fundamental policy of California and California has indisputable strong interest to protect its consumers. Although this case contains a large number of similar facts as Klussman, the Court of Appeal, however, refused to apply the Californian law to this issue and enforced the Delaware choice of law agreement by ruling that Delaware had a materially greater interest than California, because the putative class claim was made on behalf of consumers in every State, not just California. California had a strong interest in 77 Klussman v Cross Country Ban, 1299. See also Oestreicher v Alienware 502 F Supp2d 1061 (N D Cal 2007); Kaltwasser v Cingular Wireless 543 F Supp 2d 1124 (N D Cal 2008). 78 Klussman (n 76) 1299. 79 Discover Bank v Superior Court, 134 Cal App 4th 886 (Cal App 2 Dist 2005).

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protecting its consumers, but it had no greater interest in protecting other States’ consumers.80 Although no guide has been provided to compare governmental interest, some basic criteria can be concluded from these cases. The governmental interest has to be weighed by considering all the circumstances, including the purpose of public policy, the interest of the relevant state in having its law applied, and the relation between the protected party and the relevant state. In e-consumer contracts, if the court has already held that the chosen law violates the public policy of consumer protection in the state of the default law, the court has to consider the following elements to compare the governmental interest of the states: (1) the relation between the consumer and the state of the default law. When the purpose of the public policy of the default law is to protect its consumers from unfair treatment, the state has the interest if the consumer has a substantially close connection with the state, ie the consumer is domiciled, or resides in the state. If the consumer has no such connection with the state, the state has no interest in applying its law; and (2) the extent of the effect of applying or not applying public policy. If the default law aims to protect the consumer in the state to which the law belongs, the state has a greater interest if there is a group of consumers whose interests are damaged by applying the chosen law.

iii. Conclusion Public policy can protect consumers, but it cannot be the sole instrument to protect consumers in e-consumer contracts. First of all, it brings much uncertainty to the individual case, and cannot be used widely. The concept of public policy, the violation by the applicable law, and the competing interest are hard to decide in advance. Since it would result in uncertainty and unpredictability, it could only be used as an exception to ensure the ends of justice. Even in a contract with inequality of bargaining power, the protective default law will be used to strike down the parties’ choice with great caution. This doctrine cannot provide sufficient protection to consumers. Secondly, the restriction to the doctrine of public policy of requiring the state whose public policy would be violated to have a materially greater interest than the state of the chosen law is considered restrictive and unreasonable. It is hard to compare the interest of each state. In addition, it might even prevent the forum from applying the public policy of the forum to limit the effect of the applicable law. Furthermore, this requirement does not necessarily give any consideration to the consumer. In the current choice of law approach in the US, the default applicable law in most cases would not be the law that is expected by the consumer but 80 Ibid, 895. Also in Gay v CreditInform (n 55), a choice of Virginian law clause was upheld in a contract between a Pennsylvanian consumer and a Virginian service provider. The Court of Appeal refused the claim that Pennsylvania had a material greater interest in the case, because although Pennsylvania had an interest in protecting its consumers, Virginia also had an interest in protecting businesses located in it.

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the law of the state with the most significant connection to the contract, which in most cases is the residence of a company. Furthermore, challenging the enforcement of a choice of law agreement would prove difficult as the burden of proof falls on consumers.81 This heavy burden could make the litigation cost unreasonably high for consumers. As a result, unless the court is more willing to strike down the choice of law clause in consumer contracts than in ordinary commercial contracts, public policy cannot be relied upon as the only tool to protect consumers.

IV. Conclusion Compared with the European model, the common law model is characterised by its flexibility and justice in individual cases. However, the biggest difficulty this model generates in e-consumer contracts is uncertainty and insufficiency. Public policy can be used to protect consumers, but this doctrine is vague and the situations in which this doctrine could apply are restrictive. Secondly, many tests in this approach depend on calculating the location of the traditional connecting factors in order to ascertain the state with the most significant connection to the contract, the state with a reasonable connection to the contract, and the state with a materially greater interest to the contract. Applying these tests in e-consumer contracts will generate many difficulties. Thirdly, the common law approach is complicated and may be demanding for both parties, especially in e-consumer contracts which are supposed to be of small value. Expensive litigation costs are unreasonable for both parties. For these reasons, more jurisdictions tend to adopt the European model to provide specific choice of law rules for consumer contracts. In the US, the Uniform Commercial Code (UCC) has also gone away from the common law rules under the Restatement 2nd and adopted protective choice of law rules for consumer contracts.82 It is thus submitted that the neutral choice of law approach adopted in the Restatement 2nd is not a good model upon which to design the proper choice of law rules in consumer contracts in e-commerce.

81 82

Wilson v Sawyer 106 So 2d 831 (La Ct App 1958), 833. S 1-301.

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11 Choice Of Law In Areas With Harmonised Substantive Law I. Introduction Choice of law in consumer contracts is an area where consensus can hardly exist. The difficulty is partially because of the characteristic of the subject which generates great social policy concern and partially because of the wide discrepancy in the substantive consumer law of each country. Choice of law is a subject that directly relates to the substantive law. It is only relevant and important where different substantive laws exist in different legal districts concerning the same issue. Once the substantive law has been harmonised to a certain level, choice of law issue may be simplified. There is no uniform consumer substantive law in the world, and it can be reasonably predicted that such harmonisation would not happen in the near future. However, partially harmonised substantive rules do occur in certain specific contexts. In the European Community, a series of Directives have been established in the past three decades to protect consumer welfare. These harmonised rules are different from traditional uniform substantive law in international conventions, which provides definite substantive rights and obligations to the parties. The European harmonisation only provides the minimum standard of protection to the parties, and does not prevent each Member State from introducing more stringent protection above the minimum standard. In October 2008, the European Commission published a proposal with the purpose of merging four Directives, namely Directive 85/577/EEC on contracts negotiated away from business premises, Directive 93/13/EEC on unfair terms in consumer contracts, Directive 97/7/EC on distance contracts, and Directive 1999/4/EC on consumer sales and guarantees, into a single horizontal instrument and moving away from the minimum harmonisation approach to adopt a full harmonisation approach.1 Even if the proposed full harmonisation is eventually adopted, it only concerns limited issues, and choice of law continues to exist in other areas. However, the harmonised minimum standard is sufficient to make a difference in choice of law, and to create a possibility to introduce a new and simplified choice of law approach. 1 European Commission, ‘Proposal for a Directive of the European Parliament and of the Council on Consumer Rights’, Brussels, 08 Oct 2008, COM(2008) 614/3.

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Although the governmental harmonisation in substantive law can only exist at the regional level, private-regulated uniform rules can be created in an international scenario. There is a long tradition for international commercial associations to provide harmonised codes of practice for their members. In e-consumer commerce, the most common practice is for the site-certificate institution to adopt uniform codes of practice to protect consumers dealing with companies registered under its site-certificate scheme. The code of practice in the site-certificate scheme provides harmonised substantive rules. These rules have no legal effects, but are important in out-of-court dispute resolution, and will greatly reduce the importance of the choice of law rules. This chapter examines the possible simplified choice of law in the region, which has established minimum protection standards, and in the site-certificate scheme, which has employed an advanced code of practice for its members.

II. Minimum Protection Approach— A Regional Solution A. Background for the Application of the Minimum Protection Approach In a region where substantive law has been fully harmonised, the choice of law issue becomes simple. There are no longer conflicts between the domestic laws of the states within the region. Conflicts exist only between the harmonised regional law and the law of a state outside the region, which should be applicable as far as it meets the regional level. However, a full harmonisation of consumer substantive law is hard to achieve even at a regional level. A partial harmonisation is more feasible in practice, which would be to harmonise the minimum standards of substantive law. As a result, conflicts continue to exist between states within the region, but they are not severe. Choice of law functions to ensure the consumer is protected by the minimum standards of the region: if the putative applicable law is that of any state within the region, it is applicable; if the putative applicable law is that of a state outside the region, its application cannot derogate from the minimum standard requirement harmonised in the region. An important condition for proper functioning of the minimum standard approach is the existence of comprehensive harmonisation of substantive law in the region, which provides minimum standards according to the common policy of the internal market or based on the mutual trust among all the states of the region on the protective quality of each other’s domestic law. The European Community satisfies the pre-requisite. In the past decades, a large number of consumer protection Directives have been established in the Community, which create minimum protective standards for consumers. The Europe consumer law

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has a wide range, covering unfair contract terms,2 misleading or comparative advertising,3 guarantees in consumer sales,4 door-step selling contracts,5 distance selling contracts,6 the indication of prices,7 consumer credits,8 timeshare contracts,9 package travel,10 and financial services.11 The Commission also wishes to extend the protection to a wider area, eg mortgages.12 Some legislation, which does not take consumer protection as the primary concern, also provides rules that would objectively protect consumers.13 For example, the E-Commerce Directive contains many substantive and uniform rules to regulate the so-called information service providers, which can also benefit consumers,14 such as the regulation of unsolicited emails,15 the availability of the information service provider’s real identity,16 the requirement of certain information, including the terms and conditions of contracts, the language offered, and the technical means to correct errors, etc, to be applied in a clear, comprehensible and unambiguous manner.17 These Directives are expected to be implemented into the domestic law of each Member State. Although different Member States, by implementing the Directives 2

Unfair Terms Dir 93/13/EEC. Dir 84/450/EC of 1984 relating to the approximations of laws, regulations and administrative provisions of the Member States concerning misleading advertisements, [1984] OJ L250; Dir 97/55/EC of 1997 amending Dir 84/450/EEC concerning misleading advertising so as to include comparative advertising, [1997] OJ L 290; Unfair Commercial Practices Dir 2005/29/EC, [2005] OJ L 149/22. 4 Dir 1999/44/EC of 1999 on certain aspects of the sale of consumer goods and associated guarantees, [1999] OJ L 171/12. 5 Dir 85/577/EEC of 1985 to protect the consumer in respect of contracts negotiated away from business premises, [1985] OJ L 372/31. 6 Distance Selling Dir 97/7/EC; Unfair Commercial Practices Dir 2005/29/EC. 7 Dir 98/6/EC of 1998 on consumer protection in the indication of the prices of products offered to consumers, [1998] OJ L 80/27. 8 Dir 87/102/EEC of 1986 for the approximation of the laws, regulations and administrative provisions of the Member States concerning consumer credit, [1987] OJ L 42/48. Amended by: Council Dir 90/88/EEC [1990] OJ L 61/14 and Dir 98/7/EC [1998] OJ L 101/17; Dir 2008/48/EC of 2008 on credit agreements for consumers and repealing Council Dir 87/102/EEC 9 Dir 94/47/EC of 1994 on the protection of purchasers in respect of certain aspects of contracts relating to the purchase of the right to use immovable properties on a timeshare basis [1994] OJ L 280/83. 10 Dir 90/314 EEC of 1990 on package travel, package holidays and package tours [1990]OJ L 158/59. 11 Dir 2002/65/EC of 2002 concerning the distance marketing of consumer financial services and amending Council Dir 90/619/EEC and Dirs 97/7/EC and 98/27/EC [2002] OJ L 271/16; Unfair Commercial Practices Dir 2005/29/EC; Dir 2007/64/EC of 13 Nov 2007 on payment services in the internal market amending Dirs 97/7/EC, 2002/65/EC, 2005/60/EC and 2006/48/EC and repealing Dir 97/5/EC Text with EEA relevance [2007] OJ L 319/1. 12 See European associations of consumers and the European Credit Sector Associations offering home loans ‘European Agreement on a Voluntary Code of Conduct on Pre-Contractual Information for Home Loans (“Agreement”)’ ec.europa.eu/internal_market/finservices-retail/docs/home-loans/ agreement_en.pdf, accessed on 07 Aug 2006; the European Commission, ‘Green Paper on Mortgage Credit in the EU’, COM(2005) 0327 final. 13 European Commission, ‘Green Paper on European Union Consumer Protection’, 2 Oct 2001, COM(2001) 531 final, 4. 14 E-Commerce Dir 2000/31/EC. 15 Art 7.1 and 7.2. 16 Art 5.1 17 Art 10. 3

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into domestic law, might adopt different substantive rules, these rules at least meet the minimum standards set up by the Directives. For issues covered by the Directives, no matter which Member State’s law has been applied, consumers are unlikely to be deprived of the minimum protection afforded to them at the Community level. If the minimum standard of protection established at the EU level is considered sufficient to protect consumers, the choice of law will turn considerably easier. There will be two different sets of rules for the applicable law. If the putative applicable law, according to the general rule, is the law of one of the Member States, there will be no limitation on it, because the consumer is certainly protected at the Community level. If the applicable law is outside any Member States, it should not deprive the consumer of the protection provided by the minimum Community standard and the preferential law approach should apply. This approach is not completely new in Europe, as some consumer protection Directives have adopted similar approaches to prevent the application of the lower protection under the law of a non-Member State.18 However, the approach currently has only been used as a supplement to the rules in the Rome Convention and as a shield to the application of the law with the lower consumer protection standard from a non-Member State. Sufficient attention has not been paid to develop this approach into a primary choice of law model in the region to simplify the choice of law between the domestic laws of different Member States within the region. Although some relevant thought has been given in the European Commission’s Green Paper on the Rome I Regulation in 2002, it has attracted much less attention than it deserves.19 This approach has also been proposed as one of the six policy options subject to an impact assessment based on the replies to the Commission’ Green Paper on the Review of the Consumer Acquis.20 Despite being supported by business sectors, most Member States and consumer associations strongly oppose it.21 However, it is suggested that the potential of the minimum protection approach has been underestimated and the negative effect on consumer’s confidence has been exaggerated. The minimum protection approach could be used as the primary choice of law model for e-consumer contracts.

18 eg Art 6(1) of the Unfair Terms in Consumer Contracts Directive; Art 12(2) of the Distance Selling Directive; Art 7(2) of the Directive on consumer sales and guarantees. See discussion in Ch 8, s IV. 19 European Commission, ‘Green Paper on the conversion of the Rome Convention of 1980 on the law applicable to contractual obligations into a Community instrument and its modernisation’, COM(2002) 654 final, s 3.2.7.3.v, 30; the responses from EuroISPA, 3; Amazon Europe, 2; European Mail Order and Distance Selling Trade Association (EOMTA), 4; Council of the Bars and Law Societies (CCBE) of the European Union, 7. All available from the website: ec.europa.eu/justice_home/news/ consulting_public/rome_i/news_summary_rome1_en.htm, accessed on 22 Sep 2008. 20 European Commission, ‘Green Paper on the Review of the Consumer Acquis’, (COM(2006) 744 final, 08 Feb 2007.

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B. Concerns on the Application of the Minimum Protection Approach The minimum protection approach should be used within a satisfactory context. It cannot work simply by itself but requires the correspondent development of the whole legal background within the region or Community. As a result, its influence and effect depend on certain important conditions. Although the European Community is a good sample of a region with harmonised minimum standards at an advanced level, which are essential for the proper functioning of the minimum protection approach, adopting this approach in Europe generates doubts and concerns in terms of comprehensiveness, sufficiency, promptness, electronic compatibility and the geographic limitations.

i. Comprehensiveness Although the European harmonisation of minimum standards for consumer protection has a wide coverage, there are still many important gaps and blanks in the area.22 The European Commission comments that: Existing EU consumer protection directives, when compared to national regulation, do not constitute a comprehensive regulatory framework for business-consumer commercial practices, the central aim of consumer protection. While some areas have been effectively targeted, other key areas are not covered by EU rules, notably marketing practices, practices linked to the contract, payment and after-sales services.23

The minimum protection approach cannot work in the context where there are no minimum rules set up. In areas uncovered by those Directives, consumers will be left unprotected. As a result, an alternative or revised minimum protection approach should be proposed, which suggests that the minimum protection approach can only apply to matters that are harmonised at the EU level.

ii. Sufficiency One would argue that the minimum protection approach cannot provide sufficient protection to consumers even if it works within a framework providing comprehensive and satisfactory minimum standards of protection, because the domestic law of each Member State still varies and provides different levels of protection.24 Consumers habitually resident in a country with a higher level of 21 See ‘Commission Staff Working Document accompanying the proposal for a directive on consumer rights: Impact Assessment Report’, ec.europa.eu/consumers/rights/docs/impact_assessment_ report_en.pdf 24 and 33–35, 16 Jan 2009. 22 City of London Law Society Financial Law Sub-Committee, Replies to the Rome I Green Paper, 13, ec.europa.eu/justice_home/news/consulting_public/rome_i/doc/city_london_law_society_financial_ sub-committee_1_en.pdf, accessed on 30 Sep 2007. 23 European Commission, ‘Green Paper’, 5. 24 Commission Staff, Impact Assessment Report, 24.

