Electronic Consumer Contracts in the Conflict of Laws 9781474203388

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SERIES EDITORS’ PREFACE

The Studies in Private International Law series was launched in 2009. At the time, we wrote that the series was intended to provide a forum for the publication in English of scholarly specialised works on private international law. This aspiration has been realised, with the publication of some 17 monographs and edited collections on a wide variety of cutting edge areas of private international law written by leading scholars from around the world. The first title in the series was Electronic Consumer Contracts in the Conflict of Laws by Zheng Sophia Tang. We are delighted that Professor Tang’s book is also the first work in the series to go into a second edition. At the time of publication of the first edition, we wrote that the book covered ‘a highly important and topical subject that should appeal to readers in many countries’. But time does not stand still; and especially not in this rapidly developing area of law, which continues to be affected by both advances in technology and ever more legislative and judicial developments in the field of private international law. These include not only key amendments to the rules applicable in the courts, such as the recast Brussels I Regulation, but also important developments in the field of alternative dispute resolution, as well as other initiatives which seek to increase protection and reduce costs for consumers, such as the proposed Common European Sales Law. The new edition retains all the strengths of the first edition: it offers a detailed analytical and comparative analysis, combined with sophisticated analysis of the underlying policy considerations (both theoretical and practical) and proposals for further reform. We trust that it will be every bit as widely read and influential as the first edition. Paul Beaumont (University of Aberdeen) Jonathan Harris (King’s College, London)

PREFACE TO THE SECOND EDITION

Ever since the publication of the first edition of this book in 2009, important developments in private international law in consumer contracts have occurred both in law and in research. The Court of Justice of the European Union has made a few important rulings on the application of consumer conflict of laws in electronic distance contracts. From 10 January 2015, the Brussels I Regulation has been replaced by the Brussels I Recast, which expands the territorial effect of the protective jurisdiction rules and abolished exequatur for cross-border enforcement of judgments. The Common European Sale Law is in the legislative process, which attempts to provide an innovative method to address the traditional choice of law dilemma between consumer protection and compliance costs for business. More importantly, the European legislators’ focus on cross-border consumer contracts has moved from improving individual consumers’ access to court, to establishing a comprehensive dispute resolution system, which is evidenced by the most recent initiatives, including the Directive on Consumer Alternative Dispute Resolution (ADR), the Regulation on Consumer Online Dispute Resolution (ODR) and the Recommendation on Collective Redress. This trend requires conflicts lawyers to study beyond private international law in individual litigation by examining new conflicts problems arising out of these more unconventional dispute resolution methods. Developments in research are demonstrated by adopting various new research methods in consumer conflict of laws. Although traditional doctrinal research remains dominant and valuable, its limits are obvious. The nature of consumer disputes determines that very few cases are brought to the Court. It is thus inevitable that other factors must be taken into consideration, putting the law in the historical, social, economic and technological context. It is also necessary to consider the indirect effect of the consumer conflict of laws, ie how the law affects business and consumer behaviour and the economy as a whole even if no cases are actually brought to the Court. Economic analysis and empirical data provide important contributions in achieving this aim. This book analyses the new developments in law and adopts multiple research methods to provide a comprehensive examination of the framework of crossborder consumer contracts. It compares the EU protective model and the US neutral model and examines conflict of laws questions in class action, mediation, arbitration, class ADRs and online dispute resolution. It uses economic theory and empirical evidence to justify the needs of the protective model and proposes the multi-tiered dispute resolution system. The objective is to provide balance

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between consumer protection and business interest, and between regulation and commercial freedom, by improving the overall efficiency of cross-border consumer dispute resolution. I dedicate my gratitude to the General Editors of the book series, Professor Paul Beaumont and Professor Jonathan Harris, who have also been my mentors throughout my career. The idea of adopting the multiple research method is inspired by the research culture at the University of Leeds and my former colleagues Professor Louis Ellison and Professor Anthea Hucklesby. The autonomous and liberal research environment at Newcastle University and the support from my colleagues, in particular Professor Chris Rodgers, Ms Suzanne Johnson and Ms Lida Pitsillidou, have made the completion of this monograph possible. I have also benefitted from the exchange of ideas with Dr Lorna Gillies, Dr Christa Roodt, Dr Andrej Savin, Dr Ulf Maunsbach and Dr Jonathan Fitchen. I want to thank the staff of Hart/Bloomsbury Publishing for their assistance and hard work during the process. Finally, I would like to thank my family, especially my husband Roy Rao, and close friends for their endless support. I have endeavoured to state the law as at 1 March 2015, although it has been possible to incorporate more recent developments in some cases. Sophia Tang Newcastle 1 June 2015

TABLE OF CASES

Australia Dow Jones v Gutnick [2003] ALMD 1359 .............................................................................88 Oceanic Sun-Line Special Shipping Co v Fay (1988) 165 CLR 197 ..................... 11, 113, 168 Canada Amchem Products Inc v British Columbia Worker’s Compensation Board [1993] 102 DLR (4th) 96 (SCC).........................................................................................11 Bank of Montereal v Snoxell (1982) 143 ELR (3d) 349 ......................................................153 Braintech Inc v Kostiuk [1999] WWR 133 ............................................................................88 Dell Computer Corp v Union des Consommateurs Supreme Court of Canada, No 31067 (14 September 2006).....................................................................327 Equustek Solutions v Jack [2014] 10 WWR 652 ...................................................................88 Middle East banking Co SA v Al-Haddad (1990) 70 OR (2d) 97 ......................................110 Wiebe v Bouchard [2005] BCWLD 1593...............................................................................88 European Court of Human Rights Osman v United Kingdom (2000) 29 EHRR 245 ................................................................111 European Union Air France v Folkerts (C-11/11) [2013] All ER (EC) 1133..................................................227 Allianz SpA v West Tankers Inc (C-185/07) [2009] ECR I-663 ..........................................290 Asturcom Telecommunications SL v Rodriguez Nogueira (C-40/08) [2009] ECR I-9579 .................................................................................................... 313, 316 Banco Espanol de Credito SA v Joaquin Calderon Camino (C-618/10) [2012] ECR ............................................................................................ 244, 247 Benincasa v Dentalkit (C-269/95) [1997] ECR I-3767 ............................................. 30, 32, 36 Bertrand v Ott (150/77) [1978] ECR 1431 .......................................................... 6, 36, 41, 285 Besix SA v Wasserreinigungsbau Alfred Kretzschmar GmbH & Co KG (WABAG) (C-256/00) [2002] ECR I-1699................................................................287 Blanckaert & Willems v Trost (139/80) [1981] ECR 819 .......................................... 69, 72, 73 Cape Snc v Indealservice Srl (C-541/99) ...............................................................................34 Car Trim GmbH v KeySafety Systems Srl (C-381/08) [2010] ECR I-1255 .......................................................................................... 36, 39, 40, 287 Centros Ltd v Erhvervs-og Selskabsstyrelsen (C-212/97) [1999] ECR I-1459 ..............................................................................................................72 Ceska Sporitelna, AS v Feichter (C-419/11) [2013] ILPr 22 ........................................... 27, 32 Club-Tour v Barrido (C-400/00) [2002] ECR I-4051 .........................................................219 Color Drack v Lexx (C-386/05) [2007] ECR I-3699 ........................................... 226, 287, 288

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Coreck Maritime GmbH v Handelsveem (C-387/98) [2000] ECR I-9337 ............................................................................................................136 Cuadrench More v Koninklijke Luchtvaart Maatschappij NV (C-139/11) [2013] 2 All ER (Comm) 1152...............................................................227 Dansommer v Gotz (C-8/98) [2000] ECR I-393.................................................................235 eDate Advertising GmbH v X; Olivier Martinez v MGN Ltd (C-509/09 & C-161/10) [2011] OJ C370/9 ......................................................................287 Effer v Kantner (38/81) [1982] ECR 825 ....................................................................... 60, 322 Eglitis v Latvijas Republikas Ekonomikas Ministrija (C-294/10) [2011] 3 CMLR 16.........................................................................................227 Emrek v Sabranovic (C-218/12) [2014] Bus LR 104 .............................................................64 Engler v Janus Versand GmbH (C-27/02) [2005] ECR I-481 ........................................ 60–62 Estasis Salotti v RUWA (24/76) [1976] ECR 1831 ...................................... 123, 125, 126, 128 Ets A de Bloos SPRL v Société en Commandite par actions Bouyer (14/76) [1976] ECR 1497........................................................................... 69, 71, 72 Finnair Oyj v Lassooy (C-22/11) [2013] 1 CMLR 18 .........................................................227 Fonderie Officine Meccaniche Tacconi SpA v Heinrich Wagner Sinto Maschinenfabrik GmbH (C-334/00) [2002] ECR I-7377 .......................................60 Frahuil Assitalia (C-265/02) [2004] ECR I-1543...................................................................60 Gabriel v Schlanck & Schick GmbH (C-96/00) [2002] ECR I-6367 ............................. 60–62 Gaillard v Chekili (C-518/99) [2001] ECR I-2771 ..............................................................232 Galeries Segoura v Bonakdarian (25/76) [1976] ECR 1851 ...............................................123 Gambazzi v Daimler Chrysler (C-394/07) [2009] ECR I-2536 ..........................................295 Gerling Konzern Speziale Kreditversicherungs-AG v Amministrazione del Tesoro dello Stato (201/82) [1983] ECR 2503.............................125 Glaxosmithkline and Laboratoires Glaxosmithkline v Jean-Pierre Rouard (C-462/06) [2008] ECR I-3965 .........................................................77 Gruber v Bay Wa AG (C-464/01) [2005] ECR I-439 ....................................................... 31, 34 Hans-Hermann Mietz v Intership Yachting Sneek BV [1999] ECR I-2277 ........................................................................................................ 36, 41 Idealservice MN RE Sas v OMAI Srl (C-542/99) [2001] ECR I-9049 ..............................................................................................................34 Ilsinger v Dreschers (C-180/06) [2009] ECR I-3961....................................................... 62, 63 International Air Transport Association and European Law Fares Airline Association v Department for Transport (C-344/04) [2006] ECR I-403 ...................................................................................................... 222, 223 Jacob Handte v Traitements (C-26/91) [1992] ECR I-3967 .................................................60 Kapferer v Schlank (C-234/04) [2006] ECR I-2585 ..............................................................60 Klein v Rhodos Management Ltd (C-73/04) [2005] ECR I-8667 ........................231, 233–35 Leathertex Divisione Sintetici SpA v Bodetex BVBA (C-420/97) [1999] ECR I-6747 ............................................................................................................287 Lloyd’s Register of Shipping v Socieete Compenon Bernard (C-439/93) [1995] ECR I-961 .......................................................................................................... 73, 74 Maletic v lastminute.com GmbH (C-478/12) [2014] 2 WLR 260 .......................................76 Marshall v Southampton AHA (152/84) [1986] ECR 723..................................................188 Martin Peters v Zuid Nederlandse (34/82) [1983] ECR 987 ................................................60 McDonagh v Raynair [2013] 2 All ER (Comm) 735 ...........................................................227 Mostaza Claro v Centro Movil Milenium SL (C-168/05) [2006] ECR I-10421 ..........................................................................................................316

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MSG v Gravières Rhénanes (C-106/95) [1997] ECR I-911 ........................................ 125, 128 Mühlleitner v Yusufi (C-190/11) [2012] ILPr 46 ..................................................................65 Mulox IBC (C-125/92) [1993] ECR I-4075 .........................................................................288 Nelson v Deutsche Lufthansa AG (C-581/10) [2013] All ER (EC) 603..............................227 OBB-Personenverkehr AG v Schienen-Control Kommission (C-509/11) [2014] CEC 787 .............................................................................................227 Oceano Group Editorial SA v Murciano Quintero (C-240/98–C-244/98) [2000] ECR I-4941 ............................................................................................................130 Owusu v Jackson (C-281/02) [2005] ECR I-1383 ............................................... 114, 169, 290 Pammer v Reederei Karl Schlüter GmbH & Co KG; Hotel Alpenhof GmbH v Heller (C-585/08 & C-144/09) [2010] OJ C55/4 ....................................................................................48, 51, 52, 55, 58, 59, 78, 218, 219, 358 Porta Leasing (784/79) [1980] ECR 1517 ............................................................................125 R&B Customers Brokers Ltd v UDT Finance Ltd [1988] 1 All ER 847 .............................................................................................................34 Rehder v Air Baltic (C-204/08) [2009] ECR I-6073 .............................. 222, 223, 225–27, 287 Reichert v Dresdner Bank (C-115/88) [1990] ECR I-27.....................................................235 Réunion Européenne SA v Spliethoff ’s Bevrachtings-kanttor BV (C-51/97) [1998] ECR I-6511 ......................................................................................60 Roche Nederland BV v Primus (C-539/03) [2006] ECR 6535 ...........................................322 Rodriguez Cachafeiro v Iberia (C-321/11) [2013] 1 CMLR 19 ..........................................227 Rosler v Rottwinkel (241/83) [1985] ECR 99 ......................................................................235 Sar Schotte GmbH v Parfums Rothschild (218/86) [1987] ECR 4905 .................................................................................................................71 Segoura SPRL v Societe Rahim Bonkakdarian (25/76) [1976] ECR 1851 ....................................................................................................... 124, 125 Shearson Lehman Hutton v TVB (C-89/91) [1993] ECR I-139 ......................... 29, 34–36, 66 Shevill v presse Alliance SA (C-68/93) [1995] ECR I-00415 ..............................................287 Somafer SA v Saar-Ferngas AG (33/78) [1978] ECR 2183 ................................. 69, 70, 73, 74 Sousa Rodriguez v Air France SA (C-83/10) [2011] ECR I-9469 .......................................227 SpA Iveco Fiat v Van Hool NV (313/85) [1986] ECR 3337 ................................................125 SPRL Acardo v SA Haviland (9/87) [1988] ECR 1539 ..........................................................60 Sturgeon v Condor Flugdienst GmbH (C-402/07) [2009] ECR I-10923 ..........................................................................................................227 Tatry, The (C-406/92) [1994] ECR I-5439...........................................................................290 Tessili v Dunlop (C-12/76) [1976] ECR 1473......................................................................308 Turner v Grovit (C-159/02) [2004] ECR I-3565 ......................................................... 117, 290 Vapenik v Thurner (C-508/12) [2014] 1 WLR 2486 .............................................................30 West Tankers v Allianz SpA (Fromt Comor) [2009] ECR I-663 ........................................117 Wood Floor Solutions Andreas Doomberger GmbH v Silva Trade SA (C-19/09) [2010] ECR I-2121 .................................................................287 France Mme X c./Banque Privee Edmond de Rothschild, No 11-16.022, Cass, Civ, 1, 26 September 2012 .......................................................................................133 Rousseau v Commerzbank, Tribunal d’Instance de Niort, 1 July 1998..............................232

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Germany Jurisdiction in a Claim Based on a Prize Draw Notification, Re (BGH) [2007] ILPr 15 ...................................................................................................60 Oberlandesgericht (OLG) Dusseldorf, 9 June 1994 ............................................................170 U 1855/04, judgment of 15 December 2004 (Appellate Ct) .................................................49 International Arbitration Wena Hotels Ltd v Egypt, No ARB/98/4 (ICSID), Award (8 December 2000) ..................315 Ireland Intermetal Group Ltd & Trans-World (Steel) Ltd v Worstade Trading Ltd [1998] IL Pr 765 .............................................................................................11 Netherlands Coverium, Ct of Appeal Amsterdam, 17 January 2012, LJN: BV 1026 ..............................321 Royal Ahold NV Securities & ERISA Litigation, Re, unreported 23 June 2010 (RB (NL))....................................................................................................323 Shell, Ct of Appeal Amsterdam, 29 May 2009, NJ 506 ........................................................321 New Zealand McConnell Crane Accessories Ltd v Lim Swee Hee [1989] 1 NZLR 221 .............................11 Russia Russkaya Telefonnaya Kompaniya v Sony Ericsson Mobile Communications Rus [2012] Supreme Arbitrazh Ct, 19 July 2012 ...............................133 Sweden Estate in Bankruptcy of the International Credit Insurance v Pohjola [2003] ILPr 3 Supreme Ct ...................................................................................322 United Kingdom 7E Communications Ltd v Vertex Antennentechnik GmbH [2007] EWCA Civ 140 ......................................................................................................125 Adams v Lindsell [1818] 1 B & Ald 681 .................................................................................98 Airbus Industrie GIE v Patel [1997] ILPr 230 .....................................................................117 American Motorists Insurance Co v Cellstar Corp [2003] ILPr 370 .................................166 AMT Futures Ltd v Marzillier, Dr Meier & Dr Guntner Rechtsanwaltsgesellschaft mbH [2014] EWHC 1085 (Comm)................ 33, 130, 285, 286 Apple Corp v Apple Computer [2004] 2 CLC 720 ..............................................................100 Association of British Travel Agents Ltd (ABTA) v Civil Aviation Authority [2006] ACD 49 .................................................................................................220 Bank of Credit and Commerce International SA (In Liquidation) v Ali (No 7) [2001] EWCA Civ 1438 ..................................................................................266 Base Metal Trading Ltd v Shamurin [2004] EWCA Civ 1316...............................................60

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Benaim & Co v Debono [1924] AC 514 ................................................................................98 Beta Computers (Europe) Ltd v Adobe Systems (Europe) Ltd [1996] FSR 367............................................................................................................. 37–39 Boss Group v Boss France SA [1997] 1 WLR 351 .................................................................60 Brimnes, The [1975] QB 929..................................................................................................99 Brinkibon Ltd v Stahag Stahl und Stahlwarenhandelsgesellscaft mbH [1983] 2 AC 34 ..........................................................................................................99 British and American Telegraph Co v Colson, 1871 LR 6 Exch 108.....................................98 Cable & Wireless Plc v IBM United Kingdom Ltd [2002] EWHC 2059 (Comm).......................................................................................................305 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 .....................................................................................................101 Coast Lines v Hudig and Veder Chartering NV [1972] 2 QB 34 ........................................112 Compare Trade Indemnity v Forsakrings AB Njord [1995] 1 All ER 796 .......................................................................................................................108 Connelly v RTZ Co [1998] AC 854 ................................................................ 11, 109, 110, 112 Cordoba Shipping Co v National State Bank [1984] 2 Lloyd’s Rep 91 ................................................................................................................108 Dawson v Thomson Airways [2014] 1 All ER (Comm) 193...............................................227 Definitely Maybe (Touring) Ltd v Marek Lieberberg Konzertagentur GmbH [2001] 2 Lloyd’s Rep 455 QBD (Comm Ct) .......................................................104 Deutsche Bank AG London Branch v Petromena ASA [2013] EWHC 3065 (Comm)...........................................................................................287 Durbeck GmbH v Den Norske Bank ASA [2003] EWCA Civ 147 .......................................73 Egon Oldendorff v Libera Corp (No 1) [1995] 2 Lloyd’s Rep 64 .......................................166 Egon Oldendorff v Libera Corp (No 2) [1996] 1 Lloyd’s Rep 380 .....................................168 Eleftheria, The [1970] P 94 .....................................................................................................11 Entores Ltd v Miles Far East Corp [1955] 2 QB 327 .............................................................99 EPN (Societe) v Simax Trading (Societe) [2013] ILPr 9 .....................................................287 Eurodynamics Systems Plc v General Automation Ltd (6 September 1988 unreported) ................................................................................................................38 Euromarket Designs Inc v Peters [2001] FSR 20 ...................................................................48 Gan Insurance Co Ltd v Tai Ping Insurance Co Ltd [1999] ILPr 729 ........................ 166, 167 Gibson v Manchester [1979] 1 WLR 294.............................................................................100 Gill and Duffus Landauer Ltd v London Export Corp GmbH [1982] 2 Lloyd’s Rep 627 ..................................................................................................166 Graham v Thomas Cook Group UK Ltd [2012] EWCA Civ 1355 .....................................227 Hamed el Chiaty & Co v Thomas Cook Group Ltd [1992] 2 Lloyd’s Rep 399 ..............................................................................................................108 High Tech International AG v Deripaska [2007] EWHC 3276 (QB) .................................290 Holloway v Chancery Mead Ltd [2008] 1 All ER (Comm) 653..........................................305 Household Fire Insurance Co v Grant, 1879 4 Ex D 216 ......................................................98 Islamic Arab Insurance Co v Saudi Egyptian American Reinsurance Co [1987] 1 Lloyd’s Rep 315..................................................................................... 109, 112 J Spurling Ltd v Bradshaw [1956] 1 WLR 461.....................................................................313 Jarrett v Barclays Bank Plc [1999] QB 1...............................................................................235 Jet2.com v Huzar [2014] 2 All ER (Comm) ........................................................................227

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Kleinwort Benson v Glasgow City Council [1999] 1 AC 153 ...............................................61 Korner v Witkowitzer [1950] 2 KB 128 ...............................................................................104 Lemenda Ltd v African Middle East Co [1988] QB 448 .....................................................153 Lubbe v Cape Plc [2000] 4 All ER 268 .................................................................................111 Lucasfilm Ltd v Ainsworth [2011] 3 WLR 487 ....................................................................290 Lynch v Halifax Building Society and Royal Bank of Scotland Plc [1995] CCLR 42 ................................................................................................................235 Marubeni Hong Kong & South China Ltd v Mongolian Government [2002] 2 All ER (Comm) 873 ...........................................................................................166 Mora Shipping Inc v Axa Corporate Solution Assurance SA [2005] EWHC 315 QBD (Comm) ...................................................................................104 Mylcrist Builders Ltd v Buck [2009] 2 All ER (Comm) 259 ...............................................313 Nussberger v Phillips (No 4) [2006] 1 WLR 2598 ...............................................................290 Oppenheimer v Louis Rosenthal and Co AG [1937] 3 All ER 280 ............................. 109, 112 OT Africa Line Ltd v Hijazy (The Kribi) [2001] 1 Lloyd’s Rep 76 .....................................111 Overseas Union Insurance Ltd v Incorporated General Insurance Ltd [1992] 2 Lloyd’s Rep 439 ............................................................................................108 Pacific International Sports Clubs Ltd v Soccer Marketing International Ltd [2009] EWHC 1839 (Ch) ....................................................................290 Picardi (t/a Picardi Architects) v Cuniberti [2002] EWHC 2923 (TCC) ..........................................................................................................313 Place of Performance of a Passenger Flight (X ZR 76/07), Re [2009] ILPr 30 ..............................................................................................................287 Polessk, The and The Akademik Iosif Orbeli [1996] 2 Lloyd’s Rep 40 ..............................108 Prostar Management Ltd v Twaddle, 2003 SLT (Sh Ct) 11 ...................................................30 R (Razgar) v Special Adjudicator [2004] 3 WLR 58 ............................................................111 R&B Customers Brokers Ltd v UDT Finance Ltd [1988] 1 All ER 847 ................................34 SAIL v Hind Metals Inc [1984] 1 Lloyd’s Rep 405 ..............................................................166 Shirayama Shokusan v Danovo (No 1) [2003] EWHC 3306 (Ch).....................................305 Spiliada Maritime Co v Cansulex Ltd [1987] AC 460 .......................................... 11, 105, 106, 108, 112, 113 St Albans City and DC v International Computers Ltd [1997] FSR 251.............................................................................................. 37, 39, 102, 174 Standard Bank London Ltd v Apostolakis [2000] ILPr 766 .......................................... 32, 130 Sulamerica Cia Nacional de Seguros SA v Enesa Engelharia SA [2013] 1 WLR 102 ............................................................................................... 304, 305 Test Claimants in the CFC and Dividend Group Litigation v Inland Revenue Commissioners (C-201/05) [2008] ECR I-2875, [2008] OJ C209/13 ......................................................................................266 Trendtex Trading Co v Credit Suisse [1980] 3 All ER 721 ..................................................106 Tzortzis v Monark Line A/B [1968] 1 WLR 406 ..................................................................168 Vergara v Ryanair, 2014 SLT (Sh Ct) ....................................................................................227 X v KDG Mediatech AG [2013] ILPr 2 ................................................................................287 Zealander v Lading Homes Ltd (2000) 2 TCLR 724 ...........................................................313 United States 24 Hour Fitness v Superior Court, 66 Cal App 4th (Cal App 1 Dist, 1998) .......................204 Abbott Labs v Takeda Pharms, 476 F3d 421 (7th Cir 2007) ...............................................137