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protection would be prejudiced by the applicable law of another country, which provides rules, though meeting the minimum standard at the EU level, with lower protection compared to those in the country of the consumer’s habitual residence. For example, the Distance Selling Directive provides consumers with the right to withdraw from distance selling contracts within at least seven working days,25 but each State could impose more stringent protection for its consumers.26 As a result, English domestic law permits consumers the right to withdraw within seven days, Italy ten days, and Germany two weeks.27 If a German consumer and an English supplier conclude a contract where there is a choice of English law clause, the minimum standard of the Community is satisfied, but the German consumer is deprived of the protective standard provided in his domestic law, which he would expect to apply. The answer to this concern would be that the minimum protection approach is not the one providing the highest protection to the consumer, or the one applying the law of the country with which the consumer is more familiar. Instead, it is a compromise between the consumer’s interest and the business’s expectation. It reaches a ‘biting point’ where the consumer’s rights are protected at an acceptable and general satisfactory level and where the business can acquire its long-desired certainty and security. It certainly can prevent the worst situation in cross-border transactions where the business abuses its bargaining power by intentionally choosing the law without any specific protection to consumers. Although it cannot ensure the consumer to be always protected by the highest standard available, or by the domestic law of his habitual residence, the consumer is more or less protected at a level that is considered reasonable. It is not the level of protection, but the balanced result, which can mostly justify this approach.

iii. Promptness In terms of promptness, once a Directive has been adopted, it will take time for each Member State to implement it into domestic law. Every Member State does not work hand-in-hand or with the same speed which results in a gap between the time when the Directive has been established and the time when all Member States have implemented the Directive. In many cases, some Member States have implemented the Directive and its minimum protective standards, while others have not. How could the minimum protection approach work at this stage? There are two potential solutions. The first one is that the minimum protection approach can only work properly when all Member States in the Community have implemented the relevant Directives and the chosen law or the default applicable law of any Member State can be applied without restriction. If some Member 25

Dir 97/7/EC. Art 14. The information is provided in Johann Wolfgang Goethe-Universität Frankfurt am Main, ‘European Contract Law: Substantive and International—A Comment on the inherent interrelation of the Action Plan on European Contract Law COM(2003) 68 final and the Green Paper on the Modernisation of the 1980 Rome Convention COM(2002) 654 final’, 3. 26 27

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States have not implemented the Directive, the situation should be treated as if there are no harmonised minimum standards available, and the preferential law approach should apply, until the minimum standard has been eventually implemented and enforced in all Member States. The second solution suggests that once a Directive is adopted, the minimum standard is established, and according to the internal principle of the approach, the applicable law should meet the established minimum standard. As a result, if the chosen law or the default applicable law happens to be the law of a Member State which has already implemented the relevant Directive, this law should apply. On the other hand, if the chosen law or the default applicable law is the law of a Member State which has not yet implemented the relevant Directive, the applicable law should not derogate from the minimum standard established by the Directive. The second approach suggests a prompt enforcement of the EU standard in cross-border transactions. It recognises the fact that a minimum standard has already been established in the EU though it has not yet been implemented in every Member State. Prompt enforcement has its advantages; with the quick development of technology and commercial activities, too long a gap between the establishment of a Directive and the final enforcement in every Member State may render the rules outdated, or even allow the rules to ‘unnecessarily restrict innovation or allow rogue traders to keep one step ahead of the law’.28 However, it could lead to uncertainty, as some small businesses, especially those habitually resident in a State where the minimum standard has not been implemented and enforced, would have no idea about the European standard. This approach is also complex and may confuse the litigating parties as to their legal rights and obligations. More importantly, since a Directive has no horizontal direct effects and cannot be directly enforced between private individuals in a national court,29 the court cannot directly apply the minimum standard provided by the Directive but has to apply the higher standard of protection provided by the law of the consumer’s habitual residence. It requires the court to compare the level of protection twice: one between the chosen law and the EU minimum standard, the other between the chosen law and the domestic law of the consumer’s habitual residence. More ironically, the law of the consumer’s habitual residence may also have not yet implemented the Directive. As a result, the first solution is more realistic and the minimum protection approach should be used after the deadline for each Member State to implement a Directive.

iv. Electronic Compatibility Fourthly, most Directives pre-date the development of e-commerce, which raises a question as to how effectively these rules can be used in e-commerce to protect consumers. For example, Article 5(1) of the Distance Selling Directive provides; 28 29

Green Paper on Consumer Protection (n 13) 5. Case 152/84 Marshall v Southampton Area Health Authority [1986] ECR 723.

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The consumer must receive written confirmation or confirmation in another durable medium available and accessible to him of the information . . ., in good time during the performance of the contract, and at the latest at the time of delivery where goods not for delivery to third parties are concerned, unless the information has already been given to the consumer prior to conclusion of the contract in writing or on another durable medium available and accessible to him. (emphasis added)

This simple provision would generate uncertainty as to its application in e-commerce. Firstly, what is the meaning of those terms in e-commerce, such as ‘durable medium’, ‘the time of delivery’, ‘goods’, and ‘in writing’? Without an updated uniform Community meaning, different Member States would provide different interpretations according to their legal tradition, which will lead uncertainty in practice. Secondly, many rules are dependent on the stage of transaction. For example, the consumer must receive confirmation ‘during the performance’ of the contract, and at the latest at the ‘time of delivery’ unless the information has already been given ‘prior to conclusion of the contract’. These different stages are uncertain in e-commerce. As the European Commission comments in the Green Paper on Consumer Protection: The development of new commercial practices and technology has also tended to blur traditional distinctions made in EU rules between the different stages of the transaction, thereby adding an element of uncertainty.30

However, this difficulty is primarily due to the quality of harmonised minimum substantive rules, not the inner flaw of the minimum protection approach. Outdated legislation is a common weakness of almost all law-making process. It is even worse in the regional legislation trying to reach a compromise and to harmonise the law of different Member States. Providing the supplemental interpretation can be a good resolution to resolve this difficulty.

v. Geographic Limitation The minimum protection approach could be a good model of choice of law in e-consumer contracts at the regional level. However, it raises a question as to its geographic limits. Should this approach be used to protect all consumers, including non-EU consumers? Or should it be limited to protect consumers within the Community? Is it reasonable to use the EU standard to regulate only EU businesses? Or, must any non-EU businesses, once they have been caught in an EU court also satisfy the EU regulation? The most convenient situation for the proper functioning of the minimum protection approach is in the case where both parties have their habitual residence within the Member States, when it is reasonable to apply the Community bottom line to regulate the applicable law. If the parties have chosen the law of any one of the Member States, the chosen law is applicable; if the parties have chosen the law out of the Member States, the chosen law cannot deprive the consumer of the 30

Marshall v Southampton Area Health Authority.

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minimum protection provided by the Community minimum standard. If the parties have not chosen the applicable law, the default law should be determined according to the general rules of ordinary contracts in the absence of choice, which, within the Rome Convention and the Rome I Regulation, usually is the law of the habitual residence of the business. Since it is within one of the Member State, that law is directly applicable. If a non-EU business enters into a contract with an EU consumer, there are also sufficient reasons to apply the Community minimum standard to protect the EU consumer. The default law, in this case, would usually be the law of the non-EU business, which should be applied as long as it does not deprive the consumer of the standard of protection provided under the Community law. However, it is only reasonable to apply the minimum Community law if the non-EU business could reasonably expect such a law may apply, ie it targets the market within the Community. If a European consumer travels to a non-Member State to give his offer, the non-EU supplier cannot expect the mandatory application of EU minimum standard. If an EU business enters into a contract with a non-EU consumer, one might wonder how to justify the application of the European standard. Suppose the nonEU consumer has his habitual residence in a country with much lower standards of protection to consumers, and the parties agree that the law of the consumer’s habitual residence to apply. Applying the chosen law meets the consumer’s basic expectation and satisfies the business’s interests. However, it is never unreasonable to require an EU business to provide services according to the EU minimum standard, regardless of where the consumer comes from, and the consumer will not be prejudiced in substance where the EU standard applies. The difficulty is where a non-EU consumer has his habitual residence in a country with much higher standards of protection. The safeguard of the EU standard would be insufficient. Final, what if a non-EU business concludes a contract with a non-EU consumer? It would be rare for an EU court to assert jurisdiction over such a case. If the parties have chosen the court of one of the Member States after the dispute has arisen, they normally will also choose the law of that country and the minimum protection approach reasonably applies, since the European standard is applied under the parties’ intention. If the parties have chosen the forum of one Member State, but have chosen the law of a non-EU country, such as the law of the business, of the consumer, or of somewhere outside the EU, applying the EU minimum standard can hardly be justified if the dispute has no sufficient connection with the EU. Applying the EU standard to every case cannot be justified without difficulty. It is fair to use this approach where both parties are EU residents. In other cases, conditions have to be designed to make the application of the minimum EU standard reasonable.

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III. Code of Practice in the Site-Certification Scheme Special choice of law can also be provided to companies that are members in a site-certificate scheme. Any company which has registered as a member with a site-certification institution to get the site-certificate logo will agree to comply with the code of practice provided by the site-certification institution, and disputes usually will be resolved by the ADR adopted by the institution. The code of practice adopted by the site-certificate scheme usually provides satisfactory protection to consumers. When a site has obtained a certification label, the applicable law is not important any more, as far as the minimum request of the code of practice of the site-certificate institution can be guaranteed. In practice, when the dispute has been brought to the ADR embodied in the site-certificate scheme, the ADR will make its decision according to the code of practice, and the applicable law will only be considered in rare cases. This approach is a specific innovation, which could be well performed with properly established online alternative dispute resolution mechanisms. Professor Kessedjian proposed in the Geneva Round Table of the Hague Conference that for an efficient choice of law rule in e-consumer contracts, we need to give up the rigid dichotomy between the ‘country-of-origin’ and the ‘country-of-destination’ and start with a process of site-certification which includes minimum substantive rules of protection for consumers.31 This approach is promising. It could create a win-win situation for consumeroriented e-commerce. When consumers notice the specific site certification label, they should feel confident that their rights would be protected to the level of the uniform standard of the scheme. Businesses that take part in this site certification process can acquire certainty and enjoy the benefit of having more confident potential consumers. However, in order to put this idea into practice, the following issues have to be addressed. Firstly, the success of this approach depends on the quality and reputation of trustmark organisations. These organisations have to set up fair, substantive laws which provide reasonable protection to consumers. Some commentators argue the practice of trustmark organisations nowadays is of an inappropriate quality, which represents a risk to e-consumers who rely on trustmarks.32 Trustmark companies usually provide trustmarks to e-businesses fairly routinely, based on e-businesses’ presentations without further investigation or continuous monitoring. More importantly, trustmark companies depend on e-businesses to get their funding, which prevent them from being completely independent.33 31 Hague Conference on Private International Law, Geneva Round Table on Electronic Commerce and Private International Law (Sep 1999),www.hcch.net/upload/wop/press01e.html, accessed on 04 Jun 06. For the introduction of site-certification, see Ch 7, s III.D. 32 See P Balboni, ‘Model for an Adequate Liability System for Trustmark Organizations’ (2006) 1 Privacy, and Security Issues in Information Technology 97, 97. 33 For more details, see Balboni, ‘Model’, 97–9.

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Secondly, there are many different trustmark companies doing site-certification services for e-companies, all of which have different standards and substantive rules. This will lead to inconsistent results for consumers. A better solution might be to require one highly reputed international organisation to establish an international uniform substantive law, to be adopted by all trustmark organisations. This solution could provide more predictable and uniform results. However, since there is no relevant international organisation to establish such a system, it will take time for a uniform law to be established and put to the test before this approach could be fully implemented. Thirdly, this approach cannot work well without a well-designed online dispute resolution system. There are more than 55 companies providing online dispute resolution services for their customers nowadays, including online negotiation, online mediation, and online arbitration.34 However, it is said that this dispute resolution method is still at an early stage and requires further regulation.35 After such dispute resolution system has been established, the following proposal could be followed to resolve the choice of law rules for e-consumer contracts in this scheme. Fourthly, the system cannot work unless consumers are provided relevant information, in a clear and unambiguous way, before concluding the contract, which makes him know the institution that has managed the scheme, the relevant ADR options accompanying the proper functioning of the scheme, and the content of the code of practice. Especially the content of the code of practice has to be provided in a clear and unambiguous way to the consumer, and the consumer should be able to access these rules easily when the dispute has arisen. Although it is presumed that most consumers will not bother to read it, the business is still obliged to make the information available, which would produce the necessary trust and confidence a consumer needs to participate in a transaction. The consumer prefers to deal with websites that he perceives to be reliable, honest, consistent, and competent.36 The business also needs to provide the consumer with information about the institution that issued the site certificate.37 The consumer could make his own decision based on the institution’s honour and reputation. It is quite clear that whether this approach succeeds or not is primarily

34 For a list of these online dispute resolution companies, see T Schultz, G Kaufmann-Kohler, D Langer, and V Bonnet, ‘Online Dispute Resolution: The State of the Art and the Issues’ www.online-adr.org/reports/TheBlueBook-2001.pdf, 1, accessed on 07 Sep 2006. 35 For further information, see R Bordone, ‘Electronic Online Dispute Resolution: A System Approach—Potential, Problems, and A Proposal’ (1998) 3 Harvard Negotiation Law Review 175; Y Farach, ‘Critical Analysis of Online Dispute Resolutions: The Optimist, The Realist And The Bewildered’ (2005) 11 Computer and Telecommunications Law Review 123; J Goodman, ‘The Pros and Cons of Online Dispute Resolution: An Assessment of Cyber-Mediation Websites’ (2003) Duke Law and Technology Review 4. 36 M Metzger, ‘Privacy, Trust, and Disclosure: Exploring Barriers to Electronic Commerce’, (2004) 9 Journal of Computer-Mediated Communication, jcmc.indiana.edu/vol9/issue4/metzger.html, accessed on 15 May 2007. 37 Provisions (3)C and D.

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based on the trust that the contractual parties can establish.38 Furthermore, it has to be noted that the information has to be provided in an easy, direct and permanently accessible way. It means that the basic information should be accessible and obtainable without further efforts or additional acts. In this sense, if a business website does not contain the above information, which is only available by further inquiry, it does not satisfy the requirement. If the information is involved in the website, but needs to be accessed by clicking a number of links, or it shows up in a tiny and illegible format, it does not satisfy the above requirement. The information also has to be permanently accessible. It cannot be altered frequently during the consumer’s visit. It must be storable and referable whenever necessary. It should also be consistent anywhere in the website and at anytime during the communication.39 As a result, the company that is the member of a site certificate scheme has to provide its customers the following information in an easy, direct and permanently accessible manner before or at the time of concluding the contract: (1) the business’s habitual residence or place of business and the physical contact address; (2) the name, address, and website of the institution which issues the site logo; (3) the starting date and the termination date of the current certification; and (4) the content of the code of practice adopted in the site-certificate scheme. There may be choice of law clauses in the concluded contracts. If ADR needs to resort to the applicable law to decide some issues, these clauses should be effective, as far as the applicable law does not deprive the consumer of the protection provided by the site-certificate scheme. Even if the law of the consumer’s habitual residence has been chosen, the minimum substantive rules would still be ensured, because it is possible that when dealing with a consumer from a country with a lower standard of protection, the business inserts an agreement to choose the law of the consumer’s habitual residence, in order to evade the minimum protection law in the site certification process. It thus provides that no members in the site certification system can evade the code of practice by any agreement. In these circumstances, the minimum level in the site-certification process will be applied and override the chosen law.

38 Here, it is the trust of the consumer in particular that counts. For more discussion on trust in E-commerce, see generally EA O’Hara, ‘Choice of Law for Internet Transactions: The Uneasy Case for Online Consumer Protection’ (2005) 153 University of Pennsylvania Law Review 1883. 39 eg, it cannot be altered just after the consumer places his order.