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Access Telecom v MCI Telecomm.corp, 197 F3d 694 (5th Cir 1999) ...................................83 Action Tapes v Weaver, 2005 WL 3199706 (ND Tex, 2005) ..................................................91 Adler v Fred Lind Manor, 153 Wash 2d 331 (Wash, 2004) .................................................311 Adobe v Stargate Software, 216 F Supp 2d 1051 (ND Cal, 2002) .......................................205 Advanced Bionics Corp v Medtronic, Inc, 29 Cal 4th 697 (Cal, 2002) ................................................................................................................. 118, 119 Advent Systems v Unisys, 925 F 2d 670 (3d Cir 1991) ..........................................................37 Affinity Internet v Consol Credit Counseling, 920 So 2d 1286 (Fla Dist Ct App, 2006) .....................................................................................................139 Agape Flights v Covington Aircraft Engines, 771 F Supp 2d 1278 (ED Okla, 2011) ..................................................................................................................83 Aguinda v Texaco, Inc, 303 F 3d 470 (2d Cir 2002).............................................................116 Aikpitanhi v Iberia Airlines of Spain, 553 F Supp 2d 872 (ED Mich, 2008) ......................224 Alkanani v Aegis Defense Services, 976 F Supp 2d 13 (DDC, 2014) ....................................84 ALS Scan, Inc v Digital Service Consultants, Inc, 293 F3d 707 (CA 4 (MD), 2002) ................................................................................... 82, 83, 85 ALS Scan v Wilkins, 142 F Supp 2d 703 (D Md, 2001) .........................................................86 Amchem Products, Inc v Windsor, 521 US 591 (1997) ......................................................270 America Online v Booker, 781 So 2d 423 (Fla Dist Ct App, 2001) .....................................143 America Online v Pasieka, 870 So 2d 170 (Fla Dist Ct App, 2004) ....................................142 America Online v Superior Court, 90 Cal App 4th 1 (2001) ...................................... 142, 208 American Eyewear v Peeper’s Sunglasses, 106 F Supp 2d 895 (ND Tex, 2000)........................................................................................................86 Amini Innovation v JS Imports, 497 F Supp 2d 1093 (CD Cal, 2007) .................................93 Armendariz v Foundation Health Psychcare Services, 24 Cal 4th 83 (Cal, 2000) .......................................................................................... 204, 210 Asahi Metal Industry v Superior Court of California, 480 US 102 (1987) ..............................................................................................................85 AT&T Mobility v Concepcion, 131 SCt 1740 (2011) .................................. 312, 318, 324, 326 Athina Invs Ltd v Pinchuk, 443 F Supp 2d 177 (D Mass, 2006) .........................................117 Atlantigas Corp v Nisource, Inc, 290 F Supp 2d 34 (DDC, 2003) ........................................84 Avery v Pfizer, Inc, 891 NYS 2d 369 (2009) ................................................................. 115, 116 Bagg v HighBeam Research, 862 F Supp 2d 41 (D Mass, 2012) .........................................139 Ball v Ohio State Home Services, 168 Ohio App 3d 622 (2006).........................................311 Banco Santander Securities-Optimal Litigation, Re, 732 F Supp 2d 1305 (SD Fla, 2010); aff ’d 439 Fed Appx 840 (11th Cir 2011) ..................................272 Bancroft & Masters v Augusta National Inc, 223 F 3d 1082 (9th Cir 2000)................................................................................................. 82, 83, 94 Banek v Yogurt Ventures, 6 F 3d 357 (6th Cir 1993) ...........................................................211 Bank Brussels Lambert v Fiddler Gonzalez & Rodriguez, 171 F 3d 779 (2d Cir 1999).................................................................................................81 Barnett v Network Solutions Inc, 38 SW 3d 200 (Tex App-Eastland, 2001) .................................................................................................138 Bazzle v Green Tree, 569 SE2d 349 (SC, 2002) ....................................................................324 Be2 LLC v Ivanov, 642 F 3d 555 (7th Cir 2011).....................................................................83 Bell, Inc v IFS Industries, Inc, 742 F Supp 2d 1049 (DSD, 2010) .......................................137 Bensusan Restaurant v King, 937 F Supp 295 (SDNY, 1996)................................................87 Bersch v Drexel Firestone, Inc, 519 F 2d 974 (2d Cir 1975)................................................274

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Best Van Lines v Walker, 490 F 3d 239 (2nd Cir 2007)..........................................................88 Bird v Parsons, 289 F 3d 865 (6th Cir 2002) .................................................................... 82, 84 BNY AIS Nominees v Quan, 609 F Supp 2d 269 (D Conn, 2009)......................................141 Bombliss v Cornelsen, 824 NE 2d 1175 (App Ct III 3rd Dist, 2005)....................................88 Boschetto v Hansing, WL 1980383 (ND Cal, 2006); aff ’d 539 F Supp 3d 1011 (CA(9) Cal, 2008) .....................................................................93 Brack v Omni Loan, 164 Cal App 4th 1312 (Cal App 4 Dist, 2008) ...................................206 Brand v Menlove Dodge, 796 F2d 1070 (9th Cir 1986) ........................................................83 Breschia v Paradise Vacation Club, 2003 WL 22872128 (ND Ill, 2003) ...............................83 Brookridge Funding v King, 2009 WL 1764559 (D Conn, 2009) .........................................86 Brooks v Prestige Financial Services, Inc, 827 F Supp 2d 509 (D Md, 2011)................................................................................................. 310, 311 Brown v AST Sport Science, WL 32345935 (ED Pa, 2002) ...................................................90 Brown v Kerkhoff, 504 F Supp 2d 464 (SD Iowa, 2007) .......................................................88 Brown v Scripps Inv & Loans, Inc, 2009 WL 1649947 (WD Wash, 11 June 2009) ................................................................................................142 Bruni v Didion, 160 Cal App 4th 1272, 73 Cal Rptr 3d 395 (2008) ...................................309 Buckles v Brides Club, not reported in F Supp 2d (D Utah, 2010) ......................................92 Building Serv Employees Int’l Union Local 262 v Gazzam, 339 US 532 (1950) ............................................................................................................209 Burleson v Toback, 391 F Supp 2d 401 (MDNC, 2005) ........................................................88 Burger King Co v Rudzewicz, 471 US 462 (1985) ..................................................... 81, 93, 94 Burnham v Superior Court of California, 110 SCt 2105 (US Cal, 1990) ...........................272 Bush v National School Studios, 139 Wis 2d 635 (Wis, 1987) ............................................208 Caiazzo v American Royal Arts Co, 73 So 3d 245 (Fla App, 2011) ................................. 91, 92 Calder v Jones, 465 US 783 (1984) ................................................................................. 94, 272 Camacho v Holiday Homes, Inc, 167 F Supp 2d 892 (WD Va, 2001) ................................310 Campbell v General Dynamics Government Systems, 407 F 3d 546 (1st Cir 2005) ..............................................................................................139 Campbell Pet Co v Miale, 542 F3d 879 (Fed Cir 2008).........................................................84 Carideo v Dell, 492 F Supp 2d 1283 (WD Wash, 2007) ......................................................203 Cario v Cross-media Services, WL 756610 (ND Cal, 2005)................................................140 Carnegie v Household Int’l, Inc, 376 F 3d 656 (7th Cir 2004) ...........................................267 Carnival Cruise Lines, Inc v Shute, 499 US 585 (1991) ................................................................................... 137, 143, 145, 148, 257 Caspi v Microsoft Network, 323 NJ Super 118 (App Div 1999) .........................................138 CFMOTO Powersports v NNR Global Logistics USA, 2009 WL 4730330 (D Minn, 2009) ..................................................................................137 Champagnie v WE O’Neil Construction Co, 77 Ill App 3d 136 (1st Dist, 1979) ..............................................................................................210 Chavarria v Ralphs Grocery Co, 733 F 3d 916 (9th Cir 2013) ............................................318 Cheney v IPD Analytics, 593 F Supp 2d 108 (DDC, 2008) .................................................141 Chudner v TransUnion Interactive, Inc, 626 F Supp 2d 1084 (D Or, 2009) ........................................................................................................141 City of Miami v Keton, 115 So 2d 547 (Fla, 1959) ..............................................................267 Clapper v Freeman Marine Equipment, WL 33418414 (Mich App, 2000) ..........................87 Clark v Renaissance West, LLC, 232 Ariz 510 (Ariz App Div 1, 2013) ...............................310 Clark v TAP Pharmaceutical Products, Inc, 343 Ill App 3d 295 (5th Dist 2003) ...................................................................................... 115, 116

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xxvii

Coastal Video Communications v Staywell, 59 F Supp 2d 562 (ED Va, 1999) ........................................................................................82 Collazo v Enterprise Holdings, Inc, 823 F Supp 2d 865 (ND Ind, 2011) ................................................................................................. 82, 83 Colonial Life Insurance Co of America v Electronic Data Systems, 817 F Supp 235 (D NH, 1993).............................................................................37 Colorado Interstate Corp v CIT Group/Equipment Financing Inc, 993 F 2d 743 (10th Cir 1991) .............................................................................................42 Communications Groups v Warner Communications, 527 NYS 2d 341 (NY Misc, 1988) ......................................................................................37 Consul Ltd v Solide Enterprises, 802 F 2d 1143 (9th Cir 1986) .........................................207 Craig v Brown & Root, 84 Cal App 4th 416 (Cal App 2 Dist, 2000)...................................203 Cybersell, Inc v Cybersell, Inc, 130 F3d 414 (9th Cir 1997) ..................................................87 Dagesse v Plant Hotel NV, 113 F Supp 2d 211 (DNH 2000) ................................................94 Data Processing Services v LH Smith Oil, 492 NE 2d 314 (Ct App IN, 1986) ...............................................................................................................39 Davis v Global Client Solutions, LLC, not reported in F Supp 2d, 2011 WL 4738547 (WD Ky, 2011) ...................................................................................309 Dearborn v Everett J Prescott, 486 F Supp 2d 802 (SD Ind, 2007) .....................................210 De Melo v Lederle Labs, 801 F 2d 1058 (8th Cir 1986) .......................................................116 Dealer Management Systems v Design Automative Group 355 Ill App 3d 416 (Ill App 2 Dist, 2005) ...........................................................................37 Demitropoulos v Bank One Milwaukee, 915 F Supp 1399 (ND Ill, 1996) ...........................................................................................................210 DH Blair v Gottdiener, 462 F 3d 94 (2d Cir 2006) ..............................................................138 Digital Control Inc v Boretronics Inc, 161 F Supp 2d 1183 (WD Wash, 2001) ......................................................................................................... 86, 87 Digital Equipment Corp v AltaVista Technology, 960 F Supp 456 (D Mass 1997) ..........................................................................................12 Discover Bank v Superior Court, 36 Cal 4th 148 (2005) .................................... 142, 212, 312 Dix v ICT Group, 160 Wash 2d 826 (Wash, 2007) ....................................................... 141–43 Doe v Ciolli, 611 F Supp 2d 216 (D Conn, 2009) ..................................................................86 Doering ex rel Barrett v Copper Mountain, 259 F3d 1202 (10th Cir 2001) ........................84 Donatelli v National Hockey League, 893 F 2d 459 (1st Cir (RI) 1990) ............................272 Dow Chemical Co v Castro Alfaro, 786 SW 2d 674 (Tex, 1990), cert denied, 498 US 1024 (1991) ......................................................................................116 Druyan v Jagger, 508 F Supp 2d 228 (SDNY, 2007) ............................................................140 Dudnikov v Chalk & Vermilion Fine Arts, Inc 514 F 3d 1063 (CA 10 (Colo), 2008) ..........................................................................................................81 Due%25nas v Life Care Centers of America, Inc, 336 P 3d 763 (Ariz App Div 1, 2014).............................................................................................. 309, 310 Duskin v Pennsylvania-Central Airlines Co, 167 F 2d 727 (6th Cir 1948) ........................207 Dynetech Co v Leonard Fitness, 523 F Supp 2d 1344 (MD Fla, 2007) ................................91 E&J Gallo Winery v Andina Licores, 446 F3d 984 (9th Cir 2006) ......................................118 E-Data Corp v Micropatent Corp, 989 F Supp 173 (D Conn, 1997) ...................................87 EDIAS Software International, LLC v BASIS International Ltd, 947 F Supp 413 (D Ariz, 1996) ...........................................................................................86 Edme v Internet Brands, 968 F Supp 2d 519 (EDNY, 2013) ...............................................140

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ESAB Group Inc v Centricut, Inc, 126 F3d 617 (4th Cir 1997) ...................................... 84, 86 Estate of Thompson ex rel Thompson v Mission Essential Pers, LLC, 2013 WL 6058308 (MD NC, 2013) ...........................................................................84 Euromarket Designs, Inc v Crate & Barrel Ltd, 96 F Supp 2d 824 (ND Ill, 2000) ..........................................................................................................89 FC Inv Group LC v IFX Markets Ltd, 529 F3d 1087 (CADC, 2008) ................................................................................................ 83, 84, 89 Federated Rural Elec Insurance Corp v Kootenai Elec Coop, 17 F3d 1302 (10th Cir 1994) ..............................................................................................84 Feldman v Google, 513 F Supp 2d 229 (ED Pa, 2007) ................................................ 138, 139 Fireman’s Fund Ins v National Bank of Cooperative, 103 F 3d 888 (9th Cir 1996) ...............................................................................................81 Flores v Transamerica HomeFirst, 93 Cal App 4th 846 (Cal App 1 Dist, 2001) .............................................................................................. 203, 309 Foley v Yacht management Group, not reported in F Supp 2d (ND Ill, 2009) ......................................................................................................................91 Ford v Mentor Worldwide, 2 F Supp 3d 898 (ED La, 2014) .................................................87 Foreign Candy Co, Inc v Tropical Paradise, Inc, 950 F Supp 2d 1017 (ND Iowa, 2013)................................................................................87 Forney Industries v Andre, 246 F Supp 333 (DN Dak, 1965)..........................................................................................................208 Forrest v Verizon Communications, 805 A 2d 1007 (DC, 2002)................................................................................................................. 138, 143 Fricke v Isbrandtsen Co, 151 F Supp 465 (DCNY 1957) ............................................ 162, 203 Gandee v LDL Freedom Enterprises, 176 Wash 2d 598 (Wash, 2013) .....................................................................................................................311 Garcia-Mones v Groupo Hima San Pablo, Inc, 875 F Supp 2d 98 (DPR, 2012) .........................................................................................142 Gates Learjet Co v Jensen, 743 F2d 1325 (9th Cir 1984).......................................................83 Gator.com Corp v LL Bean, Inc, 341 F3d 1072 (9th Cir 2003).............................................84 Gay v CreditInform, 511 F3d 369 (2007)..................................................................... 208, 212 Geotech Energy Co v Gulf States Telecommunications and Information Systems, 788 SW 2d 386 (Tex App, 1990) ....................................................39 Gipson v Wells Fargo, F Supp 2d 149 (DDC, 2008) ............................................................137 Golden Rules Insurance Co v Manasherov, 200 Ill App 3d 961 (Ill App 5 Dist, 1990) ........................................................................................ 8, 115 Gonzalez-Morales v UBS Bank USA, 2014 WL 6792086 (D Puerto Rico, 2014) .......................................................................................................142 Gorman v Ameritrade Holding Co, 293 F3d 506 (DC Cir 2002) ......................................................................................................... 82, 83, 85 Graham Oil Co v ARCO Prods Co, 43 F 3d 1244 (9th Cir 1994)....................................................................................................................310 Gray v Amoco Production Co, 1 Kan App 2d 338 (Kan App, 1977) ................................................................................................................272 Green Tree Financial Co v Bazzle, 123 SCt 2402 (2003) ............................................. 324, 325 Green Tree Financial Corp-Alabama v Randolph, 531 US 79 (2000) ..............................................................................................................310 GTE New Media Servs, Inc v Bell South Corp, 1999 F3d 1343 (DC Cir 2000) ...................................................................................... 83, 86

Table of Cases

xxix

Guadagno v Etrade bank, 592 F Supp 2d 1263 (CD Cal, 2008) .........................................138 Gulf Oil Corp v Gilbert, 330 US 501 (1947) ........................................................................114 Haisten v Grass valley Medical Reimbursement, 784 F 2d 1392 (9th Cir 1986)......................................................................................................................95 Hancock v American Tel and Tel Co, 804 F Supp 2d 1215 (WD Okla, 2011); 701 F 3d 1248 (CA 10 (Okla), 2012) .................................................138 Hansberry v Lee, 311 US 32 (1940).............................................................................. 272, 274 Hanson v Denckla, 357 US 235 (19158) ................................................................................85 Harrington v Household International, Inc, Civil Action No 02 C 8257 (SY) ND Ill, 2004) .....................................................................................310 Hedeen v Autos Direct Online Inc, 2014 WL 4748386 (Ohio App 8 Dist, 2014) ........................................................................................... 309, 311 Helicopteros Nacionales de Columbia SA v Hall, 466 US 408 (1984) ................................................................................................ 81, 82, 272 Henderson v Laser Spine Institute, 815 F Supp 2d 353 (D Me, 2011) .......................................................................................................................87 Henriksen v Younglove, 540 NW 2d 254 (Iowa 1995) ........................................................201 Highland Supply Co v Kurt Weiss Greenhouses, 2009 WL 2365244 (SD Ill, 2009) ......................................................................................137 Hilton v Guyot, 159 US 113 (1895)......................................................................................254 Hines v Overstock.com, 668 F Supp 2d 362 (EDNY, 2009) ................................................140 Hockerson-Halberstadt v Propet USA, Inc, 62 Fed Appx 322 (Fed Cir 2003) .....................................................................................................................84 Hotels.com v Canales, 195 SW 3d 147 (Tex App, 2006) .....................................................139 Howard v Missouri Bone and Joint Center, 373 Ill App 3d 738 (Ill App, 2007) ..............................................................................................................97 Huffington v TC Group, LLC, 685 F Supp 2d 239 (D Mass, 2010) ....................................142 Hunt v BP Exploration Co (Libya) Ltd, 492 F Supp 885 (ND Tex, 1980)..................................................................................................................256 Hy Cite Co v Badbusinessbureau.com, 297 F Supp 1154 (WD Wis, 2004) ...................................................................................................... 87, 91, 97 Illinois v Hemi Group, 622 F3d 754 (CA 7 (Ill), 2010) ................................................... 83, 97 Imo Industries v Kiekert AG, 155 F 3d 254 (3d Cir 1998) ....................................................94 Inset System v Instruction Set, 937 F Supp 161 (D Conn, 1996) .........................................86 Instabook Co v Instantpublisher.com, 469 F Supp 2d 1120 (MD Fla, 2006) ....................................................................................................................91 Instructional Sys v Computer Corriculum Cor, 614 A ed 124 (NJ, 1992) ....................................................................................................201 International Shoe Co v Washington, 326 US 310 (1945) ...................................... 81, 96, 272 Investors Guar Fund v Compass Bank, 779 Sa 2d 185 (Ala, 2000) ...........................................................................................................................95 Jallali v National Board of Osteopathic Medical Examiners, 908 NE 2d 1168 (Ind Ct App, 2009) ................................................................................137 JB Oxford Holdings v Net Trade, 76 F Supp 2d 1363 (SD Fla, 1999) .....................................................................................................................87 JDA eHealth Systems v Chapin Revenue Cycle Management, not reported in F Supp 2d (ND Ill, 2010) ..........................................................................97 Johnsen, Fretty v Lands South, LLC, 526 F Supp 2d 307 (D Conn, 2007) ...........................86

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Jones v Dirty World Entertainment Recordings LLC, 766 F Supp 2d 828 (ED Ky, 2011) ......................................................................................87 Jones v General Motors Corp, 640 F Supp 2d 1124 (D Ariz, 2009)....................................310 Jones v Genus Credit Management, 353 F Supp 2d 598 (D Md, 2005) .............................203 Kaepa v Achilles Co, 76 F3d 624 (5th Cir 1996) ..................................................................118 Kaltwasser v Cingular Wireless, 543 F Supp 2d 1124 (ND Cal, 2008)................................211 Kamilewicz v Bank of Boston, 92 F 3d 506 (7th Cir 1996) .................................................269 Karstetter v Voss, 184 SW 3d 396 (Tex Ct App, 2006) ...........................................................93 Kasper Global Collection & Brokers, Inc v Global Cabinets & Kasper Global Collection & Brokers, 952 F Supp 2d 542 (SDNY, 2013) .......................141 Keating v Superior Court, 645 P 2d 1192 (Cal, 1982); rev’d in part, 465 US 11 (1984) ........................................................................................324 Keeton v Hustler Magazine, Inc, 465 US 770 (1984)...........................................................272 Kelly Service v Marzullo, WL 4941612 (ED Mich, 2008) ....................................................210 Kloth v Southern Christian University, 320 Fed Appx 113 (CA3 (Del), 2008) ................................................................................................... 87, 90, 91 Klussman v Cross Country Bank, 123 Cal App 4th 1283 (Cal App 1 Dist, 2005) .............................................................................................. 211, 212 Koch v America Online, 138 F Supp 2d 690 (D Md, 2000) ................................................143 Koster v Lumbermans Mut Cass Co, 330 US 518 (1947) ....................................................115 Kulko v Superior Court of California, 98 SCt 1690 (US Cal, 1978) ...................................272 Lakin v Prudential Sec Inc, 348 F3d 704 (8th Cir 2003) .......................................................82 Lexmark v Static Control, 387 F 3d 522 (6th Cir 2004) ......................................................205 Lexmark Int’l, Inc v Laserland, Inc, 304 F Supp 2d 913 (ED Ky, 2004) ......................................................................................................................87 Lifestyle Lift Holding Co, Inc v Prendiville, 768 F Supp 2d 929 (ED Mich, 2011) .................................................................................................................88 Lowery v Zorn, 243 Ala 285 (Ala, 1942) ..............................................................................211 Machulsky v Hall, 210 F Supp 2d 531 (D NJ, 2002) ..............................................................91 Magdalena v Lins, 123 AD 3d 600 (NYAD, 2014) ...............................................................137 Maritz v Cybergold, 947 F Supp 1328 (ED Mo, 1996) ..........................................................86 Maroc Fruit Board v M/V Almeda Star, 961 F Supp 2d 362 (D Mass, 2013) .......................................................................................................... 117, 118 Massengale v Transitron Electronic Corp, 385 F 2d 83 (1st Cir 1967) ....................................................................................................................208 McCaskey v Sanford-Brown College, 2012 WL 1142880 (Ohio App 8 Dist, 2012) ...................................................................................................311 McGlinchy v Shell Chem, 845 F 2d 802 (9th Cir 1988) ........................................................95 McGuire v Lavoie, 2003 WL 23174753 (ND Tex, 2003) ............................................ 90, 91, 93 Meinerz v Treybig, 245 So 2d 557 (La App 3d Cir) 210; writ denied, 247 So 2d 395 (la, 1971) ..............................................................................210 Mellon First United Leasing v Hansen, 705 NE 2d 121 (Ill App Ct, 1998) ..............................................................................................................139 Meridian Project System v Hardin, 426 F Supp 2d 1100 (ED Cal, 2006)...................................................................................................................205 Metcalf v Lawson, 802 A 2d 1221 (NH 2002) .................................................................. 93, 94 Metropolitan Life Ins v Robertson-Ceco Corp, 84 F 3d 560 (2d Cir 1996) .......................................................................................................................83