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12 Proposals for Conflict Of Laws In Electronic Consumer Contracts I. Appropriate Conflicts Rules in E-Consumer Contracts This chapter seeks to provide a proposal on conflicts rules in electronic consumer contracts, built on the basis of the comparative study of the typical conflicts rules in this area. The proposal aims to offer some innovative thought in this area and to create the pattern of conflicts rules in e-consumer contracts that may help the future legislation and international cooperation. It is admitted that international harmonisation on the conflict of laws in consumer contracts is very hard, which can be indicated by the failed Hague project on this issue, but consumer conflict of laws is one of the areas with strong policy concerns, where severe conflicts could exist without proper judicial cooperation. Some countries intend to use conflict of laws to protect their consumers, but unilateral protection cannot work effectively in the international context if other countries adopt a total different approach. Some states intend to use a soft approach to encourage cross-border business activities, which can be obstructed by the rigid consumer conflicts rules adopted in other countries. The purpose of each individual country’s consumer policy can be effectively achieved only with a proper judicial cooperation. Consensus may be more easily achieved at a regional level, or through a compromised, intermediate approach. Secondly, the proposal will also provide detailed guidance and criteria to each proposed test, which, hopefully, could help the interpretation of the current conflicts rules in some countries. There are several political and economic interests of private international law in e-consumer contracts. On the one hand, it is necessary to provide a high standard of protection to consumers to improve the quality of life and provide protection for the weaker party. On the other hand, it is also important to reduce unnecessary barriers to free trade. The delicate relationship between consumer interests and free trade determines how far private international law should go in the area of consumer protection. On the one hand, the conflict between consumers and businesses is ‘irreconcilable’.1 A business wants to trade without restriction and to 1 S Larsen, ‘Organisation for Economic Co-operation and Development, Product Safety, Trade Barriers and Protection of Consumers, in International Trade And The Consumer’ Report On The 1984 OECD Symposium 177, 177 (OECD 1986); JP Nehf, ‘Borderless Trade and the Consumer Interest: Protecting the Consumer in the Age of E-Commerce’ (1999) 38 Columbia Journal of

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maximise its profits, whereas a consumer wants a higher standard of protection against the abuse of bargaining power and oppressive proceedings, which requires more regulations to be set up for the other party. On the other hand, interests of consumers and businesses are interdependent. Whether or not consumers in the global market can obtain satisfactory protection will influence the benefits of businesses. Within a consumer-centred regime, consumers can get adequate protection against unfair treatment and will be confident to take part in international commerce. The confidence of consumers brings prosperity to the cross-border market and increases the profits of businesses. A low standard of protection discourages consumers from participating in cross-border transactions, which will damage the development of international trade.2 From another perspective, whether businesses have the incentive and confidence in cross-border commerce will also affect the interest of consumers. Only under a comparatively businessfriendly environment, without unexpected trade obstacles, will businesses have sufficient incentive to engage in international trade. The development of international trade and the establishment of a global uniform market could benefit consumers by proliferating products in the market, expanding consumers’ choices and encouraging competition. Without certainty and predictability, businesses will have to narrow the scope of their service area or give up cross-border trade, which reduces consumers’ options. Businesses may also transfer the costs and risk caused by restrictive law to consumers by increasing prices or making extra charges, which would eventually prejudice consumers.3 It is thus suggested that a proper approach should achieve a delicate balance between consumer protection and free trade, thereby benefiting both sides. It requires the following three key principles to be satisfied: at first, the common interests of consumers and businesses must be protected. This is a basic principle for the whole system. Both consumers and businesses require private international law rules to provide certainty and predictability and wish the process to ascertain the competent forum and the applicable law to be simple and straightforward. Secondly, given the weaker position of the consumer, the relevant rules in private international law should rebalance the unequal position between the consumer and the business. The business should not be able to abuse its bargaining power to the detriment of the consumer. However, the protection should also be reasonable and the business should be free from unexpected and unreasonable obstacles or barriers. As a result, the proposal will take into account the balancing of interests Transnational Law 457, 457–8; J Huet, ‘Recent Developments In The Field Of Consumer Protection In The European Community’ (1993) 16 Hastings International and Comparative Law Review 583; P Coughlin, ‘The Movement Of Consumer Protection In The European Community: A Vital Link In The Establishment Of Free Trade And A Paradigm For North America’ (1994) 5 Indiana International & Comparative Law Review 143. 2 EA O’Hara, ‘Choice of Law for Internet Transactions: the Uneasy Case for Online Consumer Protection’ (2005) 153 University of Pennsylvania Law Review 1883. 3 T Puurunen, ‘The Judicial Jurisdiction Of States Over International Business-To-Consumer Electronic Commerce From The Perspective Of Legal Certainty’ (2002) 8 UC Davis Journal of International Law and Policy 133, 137–8.

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between business and consumers and pay attention to promoting legal certainty, protecting justice in individual cases, promoting consumer-oriented electronic commerce, and also the ability to be updated to suit the development of modern technology.

II. Rule-Based Model versus Discretion-Based Model After clarifying the basic values which should be considered in establishing the conflicts rules proposal in e-consumer contracts, the next issue that needs to be considered is what approach, the rule-based or the discretion-based, should be used in establishing the proposal. In respect of legal certainty and predictability, the rule-based approach is obviously superior to the discretion-based approach.4 The principle of certainty and predictability is ensured by the codification and curtailment of the discretionary power of the court.5 The discretion-based approach focuses on fairness and justice in each individual case. Although the discretion-based approach also provides tests and corresponding rules, these can only be called ‘guides’, which are necessary to help the court to exercise its discretion. In terms of flexibility and justice in individual cases, the discretion-based approach would win the battle. The court could exercise its direction following some principles instead of strict rules, and the final decision thus will be made according to the specific elements of the individual case. The rule-based approach, however, relies on rigid provisions, which determine the applicable rules in advance and may disregard the outcome in individual cases.6 In order to overcome the weakness, the rule-based system usually pays more attention to establishing precise and well-balanced conditions and provides different conflicts rules according to different situations. In order to achieve a degree of ‘controlled flexibility’, there is a great deal of pressure on the legislator to design a comprehensive system covering all the possible situations. As to which approach is more effective to protect the consumer as the weaker party, the rule-based system again holds the advantage over its discretion-based counterpart. Despite the inner philosophy of achieving justice in the individual case, the discretion-based approach in fact has little real concern for consumer protection. As to which approach is more appropriate as the one for the uniform model on a world-wide basis, the rule-based approach is favoured by most international organisations or institutes. The European harmonisation of conflicts rules clearly 4 For the opposite point of view, see R Cappalli, ‘At The Point Of Decision: The Common Law’s Advantage Over The Civil Law’ (1998) 12 Temple International and Comparative Law Journal 87, 100. 5 A Gardella and L Brozolo, ‘Civil Law, Common Law and Market Integration: The EC Approach to Conflicts of Jurisdiction’ (2003) 51 AJCL 611, 612–3. 6 Gardella and Brozolo, ‘Civil Law’.

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follows the rule-based tradition, and a similar rule-based approach has been accepted in a series of conventions at the Hague Conference on Private International Law7 and the UNCITRAL. This may be partially due to the tradition of the majority of Member States,8 and partially due to the different features of these two approaches. It is suggested that a possible solution is to design a mixed model that combines both the rule-based approach and the discretion-based approach.9 The main structure of the model will be rule-based, which will achieve the necessary certainty and provide the higher standard of protection to consumers. The discretion-based approach will also be adopted to modify the possible unreasonableness and injustice of the final result.

III. Protective Model versus Neutral Model There are, generally, two typical conflicts models in consumer contracts: the protective model and the neutral model. The protective model has established distinct conflicts rules with the obvious pro-consumer principle. The default jurisdiction and choice of law are generally that of the consumer’s habitual residence, and party autonomy has been limited to the extent that it would not work to the detriment of the consumer. The neutral model applies ordinary rules to consumer contracts and generally upholds party autonomy in such contracts, providing it is not unfair or unreasonable. It can be more predictable for businesses, but insufficient consideration will be given to consumers’ need for protection. The protective model is comparatively new in private international law and most countries in the world have not yet adopted it. Because of the characteristics of consumer contract claims, in those countries where the protective model has been adopted, statistics shows that the protective conflicts rules do not greatly increase consumer litigation. Even if consumers could choose to sue in their domestic court and have been protected by no less than their domestic mandatory standards, the small value of the claim makes court proceedings an unwise option. However, it is too quick to conclude that the protective model is useless in practice. Litigation is the last option, not only in consumer claims, but also in almost all commercial disputes. However, it should always be there and available to the parties. The existence of a protective model could urge a company to pay attention to its customer policy and to provide a higher standard of services to consumers in countries where protective conflicts rules are adopted. 7 See generally, Auther T von Mehren, ‘Drafting A Convention On International Jurisdiction And The Effects Of Foreign Judgments Acceptable World-Wide: Can The Hague Conference Project Succeed?’ (2001) 49 AJCL 191. 8 See von Mehren, ‘Drafting A Convention’; Gardella and Brozolo (n 5). 9 See generally, G Canivet, ‘The Interrelationship between Common Law and Civil Law’ (2002) 63 Louisiana Law Review 937.

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Some big companies that intend to target international markets will take each country’s consumer rules, including conflicts rules, into account when drafting standard contracts. With the introduction of the protective conflicts rules to consumer contracts, European consumers are treated in a better way in conflicts issues than consumers in countries with no protection given. For example, the CocaCola website store has provided different jurisdiction and choice of law clauses to consumers resident in different countries and areas. For residents in the United States, Canada, Russia, or Ukraine, the exclusive jurisdiction is given to Fulton County, Georgia, USA, and the laws of the State of Georgia, USA should apply to govern the contract and use of the site; for residents in Africa or the Middle East, the exclusive jurisdiction is the High Court of South Africa and the law of South Africa applies; for residents within Europe, the law of the user’s country of residence shall apply and the exclusive jurisdiction should be the consumer’s residence, etc.10 Comparatively, more favourable treatments have been provided to the European consumers. The international tendency shows a gradual reform of the domestic laws of some countries with the traditional neutral model. Although the full protective conflicts model has not been adopted, they have borrowed protective elements from Europe to soften the rigid and value-free conflicts rules through modest legislative reform or judicial correction. It can be predicted that the protective model would be the tendency in the future, when further development of the economy and technology establishes the environment encouraging cross-border consumer transactions, and when the social policy requires sufficient rules to ensure protection to the weaker party. More and more countries would consider it necessary to reform the current neutral model in order to take consumer’s interest into consideration. However, providing too much protection is never a good choice, which not only creates unreasonable obstacles to commerce, but also would eventually result in a detriment to consumers.11 A typical difficulty with the current protective model is: since the rule is biased towards consumers, it generates concern from businesses. The concern should not be necessary; if businesses realise the fact that the proconsumer conflicts rules only apply to limited circumstances where businesses have targeted the consumer’s home and could reasonably expect being subject to the protective rules. The current concern and anxiety are partially because the scope of protection is not properly designed, or the lack of detailed interpretations makes the scope ambiguous. With a well-designed scope of protection, the protective model could work effectively, at least for cases falling with its scheme. Furthermore, the strict protective model may not be the only option. The socio-economic functioning of this model is to require a business to be cautious in choosing its market. A business should not be free to extend its commercial 10

www.coca-cola.com/webstore/en_ZA/template1/terms_of_use_en_ZA.html, accessed on 27 Jul

2008. 11

See Ch 12 s I Appropriate Conflicts Rules in E-Consumer Contracts bove.

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activities to the area outside its pre-designed market. Otherwise, the business has to be fully responsible for the negative effect of the protective jurisdiction and applicable law. A strict protective model has provided legal barriers to commercial practice, under which, the business has to make commercial decisions not only based on market potential and economic profits, but also the legal barrier that hampers free trade. If a company does not have strong financial and litigating power to carry the risk of global litigation, the company would have to limit its market to a small territory and give up additional profits that may be brought in the international free market. Comparatively, the neutral model protects the international liberal market. There is no scope of protection based on the business’s commercial targets. Businesses could be free to choose its market based on the economic consideration instead of the legal barrier. The business however should act bona fide, and the abuse of power would be prohibited by law. The difficulty with the current practice based on this model is the follows: firstly, the only requirement of bona fide is not sufficient to protect consumers; secondly, the test for bona fide is not certain. More measurable standards have to be provided to protect consumers in international contracts. The work provides two alternative proposals. The first one is based on the protective model. It generally follows the methodology adopted in the European conflicts regime, but will focus on designing a well-established and highly predictable scope of protection, which is the key issue in reducing the negative effects on commercial practice and to keep the model workable. Once the pre-requisites are satisfied, protective conflicts rules can be adopted. Party autonomy will be generally ineffective in consumer contracts, unless in exceptional circumstances. The default jurisdiction and applicable law will always make it possible for a consumer to rely on his home legal system for protection. The second proposal adopts a mixed approach. It accepts the economic policy implied in the neutral model to protect free trade and a liberal market, but also considers the necessity to provide certain and predictable pro-consumer rules to protect consumers. The default conflicts rules are protection based, namely the consumer is always entitled to sue or to be sued in his home forum, and the domestic law of the consumer’s habitual residence shall apply as the default law. However, businesses could adopt jurisdiction or choice of law agreements to reduce commercial risk under the conflicts rules. A business could only choose the jurisdiction or the system of law between that of the business’s home or of the consumer’s residence. The jurisdiction or choice of law clause should be fair and reasonable with authentic consent from the consumer. Stringent formal and substantive requirements will be provided to ensure that the consumer could be aware of the existence and content of the jurisdiction or choice of law clause before entering into the contract, and the consumer has given express authentic consent to such a choice. The key issue with the second proposal is the effect given to party autonomy. Because the default jurisdiction and applicable law are pro-consumer, a business would be very keen to meet the stringent validity requirement in order

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to avoid the protective default rules. The validity requirement will be designed in a way to urge the business to act in good faith by providing jurisdiction and choice of law clauses in a conspicuous manner to catch the consumer’s attention and to permit the consumer to make a real choice.

IV. Systematic and Consistent Conflicts Rules Furthermore, the interrelationship between the jurisdiction and choice of law rules needs to be addressed, in order to keep the whole system consistent and systematic. Private international law holds two independent systems for jurisdiction and choice of law, and there is rarely any express or obvious interaction between them. However, jurisdiction and choice of law have inevitable connections in practice. The importance of creating a consistent private international law system has been realised by the European Community. The Commission’s Green Paper on the Rome I Regulation stressed the necessity of creating a consistent community conflict laws system.12 The recitals of the Rome I and II Regulations have all expressed the necessity to keep a harmonious conflicts system between the three conflicts instruments.13 It is also necessary to observe the interrelationship of jurisdiction and choice of law in order to provide systematic and consistent proposals for e-consumer contracts.

A. Protective Principle in Jurisdiction and Choice of Law Protective conflict of laws aims to protect the consumer as the weaker party against the disadvantageous litigation position in international commerce and to increase the consumer’s confidence in taking part in international transactions. The consumer’s weaker litigation power and weaker bargaining power put him at a disadvantage in terms of both jurisdiction and choice of law, and thus require protection in both issues. The European conflicts regime adopts the same principle to design specific jurisdiction and choice of law rules in consumer contracts. The Brussels I regime on jurisdiction and the Rome I regime on choice of law follow the same principle and adopt consistent protective default rules to protect consumers in a contractual relationship. Inconsistency in the basic principle will lead to inevitable difficulty in practice. Since the Brussels I Regulation has its specific geographic limitation, in cases where the Brussels rules do not apply, the national court of a Member State will apply its traditional rules in deciding jurisdiction. These traditional rules may have 12 European Commission, ‘Green Paper on the conversion of the Rome Convention of 1980 on the law applicable to contractual obligations into a Community instrument and its modernization’, COM(2002) 654 final, para 2.2. 13 Recital 7 of the Rome I and II Regulations.

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no protective concern for consumer contracts.14 This is the case in England. The English common law gives no specific consideration to the consumer’s weaker litigation power and bargaining power.15 England would not exercise jurisdiction upon an English consumer’s application, or refuse jurisdiction over a foreign consumer, simply because it is a business-to-consumer dispute. However, the English court uses the Rome Convention which has a completely different basis to decide the applicable law in all consumer contracts. The consumer is protected in choice of law when the contract falls within the protective scope, when the law of the consumer’s habitual residence applies as the default protective law. It is hard to justify why the consumer is protected in choice of law but not in jurisdiction. In practice, an English company suing a New York consumer could successfully convince the court to exercise jurisdiction, if England is the natural forum. The consumer is forced to conduct foreign litigation in England, but ironically could have New York law apply as a protection. On the other hand, an English consumer suing a New York company may be required to take litigation in New York. Even though the consumer is eligible for specific protection under the Rome I regime, he may not have the protective applicable law applied as the Rome I regime does not bind the New York courts. The prospective purpose of choice of law thus cannot be achieved. The problem brought by the inconsistency has been realised in the Brussels I review, which suggests that consideration should be given to the extension of the protective jurisdiction rules to all cases regardless of the parties’ domicile in the future Brussels I reform, in order to remain consistent with the choice of law regime.16 Although the extension of the application of Community jurisdiction rules to the third State may be far reaching in certain circumstances,17 it is good from the point of view of keeping consistency between jurisdiction and choice of law.