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xxxi

Micro-Managers Inc v Gregory, 147 Wis 2d 500 (Wis Ct App, 1988) ..................................39 Midway Home Entertainment Inc v Atwood Richards Inc, 1998 WL 774123 (ND Ill, 1998) .......................................................................................210 Millennium Enterprises v Millennium Music, 33 F Supp 2d 907 (D Or, 1999) ................................................................................................ 81, 82, 87, 89, 94 Monsanto Co v McFarling, 302 F 3d 1291 (CA Fed (Mo), 2002).......................................137 Mor-Dall Enterprises Inc v Dark Horse Distillery, LLC, 16 F Supp 3d 874 (WD Mich, 2014) ............................................................................ 87, 88 Moses v Bus Card Express, 929 F 2d 1131 (6th Cir 1991) ..................................................140 M/S Bremen v Zapata Off-Shore Co (The Bremen), 407 US 1 (1972) ................................................................................ 137, 140, 141, 144, 145 Multi-Tech Systems v VocalTec Communications, 122 F Supp 2d 1046 (D Minn, 2000) .................................................................................88 Muzumdar v Wellness Intern Network, Ltd, 438 F 3d 759 (CA 7 (Ill), 2006) ..............................................................................................................140 NCC Motorsports, Inc v K-VA-T Food Stores, Inc, 975 F Supp 2d 992 (ED Mo, 2013) .....................................................................................88 Nedlloyd Lines v Superior Court, 3 Cal 4th 459 (Cal, 1992) .............................. 206, 207, 211 New Hope Community Church v Patriot Energy Partners LLC, 6 NE 3d 70 (Ohio App 7 Dist, 2013) ......................................................................... 309–11 New Moon Shipping Co v Man B&W Diesel AG, 121 F 3d 24 (2d Cir 1997)......................................................................................... 123, 141 Newton v American Debt Services, Inc, 854 F Supp 2d 712 (ND Cal, 2012) ........................................................................................................... 309–11 Nguyen v Barnes & Noble Inc, 9th Cir, 18 August 2014 .....................................................311 Nordyne v International Controls & Measurements Co, 262 F 3d 843 (8th Cir 2001) ..................................................................................... 123, 137 Novak v Overture Services, 309 F Supp 2d 446 (EDNY, 2004)...........................................138 Nutter v New Rents, 1991 WL 193490 (4th Cir 1991) ........................................................137 Oestreicher v Alienware, 502 F Supp 2d 1061 (ND Cal, 2007) ...........................................211 Online Partners.Com v Atlanticnet media Corp, 2000 WL 101242 (ND Cal, 2000) ....................................................................................................................86 Online Travel Co, Re, 953 F Supp 2d 713 (ND Tex, 2013) .......................................... 138, 139 Pacas v Showell Farms, 83 F 3d 415 (4th Cir 1996)...............................................................84 Paolicelli v Ford Motor Co, 289 Fed Appx 387 (11th Cir 2008) ................................. 115, 116 Percle v SFGL Foods, 356 F Supp 2d 629 (MD La, 2004) .....................................................88 Perkins v Benguet Consolidâtes Mining Co, 342 US 437 (1952) ................................... 81, 82 Person v Google Inc, 456 F Supp 2d 488 (SDNY, 2006) .....................................................138 Pfizer, Inc v Government of India, 434 US 308 (1978) .......................................................275 Phillips v Assocs Home Equity Services, Inc, 179 F Supp 2d 840 (ND Ill, 2002) ....................................................................................................................310 Phillips v Audio Active Ltd, 494 F 3d 378 (2d Cir 2007) .....................................................138 Phillips Petroleum Co v Shutts, 472 US 797 (1985) ............................................ 272, 273, 276 Piper Aircraft Co v Reyno, 454 US 235 (1981) ............................................................ 114, 115 Pollstar v Gigmania, 170 F Supp 2d 974 (ED Cal, 2000) ............................................ 139, 205 Potomac Leasing Co v Chuck’s Pub, 156 Ill App 3d 755 (2nd Dist, 1987).........................210 Preferred Capital v Associates in Urology, 453 F 3d 718 (CA 6 (Ohio), 2006) ......................................................................................... 140, 141, 143

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ProCV v Zeidenberg, 86 F 3d 1447 (7th Cir 1996)..............................................................139 Purdue Research Found v Sanofi-Synthelabo, SA, 338 F3d 773 (CA7 (Ind), 2003) ...............................................................................................................85 Quaak v Klynveld Peat Marwick Goerdeler Bedrijfsrevisoren, 361 F 3d 11 (1st Cir 2004) ........................................................................................ 117, 118 Quality Improvement Consultants v Williams, WL 543393 (D Minn, 2003) ...................................................................................................................90 Quality Wood Designs v Ex-Factory, Inc, 2014 WL 4168463 (DSD, 2014).......................................................................................................................137 Rannoch, Inc v Rannoch Corp, 52 F Supp 2d 681 (ED Va, 1999) ........................................87 RealNetworks, Re, 2000 WL 631341 (ND Ill, 2000) ............................................................138 Recursion Software Inc v Interactive Intelligence, Inc, 425 F Supp 2d 756 (ND Tex, 2006) .......................................................................... 138, 139 Register.com, Inc v Verio, Inc, 126 F Supp 2d 238 (SDNY, 2000); 356 F 3d 393 (2d Cir 2004)........................................................................................ 138–40 Remick v Manfredy, 238 F3d 248 (3d Cir 2001).............................................................. 83, 95 Renaissance Health Publishing v Resveratrol Partners, 982 So 2d 739 (Fla 4th DCA, 2008) ...................................................................................92 Resolution Trust Corp v First of America Bank, 796 F Supp 1333 (CD Cal, 1992) ....................................................................................................................95 Revell v Lidov, 317 F 3d 467 (CA 5 (Tex) 2002) ........................................................82–84, 88 Rice v PetEdge, 975 F Supp 2d 1364 (ND Ga, 2013) ....................................................... 84, 87 Richards v Ernst & Young, LLP, 11-17530, 2013 WL 4437601 (9th Cir 21 August 2013) ..................................................................................................318 Richter v Erwin, WL 562147 (D Minn, 2006) .......................................................................90 Rivera v Centro Medico de Turabo, Inc, 575 F 3d 10 (1st Cir 2009) ..................................142 Roberts & Schaefer Co v Merit Contracting, 99 F 3d 248 (7th Cir 1996) ..........................137 Roblor Marketing Group v GPS Industries, Inc, 645 F Supp 2d 1130 .................................83 Rocky Creek Ret Props, Inc v Estate of Fox ex rel Bank of America, 19 So 3d 1105 (Fla Dist Ct App, 2009).............................................................................138 Ronlake v US-Reports, 2012 WL 4468431 (ED Cal, 2012) ......................................... 118, 119 Roser v Jackson, No 10 C 1894, 2010 WL 4823074 (ND Ill, 2010).......................................97 Roth v Garcia Marquez, 942 F 2d 617 (CA 9 (Cal), 1991) ....................................................95 Rothschild Berry Farm v Serendipity Group, LLC, 84 F Supp 2d 904 (SD Ohio, 1999) ..................................................................................................................87 Rush v Savchuk, 100 SCt 571 (US Minn, 1980) ..................................................................272 S Morantz, Inc v Hang & Shine Ultrasonics, Inc, 79 F Supp 2d 537 (ED Pa, 1999) ......................................................................................................................92 Sanchez v Valencia Holding Co LLC, 135 Cal Rptr 3d 19 (Cal App 2 Dist, 2011) ......................................................................................................309 Sayeedi v Walser, 15 Misc 3d 621 (NY City Civ Ct, 2007)............................................... 91, 93 Scheifley v Capitol One Bank, No CV 03-2801 RBL (WD Wash, 2004) .............................................................................................................210 Scherk v Alberto-Culver Co, 417 US 506 (1974) .................................................................140 Schwarzenegger v Fred, 374 F 3d 797 (CA 9 (Cal), 2004) .....................................................95 Seattle Totems Hockey Club v National Hockey League, 652 F2d 852 (9th Cir 1981)....................................................................................................................118 Segal v Amazon.com, 763 F Supp 2d 1367 (SDFla 2011) ...................................................139

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xxxiii

Serrano v Cablevision, 863 F Supp 2d 157 (EDNY, 2012) .......................................... 137, 138 SG Cowen Securities Co v Messih, 00 Civ 3228 (HB) (SDNY, 2000).................................208 Shamsuddin v Vitamin Research Products, 346 F Supp 2d 804 (D Md, 2004)................................................................................................................. 91, 92 Shaw v North American Title, 876 P 2d 1291 (Hawai’I, 1994) .............................................95 Shrader v Biddinger, 633 F 3d 1235 (CA 10 (Okla), 2011) ............................................ 82–84 Shymatta v Papillon, 99 USPQ2d 1854 (D Idaho, 2011) ......................................................87 Siegelman v Cunard White Star Ltd, 221 F 2d 189 (2d Cir 1955) .............................. 162, 203 Simplicity v MTS Products, 2006 WL 924993 (ED Pa 2006) ................................................85 Smith v Basin Park Hotel, 178 F Supp 2d 1225 (ND Okla, 2001) .................................. 83, 84 Smith Enterprise, Inc v Capital City Firearms, not reported in F Supp 2d (D Ariz, 2008) ....................................................................................................86 Snowney v Harrah’s Entertainment, 35 Cal 4th 1054 (Cal, 2005) ........................................95 Soma Medical Int’l v Standard Chartered Bank, 196 F3d 1292 (CA 10 (Utah), 1999) ..........................................................................................................84 Song fi Inc v Google Inc, 2014 WL 5472794 (DDC, 2014) .................................................141 Southern States Police Benevolent Association v First Choice & Equipment, 241 FRD 85 (D Mass, 2007) .........................................................................277 Specht v Netscape, 150 F Supp 2d 585 (SDNY, 2001); 306 F 3d 17 (2d Cir 2002) ....................................................................................... 137–40, 198, 199, 201 Spradlin v Lear Siegler Management Services Co Inc, 926 F 2d 865 (CA9 (Cal), 1991) .......................................................................................141 Spuglio v Cabaret Lounge, 344 FedAppx 724 (CA3 (Pa) 2009) ..................................... 83, 89 Staff Network v Pietropaolo, 764 A 2d 905 (NH 2000) ........................................................81 Stanford v Kuwait Airlines, 648 F Supp 657 (SDNY, 1986) ................................................224 State ex rel Humphrey v Granite Gate Resorts, 568 NW 2d 715 (Minn Ct App, 1997) ..........................................................................................................86 State ex rel Ocwen Loan Servicing v Webster, 232 Wva 341 (W Va, 2013) ............................................................................................................. 310, 311 Stolt-Nielsen v AnimalFeeds Int’l Corp, 559 US 662 (2010) ....................................... 324–26 Stomp v NeatO, LLC, 61 F Supp 2d 1074 (CD Cal, 1999) ....................................................89 Sutherland v Ernst & Young LLP, 12-304-CV, 2013 WL 4033844 (2d Cir 9 August 2013) .....................................................................................................318 Szetela v Discover Bank, 97 Cal App 4th 1094 (Cal App 4 Dist, 2002) ...................................................................................... 203, 204, 210 Szollosy v Hyatt, 2000 WL 1576395 (D Conn, 2000) ............................................................86 Tamburo v Dworkin, 601 F 3d 693 (CA 7 (Ill) 2010) ............................................... 82, 83, 85 Tandy Computer Leasing v Terina’s Pizza, 784 P 2d 7 (Nev, 1989) ....................................139 Telco Communications v An Apple A Day, 977 F Supp 404 (ED Va, 1997) .........................86 Telephone Audio Productions v Smith, 1998 WL 159932 (ND Tex, 1998)..........................86 Thomas v Guardsmark, 381 F3d 701 (7 Cir 2004) ..............................................................208 Thompson v Handa-Lopez, 998 F Supp 738 (WD Tax, 1998) .............................................90 Ticketmaster v Tickets.Com, WL 21406289 (CD Cal, 2003) ..............................................140 TK Power v Textron, 433 F Supp 2d 1058 (ND Cal, 2006) ...................................................39 Toys ‘R’ Us v Step Two SA, 318 F 3d 446 (3d Cir 2003).........................................................88 TradeComet.com LLC v Google, Inc, 693 F Supp 2d 370 (SDNY, 2010) ...........................138 Transvalue, Inc v KLM Royal Dutch Airlines, 539 F Supp 2d 1366 (SD Fla, 2008) ...................................................................................................................224

xxxiv

Table of Cases

TSMC North America v Semiconductor Mfg, 161 Cal App 4th 581 (Cal App, 2008) ......................................................................................................... 118, 119 TSR Silicon Resources v Broadway Com Co, 2007 WL 4457770 (SDNY, 2007) ....................................................................................................................137 Twin Civy Pipe Line Co v Harding Glass Co, 283 US 353 (1931) ......................................210 Union Carbide Corp Gas Plant at Bhopal, Re, 634 F Supp 842; aff ’d 809 F 2d 195 (CA2 (NY), 1987) ...................................................................... 271, 272 United Cutlery Corp v NFZ, Inc, 2003 WL 22851946 (DMd, 1 December 2003)............................................................................................. 91, 93 Universal Grading Service v eBay, 2009 WL 2029796 (EDNY, 2009) .................................138 Villanueva v Barcroft, 822 F Supp 2d 726 (ND Ohio, 2011) ..............................................140 Vioxx Litigation, Re, 395 NJ Super 358, 928 A 2d 935 (App Div, 2007) .................... 115, 116 Vivendi Universal, SA Sec Litig, Re, No 02 Civ 5571 (RJH) (HBP), 2009 WL 855799 (SDNY, 2009) .......................................................................................296 Vu v Ortho-McNeil Pharmaceutical, Inc, 602 F Supp 2d 1151 (ND Cal, 2009) ..................................................................................................................115 Wachter Management Co v Dexter & Chaney, 2006 WL 3040618 (Kan, 2006) ..........................................................................................................................37 Warfield v Gardner, 346 F Supp 2d 1033 (D Ariz, 2004) ......................................................95 Washington Mutual Bank v Superior Court, 24 Cal 4th 906 (Cal, 2001) ..........................206 WebZero v Click VU, WL 1734702 (CD Cal, 2008) ..............................................................88 West Consultants v Davis, 177 Wash App 33 (Wash App Div 1, 2013) ..............................142 William v America Online, 2001 WL 135825 (Mass Super, 2001) ............................. 115, 205 Wilson v Sawyer, 106 So 2d 831 (La Ct App, 1958) .............................................................213 Winfield Collection v McCauley, 105 F Supp 2d 746 (ED Mich, 2000) ................... 88, 91, 92 Wong v PartyGaming, 589 F 3d 821 (CA6 (Ohio), 2009)........................................... 141, 142 World-Wide Volkswagen Corp v Woodson, 444 US 286 (1980) .......................... 85, 271, 272 Yavuz v 61 MM, 465 F 3d 418 (10th Cir) .............................................................................137 Young v Mobil Oil Co, 85 OR App 64 (Oregon, 1987) .......................................................201 Zaltz v JDATE, 952 F Supp 2d 439 (EDNY, 2013) ...............................................................140 Zippo Manufacturing Co v Zippo Dot Com, 952 F Supp 1119 (WD Pa, 1997) .................................................................................................. 51, 83, 87–92 Zuver v Airtouch Communications, 153 Wash 2d 293 (Wash, 2004) ................................311

TABLE OF LEGISLATION

Australia Consumer Law (Competition and Consumer Act 2010, Schedule 2) s 67 .....................................................................................................................................357 Electronic Transaction Act 1999 s 15(5)(6) ...........................................................................................................................100 Austria Federal Act governing the Acquisition of Time Share Estate in Immovable Property 1997 s 11 .....................................................................................................................................235 Canada Civil Code of Quebec SQ 1991 c 64 s 3117 ............................................................................................................. 8, 160, 171, 357 s 3149 ............................................................................................................................. 8, 357 s 3168(5) ........................................................................................................................ 8, 357 Spam Control Act 2003...........................................................................................................55 China Application of Law to Foreign-Related Relationships 2010 Art 42 ............................................................................................................................. 8, 357 Civil Procedure Law 2012 Amendment Art 282 ...............................................................................................................................254 Contract Law .......................................................................................................................1999 Art 11 .................................................................................................................................124 Art 126 ...............................................................................................................................197 General Principle of the Civil Law 1987 Art 145 ...............................................................................................................................153 European Union Conventions Charter of Fundamental Rights Art 36 .................................................................................................................................348 Art 47 .................................................................................................................................295 (1) ..................................................................................................................................267 Art 52(1) ............................................................................................................................296

xxxvi

Table of Legislation

Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters 1968 (Brussels Convention) [1972] OJ L299/32 ............................................................................................................ 6, 7 Art 5(1) .......................................................................................................................... 9, 287 Art 13 ...................................................................................................................................65 (1) .............................................................................................................................. 35, 61 Arts 13–15 .............................................................................................................................6 Convention on the Accession of Denmark, Ireland and the UK 1978 (1978 Accession Convention)...............................................................................................6 Convention on the Law Applicable to Contractual Obligations 1980 (Rome Convention) ..................................... 7, 30, 50, 153, 155, 157–60, 176–78, 197, 228, 230 Art 3 .......................................................................................................................................9 Art 4 .......................................................................................................................................9 (5) ....................................................................................................................................10 Art 5 ............................................................................................................. 19, 154, 155, 157 (1) ............................................................................................................................ 35, 154 (2) .................................................................................................................... 15, 154, 155 (2a) ................................................................................................................................159 (4) ..................................................................................................................................154 (5) ..................................................................................................................................154 Treaty on the Functioning of the European Union (TFEU) [2012] OJ C326/1 Art 67(1) .................................................................................................................... 242, 280 Art 81 .................................................................................................................................242 Regulations Regulation 44/2001 Brussels I Regulation [2001] OJ L12/1 .......................................................................................... 7, 18, 30, 68, 79, 96, 177, 242, 247, 253, 284, 285, 294 Art 4 .....................................................................................................................................30 Art 5(1) ........................................................................................................ 9, 60, 62, 63, 287 (b) ..............................................................................................................................226 (3) ..................................................................................................................................287 Art 6(1) ........................................................................................................................ 77, 284 Art 15 ........................................................................................................................... 60, 157 (1) ....................................................................................................................................61 (c) .................................................................................................................. 19, 65, 158 Arts 15–17 ....................................................................................................................... 7, 68 Art 16 ...................................................................................................................................68 (1) ............................................................................................................................ 76, 361 Art 19 .................................................................................................................................117 (1) ..................................................................................................................................369 Art 23 .................................................................................................................................133 (1) ......................................................................................................................................9 (2) ....................................................................................................................................18 Art 25(1) ............................................................................................................................123 (a) ..............................................................................................................................123

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xxxvii

(b) ..............................................................................................................................123 (c) ..............................................................................................................................123 Art 38 .................................................................................................................................294 Regulation 889/2002 amending Regulation 2027/98 on air carrier liability in the event of accidents [2002] OJ L140/2............................................223 Regulation 2201/2003 on jurisdiction and enforcement of judgments in matrimonial matters and matters of parental responsibility (Brussels II bis) [2003] OJ L338/1 .................................................... 248, 284 Regulation 261/2004 Denied Boarding Regulation [2004] OJ L46/1............. 21, 223, 225–28 Art 3(1) ..............................................................................................................................227 Art 5(1)(c) .........................................................................................................................225 Art 7(1) ..............................................................................................................................227 (a) ..............................................................................................................................225 Regulation 805/2004 Enforcement Order Regulation (EEO) [2004] OJ L143/15 .................................................................19, 30, 242, 243, 247, 248, 253 recital 11 ............................................................................................................................243 recital 13 ............................................................................................................................243 recital 18 ............................................................................................................................244 Art 3 ...................................................................................................................................243 Art 5 ...................................................................................................................................243 Art 6(1) ..............................................................................................................................243 (d) ........................................................................................................................ 30, 243 Art 13 .................................................................................................................................243 Art 14 .................................................................................................................................243 (1)(f) .............................................................................................................................345 Art 15 .................................................................................................................................243 Art 16 .................................................................................................................................243 Art 17 .................................................................................................................................243 Art 24 .................................................................................................................................308 Art 25 .................................................................................................................................308 Regulation 1896/2006 Order for Payment Procedure Regulation (EOP) [2006] OJ L399/1..................................................................... 19, 243, 247, 248, 253 Art 3 ...................................................................................................................................244 Art 6(1) ..............................................................................................................................244 (2) ..................................................................................................................................244 Art 7(5) ..............................................................................................................................245 (6) ..................................................................................................................................245 Art 12 .................................................................................................................................244 Art 13 .................................................................................................................................244 Art 14 .................................................................................................................................244 Art 16(4) ............................................................................................................................245 Art 18 .................................................................................................................................244 Art 19 .................................................................................................................................244 Regulation 861/2007 Small Claims Procedure Regulation (ESCP) [2007] OJ L199/1 ........................................................... 19, 243, 247, 248, 253, 344 recital 1 ..............................................................................................................................344 recital 3 ..............................................................................................................................344 recital 13 ............................................................................................................................344 recital 19 ............................................................................................................................344