B. Scope of Protection The problem of the scope of protection only occurs in the European conflicts regime, where specific consumer protection rules require a proper scope to be drawn in order to separate consumers eligible for protection and consumers who are ineligible. In the neutral conflicts system, no specific rules have been established for consumer contracts. In principle, the same treatment will be provided to all consumers. The current European conflicts rules do not have consistency in the scope of protection in jurisdiction and choice of law. The scope of protection in jurisdic14 A Nuyts, ‘Study of Residual Jurisdiction: Review of the Member States’ Rules concerning the “Residual Jurisdiction” of their courts in Civil and Commercial Matters pursuant to the Brussels I and II Regulations’, JLS/C4/2005/07-30-CE)0040309/00-37, 3 Sep 2007, para 55. 15 Ch 3, s II. 16 A Nuyts, ‘Study of Residual Jurisdiction’, para 164–5. 17 Nuyts (n 14) para 163.

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tion is designed based on the activity of the business. Once the business carries out certain activities which target the consumer’s home country, the business should be subject to the protective jurisdiction rules.18 The scope of protection in choice of law is based on the activity of both businesses and consumers. If the business actively targets the consumer’s habitual residence,19 the protective choice of law rules can be applied only when the consumer is correspondingly passive and immobile.20 Furthermore, the requirements for ‘targeting’ differ between the Brussels I Regulation and the Rome Convention.21 In the Brussels I Regulation, ‘targeting’ can be in any form which ‘directs to’ the consumer’s domicile, while in the Rome Convention, ‘targeting’ has to be in two specific forms, namely by ‘specific invitation’ or ‘advertising’ in the consumer’s habitual residence. In general, the protective scope in jurisdiction is wider than that in choice of law, which would result in the situation where a consumer is eligible for protection in jurisdiction but ineligible in choice of law. It is theoretically illogical and practically irrational to treat the same consumer in the same situation in two different ways. For this reason, most of the commentators hold a strong view that the preconditions for jurisdiction and choice of law should be coincident.22 The Rome I Regulation brings the pre-conditions for choice of law in consumer contracts generally in line with the Brussels I Regulation. However, it is important to note that the Rome I Regulation excludes five types of contracts from the scope of protection, some of which are covered under the protective jurisdiction. Furthermore, the Brussels I Regulation specifically covers contracts of credit sale, regardless of whether the business has targeted the consumer’s domicile. As a result, even after the reform, the scope of protection is still inconsistent between jurisdiction and choice of law. The following contracts are covered in the protective jurisdiction but not choice of law: (1) contracts for the sale of goods on instalment credit terms or on a loan payable by instalment or other forms of credit, where the business does not direct its commercial activities to or pursue such activities in the consumer’s home;23 (2) contracts for the provision of services exclusively in a country other than the consumer’s home;24 (3) certain contracts relating to financial instruments; and (4) contracts concluded within a multilateral system which brings together or facilitates the bringing together of multiple third-party buying and selling interests in financial instruments.25 The difference can be explained as jurisdiction and choice of law affect the parties in different ways. Jurisdiction brings the parties to a competent court, which concerns the parties’ litigation rights and the access to justice. Choice of law 18

Brussels I Regulation, Art 15(1)(c). It has to be noted that the active targeting requirement in Rome Convention is also different from the Brussels I Regulation. 20 Rome Convention, Art 5(2). 21 See Ch 3 and Ch 8. 22 For those responses, see fn 5 in Ch 9. 23 Arts 15(1)(a) and (b) of the Brussels I Regulation. 24 Art 6(4)(a) of the Rome I Regulation. 25 Arts 6(4)(d) and (e) of the Rome I Regulation. 19

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decides the substantive rules regulating the parties’ commercial activities. In general, a party can have litigation in different courts, but cannot conduct a single activity according to different applicable law. As a result, for cases where multiple consumers are affected by one set of commercial activities which cannot be adjusted to suit each consumer’s domestic law, applying the protective choice of law rules is considered as burdensome and unreasonable. As a result, the required consistency in the scope of protection between jurisdiction and choice of law is not absolute or rigid. In general, a consistent scope of protection is required in order to provide certainty to both parties, but for certain special contracts, the law should also be flexible to provide more leeway to choice of law.

C. Party Autonomy i. Implied Choice In ordinary contracts, there is close correlation between jurisdiction and choice of law agreements. The existence of a jurisdiction clause can be a strong, though not decisive, factor showing the parties have implied the law of the same forum should apply.26 The choice of law agreement can also be a factor taken into consideration to decide the competent forum in a discretion-based jurisdiction. For example, one condition for the court to exercise its discretion to serve a claim form out of England is that the contract is governed by English law.27 The choice of law agreement is also a factor when a court exercises its discretion on forum non conveniens.28 However, the correlation between choice of forum agreement and choice of law agreement to general contracts should not exist in consumer contracts.29

ii. Validity The current approach in the EU private international law system treats the validity of jurisdiction and choice of law clauses differently. A jurisdiction clause can be held formally valid if it is ‘in writing, or evidence in writing’;30 while the formal validity of the choice of law clause has to be sorted out according to the law of the country in which the consumer has his habitual residence,31 which would be different from the requirements in the Brussels I Regulation. On the other hand, the material validity of a jurisdiction clause is never clear though the material validity 26 Ego Oldendorff v Libera Corp (No 1) [1995] 2 Lloyd’s Rep 64; Ego Oldendorff v Libera Corp (No 2) [1996] 1 Lloyd’s Rep 380; Oceanic Sun Line Special Shipping Co Inc v Fay [1988] 165 CLR 197, 224–5. Rome I Regulation, recital 12. See also J Fawcett, J Harris and M Bridge, International Sale of Goods in the Conflict of Laws (Oxford, OUP, 2005) 669–71; P Nygh, Autonomy in International Contracts (Oxford, OUP, 1999) 116–17. 27 CPR, Practice Direction 6B, para 3.1(6)(c). 28 See The Xin Yang [1996] 2 Lloyd’s Rep 217; Trendtex Trading Co v Credit Suisse [1980] 3 All ER 721, 735. 29 Ch 8, s IV.B.c. 30 Arts 23(1) and (2) of the Brussels I Regulation. 31 Art 9(5) of the Rome Convention; Art 11(4) of the Rome I Regulation.

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of a choice of law clause can be questioned by the chosen law.32 The inconsistency leads to unreasonable results in practice. Although the separatism theory has been used to decide the validity of jurisdiction agreements and choice of law agreements, in practice these agreements are included in a single contract and agreed under the same circumstances. It would be practically undesirable to have two different schemes of requirements for choice of court and choice of law. A pragmatic approach would suggest providing the same set of rules to decide the validity for both agreements. Comparatively, the USA common law has adopted a generally consistent test for both jurisdiction and choice of law agreements. Although there are different choice of law approaches adopted to decide the validity of a jurisdiction clause and a choice of law clause, one court usually will use the same approach to decide both. The validity of both agreements could also be questioned under the general contractual principle, namely the conclusion of the clause should be both procedurally and substantially conscionable, indicating the real intent of the parties and not be the result of ‘overwhelming bargaining power’.33

iii. Enforceability Under the European regime, the effect of party autonomy in consumer contracts has been limited in both jurisdiction and choice of law. The existing European conflict rules recognise that unduly denying the effect of choice of forum/law clauses will unreasonably reduce commercial security, so that certain effectiveness needs to be given to jurisdiction and choice of law agreements, providing the consumer’s reasonable interests have been protected. However, the effects of jurisdiction and choice of law clauses in consumer contracts are very different. For jurisdiction, the choice is prima facie ineffective, unless in exceptional circumstances. As to a choice of law agreement, it will be effective to the extent that it does not deprive the consumer of the protection he can get under the mandatory rules of his habitual residence. The different effects given to each can be justified by the different natures of choice of law and jurisdiction clauses. There is little doubt that as for jurisdiction, the consumer’s home forum provides the consumer better protection, and any jurisdiction chosen other than the consumer’s home forum would result in undermining the consumer’s interests. It is thus more reasonable to invalidate a jurisdiction clause and provide more straightforward jurisdiction rules to e-consumer contracts. On the contrary, the law other than that of the consumer’s habitual residence is not necessarily detrimental to the consumer, so that the choice of law rules should compare the substantive rules between two laws, and adopt the better law approach. However, the different effects lead to unwelcome results in practice. The ‘preferential law’ approach in the Rome Convention requires the choice of law clause to be enforced to the extent that it provides equal or higher protection than the mandatory rules of the consumer’s habitual 32 33

Art 8(1) of the Rome Convention; Art 10(1) of the Rome I Regualtion. Bremen v Zapata Off-Shore Co 407 US 1, 9(1972).

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residence. That means no matter which court finally exercises jurisdiction, this court has to deal with more than one system of law, unless the law of the consumer’s habitual residence is chosen. Suppose the court of the consumer’s habitual residence asserts jurisdiction, it has to study the chosen law, and compare it with the mandatory rules of the domestic law, and may apply two laws when necessary. The complex choice of law process will unreasonably increase the time and cost of the proceedings, and would be a barrier for contractual parties to resolve their dispute in court. The Commission’s Rome I proposal abandons the application of the ‘better law’; instead it requires the systematic application of the law of the consumer’s habitual residence.34 This straightforward rule follows the principal spirit of the jurisdiction rules in the Brussels I Regulation. The proposal would lead to more desirable results, because in most cases, lex fori will apply.35 It could reduce litigation costs, which is very important for e-consumer contracts.36 Unfortunately, the proposed choice of law rules are more rigid than the jurisdiction rules. Even though the jurisdiction rule prima facie denies the enforceability of jurisdiction clauses, jurisdiction clauses can be enforced in three exceptional circumstances: (1) where the consumer’s interest is increased; (2) the choice indicates the authentic intention of the parties; and (3) the choice is reasonable to enforce.37 There is no consistent leeway for the enforcement of a choice of law clause even if it satisfies one of these conditions.

D. Conclusion On the grounds of the above discussion, it is submitted that proper consistency between the jurisdiction and choice of law rules will create great benefits in practice. In the proposed Model Law the following rules have to be followed in order to establish a systematic and practical private international law system in consumer contracts: (1) The same protective principle has to be adopted for both jurisdiction and choice of law.

34

Art 5(1). Only in cases where the jurisdiction clause designating a court other than the consumer’s forum is enforceable, or where the consumer as a claimant has chosen the court of the defendant’s domicile for the proceedings, does the ‘lex fori’ not apply, which will be very rare in practice. 36 Low dispute resolution cost is very important, especially for e-consumer contracts, where both parties might be financially weak (one is a consumer, another is a small or medium-sized company), and the value of the subject matter is usually very low. See Commission’s Rome I proposal, Explanatory Memorandum, 6–7. Nordic Group for Private International Law, ‘Proposal for Amendments to the Convention on the Law Applicable to Contractual Obligations’, 36; Magnus, U and Mankowski, P, ‘Joint Response to the Green Paper on the Conversion of the Rome Convention of 1980 on the Law Applicable to Contractual Obligations into a Community Instrument and Its Modernisation COM (2002) 654 final’, para. 6.2. 37 See Brussels I Regulation, Art 17. 35

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(2) The scope of protection for jurisdiction and choice of law generally should be synchronised. The consumer who is eligible for protective jurisdiction rules usually should be equally eligible for protective choice of law rules. However, it does not prevent necessary and appropriate leeway for special contracts due to the special nature of the industry. (3) The same requirements and criteria need to be established for both choice of forum agreements and choice of law agreements on their validity. (4) It is better for practical convenience to provide consistent effect to both a choice of forum agreement and a choice of law agreement, but their effects should not be completely identical.

V. Proposal One—the Protective Model Provision 1 Jurisdiction in the Absence of Choice (1) Where an electronic consumer contract is within the scope of protection, and there is no valid choice of court agreement, jurisdiction over any disputes arising out of such a contract shall be decided by the following rules: A. the consumer can bring proceedings against the business either in the courts of the country where the business has its habitual residence, or in the courts of the country where the consumer has his habitual residence;38 and B. the business shall bring proceedings against the consumer only in the courts of the country where the consumer has his habitual residence. (2) When deciding whether or not to take jurisdiction under the protective scheme, the court could exercise its discretion. Provision 1(1) follows the jurisdiction ground in the Brussels I Regulation. Protective default jurisdiction is provided and a consumer could always rely on the jurisdiction of his home for disputes arising out of a contract falling within the scope of protection. The rule is consistent with the tendency to consumer protection and could provide a predicable result. What is worth mentioning is that the poposal permits the court to exercise its discretion to decide whether a contract falls within the protective scheme. Clear guidance will be provided in the following provisions as to when and how discretion can be exercised.

38 This model law accepts the habitual residence as the connecting factor. Although the connecting factor is an important issue, due to the word limit, the book does not examine the connecting factor in great detail.

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Provision 2 Applicable Law in the Absence of Choice (1) Where an electronic consumer contract is within the scope of protection, and there is no valid choice of law agreement, the law governing any disputes arising out of such a contract should be the law of the habitual residence of the consumer. Provision 2(1) provides that the law of the consumer’s habitual residence should apply as the default applicable law. This rule follows the current approach in the Rome Convention and the Rome I Regulation, and is consistent with the default jurisdiction rule in provision 1(1). Provision 3 Scope of Protection (1) An electronic consumer contract is within the scope of protection where the application of the protective conflicts rules is reasonable. The principle of reasonableness is the basis of all the following conditions and also the guide for the discretion of the court. It has been provided that the key element of the protective model is a welldesigned and highly predictable scope of protection, which justifies the proconsumer conflicts rules in certain cases and enables the business to modify its commercial activities to avoid an unwanted result. Provision 3(1) establishes a general principle to set up the ‘reasonableness’ test for all the following conditions as well as the discretion of the court. The following provisions set up the detailed rules as to how the ‘reasonableness’ test should be exercised. The proposal adopts a mixed approach, providing not only a white list where contracts which meet the expressed condition should be covered by the protective conflicts rules,39 and a black list where contracts which meet the expressed conditions should be exempt from the protective conflicts rules,40 but also an unregulated area, where the court can exercise its discretion to decide whether the protective conflicts rules should be triggered.41 This unregulated area is justified by the rigidity of the pure rule-based approach. It is presumed that no rule, however sophisticated, can be comprehensive enough to cover everything, especially in the dynamic age of e-commerce. It is necessary to adopt the discretion-based approach to adjust the rule-based approach for the possible insufficiency.42 (2) If a business’s objective activities indicate that it intentionally targets the country of the consumer’s habitual residence and ought to reasonably anticipate being subject to the legal system of that country, and the contract is concluded within the framework of these activities, applying the protective conflicts rules to the dispute arising out of such activities is reasonable. 39 40 41 42

Provisions 3(2), (3) and (4). Provision 3(5). Provision 3(6). This mixed approach has been supported by von Mehren (n 7).