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recital 20 ............................................................................................................................344 recital 29 ............................................................................................................................345 recital 30 ............................................................................................................................246 recital 31 ............................................................................................................................246 Art 1 ...................................................................................................................................246 Art 3 ...................................................................................................................................344 Art 4 ...................................................................................................................................344 Art 5 ...................................................................................................................................344 Art 6 ...................................................................................................................................344 Art 8 ...................................................................................................................................344 Art 9 ...................................................................................................................................344 Art 13 .................................................................................................................................345 Art 20 .................................................................................................................................246 Art 22(1) ............................................................................................................................246 Art 45(1)(e) .......................................................................................................................246 Annex 1..............................................................................................................................344 Regulation 864/2007 Rome II Regulation [2007] OJ L199/40..............................................60 recital 7 ................................................................................................................................60 Art 14(1)(a) .......................................................................................................................182 Regulation 1393/2007 Services Regulation [2000] OJ L160/37 ..........................................322 Regulation 593/2008 Rome I Regulation [2008] OJ L177/6 ....................................................................................... 7, 10, 29, 33, 35, 154–60, 162–65, 168, 176–79, 182, 186, 190, 192–94, 207, 215, 218, 221, 228, 229, 231, 235, 236, 238, 292, 304, 306, 307 recital 7 ................................................................................................................................60 recital 12 ............................................................................................................................168 recital 13 ............................................................................................................................192 recital 14 ............................................................................................................................193 recital 26 ...................................................................................................................... 33, 237 recital 28 ............................................................................................................................236 recital 29 ............................................................................................................................237 recital 31 ............................................................................................................................238 recital 32 ............................................................................................................................228 recital 46 ............................................................................................................................159 Art 1(2)(e) .........................................................................................................................304 Art 3 .......................................................................................................................................9 (1) .................................................................................................. 153, 162, 165, 292, 308 (3) .................................................................................................................. 153, 172, 197 (4) .......................................................................................................................... 153, 251 (5) ..................................................................................................................................207 Art 4 ....................................................................................................................... 9, 153, 308 (1) ............................................................................................................................ 10, 308 (c) ..............................................................................................................................232 (d) ..............................................................................................................................232 (e) ................................................................................................................................31 (h) ..............................................................................................................................292 (2) ..................................................................................................................................308 (3) ............................................................................................................................ 10, 308

Table of Legislation

xxxix

(4) ............................................................................................................................ 10, 308 Art 5 ............................................................................................. 19, 154, 159, 222, 228, 230 (1) ..................................................................................................................................230 (2) ..................................................................................................................................228 (a)–(e) .......................................................................................................................229 (3) ..................................................................................................................................231 Art 6 .................................................................. 7, 19, 159, 176, 228, 235, 237, 292, 304, 315 (1) ........................................................... 15, 19, 29, 35, 108, 193, 232, 240, 251, 307, 358 (a) ..............................................................................................................................160 (b) ..............................................................................................................................160 (2) ............................................................................................ 108, 153, 171–73, 193, 251 (4) .......................................................................................................................... 160, 217 (a) .............................................................................................................. 217, 218, 238 (b) .............................................................................................................. 217, 218, 228 (c) ................................................................................................ 28, 217, 231, 235, 292 (d) .............................................................................................................. 217, 237, 292 (e) ...................................................................................................................... 217, 292 Art 9 ........................................................................................................................... 153, 194 (2) .......................................................................................................................... 194, 251 (3) .......................................................................................................................... 194, 251 Art 10 ...................................................................................................................................16 (1) ..................................................................................................................................164 (2) ..................................................................................................................................164 Art 11(1)–(3).....................................................................................................................163 (4) ..................................................................................................................................163 Art 21 .................................................................................................................................153 Regulation 4/2009 Maintenance Regulation [2009] OJ L7/1 ..................................... 247, 248 Regulation (EU) No 1215/2012 Brussels I Recast Regulation [2012] OJ L351/1 ......................................................................... 7, 27–79, 96, 97, 114, 117, 122–36, 151, 152, 168, 169, 218, 221, 223–25, 231, 238, 244, 246–48, 252, 253, 284–86, 290, 294, 307, 308, 323, 361 recitals 1–5.........................................................................................................................242 recitals 6–7.........................................................................................................................242 recital 13 .................................................................................................................... 114, 288 recital 15 ...................................................................................................................... 66, 288 recital 16 ............................................................................................................................288 recital 18 ..............................................................................................................................66 Ch III .................................................................................................................................294 Section 1 ..............................................................................................................................28 Section 2 ..............................................................................................................................28 Section 4 .................................................................................................. 28, 68, 78, 136, 250 Section 5 ..............................................................................................................................77 Art 2(b)..............................................................................................................................323 Art 4 ............................................................................................................. 19, 287, 321, 361 (1) ....................................................................................................................................67 (c) ..............................................................................................................................232

xl

Table of Legislation Art 5(5) ................................................................................................................................69 Art 6 ............................................................................................................................. 68, 136 Art 7(1) ................................................................. 14, 60, 61, 63, 225, 227, 287–89, 307, 322 (b) .............................................................................................................. 225, 226, 287 (5) ...................................................................................................................... 67, 69, 114 Art 8(1) .................................................................................................. 77, 78, 284, 321, 322 Art 15(1)(a) .........................................................................................................................97 (b) ................................................................................................................................97 (c) ................................................................................................................................97 (2) ....................................................................................................................................74 Art 17 ............................................................................................................. 27–67, 217, 249 (1) ................................................................. 28, 29, 35, 36, 61, 63, 66, 131, 158, 307, 358 (a) ............................................................................................................ 35–43, 67, 217 (b) ............................................................................................................ 35–43, 67, 217 (c) ........................................................................................ 36, 43–59, 65, 97, 159, 232 (2) ........................................................................................................ 28, 67, 69, 114, 131 (3) ............................................................................................................ 28, 131, 217, 218 (9) ..................................................................................................................................238 Arts 17–19 .............................................................................................................................7 Art 18 ............................................................................................................. 66–69, 133, 361 (1) ................................................................................. 67, 68, 76, 117, 135, 136, 285, 361 (2) ..................................................................................................................................136 Art 19 ........................................................................................... 122, 131, 134–36, 257, 286 (1) .......................................................................................................................... 169, 182 (2) .................................................................................................................. 133, 134, 169 (3) ..................................................................................................................................169 Art 21(2) ..............................................................................................................................68 Art 24 .................................................................................................................................231 (1) .................................................................................................................... 28, 217, 232 Art 25 ................................................................................................... 122, 133–36, 286, 304 (1) ............................................................................................................ 16, 123, 129, 131 (a) ...................................................................................................................... 123, 125 (b) .............................................................................................................. 127, 128, 167 (c) ..............................................................................................................................128 (2) ............................................................................................................ 16, 124, 125, 131 (5) ..................................................................................................................................129 Art 29 .................................................................................................................................290 (1) ..................................................................................................................................290 Art 30 .................................................................................................................................290 (1) ..................................................................................................................................290 (2) ..................................................................................................................................291 (3) ..................................................................................................................................291 Arts 33–36 .........................................................................................................................308 Art 36(1) .................................................................................................................... 246, 293 Art 37 .................................................................................................................................247 Art 39 ......................................................................................................................... 246, 247 Art 41 .................................................................................................................................252 Art 42(1) ............................................................................................................................252

Table of Legislation

xli

(3) ..................................................................................................................................252 (4) ..................................................................................................................................252 Art 45 ................................................................................................................. 248, 249, 295 (1) ..................................................................................................................................295 (a) .............................................................................................................. 249, 251, 295 (b) .............................................................................................................. 249, 251, 297 (c) ...................................................................................................................... 249, 297 (d) ...................................................................................................................... 249, 297 (e) .............................................................................................................. 249, 250, 297 (i) ...........................................................................................................................249 (2) ..................................................................................................................................249 (3) ........................................................................................................................... 249–51 Art 46 .................................................................................................................................248 Art 47 .................................................................................................................................252 Art 48(1) ............................................................................................................................246 Art 49 .................................................................................................................................252 Art 58 .................................................................................................................................323 Art 59 .................................................................................................................................323 Art 63 ...................................................................................................................................67 Art 71 .................................................................................................................................223 Art 79 .................................................................................................................................289 Regulation 524/2013 Regulation on Consumer ODR [2013] OJ L165/63 .................................................................................. 330, 331, 348–51, 360, 370 recital 2 ..............................................................................................................................330 recitals 2–8.........................................................................................................................348 recital 8 ..............................................................................................................................301 recital 9 ..............................................................................................................................348 recitals 10–11.....................................................................................................................350 recital 17 ............................................................................................................................349 recital 18 ............................................................................................................................349 recital 19 ............................................................................................................................349 recital 20 ............................................................................................................................349 recitals 27–28.....................................................................................................................349 recital 30 ............................................................................................................................349 Art 1 ...................................................................................................................................349 Art 5(1) ..............................................................................................................................332 (2) ..................................................................................................................................349 (4)(a) .............................................................................................................................349 (c) ..............................................................................................................................349 (g) ..............................................................................................................................349 Art 6(2) ..............................................................................................................................332 Art 7 ...................................................................................................................................349 Art 8 ...................................................................................................................................349 Arts 12–14 .........................................................................................................................349 Art 13 .................................................................................................................................332 Regulation 910/2014 Regulation on Electronic Identification [2014] OJ L257/73 ........................................................................................................127

xlii

Table of Legislation

Art 25(1) ............................................................................................................................127 (3) ..................................................................................................................................127 Art 26 .................................................................................................................................127 Annex 1..............................................................................................................................127 Annex 2..............................................................................................................................127 Directives Directive 77/388/EEC on harmonisation of laws relating to turnover taxes—Common system of VAT: uniform basis of assessment [1977] OJ L145/1 Art 5(2) ................................................................................................................................38 Directive 84/450/EC on misleading advertisements [1984] OJ L250 ..................................................................................................................184 Directive 85/577 on consumer protection for contracts negotiated away from business premises [1985] OJ L372/31 ...........................................................184 Directive 87/102 on approximation of laws concerning consumer credit [1987] OJ L42/48 ....................................................................................................184 Directive 90/88 amending Directive 87/102 [1990] OJ L61/14 ..........................................184 Directive 90/314 Package Travel Directive [1990] OJ L158/59 ................................... 184, 218 Art 2(1) ...................................................................................................................... 218, 219 Art 5 ...................................................................................................................................219 Directive 93/13 Unfair Terms in Consumer Contracts Directive [1993] OJ L95/29 ............................................................................. 129, 131, 135, 153, 169, 184, 287, 305, 313, 314, 316, 337, 361, 368 Art 2(b)................................................................................................................................34 Art 3 ........................................................................................................... 130, 313, 316, 369 (1) .......................................................................................................... 130, 305, 313, 337 (2) ..................................................................................................................................130 Art 6(1) ...................................................................................................................... 130, 185 Annex 1.............................................................................................................. 130, 286, 313 (g) ..................................................................................................................................369 (q) .................................................................................................. 130, 286, 305, 313, 369 Directive 94/47 Timeshare Directive [1994] OJ L280/83............................................ 184, 233 preamble 3 .........................................................................................................................233 Directive 97/7 Distance Selling Directive [1997] OJ L144/1...............................................184 Art 2(2) ................................................................................................................................34 Art 12(2) ............................................................................................................................185 Directive 97/55 amending Directive 84/450 on misleading advertisements [1997] OJ L290 ........................................................................................184 Directive 98/6 on consumer protection in prices of products offered to consumers [1998] OJ L80/27 ..........................................................................184 Directive 98/7 amending Directive 87/102 [1998] OJ L101/17 ..........................................184 Directive 1999/44 Directive on Consumer Sales and Guarantees [1999] OJ L171/12 ...................................................................................... 40, 153, 184, 360 Art 1(2)(b)...........................................................................................................................38 (c) ................................................................................................................................29 (4) ....................................................................................................................................40