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Provision 3(2) indicates what can be understood as ‘reasonable’ to exert the protective conflicts rules. It adopts the objective intention test for the targeting principle. It says that only when the business’s ‘activity’ shows that the business intentionally targets the country, will the pre-requisite be fulfilled. It studies the business’s expectation to prevent the protective conflicts rules from having a detrimental effect on the e-business. The expectation and intention is not decided by the subjective condition of the business, but by the objective activities performed by the business, which are more controllable and predictable. The objective test can also protect the consumer by preventing businesses from abusing the prerequisite.43 Finally, the contract in dispute should be concluded in, or related to, the framework of the business’s activities.44 (3) A business targets the country or countries when: A. the business has systematic arrangements to do business in the country, or some countries including that country, and carries out commercial activities accordingly; B. the business expressly declares that it aims to pursue the commercial benefit in the country, or in some countries including that country; C. the business carries out continuous and repeated commercial activities within the country, or within some countries including that country; or D. the business carries out occasional but intentional commercial activities in the country, or in some countries including that country, which leads to the conclusion of the disputed contract. (4) In the following cases, even if it is not obvious that the business intends to conduct commercial activities with the consumer habitually resident in the country, the business should still be assumed as targeting that country: A. the business fails to take reasonable care to prevent the conclusion of contracts with the consumer habitually resident in that country; B. the business fails to provide the consumer with its true status and identity, which makes jurisdiction or the domestic law of the business’s habitual residence clearly against the consumer’s reasonable expectation; or C. the business has engaged in any other activity, which makes the consumer reasonably expect to be subject to the jurisdiction or the domestic law of the consumer’s habitual residence. Provisions 3(3) and (4) provide detailed explanations and criteria as to what constitutes ‘objective intentional targeting’. The situations in Provision 3(3) are the cases where the business’s intention is obvious. In Provision 3(3)A and B, the business has systematic business arrangements in one country or clearly declared 43

For discussion of subjective and objective intention, see Ch 3, s III. Justice and Home Affairs Council, ‘2314th Council Meeting: Justice, Home Affairs and Civil Protection’ (13865/00 Press 457, 1 Dec 2000), 15. 44

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its intention to pursue commercial benefit in the country, which undoubtedly indicates its intention. In Provision 3(3)C, there might be no clear evidence that the business has arrangements aiming at the country, but the intention can be concluded from the frequency and quantity of the activities. If the business has continuous and repeated commercial activities in the country, it has no reason to declare that it has no intention to pursue business profits there. Provision 3(3)D is about occasional contracting. The general principle is that occasional contracting should be sufficient if there is evidence indicating the business notices the consumer’s residence and knows with whom he is dealing. For example, a consumer has disclosed his residence by email to the business before concluding the contract, or the performance requires physical delivery with the delivery address in a particular country. More difficult and confusing situations in e-commerce have been regulated in Provision 3(4), where the business’s intention is less clear but the objective situations make it necessary to presume that the business targets the consumer’s home country. Provision 3(4)A requires the business to take reasonable care to avoid concluding contracts with consumers who are habitual residents of certain states. As to what constitutes ‘reasonable care’, it should be noted that it does not mean that these measures could 100 per cent prevent unwanted contracts. It should be interpreted as the step showing that the business sincerely does not intend to target this state. Provisions 3(4)B and C seek to protect the consumer’s reasonable expectation. If the consumer cannot expect jurisdiction or the applicable law in the business’s habitual residence, or can reasonably expect jurisdiction or the applicable law in his home state, given the improper activities of the business, it is the business’s obligation to carry the disadvantage of the confusion caused by itself and the business should be subject to the protective conflicts rules. (5) The protective conflicts rules will not be applied when a business does not target a country and cannot reasonably predict being subject to the jurisdiction or system of law of that country. It occurs when: A. The business has taken reasonable steps to avoid concluding contracts with consumers habitually resident in that country. The step can be called ‘reasonable’ only when it can work effectively to prevent unwanted contracting. i.

The business has clearly indicated its expected area of business, and at the same time it has adopted necessary technical devices to prevent unexpected transactions. ii. The business has required the potential consumer to provide some personal information prior to the conclusion of the contract, and only deals with the consumer habitually resident in the expected area according to the consumer’s disclosure. iii. The business has taken any other steps, which could effectively prevent unwanted contracting.

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B. The consumer’s behaviour makes the business reasonably expect that the potential jurisdiction or applicable law is not that of the consumer’s habitual residence. It occurs when: i.

the consumer has provided information indicating that he or she is habitually resident in another state; ii. the consumer has entered into the contract in another state when the business has adopted technical devices to exclude access from the consumer’s habitual residence; or iii. the consumer has taken any other steps which could mislead the business’s expectation. C. The subject matter of the contract is the delivery of tangible goods or offline services, which are supplied in another country. At the same time, the business has no chance to know the real identity of the consumer. D. There are any other situations, which make it impossible for the business to expect the consumer’s home country to have potential jurisdiction or the domestic law of that country would apply. Provision 3(5) sets up a black list where the business could avoid being subject to the protective conflicts rules. Provision 3(5)A protects the business if it has adopted ‘effective’ measures to avoid unwanted transactions. If the measures taken can mostly prevent unwanted contracting, it can be regarded as ‘effective’. Provision 3(5)B is the only provision in this proposal concerning the consumer’s behaviour. It is suggested that if the consumer’s behaviour may subject him to the business’s jurisdiction or the system of law of the business’ home, and at the same time, both of them will reasonably expect the potential jurisdiction or the applicable law is not that of the consumer’s habitual residence, depriving the consumer of protection under the protective conflicts rules is not unreasonable or against the parties’ expectation. (6) In circumstances other than those in provisions 2(3)–(5), the court could take its discretion to decide whether the business has targeted the country where the consumer has his habitual residence. However, discretion should be exercised by considering all the relevant factors of the case, and cannot be contrary to any provisions in provisions 2(3)–(5). The following factors could be considered in the discretion: A. whether the business’s commercial information is accessible in that country; B. whether the business adopts the electronic technology which enables contracts to be concluded automatically without the human intervention; C. how many consumers in the country have transactions with the e-business; D. the profits the business gains from that country; E. whether the business chooses an information service provider located in that country to support its e-business;

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Proposals for Conflict Of Laws In Electronic Consumer Contracts F. whether there are country-specific indicia pointing towards a particular country; or G. any other factors which are not sufficient to indicate the objective intention of the business.

Provision 3(6) is a discretion-based provision. Although it creates some uncertainty, it is considered necessary to make the whole model more dynamic and flexible. Furthermore, in order to provide the ‘regulated’ discretion, this provision provides all the guides and criteria for discretion to be exercised. First of all, the court should have ‘sufficient reason’ to apply the protective conflicts rules. It means that the reason must be very strong and there is a high burden of proof on the party who tries to persuade the court to exercise its discretion. Secondly, the expressly listed conditions in Provisions 3(3)-(5) should not be excluded by the court’s discretion in any situation. Thirdly, it is required that all the relevant elements should be considered. It provides a list of relevant factors which can be considered when exercising the discretion. The list is not exhaustive and none of the listed factors are decisive. The weight attached to each factor varies in different circumstance. Provision 4 Validity of Party Autonomy (1) The parties jurisdiction or choice of law clause can only be valid if it is in writing with the consumer’s signature on it. (2) The parties’ jurisdiction or choice of law clause is invalid if it is unfair or unconscionable under the putative applicable law of the contract. Provision 4 provides the rules for the validity of party autonomy in consumer contracts. The provision does not provide rigorous validity requirements. It accepts the basic requirements as to form and to substance, namely a choice of court or choice of law clause can be valid if it is in writing, carrying a consumer’s signature and it is not contrary to the substantive requirement of the putative applicable law, which, in most cases, would be the law of the consumer’s habitual residence. It is because the protective model renders party autonomy prima facie ineffective. As a result, not much effort should be used to decide whether such a clause is valid. Provision 5 Enforceability of a Jurisdiction Agreement (1) For a contract under the protective scope, the choice of court agreement, either exclusive or non-exclusive, will be prima facie ineffective, unless: A. it is entered into after the dispute has arisen; B. it is entered into by the consumer and the business, both of whom are, at the time of conclusion of the contract, habitually resident in the same state, and are aware of each other’s habitual residence at the time of contracting, and this agreement chooses jurisdiction of that state; or C. there is sufficient evidence showing that the consumer genuinely accepts the jurisdiction agreement at the time of contracting.

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(2) A consumer can use a non-exclusive jurisdiction clause to sue the other party in the chosen court, but the other party cannot rely on the non-exclusive jurisdiction clause against a consumer. The effect given to the jurisdiction agreement does not differ much from the rules in the Brussels I Regulation. Provision 5(1) provides common rules for both exclusive and non-exclusive jurisdiction agreements in consumer contracts. These clauses will be prima facie unenforceable against a consumer. Exception can be given where the consumer genuinely accepts the chosen jurisdiction.45 It could happen at a time after the dispute has arisen,46 when the consumer usually would make an intelligent choice. On the other hand, if a choice of court agreement is entered into at the time of concluding the original contract, the consumer usually accepts without thinking. However, if the business can prove that the parties have made a fair and authentic agreement, the clause should also be enforceable. This provision would be used very rarely, but it is presumed to be necessary to provide the possibility that the choice of court agreement made under authentic consent should be effective. Provision (5) B also enforces the jurisdiction clause if it is the common habitual residence of both parties at the time of contracting.47 This country should satisfy both parties’ reasonable expectation and be fair to the consumer. The subsequent change of residence of the consumer should not prejudice the expectation of the other. Provision 5(2) provides a special rule for non-exclusive jurisdiction agreements, which designate additional competent courts without derogating otherwise competent courts from jurisdiction. A non-exclusive jurisdiction agreement can only be partially enforceable, namely it can be enforced by the consumer against the business but not by the business against the consumer.48 This rule provides unbalanced rights and obligations to the contractual parties by using a non-exclusive jurisdiction clause and will eventually prevent the business from inserting this clause into contracts. Provision 6 Declining Jurisdiction Due to Concerns of Justice (1) In extraordinary cases, the court can exercise its discretion to decline its jurisdiction which otherwise should be competent, based on the purpose to achieve the ends of justice. (2) The defendant has to satisfy the court that there is another appropriate court available to hear the case, and that the court seized is inappropriate to hear the case. (3) Whether a court is inappropriate to hear the case can be proved if continuing jurisdiction is not sound for the ends of justice. The following factors can be considered: 45 46 47 48

Provision 5(1) A and C. Provision 5(1)A. The same permission has been adopted by the Brussels I Regulation, Art 17(1). Brussels I Regulation, Art 17(3). Brussels I Regulation, Art 17(2).

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Proposals for Conflict Of Laws In Electronic Consumer Contracts A. the defendant has a weaker financial power to take the action abroad, which will deny him his access to justice. Comparatively, the financial power of the claimant will not deprive him of his access to justice abroad; B. the witnesses and evidence are located abroad, which are crucial for the fair trial; C. the comparative litigation power makes the trial in another court less vexatious and oppressive to both parties and can better achieve justice as a whole; or D. any other factor which can show the current trial is inappropriate for the end of justice.

Provision 6 provides a specialised forum non conveniens to contribute further flexibility and justice.49 The test for forum non conveniens is reformed in the proposal to be appropriately incorporated into the primarily rule-based scheme, and the effect of this forum non conveniens exception is limited for necessary certainty. This forum non conveniens test only permits the court to decline jurisdiction for the reason of justice. Since the protective jurisdiction rules are based on the principle of protecting consumers, instead of the presumption of the close connection or the centre of gravity, the consideration based on the connecting factor is no longer sufficient or relevant to challenge jurisdiction. For this reason, the first limb of the traditional English test of forum non conveniens can no longer be applied to challenge jurisdiction assigned in consumer contracts in the proposal. However, the defendant can still challenge the jurisdiction based on the justice consideration, to show that the current court is inappropriate for the action.50 However, some factors traditionally used to decide the justice issue in forum non conveniens can no longer be practically used in Provision 6. Factors challenging the justice in the trial court, such as independent judiciary, uncivilized applicable law, discrimination on race, religion, gender, etc, will not be recognised by the trial court. Other factors, which are less politically sensitive, can be used to challenge the current jurisdiction, such as the comparative financial disadvantage which would deny the defendant access to justice, the unavailability of witnesses and experts, the comparative litigation power which makes the trial in another court less vexatious and oppressive to both parties and can better achieve justice as a 49 Forum non conveniens is not accepted in most rule-based international instruments harmonising jurisdiction rules, such as the Brussels I Regulation and the Hague Choice of Court Convention. However, as many rule-based jurisdictions also adopt the doctrine of forum non conveniens, there is no reason to prevent this doctrine from being incorporated to create flexibility and relaxation, and to ensure justice and fairness to a further extent. Forum non conveniens has been accepted in the primary rule-based jurisdiction systems of Quebec (Civil Code of Quebec, Art 3135), and Japan (Sei Mukoda et al v The Boeing Co Inc (1988) 31 Japanese Annual of International Law 216). For more discussions, see G Goldstein, in J Fawcett, Declining Jurisdiction in Private International Law (Oxford, Clarendon Press, 1995) 146–57. 50 Strictly speaking, this forum non conveniens is more close to a forum non conveniens-type substitute. Although the Australian forum non conveniens doctrine also requires proving the trial court is inappropriate, the consideration factors are much broader in the Australian approach. See Oceanic Sun Line Special Shipping Co Inc v Fay (1988) 79 ALR 9; Voth v Manildra Flour Mills Pty Ltd (1990) 97 ALR 124.

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whole. Furthermore, in order to avoid the negative conflict of jurisdiction, where no court will try the case, the court also needs to satisfy that there is another appropriate court available to hear the case. This means that, firstly, declining jurisdiction will not deprive the claimant of his access to justice. The court has to satisfy itself that there is another court which has jurisdiction to hear the case. Secondly, the factors that are vexatious and oppressive to the defendant in a foreign court, will not be equally vexatious and oppressive for the claimant to take actions abroad. For example, even if the defendant’s weak financial power will prevent him from taking foreign actions, the court has to satisfy itself that the claimant’s financial power will not equally deprive him of his day in court if the current jurisdiction is declined. It seems that the standard is very high for the defendant. However, it is reasonable and necessary for the sake of justice and certainty. Furthermore, this designation takes the consumer’s weaker power into consideration, because it would be much easier for the consumer to persuade the court that the foreign trial is less vexatious and oppressive to the business and better serves the ends of justice. Provision 7 Enforceability of a Choice of Law Agreement (1) For a contract under the protective scope, the choice of law agreement will be prima facie ineffective, unless: A. it is entered into after the dispute has arisen; B. it allows the law that provides the manifestly higher standard of protection for the consumer to apply; C. it is entered into by the consumer and the business, both of whom are, at the time of conclusion of the contract, habitually resident in the same state, and are aware of each other’s habitual residence at the time of contracting, and this agreement chooses the law of that state to apply; or D. there is sufficient evidence showing that the consumer genuinely accepts the choice of law agreement at the time of contracting. This proposal tries to avoid the difficulty of deciding mandatory rules, comparing different laws, and Dépeçage. It adopts a comparatively straightforward and easy approach—the exclusion of choice. The exclusion of choice approach has been proposed in the Commission’s Rome I proposal, but rejected in the final Regulation.51 However, the rejection is primarily based on the lack of statistical assessment of the real effects of the approach, and the legislator maintains the preferential law approach simply because it has not shown many difficulties in practice. Theoretically, the exclusion of choice approach is more straightforward, and is able to provide the greatest certainty to consumers. Compared with the preferential law approach, the exclusion of choice approach is swifter, more accessible and less expensive, proving to be significant to a successful dispute resolution system for consumer contracts, where the majority of cases are settled out of court.52 Its 51 52

See details in Ch 9, s I and II. Nordic Response (n 36).

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detriment to business can be justified as a reasonable cost for businesses entering into the international market. Of course, this detriment must be reasonable and be minimised to the extent that the consumer’s benefit has been fully ensured. Since a well-designed pro-condition has been provided in provision 3, which enables most businesses to avoid being subject to the protective rules by adjusting its commercial activities, the negative effect that this approach may bring to the business can be predicted and prevented. However, it does not mean that the choice of law agreement will have no effect at any time, which is contrary to the general principle of party autonomy. Exception can be given to the choice of law agreement genuinely accepted by consumers, where the chosen law is the law of the common habitual residence of the parties at the time of contracting, and where the chosen law provides higher standard of protection.

VI. Proposal Two—the Mixed Model Provision 1 Jurisdiction in the Absence of Choice (1) In the absence of agreements between the parties, jurisdiction over any disputes arising out of a consumer contract shall be decided by the following rules: A. the consumer can bring proceedings against the business either in the courts of the country where the business has its habitual residence, or in the courts of the country where the consumer has his habitual residence; and B. the business shall bring proceedings against the consumer only in the courts of the country where the consumer has his habitual residence. Provision 2 Applicable Law in the Absence of Choice (1) In the absence of agreements between the parties, the law governing any disputes arising out of a contract should be the law of the habitual residence of the consumer Provision 1 and 2 provide the protective default jurisdiction and applicable law to consumers in all consumer contracts. Without a scope of protection to limit the effect of this rule, business would have significant concerns. However, the business could use party autonomy to avoid the negative effect of the protective rules. Since high requirements have been provided to the validity of a conflicts rules agreement, the business has to adopt necessary activities to make the consumer aware of the existence and content of this agreement in order to make a real choice.

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Provision 3 Formal Validity of a Conflicts Rules Agreement 53 (1) A jurisdiction or choice of law agreement is not valid as to form unless it can prove the parties’ consent to and the content of the agreement. (2) A jurisdiction or choice of law agreement shall not be valid without a legible form, which can indicate its content and format at the time of contracting and is accessible for future reference. If the original form is not available or does not exist in a permanent way, a copy of the original contract, providing there is reliable assurance as to its integrity, or both parties raise no objection over its integrity, if it is legible and accessible for future reference, is valid as to form. Detailed rules concerning formal validity of a jurisdiction or choice of law agreement in consumer contracts have been provided by Provision 3. This proposal does not adopt the choice of law approach to decide the formal validity of conflicts clauses, but provides a uniform substantive law for this issue. Provision 3(1) provides the basic principle that the purpose of formal validity is to use the contract as evidence proving the existence and the content of the clause. It should also be able to prove the parties’ express consent to the agreement. Provision 3(2) provides rules to decide the basic formal validity issue of an e-agreement. Two requirements have to be met to make an e-clause valid as to form: (1) it is legible at the time of contracting; and (2) it can be accessed for future reference. (3) A jurisdiction or choice of law agreement shall not be valid as to form if it is not required to be read before consent, or is in a format, which makes it difficult for the consumer to read. A. There is no clear and unambiguous language requiring the consumer to read it before consent; B. it is not directly shown on the webpage where the consumer is required to read, but is included in a hyperlink, and the content of the clause is not long enough to make the use of hyperlink reasonable; C. it is included in a contract consisting of more than one screen, and the consumer cannot freely navigate forwards and backwards by scrolling or changing pages;54 or D. it is represented in a manner which makes reading undesirable, such as it is displayed with small font, the colour of the clause is fine or mixed with the background colour, the language is legalistic and hard to understand for ordinary persons, or there is any other fact that reasonably makes reading undesirable.

53 An earlier version of Provisions 3, 4 and 5 of Model Two has been published in Z Tang, ‘Exclusive Choice of Forum Clauses and Consumer Contracts in E-Commerce’ in (2005) 1 Journal of Private International Law 237, 265–8. 54 See Re RealNetworks WL 631341 (ND Ill 2000), 6

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(4) A jurisdiction or choice of law agreement shall not be valid without any necessary means to identify the parties, and to indicate the consumer’s expressed acceptance to the agreement. The consumer cannot be assumed to indicate expressed acceptance if: A. there is only a simple warning notice allegedly binding the consumer if he continues to use the website, browsing or shopping;55 or B. the language to indicate the consent is vague and ambiguous, and cannot be directly interpreted as assent or rejection.56 However, actions such as clicking the button with clear terms to show that this constitutes assent, shall be regarded as express acceptance. Provision 3(3) and (4) provide detailed rules to decide the formal validity of an e-agreement. It is generally based on the case decisions in the discretion-based countries when deciding the formality of online agreements. Provision 3(3) aims to ensure that the consumer should be aware of the existence and content of a jurisdiction or choice of law clause at the time of contracting. Since the clause is inserted unilaterally by the business, it has to be expressed in a manner that is obvious to catch the reader’s attention. If the business has presented the clause in a clear, unambiguous and conspicuous way before the consumer enters into the contract, it meets the requirement in Provision 3(3). Whether or not the consumer in fact has read it is not important. Provision 3(4) provides a black list where contracts concluded in the listed circumstances are formally invalid. The list is non-exhaustive and does not prevent the court from finding contracts concluded in other situations invalid. Provision 3(4) aims to ensure that the consumer should also be aware of the consequence of accepting the clause, and express his consent in an unambiguous way. Provision 4 Substantive Validity of a Conflicts Rules Agreement (1) A jurisdiction or choice of law agreement shall be substantively invalid if it is concluded without authentic consent or it is unfair. There is more difficulty and confusion about the requirement of substantive validity, which varies significantly from one country to another, enters the area of national substantive law and sometimes concerns public policy. Presently, there are in general three approaches to deal with the issues of substantive validity in choice of forum clauses: (1) by leaving it to national law; (2) by providing uniform conflict of law rules;57 or (3) by providing uniform substantive 55 See Pollstar v Gigamania Ltd 170 F Supp 2d 974 (ED Cal 2000); Specht v Netscape Communications Corp 306 F 3d 17 (2d Cir 2002). 56 Specht v Netscape, 593–5. 57 See the Hague Choice of Court Convention 2005, Art 5(1) and 6(a); United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention), Art II(3); UNCITRAL Model Law on International Commercial Arbitration, Art 8. This approach has also been accepted by the Rome Convention to determine the substantive validity of choice of law clauses.

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law.58 While the first option is considered improper for the high degree of uncertainty it creates, the second approach is favoured by international conventions, for it is considered workable and it can achieve partial foreseeability.59 However, the existing wide variety of national law including its private international law with regard to the issues of substantive validity in consumer contracts, the globalisation characteristic of e-commerce and the requirement for improved uniformity and certainty for the further development of consumer-oriented e-commerce make the uniform substantive law approach more desirable. Firstly, the uniform approach can provide certainty and predictability to e-commerce, the international character of which requires the unified standard for its smooth development. Secondly, the innovative character of e-commerce brings challenges to the existing national substantive laws. Most states try to answer these challenges either by re-interpreting the traditional law, or by establishing new laws on the commercial activities carried out online. Without mature and traditional rules applied in e-commerce area, the international uniform substantive rules in electronic commerce are more practical than in traditional commerce. Thirdly, the choice of forum/law clause is a special conflict of law rule with its primary purpose to provide the certainty without relying on any other nexus. This original intent of application of a conflicts clause will be damaged by the subsequent uncertainty caused by the ambiguous or indirect rules for its validity. Even if there are uniform conflict of law rules, they cannot provide the foreseeability they are supposed to,60 and the additional effort taken to determine the applicable law will increase the parties’ litigation expenses. Although the international uniform substantive rules will face obstacles and practical problems, it is assumed such a uniform rule should be the future or final aim of an international convention on jurisdiction clauses.61 Provision 4 adopts the third approach to provide the uniform guidelines and tests to determine the substantive validity of jurisdiction clauses in electronic

58 The Brussels I Regulation has not established any rules on substantive validity of a choice of forum clause. However, in the EU case law, the ECJ has preferred to use uniform community-law to ascertain the actual will of the parties, see Case 24/76 Estasis Salotti v RUWA [1976] ECR 1831; Case C-159/97 Trasporti Castelletti v Hugo Trumpy [1999] ECR I-1597. For detailed discussion, see Briggs and Rees, Civil Jurisdiction & Judgments, 4th edn (London, LLP, 2005) 130–4. 59 P Nygh and F Pocar, ‘Preliminary Draft Convention On Jurisdiction And Foreign Judgments In Civil And Commercial Matters’ (Hague Conference on Private International Law, Prel Doc 11), 43. 60 There is no consensus as to how the choice of law rules can be designed to provide both certainty and fairness. For detailed discussion on the pros and cons of different choice of law rules as regards substantive validity of jurisdiction clauses, see A Schulz, ‘Reflection Paper to Assist in the Preparation of a Convention on Jurisdiction and Recognition and Enforcement of Foreign Judgments in Civil and Commercial Matters’ (Prel Doc No 19, 2002) 7–11; A Schulz, ‘Report On The First Meeting Of The Informal Working Group On The Judgments Project’ (Prel Doc No 20, 2002) 6–11; and A Schulz, ‘Report On The Second Meeting Of The Informal Working Group On The Judgments Project’ (Prel Doc No 21, 2003) 7–11. 61 Some experts in the Hague Conference expressed the view of including the uniformed provision on substantive validity in the convention, or at least the future convention. See C Kessedjian, ‘International Jurisdiction And Foreign Judgments In Civil And Commercial Matters’ (Prel Doc No 7, 1997) para 107.

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consumer contracts. Substantive validity requirements generally concern two issues: the authentic consent, and the fairness.62 (2) A jurisdiction or choice of law agreement might be regarded as being short of authentic consent for the following reasons: A. if it is an addition or endorsement which only appears in the final confirmed contract but does not appear during the consumer’s processing of contracting;63 B. if the acceptance is induced by the error of an information processing system, by electronic transmission, or by a consumer in an electronic system that did not reasonably allow for correction or avoidance of such errors;64or C. if the clause does not state the precise name of the country, the jurisdiction or system of law of which is chosen to govern the contract, but provides a description, and there is no additional information, which is convenient for the consumer’s reference, to clarify this description. (3) A jurisdiction or choice of law agreement can be considered as unfair if: A. it has not been individually negotiated, or it has been agreed upon with economic or other pressure on the consumer; B. the business takes actions to prevent the consumer from being aware of the existence, content or the effect of the choice of forum clause, to prevent the consumer free reading or making a reasonable decision,65 to deprive the consumer of the chance to correct any error or change his mind within a reasonable period of time, or other actions which may lead to the conclusion that the business does not act with good faith;66 and C. the effect of the jurisdiction or choice of law clause causes imbalanced results between the parties to the detriment of the consumer. Provision 4(2) concerns authentic consent. The existence of authentic consent can be questioned where the agreement is not shown before the consumer enters into the agreement, which will render many licensing agreements invalid where the content of the terms and conditions show after the consumer clicks to accept. Electronic error or ambiguous presentation can also put the existence of authentic consent into question. Provision 4(3) concerns the fairness of a jurisdiction or

62

For the comments, see generally Tang, ‘Exclusive Choice of Forum’, 249–50. See Scott v Bell Atl Co 726 NS2d 60 (App Div 2001). 64 See UCITA, s 213. 65 Such as a time-limit, or the content of clause is not continually available, such as a pop-up window, which will disappear in a short period of time, Re RealNetworks, 6; US Federal Trade Commission, Dot Com Disclosures, www.ftc.gov/bcp/conline/pubs/buspubs/dotcom/index.html, accessed on 21 Jun 2005. 66 See UCITA, s 213. However, the consumer is also required to act with good faith, by taking prompt action to prevent undue disadvantage to the business. 63

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choice of law clause. Fairness will be decided by the combination of procedure and the substance.67 Provision 5 Enforceability of an Exclusive Jurisdiction Agreement (1) The parties in a consumer contract could only choose between the court of the business’s habitual residence and the court of the consumer’s habitual residence as the competent court to hear disputes arising out of the contract to the exclusion of any other courts. If such an exclusive jurisdiction clause satisfies all the above pre-requisites, it is prima facie effective and enforceable. The chosen forum shall have jurisdiction, and all the other non-chosen fora should have no jurisdiction, unless the resisting party meets the heavy burden of proof to show one of the following exceptions: A. the objective factors which are unforeseeable at the time of agreement occur, and which are material to the proceedings; B. the resisting party will be prejudiced in the chosen forum; C. the consumer will be deprived of the possibility of access to justice, if litigation in the chosen forum is unreasonably and excessively inconvenient and expensive, compared with the value of the subject matter being claimed, and the comparative financial and litigating power of the other party;68 or D. the court can have discretion to refuse to enforce a valid exclusive jurisdiction clause in other circumstances if enforcing such a clause may mean that the ends of justice may be denied. (2) Provision 5(1) D is satisfied in the following circumstances: A. enforcing an exclusive jurisdiction clause would result in the resisting party being unable to enforce any judgment obtained; B. the witnesses and evidence are located abroad, which are crucial for the fair trial; or C. the resisting party is unlikely to get a fair trial because of political, racial, religious or other reasons. (3) The principle should be applied equally in all courts, regardless of whether the dispute has been brought to the chosen forum, or to a forum which otherwise might be competent in the absence of such a clause. The parties could only choose between the court of the business’s residence and the court of the consumer’s residence as the competent court in a consumer contract. This provision aims to limit the business’s choice and prevent the business from abusing the choice of court clause by choosing the court that has no 67

See Ch 6, s III.A; Ch 10, s III.A. Mere inconvenience and extra expense are not enough to avoid an otherwise valid choice of forum clause, unless the inconvenience is of such gravity. Bremen v Zapata, 18; Security Watch v Sentinel Systems 176 F3d 369, 374–5 (6th Cir 1999). 68

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connection to the contract in order to deprive consumers of their right to sue. This limitation is necessary to protect consumers, and sufficient to provide adequate leeway to businesses. It permits the business to choose its home forum. By choosing its home court, the business could avoid unreasonable commercial risk and costs generated by the consumer protective jurisdiction rule. Once the jurisdiction agreement satisfies the validity requirement and the limitation requirement, it is enforceable. This approach looks radical, but it meets the requirement of economic development and commercial safety. As to consumers, the key element of the proposed rule is not to render jurisdiction clauses prima facie ineffective, but to ensure the authentic consent. A jurisdiction clause can only be valid if it is shown in a conspicuous manner to the consumer to make sure that the consumer should know it before contracting, and the consumer could be able to make free decisions. Many consumers do not worry about jurisdiction issues at the time of contracting. What they are concerned about is the quality, the price and the post contractual service. If there is a jurisdiction clause choosing the court of the consumer’s home accompanied with a more expensive price to the specific goods and another clause choosing the court of the business’s home accompanied with a lower price, most consumers would prefer the latter instead of the former. This, however, is a conscious choice. More importantly, the commercial relief to a business can eventually benefit a consumer. Where a law holds most jurisdiction clauses unenforceable, it generates difficulty and insecurity to e-businesses. It is also doubtful whether this approach can really benefit consumers. As it renders most jurisdiction clauses ineffective, e-businesses lose the most frequently used and reliable method to reduce commercial risk. The risk of being subject to unexpected forum potentially increases commercial costs which would likely be internalised in the form of increased prices, which are eventually passed to consumers. Too much restriction to the freedom of choice would also cause businesses to strictly delimit its market, which is not a good idea for the international liberal market. It is better to remove the legal barriers for businesses to choose their market and let consumers decide whether or not to deal with them. However, a valid jurisdiction clause can be derogated from by specific reasons in order to protect the end of justice. As a result, a consumer has the chance to escape from the clause if it is vexatious or oppressive. More importantly, if enforcing the jurisdiction clause would deprive the consumer of his access to justice, it will not be enforced. Exception to the prima facie enforceable rule will be given to special cases in order to protect consumers. Provision 6 Enforceability of a Non-Exclusive Jurisdiction Agreement (1) The parties in a consumer contract could only choose between the court of the business’s residence and the court of the consumer’s residence as the competent court to hear disputes arising out of the contract without the exclusion of any other courts. If such a non-exclusive jurisdiction clause satisfies all the pre-requisites, it is prima facie effective and enforceable. The

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claimant could choose to bring an action in the chosen forum, or he could bring an action in the court that is otherwise competent without the existence of the jurisdiction agreement. (2) The chosen forum may deny its jurisdiction under the jurisdiction clause if the resisting party meets the burden of proof to show one of the exceptions listed in provision 5(1). The effect given to the non-exclusive jurisdiction agreement should be consistent with the exclusive one. The chosen court could refuse jurisdiction based on the justice consideration. The same elements that can be used for the chosen court to reject a valid exclusive jurisdiction clause can be equally used here. Provision 7 Enforceability of a Choice of Law Agreement (1) The parties in a consumer contract could only choose between the law of the business’s habitual residence and the law of the consumer’s habitual residence as the applicable law to govern their contract. If such a choice of law clause meets all the pre-requisites, it is effective and applicable. (2) The chosen law could be derogated from by the law of the forum or the consumer’s habitual residence if the chosen law contravenes the public policy or is contrary to the overriding mandatory rules of that country. The same limited choice approach is also adopted to choice of law. The business could only choose between the law of its habitual residence and the law of the consumer’s habitual residence. This choice has to meet both formal and substantive validity requirements in order to be valid. If a choice of law clause meets all the above conditions, it should be enforceable even against a consumer, unless the substance of the chosen law contravenes public policy or the overriding rules of the forum or the consumer’s habitual residence. A similar model has been suggested in the Commission’s Green Paper on the Rome I Regulation.69 It has not been adopted in the final version of the Rome I Regulation, and did not attract much attention during the negotiation. However, the limited choice approach has been adopted in the new provision to protect passengers in a contract for the carriage of passengers in the Rome I Regulation.70 The protection provided may be considered insufficient by consumer associations, because it could not prevent the most common practice of the business in crossborder contracts by choosing the law of the business’s home. What it could do is to prevent the business from choosing the law of the third country with undeveloped consumer law for the sole purpose of depriving consumers of their legal rights. In ordinary commercial practice, businesses usually choose the law of their habitual residence of place of business for the reason of security and convenience. Where the law of the business’s home provides the higher standard of protection 69 70

European Commission, ‘Green Paper, para 3.2.7.3, solution viii, 32. Art 5 of the Rome I Regulation. See Ch 10, III.B.

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to a consumer, the approach could bring a win-win situation, where both certainty and consumer interests are protected. Where the law of the business’s home provides the similar level of protection to a consumer, systematically applying the law of either country would be fair for both parties. Comparatively, the double protection provided under the preferential law approach makes a consumer in international transaction better off and could be unreasonable. The most controversial situation exists where the law of the business’s home provides the lower standard of protection than the law of the consumer’s home. In this case, applying the chosen law may be unfair for consumers, but the high requirements of formal and substantive validity could ensure that such a choice is not a surprise to the consumer. The consumer must be made easily aware of the existence and content of the choice before entering the contract, or the choice is invalid. The consumer should be able to decide whether or not to enter into the choice of law clause. Although the consumer usually has no idea of the substantive rules in a foreign state,71 he could have some basic knowledge of the possible protection level in some countries. For example, although an English consumer does not know details of the consumer law in Nigeria, the consumer could have reasonable expectation that the law of Nigeria would provide much lower protection to him. Furthermore, from the perspective of international commerce, it should be better to permit a consumer to choose whether or not to enter into a contract with an available supplier, than creating legal barriers to force a business to give up a particular market.

71

O’Hara, ‘Choice of Law for Internet', 1938.

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Schultz, T, ‘Online dispute resolution: an overview and selected issues’ Geneva, 6–7 June 2002 —— Kaufmann-Kohler, G, Langer, D, Bonnet, V, ‘Online Dispute Resolution: The State of the Art and the Issues’, E-Com Research Project of the University of Geneva, 2001 Schulz, A, ‘Report On The First Meeting Of The Informal Working Group On The Judgments Project’ (Prel Doc No 20, 2002) —— ‘Report On The Second Meeting Of The Informal Working Group On The Judgments Project’ (Prel Doc No 21, 2003) Services of the Commission to the Committee on Civil Law Matters (Rome I), ‘Proposal for a regulation of the European Parliament and the Council on the law applicable to contractual obligations (Rome I)—Certain financial aspects relating to the application of Articles 4 and 5’ 7418/07, JUSTCIV 55 CODEC 228, 15 March 2007 UNCITRAL’s Guide to Enactment of the UNCITRAL Model Law on Electronic Commerce (1996) Uniform Law Conference of Canada (ULCC) and the Consumer Measures Committee (CMC) Joint Working Group, ‘The Determination of Jurisdiction in Cross-border Business-to-Consumer Transactions: A Consultation Paper’, 2002UNCITRAL, Model Law on Electronic Commerce (1996) UNCITRAL, Model Law on Electronic Signatures (2001) US for the General Council of WTO, ‘The Council For Trade In Services, The Council For Trade In Goods And The Committee On Trade And Development WTO Work Program On Electronic Commerce’, Feb Nov 1999 US-EU, ‘Statement on E-commerce: Alternative Dispute Resolution’, 18 Dec 2000 WIPO ‘Primer on Electronic Commerce and Intellectual Property’ (WIPO 2000) WTO ‘Electronic Commerce and the Role of the WTO’ (Special Studies No 2 WTO 1998) WTO ‘Work Programme on Electronic Commerce’ (Electronic Commerce: work programme, adopted by the General Council on 25 September 1998)

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Page 307

INDEX actor sequitur forum rei, 10, 40, 107 addresses, 14 advertising: EU Directive, 253 meaning, 176–9 targeting and, 53 to consumers’ habitual residence, 174, 177–9 agencies: Brussels I jurisdiction, 65–73 e-agents, 88–9, 179 English common law jurisdiction service outwith jurisdiction, 88–9 service within jurisdiction, 78–80 Rome Convention and, 179, 181–2 alternative dispute resolution: advantages, 152 consumer confidence and, 163 e-commerce, proposals, 150 meaning, 152 online ADR, 152–60 arbitration, 155–7 assessment, 166 chargeback, 157–9, 160 criteria for success, 159–60 effectiveness, 160 flexibility, 159 impartiality and independence, 159–60 mediation, 153–5 reasonable costs, 160 trustworthiness, 159–60 site-certification schemes, 260, 262 Amazon, 14, 22, 70 arbitration: clauses, 155–6, 190–2 compulsory agreements, 157 consumer contracts European Union, 155, 156–7 exclusive jurisdiction clauses and, 192 online, 155–7 quasi-judicial procedure, 155 auction sales, US, 115–16 Australia, 141, 161, 162 Austria, Redesign Project, 161 bargaining power: abuse, 266 arbitration agreements, 156 chargeback and, 158 choice of court clauses, 138–9, 141

conflict of laws and consumer contracts, 8–9 consumer contracts, 121 English common law jurisdiction and, 272 US choice of law agreements, 245–6 blocking technology, 84, 180 branches: Brussels I jurisdiction, 65–73, 182 English common law jurisdiction, 78–80 English definition, 78–80 Rome Convention and, 182 implied choice of law, 193 Brazil, 8 browse-wrap contracts, 136, 138–9, 240 Brussels Convention: amendments, 6 cornerstone, 7 credit sales, 6 definition of contract, 31–2 origins, 6 replacement, 7, 39 Brussels I jurisdiction: ancillary establishments, 65–73, 78, 88 servers, 69–72, 108–9, 182 choice of court clauses see jurisdiction agreements definition of contract, 30, 31 domicile, electronic companies, 65–73 e-consumer contracts, 39–75 Article 15, 41–65 Article 16, 40–1 assessment, 73–5 basis, 40–1 commercial activities in consumers’ domicile, 48–52 contracts within sellers’ scope of activities, 64–5 credit, 42–8 instalments and other forms of credit, 46–7 sale of goods, 42–6 directing commercial activities to consumers’ domicile, 52–65 domicile of e-companies, 65–73 appearance of permanency, 67–9 direction and control, 69–71 extension of concept, 65–7 human intervention, 72–3 overview, 65–73 territorial limits, 71–2, 271

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Page 308

308 Brussels I jurisdiction (cont.): e-consumer contracts (cont.): excluded contracts, 41 habitual residence, 214 jurisdiction agreements see jurisdiction agreements scope of protection, 41–65, 214, 273 targeting, 273 US comparisons, 119 inconsistencies, 272 introduction, 7, 39 proposed amendments, 57 Canada, 7, 141, 158 carriage contracts: international conventions, 220 Rome Convention and, 173, 219 package tours, 221 Rome I Regulation and, 208, 219–24 justification for non-protection, 219–20 package travel, 217, 219, 220–2 passenger carriage, 222–4 chargeback, 157–60 China, contract law, 125 choice of court see jurisdiction agreements choice of law: agreements see choice of law agreements basic principles backup principle, 169 mandatory rules, 169 party autonomy, 169 consumer contracts debate, 251 learning the law, 211 default choice proposed mixed model, 286 proposed protective model, 278 English common law neutral approach, 231–2 service outwith jurisdiction, 89–91 harmonised laws see harmonisation and choice of law protective approach, 231–2, 271–4 Rome Convention see Rome Convention Rome I Regulation see Rome I Regulation United States see United States choice of law agreements: preferential law approach, 285 proposed mixed model consent, 287–90 identification of parties, 288 justice, 288–90 language, 288 limited choice, 293–4 public policy, 293–4 validity, 287–93 proposed protective model, 285–6

Index Rome Convention see Rome Convention United States see United States click-wrap contracts, 128, 136, 138–9, 240 comparative law, 20 confidentiality, e-courts, 163–4 conflict of laws see private international law consent: choice of law agreements clicking, 288 proposals, 287–90 Rome Convention, 187 jurisdiction agreements clicking, 288 discretion-based systems, 135–8 proposals, 287–90 consumer contracts: arbitration and, European Union, 156–7 choice of law, 169–70 debate, 251 learning the law, 211 Rome Convention see Rome Convention Rome I Regulation see Rome I Regulation conflict of laws, 4–12 defendants’ jurisdiction, 10 forum non conveniens, 10–11 history, 4–8 importance, 11–12 lack of case law, 11–12 overriding mandatory rules and public policy, 11 party autonomy, 8–9 problems, 8–11 unequal bargaining power, 8–9 unequal litigation power, 10 dispute resolution, methods, 12 e-commerce see e-consumer contracts legal diversity, 251 litigation costs, 12 mandatory rules, 194–7 partial harmonisation, 251 party autonomy and, 18, 185 unfair terms arbitration, 156–7 EU Directive, 199, 251, 253 jurisdiction agreements, 129–30 mandatory rules, 196 consumer credit: Brussels Convention, 6 Brussels I jurisdiction, 42–8 consistency of EU conflict rules and, 273 instalments and other forms of credit, 46–7 sale of goods, 42–6 EU directives, 253 consumer protection: agreement as to place of contract, 87 appropriate conflict rules, 271–4 Brussels I Regulation and, 40–1 business promotion and, 40–1

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Page 309

Index conflict of laws and, 3–12 neutrality v protection, 268–71 proposed model, 277–86 domestic problem, 3, 4 EU harmonisation, 251 EU social policy, 5–6 jurisdiction agreements Brussels I Regulation, 146 discretion-based systems, 138–9, 141 mandatory rules English choice of law and, 90–1 Rome Convention and, 194–9 Rome Convention, 170–2 assessment, 203–4 e-consumer contracts, 172–85 effect of choice of law, 194–9 law reform, 205–8 mandatory rules, 194–9 Rome I Regulation, 213–29 scope, 27 consumers, definition, 21–8 EC regulation, 6, 21–7 investment, 24–5 legal persons, 26–7 other party’s perspective, 25–6 outside one’s trade/profession, 22–5 personal situation of buyers, 26 sellers acting outside trade/profession, 27 sellers as consumers, 27 status of other party, 21–2 contract: consumer contracts see consumer contracts e-commerce see e-consumer contracts formation electronic contracts, 17 English common law jurisdiction, 81–8 freedom of contract see party autonomy meaning, 30–5 non-existent contracts, 31–2 pre-contractual obligations, 32–4 nullity, consequences, 34–5 party autonomy see party autonomy unfair terms, 195–6 copyright, software, 43–4 County Court Bulk Centre, 161 credit cards, chargeback, 157–9 culpa in contrahendo, 31 databases, 94–5 Denmark, 6, 7 dépeçage, 197, 287 digital products: classification sale of goods, 43–5, 93, 197 supply of goods and services, 173–4 consumer credit instalments, 47 sale of goods, 43–5

309

English common law jurisdiction, 93–5 capacity to access information, 94–5 customised products, 94 service outside jurisdiction, 99 specialised skills, 94 standard products, 93–4 US choice of law, 235 discretion-based systems: English common law, 77–8 service outwith jurisdiction, 81–104 service within jurisdiction, 78–80 forum non conveniens see forum non conveniens jurisdiction agreements, 135–46 rule-based v discretion, 267–8 distance selling, 199–200, 251, 253, 256, 257–8 domain names, 14, 54, 61–2, 177, 193 domicile, electronic companies: appearance of permanency, 67–9 physical v virtual appearance, 67–8 real or presumed permanency, 68–9 Brussels I Regulation, 65–73 direction and control, 69–71 English common law, 78–80 extension of concept, 65–7 companies outside member states, 66 consumers’ options, 65 deemed domicile of branches, 67 human intervention, 72–3 territorial limits of operation, 71–2, 228–9, 271 door-step selling, 253 dynamic packaging, 222 e-commerce see also e-mail trading; websites anonymity, 13–15 conflict of laws and, 12–18 contract formation, 17 identification and territorial connection of parties, 13–15 lack of case law, 12 location of activities, 15–16 status of servers, 16–17 contracts see e-consumer contracts definition, 28–30 Internet commerce, 29 scope of activities, 30 European Union see European Union jurisdiction see jurisdiction in e-consumer contracts second-hand products, 14 small and medium companies, 210 e-consumer contracts: choice of law Rome Convention see Rome Convention Rome I Regulation see Rome I Regulation United States see United States

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310

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Page 310

Index

e-commerce (cont.): commercial contracts and, 13 conflict of laws and, 18–19 business targets, 19 party autonomy, 18 consumer credit, Brussels I Regulation, 42–8 jurisdiction see jurisdiction in e-consumer contracts online dispute resolution see online dispute resolution sale of goods digital products, 43–5, 93, 197 intangible products, 44–5 intangible specialised ability, 46 meaning, 42–6 physical products, 43–4 Rome Convention and, 173–4, 214 standard contracts, 213 e-courts: advantages, 162–3 consumer confidence, 163, 164 costs, 163, 164 debates, 163 difficulties, 163–5 establishing, 165 EU support, 151, 162 evidence, 162–3, 164 examples, 161 increased litigation risk, 164 international e-courts, 165 models, 165 overview, 161–5 scope of litigation, 164 searching programmes, 163 security and confidentiality, 163–4 simplified procedures, 162 social psychology, 165 speed, 163 technical requirements, 163–4 e-libraries, 46, 94–5 e-mail trading: addresses and choice of law, 193 advertising, 178 directing commercial activities to consumers’ domicile, 60–4 responses to consumers, 62–3 unsolicited e-mail, 60–2 ISP blocking, 84 location of senders, 14, 61 unsolicited e-mails, 60–2, 253 eBay, 14, 22, 70, 115 economic liberalism, 3 electronic companies, domicile: Brussels I Regulation, 65–73 English common law, 78–80 electronic signatures, EU, 127–8 English common law jurisdiction: service outwith jurisdiction, 81–104

service within jurisdiction, 78–80 European Union: advertising, 253 arbitration and consumer contracts, 156–7 choice of law harmonisation of laws and, 251–9 protective approach, 231–2 Rome Convention see Rome Convention Rome I Regulation see Rome I Regulation Rome II Regulation, 31, 34, 271 conflict of laws inconsistencies, 272–6 legal influence, 7–8, 269 party autonomy, 274–6 protective principle, 5–8, 271–4 consumer credit, 253 consumer protection harmonisation project, 251, 252–4 merging directives, 251 origins, 5–8 Rome Convention v other directives, 199–202, 254 distance selling, 199–200, 253, 256, 257–8 door-step selling, 253 e-commerce regulation, 7 acknowledgment of receipts, 195 Consumer Complaint Form, 151–2 dispute resolution, 149–50 electronic signatures, 127–8 formation of contract, 83 identification of service providers, 69, 253 language, 195 mandatory rules, 195 on-line dispute resolution, 150–1 Rome Convention and other consumer directives, 199–202, 254 scope of Directive, 253 timing of contract, 132 e-court project, 162 financial services, 253 guarantees in consumer sales, 253 harmonisation and choice of law benefits, 254 comprehensiveness, 255 concerns, 255–9 electronic compatibility, 257–8 harmonisation project, 252–4 minimum protection approach, 252–9 promptness, 256–7 rule-based system, 267–8 sufficiency, 255–6 territorial limits, 258–9 jurisdiction Brussels Convention see Brussels Convention Brussels I Regulation see Brussels I jurisdiction Mediation Directive, 153

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Page 311

Index package travel, 221, 253 price indications, 253 Small Claims Procedure Regulation, 162 timeshares, 225–6, 253 unfair terms in consumer contracts, 129–30, 156–7, 199, 251, 253 fair hearing, 102 fairness see justice Financial Markets Law Committee, 211–12 financial services: consumers, definition, 24–5 EU directives, 253 Rome I Regulation and, 25, 208, 226–8 forum non conveniens: consumer contracts and, 10–11 English discretion business claimants, 105 consumer claimants, 104–5 English service outwith jurisdiction applicable law, 99 appropriate forum test, 96–100 assessment, 103–4 choice of forum agreements, 100 factual connections, 98–9 justice test, 100–3 overview, 96–104 personal connections of parties, 97 jurisdiction agreements, 141, 142–6 proposed model, 283–5 fraud, 129, 140, 158 German law, 44, 256 good faith, jurisdiction agreements, 130 guarantees, 253 Hague Conference on Private International Law: e-courts and, 165 Round Table on E-Commerce, 260 rule-based approach, 268 Hague Convention on Private International Law: consumer contracts, 7–8 consumers, definition, 21, 25 sale of goods, definition, 42 harmonisation and choice of law: codes of practice, 252, 260–2 EU minimum protection benefits, 254 comprehensiveness, 255 concerns, 255–9 context, 252–4 electronic compatibility, 257–8 overview, 251, 252–9 promptness, 256–7 rule-based system, 267–8 sufficiency, 255–6

311

territorial limits, 258–9 site-certification schemes, 260–2 hotels, 216, 217, 218 human rights: legal persons, 27 post-war development, 5 hyper text, 126, 137, 240 immovable property, 41, 208, 225–6 information communication technology, 4 instalment payments, 46–7 insurance contracts, 41, 222 intangible products, 44–5 Inter-American Specialized Conferences on Private International Law, 8 Internet: characteristics, 29 decentralisation, 12–13 e-mail see e-mail trading websites see websites internet service providers, 13, 84 Ireland, 6 jurisdiction: agreements see jurisdiction agreements consumer contracts Brussels I Regulation see Brussels I jurisdiction connections, 9 defendants’ jurisdiction, 10 unequal litigation power, 10 e-consumer contracts see jurisdiction in econsumer contracts English common law service outwith jurisdiction, 81–104 service within jurisdiction, 78–80 protective principle, 271–4 jurisdiction agreements see also forum non conveniens bargaining power, 121 Brussels I Regulation, 121 assessment, 146 certainty, 146 click-wrap contracts, 128 common domicile/residence, 133 common usage, 123, 128 consumer contracts, 122, 283 prima facie ineffectiveness, 133–4 consumer protection, 146 e-consumer contracts, 91, 122–34 economic considerations, 134 enforceability, 130–4, 283 exclusive clauses, 131–4, 192 formal validity, 123–8 format, 126–7 fraud, 129 good faith, 130 hypertext, 126–7

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Page 312

312 jurisdiction agreements (cont.): Brussels I Regulation (cont.): language, 126 mistake, 129 non-exclusive clauses, 134 pre-requisites, 123–30 prima facie ineffectiveness, 133–4 signatures, 127–8 substantive validity, 129–30 timing of clauses, 131–3 unfair terms, 129–30 writing requirement, 123, 124–5 choice of law and, 190–2 discretion-based systems assessment, 147 consent, 135–8 enforceability, 139–46 exclusive clauses, 140–4 fairness, 138–9 forum non conveniens, 141–6 non-exclusive clauses, 144–6 overview, 135–46 prerequisites, 135–9 prima facie effectiveness, 142–4 reasonableness, 138–9 e-consumer contracts, 121 English jurisdiction breach of contract within jurisdiction, 92 discretion-based systems, 135–46 forum non conveniens, 100 non-performance by businesses, 92–5 non-performance by consumers, 95 repudiated contracts, 92 service outwith jurisdiction, 91–6 exclusive and non-exclusive, 121 proposed mixed model consent, 287–90 exclusive jurisdiction, 291–2 identification of parties, 288 language, 288 non-exclusive jurisdiction, 292–3 validity, 287–91 proposed protective model, 282–5 declining jurisdiction for justice, 283–5 enforceability, 282–3 exclusion of choice, 285 non-exclusive jurisdiction, 283 United States see United States jurisdiction in e-consumer contracts: Brussels I Regulation, 39–75 Article 15, 41–65 Article 16, 40–1 assessment, 73–5 basis, 40–1 choice of court clauses see jurisdiction agreements commercial activities in consumers’ domicile, 48–52

Index contracts within sellers’ scope of activities, 64–5 credit, 42–8 instalments and other forms of credit, 46–7 sale of goods, 42–6 directing commercial activities to consumers’ domicile e-mail trading, 60–4 overview, 52–65 websites, 52–60, 63–4 domicile of electronic companies appearance of permanency, 67–9 direction and control, 69–71 extension of concept, 65–7 human intervention, 72–3 overview, 65–73 territorial limits of operation, 71–2, 271 excluded contracts, 41 habitual residence, 214 scope of protection, 41–65, 214, 273 targeting, 273 US comparisons, 119 English common law choice of court see jurisdiction agreements contracts made within foreign jurisdiction, 81–8 agreement as to location, 87 Internet location, 84–5 offer v acceptance, 85–6 timing, 82–4 discretion-based approach, 77–8 forum non conveniens, 104–5 in personam jurisdiction, 77 non-protective system, 272 overview, 77–106 Practice Direction B, 81–96 service outwith jurisdiction, 81–104 choice of English court agreement, 91–6 choice of English law agreement, 89–91 e-agents, 88–9 forum conveniens, 96–104 place of contract, 81–96 service within jurisdiction, 78–80 identification of parties, 14–15 models, 39 proposed mixed model, default jurisdiction, 286 proposed protective model default jurisdiction, 277 scope of protection, 278–82 targeting, 278–82 United States see United States justice: choice of law agreements, proposed mixed system, 288–90 conflict of laws and, 4–5 forum non conveniens and, 100–3

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Page 313

Index language, 102 legal assistance, 100–1 litigation power, 100–3 proposed model, 283–5 right to fair hearing, 102 jurisdiction agreements Brussels I Regulation, 146 discretion-based systems, 138–9 proposed mixed system, 288–90 land contracts, 41, 208, 225–6 language: choice of law and, 192–3 forum non conveniens and, 102 jurisdiction agreements, 126 proposed mixed model, 288 legal aid, 100–1 legal persons, 26–7 libraries, 46, 94–5 litigation: costs, 12 cross-border difficulties, 149–50 e-courts see e-courts e-filling, 161, 162 electronic technology, 161 EU proposals, 149–50 European Small Claim Procedure Regulation, 162 power, forum non conveniens and, 100–3 procedures, 150 simplified procedures, 162 small claims, 162 mandatory rules: choice of law rules, 169 English choice of law and, 90–1 proposed mixed system, 293–4 public policy and, 11, 169 Rome Convention and, 193–7 assessment, 203 comparison and dépeçage, 197, 287 consumer protection rules, 195 definition, 194–5 difficulties for both parties, 197–9 e-commerce, 196–7 non-protective mandatory rules, 196 protective non-mandatory rules, 196 public protection rules, 195–6 US choice of law, 237 mediation: European Union, 153 meaning, 153 online, 153–5 effectiveness, 154 empirical research, 154–5 fairness, 154 impartiality, 153 transparency, 153–4

313

misrepresentation, 33–4, 58, 129, 158, 215, 237 mistakes, 55, 124–5, 129, 136–7, 237 Moneyclaim Online, 161 Morse, CGJ, 178 mortgages, 253 negotiorum gestio, 31 neutrality: consumer protection v neutrality, 268–71 English choice of law, 231–2 private international law, 3, 4, 9 US choice of law, 232–6, 249 New Zealand, 141 OECD, 165 online dispute resolution: alternative dispute resolution arbitration, 155–7 assessment, 166 chargeback, 157–9, 160 consumer confidence, 163 criteria for success, 159–60 effectiveness, 160 flexibility, 159 impartiality and independence, 159–60 mediation, 153–5 overview, 152–60 reasonable costs, 160 trustworthiness, 159–60 companies, 261 complaint communication, 151–2 EU Consumer Complaint Form, 151–2 criteria, 166 EU support, 150–1 litigation EU support, 151 examples, 161 simplified procedure, 161–5 overview, 149–66 regulation, 261 site-certification schemes, 261, 262 package switching, 82 package travel, 173, 217, 219, 220–2, 253 parent companies, Brussels I jurisdiction and, 65–73 party autonomy and choice of law: consistency of system, 274–6 enforceability, 275–6 implied choice, 274 validity, 274–5 consumer contracts, 8–9, 18, 185 e-commerce, 18 principle, 169, 185 proposed protective model, 282 protective v neutral models, 270

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314

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Page 314

Index

party autonomy and choice of law (cont.): Rome Convention, 211 e-consumer contracts, 185–99 implied choice, 188–94 law reform, 205, 206 mandatory rules, 194–9 other EU directives and, 200–1 validity of agreements, 185–8 Rome I Regulation, 207–8, 212 passenger carriage, 222–4 PINs, 94–5 price indications, 253 Principles of European Contract Law, formation of contract, timing, 132 private international law: appropriate rules, 265–7 choice of law see choice of law consistency, 271–7 consumer contracts, 4–12 defendants’ jurisdiction, 10 forum non conveniens, 10–11 history, 4–8 importance, 11–12 lack of case law, 11–12 overriding mandatory rules and public policy, 11 party autonomy, 8–9 problems, 8–11 protection v neutrality, 268–71 unequal bargaining power, 8–9 unequal litigation power, 10 consumer protection and, 3–4 e-commerce and, 12–18 jurisdiction see jurisdiction methodology, 4–5 neutrality, 3, 4, 9 proposals see proposed conflict rules revolution, 4–5 rule-based v discretion, 267–8 systems, 271 proposed conflict rules: appropriate conflict rules, 265–7 consistency, 271–7 flexibility, 267 key principles, 266–7 legal certainty, 267 mixed model, 286–94 choice of law agreements, 287–91, 293–4 consent to choice agreements, 287–90 default choice of law, 286 default jurisdiction, 286 exclusive jurisdiction agreements, 291–2 jurisdiction agreements, 287–93 limited choice of law, 293–4 non-exclusive jurisdiction agreements, 292–3 unfairness of choice agreements, 288–90 neutrality v protection, 268–71

party autonomy, 274–6 political and economic interests, 265–6 protective model, 277–86 choice of court agreements, 282–5 declining jurisdiction for justice, 283–5 default choice of law, 278 default jurisdiction, 277 scope of protection, 278–82 targeting, 278–82 protective principle, 271–4 rule-based v discretion, 267–8 public policy: mandatory rules, 11, 194–7 proposed mixed system, 293–4 US choice of law agreements, 243–9 assessment, 248–9 characteristics, 245 class actions, 245–7 competing interests, 246–7 meaning, 244 protection of weak parties, 245–6 sources, 244–5 race to the bottom, 171 RAM, 125 restaurants, 216, 217 right to fair hearing, 102 Rome Convention: application to England, 89, 272 choice of law, 89 choice of law agreements classification issues, 187–8 consent, 187 effect, 194–9 formal validity, 185–6 implied choice, 188–94 substantive validity, 186–7 validity, 185–8 consistency of conflict of law system, 273 consumer protection and mandatory rules, 194–9 other EU directives, 199–202 cornerstone, 7 definitions consumers, 22 lack of, 203 e-consumer contracts, 7 active businesses v active consumers, 181 active businesses v passive consumers, 174–81 advertising to consumers’ residence, 177–9 agents, 181–2 arranged journeys of inducement, 183–4 Article 5, 172–3 assessment, 184–5, 203, 204 complexity, 209 exclusions, 173 goods and services, 173–4, 214

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Page 315

Index habitual residence, 9, 170–2, 208 implied choice of law, 188–94 issues, 205–6 mandatory rules, 194–7 necessary steps taken in consumers’ residence, 179–81 orders received in consumers’ residence, 181–3 party autonomy and, 185–99 place of receipt of orders, 182–3 preferential law approach, 208, 275–6 principles, 169–70 protective default principle, 170–2 race to the bottom, 171 scope of protection, 172–85 social psychology, 171 specific invitations at consumers’ residence, 174–7 subjective activity test, 55 targeting, 176–7, 273 timeshares, 225 validity of choice of law agreements, 185–8 implied choice, 188–94 assessment, 193–4 country-specific indicia, 192–3 domain names, 193 jurisdiction/arbitration clauses, 190–2 language, 192–3 legal doctrines, 189 previous practice, 190 standard forms, 189 terminology, 189 traditional indicators, 189 legal model, 203 mandatory rules and, 194–7 assessment, 203 comparison and dépeçage, 197, 287 consumer protection, 195 definition, 194–5 difficulties for both parties, 197–9 e-commerce, 196–7 non-protective rules, 196 protective optional rules, 196 public protection rules, 195–6 nullity of contract, consequences, 34 other EU directives and, 199–202, 254 choice of law rules, 199 close connection test, 200, 201–2 limiting party autonomy, 200–1 scenarios, 201–2 party autonomy, 211 e-consumer contracts, 185–99 implied choices, 189–94 law reform, 205, 206 mandatory rules, 194–9 other EU directives and, 200–1 validity of choice of law agreements, 185–8 Rome I Regulation and, 203, 205–8

315

assessment, 229–30 Commission proposal, 206–7 Green Paper, 205–6, 254, 271, 293 unprotected contracts carriage of goods, 173, 219 services, 216 Rome I Regulation: choice of law and choice of jurisdiction, 190–1 consistency of conflict of law system, 271, 273 consumer protection, 207–8 assessment, 229–30 excluded contracts, 208, 216–28 habitual residence, 214–15 inclusivity, 213–15 scope, 208, 213–29 exclusion of choice approach arguments against, 212–13 preferential law approach or, 208–13 introduction, 7 nullity of contract, 34 party autonomy and, 212 pre-contractual obligations, 33 preferential law approach assessment, 229–30, 276 exclusion of choice or, 208–9 fairness, 210–11 hybrid results, 209–10 practicality, 211–12 simplicity, 209–10 Rome Convention and, 203, 205–8 assessment, 229–30 Commission proposal, 206–7 Green Paper, 205–6, 254, 271, 293 scope of protection, 173 assessment, 229–30 excluded contracts, 216–28 habitual residence, 214–15 territorial scope, 228–9 UK adoption, 207 unprotected contracts carriage, 219–24 financial services, 25, 226–8 land contracts, 225–6 overview, 208, 216–28 services outside consumers’ residence, 216–19 UK approach, 228 Rome II Regulation, 31, 34, 271 sale of goods, meaning: digital products, 43–5, 93, 197 e-commerce, 42–6, 93 intangible products, 44–5 intangible specialised ability, 46 physical products, 43–4 Rome Convention, 173–4, 214 second-hand sales, 14, 22

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316

Index

servers: Brussels I jurisdiction, 69–72, 108–9, 182 English common law jurisdiction forum conveniens, 98–9 service within jurisdiction, 80 legal nature, 182 role, 16, 84–5 status, 16–17 US choice of law, 233, 235 services: financial services, 24–5, 208, 226–8, 253 Rome Convention and, 216 Rome I Regulation and carriage, 219–24 financial services, 25, 226–8 outside consumers’ residence, 216–19 UK attitude, 228 supply of services, meaning, 214 signatures, 127–8 site-certification schemes, 260–2 small and medium companies, 13, 102, 149, 172, 198, 207, 210 social policy, Europe, 5 software see digital products South Korea, 7 Square Trade, 154–5 standard forms, 189, 213 supply of goods and services, meaning, 173–4, 214 Switzerland, 21, 44, 208 tangible products, 43–4, 173–4 timeshares, 208, 225–6, 253 tourism, 217, 220–2 trustmark organisations, 260–1 Turkey, 7 UNCITRAL, 85, 98, 133, 242, 268 unconscionability, US choice of law agreements, 237–41 unfair terms in consumer contracts, 129–30, 156–7, 196, 199, 251, 253 United Nations, 165 United States: choice of law 2nd Restatement, 232, 233, 234, 236, 237, 241, 242, 245, 249 default law, 232–6 most significant connection, 232–6 neutral approach, 232–6, 249 choice of law agreements in e-commerce browse-wrap contracts, 240 class actions, 243–4, 245–7 click-wrap contracts, 240 general principle, 236–7 good faith, 241 mandatory rules, 237 overview, 236–49

public policy, 243–9 reasonableness of choice, 241–3 unconscionability, 237–41 choice of law in e-commerce agreements, 236–49 assessment, 249 default law, 232–6 flexibility, 232–3, 249 location of subject matter, 235 most significant connection, 232–6 personal connections, 236 place of contracting, 234 place of negotiation, 234 place of performance, 234–5 Uniform Electronic Transactions Act (UETA), 234, 242 conflict of laws consistency, 275 scholarship, 4–5 consumer protection, 7 dispute resolution arbitration, 155–6 chargeback, 157–8 e-litigation, 161, 162 e-commerce jurisdiction assessment, 118–19 auction sales, 115–16 Brussels I Regulation and, 119 effects test, 117–18 general jurisdiction, 108–10 sliding-scale test, 111–15 subjective availment test, 115–16 substantial contact, 108–10 sustained contact test, 110–11, 112 torts, 117 Zippo test, 111–15 electronic contracts formation, 83 timing of contract, 132 UCITA, 83, 242, 243 jurisdiction agreements click-wrap agreements, 240 consent, 136–8 economic considerations, 134 enforceability, 140–1 exclusive clauses, 140–1 forum non conveniens, 141 unconscionability, 240 legal system, 107n1 personal jurisdiction actor sequitur forum rei, 107 business activity, 59 complexity, 107 effects test, 117 substantial contact, 108–10 torts, 117 public policy and choice of law assessment, 248–9

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Index characteristics, 245 class actions, 245–7 competing interests, 246–7 meaning of public policy, 244 overview, 243–9 protection of weak parties, 245–6 sources, 244–5 sale of goods, meaning, 43–4 unjust enrichment, 31, 34–5 usernames, 94–5 Vienna Convention (1980), 42 websites: advertising to consumers’ residence, 177–8 Coca-Cola, 269

317

directing commercial activities to consumers’ domicile accessibility, 52–3 activities, 55–7 Brussels I Regulation jurisdiction, 52–60, 63–4 country-specifc indicia, 54–5 profitability, 53–4 ring-fencing, 57–9 technical devices, 58 location, 14, 15 physical presence, 50 pre-established trading procedures, 86 US trading categories, 111–15 Windows Messenger, 82 writing requirement, 123, 124–5

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