Table of Legislation

xliii

Art 7(2) ..............................................................................................................................185 Directive 1999/93 E-Signature Directive [1999] OJ L13/12 ...............................................127 Art 2(2) ..............................................................................................................................127 Directive 2000/31 E-Commerce Directive [2000] OJ L178/1 .............................................................................................. 14, 72, 100, 185, 331 recital 19 ..............................................................................................................................71 recital 58 ..............................................................................................................................14 Art 2(1) ................................................................................................................................29 (c) ....................................................................................................................................72 Art 5(1) ........................................................................................................................ 14, 185 (c) .......................................................................................................................... 52, 59 Art 7(1) ..............................................................................................................................185 (2) ..................................................................................................................................185 Art 9(1) ..............................................................................................................................163 Art 10 .................................................................................................................................185 (1)(a) .............................................................................................................................100 (d) ..............................................................................................................................170 Art 11(1) ............................................................................................................................133 Directive 2002/58 Directive on Privacy and Electronic Communications [2002] OJ L201/37 ..............................................................................................................55 Art 13 ...................................................................................................................................56 Directive 2002/65 on distance marketing of consumer financial services [2002] OJ L271/16...............................................................................................185 Directive 2004/39 on markets in financial instruments (MiFID) [2004] OJ L145/1 ...................................................................................................... 237, 292 Directive 2005/29 Unfair Commercial Practices Directive [2005] OJ L149/22 .................................................................................................... 184, 185 Art 2(a) ................................................................................................................................29 Directive 2007/64 on payment services in the internal market [2007] OJ L319/1 ..............................................................................................................185 Directive 2008/48 on credit agreements for consumers and repealing Directive 87/102 [2008] OJ L133/66 ................................................................................184 Directive 2008/52 Mediation Directive [2008] OJ L136/3 .................... 20, 300, 302, 331, 361 Art 6(1) ..............................................................................................................................300 (2) ..................................................................................................................................308 Art 8(2) ..............................................................................................................................305 Art 21 .................................................................................................................................300 Directive 2008/122 Timeshare Directive [2009] OJ L33/10................................................233 Art 2(1)(a) .........................................................................................................................233 Directive 2009/22 on injunctions for the protection of consumers’ interests [2009] OJ L110/30..............................................................................................278 Art 3 ...................................................................................................................................278 Directive 2011/83 Directive on Consumer Rights [2011] OJ L304/64 ......................................................................... 37, 39, 40, 78, 153, 184, 186, 360 recital 5 ................................................................................................................................40 recital 19 .................................................................................................................. 37, 39, 40 recital 58 ............................................................................................................................186 Art 2 .....................................................................................................................................37

xliv

Table of Legislation

(3) .............................................................................................................................. 37, 38 (11) ..................................................................................................................................37 Art 5(2) ................................................................................................................................39 Art 6(2) ................................................................................................................................39 Art 14(4)(b).........................................................................................................................39 Art 16 ...................................................................................................................................40 (m) ...................................................................................................................................39 Art 17(1) ..............................................................................................................................39 Directive 2013/11 Directive on Consumer ADR [2013] OJ L165/63 ................................................................................... 20, 301, 302, 314–16, 331, 348–50, 360, 368, 370 recital 8 ..............................................................................................................................301 recital 12 ............................................................................................................................348 recital 43 .................................................................................................................... 314, 316 recital 44 ............................................................................................................................315 Art 4(1)(f) .........................................................................................................................301 Art 8(a) ..............................................................................................................................302 Art 10 ................................................................................................................. 314, 328, 369 (1) ..................................................................................................................................314 (2) .......................................................................................................................... 314, 316 Art 11 .................................................................................................................................312 (1)(c) .............................................................................................................................315 Art 12 ......................................................................................................................... 305, 312 Art 14(1) ............................................................................................................................302 Directive 524/2013 Directive on Consumer ODR [2013] OJ L165/1...................................20 Japan Law on the Applicable of Laws 1898 Art 7(1) ..............................................................................................................................153 Private International Law 1990 Art 7 ...................................................................................................................................153 Korea Private International Law of 2001 ............................................................................................8 Netherlands Act on Collective Settlements, Law of 23 June 2005 (WCAM) ................................... 319–24 WCAM II, Act of 26 June 2013 .............................................................................................319 Spain Royal Decree 231/2008l ........................................................................................................320 Switzerland Private International Law 1987 Art 5 .......................................................................................................................................9 Art 5(1) ..............................................................................................................................123

Table of Legislation

xlv

Art 113 .................................................................................................................................14 Art 120 .................................................................................................................................29 (2) .......................................................................................................................... 162, 179 Art 121(2) ..........................................................................................................................228 Art 124(b)(3).....................................................................................................................163 Turkey Code on Private International Law and International Civil Procedure Art 26 .....................................................................................................................................8 Art 45 .....................................................................................................................................8 United Kingdom Arbitration Act 1996 (c 23) ..................................................................................................314 s 91 .....................................................................................................................................314 Civil Jurisdiction and Judgments Act 1982 (c 27) ...................................................................6 Consumer Credit Act 1974 (c 39) s 56(2) ................................................................................................................................235 s 75 ............................................................................................................................. 235, 340 Consumer Rights Act 2015 (c 15) Sch 8...................................................................................................................................283 Contracts (Applicable Law) Act 1990 (c 36).................................................................... 7, 197 Fair Trading Act 1973 (c 41) s 137(2) ................................................................................................................................29 Human Rights Act 1998 (c 42) .............................................................................................111 Sale of Goods Act 1979 (c 54) s 29(2) ................................................................................................................................102 Unfair Contract Terms Act 1977 (c 50) ....................................................................... 173, 174 s 2(2) ..................................................................................................................................173 ss 2–7 .................................................................................................................................174 s 5 .......................................................................................................................................174 s 6(2) ..................................................................................................................................174 s 7 .......................................................................................................................................174 s 12 .......................................................................................................................................29 s 26 .....................................................................................................................................174 Statutory Instruments Civil Procedure Rules (CPR) (SI 1998/3132) ........................................................................98 Pt 6 .....................................................................................................................................105 r 6.9 ....................................................................................................................................257 r 6.12 ..................................................................................................................................257 r 6.37 ....................................................................................................................................98 (3) ..................................................................................................................................105 PD 6B, para 3.1 ........................................................................................................... 98, 108 (6) ................................................................................................................................ 9, 98 (a) .......................................................................................................................... 14, 98 (b) ................................................................................................................ 98, 101, 102

xlvi

Table of Legislation

(c) ................................................................................................................................98 (d) ................................................................................................................................98 (7) .......................................................................................................................... 9, 15, 98 (8) ....................................................................................................................................98 r 78.24 ................................................................................................................................308 Cross-Border Mediation (EU Directive) Regulations 2011 (SI 2011/1133) ......................301 Electronic Commerce (EC Directive) Regulations 2002 (SI 2002/2013) ...........................172 reg 9(1) ...................................................................................................................... 100, 172 reg 11(1) ............................................................................................................................172 reg 15 .................................................................................................................................173 Unfair Arbitration Agreements (Specified Amount) Order 1999 (SI 1999/2167).............314 Unfair Terms in Consumer Contracts Regulations 1999 (SI 1999/2083) .................. 173, 286 reg 2(2) ..............................................................................................................................173 United States Constitution .................................................................................................................... 81, 254 Art IV, s 1 ...........................................................................................................................274 Controlling the Assault of Non-Solicited Pornography and Marketing Act 2003.............................................................................................................55 Federal Arbitration Act ................................................................................................. 312, 326 Federal Rules of Civil Procedure r 23 ............................................................................................................. 269, 271, 325, 327 (a) .......................................................................................................................... 269, 270 (4) ...................................................................................................................... 269, 274 (b) .......................................................................................................................... 269, 270 (1) ..............................................................................................................................270 (2) ..............................................................................................................................270 (3) .............................................................................................................. 270, 273, 276 (4) ..............................................................................................................................270 Foreign Judgments Recognition and Enforcement Act § 7(b) .................................................................................................................................259 Fourteenth Amendment of the Constitution ........................................................................81 Ohio Consumer Sales Practices Act .....................................................................................311 Uniform Commercial Code (UCC) s 1-301 ...............................................................................................................................214 (e) .............................................................................................................................. 8, 357 (2)(A) ............................................................................................................................160 s 2-102 .................................................................................................................................34 Uniform Computer Information Transactions Act (UCITA) 2002...................... 38, 207, 208 s 102(a)(33) .........................................................................................................................38 s 109(b) ..................................................................................................................................9 s 203 ...................................................................................................................................105 s 214(a) ..............................................................................................................................133 Uniform Electronic Transaction Act (UETA) .............................................................. 199, 207 s 15(b)(1)...........................................................................................................................133 Unifrom Foreign-Country Money Judgments Recognition Act 2005 ......... 254, 255, 258–60 s 4 ............................................................................................................................... 256, 258 (1) ..................................................................................................................................255

Table of Legislation

xlvii

(c)(1)–(6) ......................................................................................................................256 (7)–(8) .......................................................................................................................256 s 5 .......................................................................................................................................255 (a) ..................................................................................................................................255 (b) ..................................................................................................................................255 s 6 .......................................................................................................................................260 s 6(a) ..................................................................................................................................259 Uniform Foreign Money-Judgments Recognition Act 1962....................... 254, 255, 258, 259 s 4(1) ..................................................................................................................................255 (b) ..................................................................................................................................256 s 5 .......................................................................................................................................255 International Conventions Athens Convention relating to the Carriage of Passengers and their Luggage by Sea 1974 (PAL)......................................................................................221 Berne Convention concerning International Carriage by Rail 1980 (COTIF) ............................................................................................................221 European Convention on Human Rights 1950 (ECHR) ....................................................111 Art 6 ........................................................................................................................... 111, 312 (1) ..................................................................................................................................295 Hague Convention on Choice of Court Agreements 2005 ................... 8, 9, 18, 136, 254, 362 Art 2(1) ..............................................................................................................................362 (a) .......................................................................................................................... 29, 79 Art 3 ...................................................................................................................................123 (c) ............................................................................................................................ 16, 123 (i) ...............................................................................................................................124 (ii) ..............................................................................................................................124 Art 5 ............................................................................................................................. 18, 123 Art 6 ............................................................................................................................. 18, 123 Art 9 ...................................................................................................................................123 Hague Convention on the Law Applicable to International Sales of Goods 1955 ....................................................................................................... 36, 59, 197 Art 1 .....................................................................................................................................36 Art 2 ............................................................................................................................... 9, 153 (c) ....................................................................................................................................33 Art 3 .......................................................................................................................................9 Art 6 ...................................................................................................................................171 Hague Convention on the Law Applicable to International Sales of Goods 1986 ................................................................................................................. 8, 59 Art 2 .....................................................................................................................................36 (c) ....................................................................................................................................29 Art 6 ...................................................................................................................................171 Art 7 ............................................................................................................................... 9, 153 Art 8(2)(b)...........................................................................................................................14 Art 11 .................................................................................................................................163 Hague Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters (Hague Service Convention) ............................................................................................322

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Inter-American Convention on the Law Applicable to International Contracts 1994 .............................................................................................59 Art 7.1 ....................................................................................................................................9 Art 9 .......................................................................................................................................9 Montreal Convention for the Unification of Certain Rules relating to International Carriage by Air 1999 ........................................................................... 221–25 Art 1(1) ..............................................................................................................................223 (2) ..................................................................................................................................223 Art 33 ......................................................................................................................... 223, 224 (1) .......................................................................................................................... 224, 225 (2) ..................................................................................................................................224 Art 49 .................................................................................................................................224 New York Convention (NYC) ......................................................... 326, 327, 332, 338–40, 369 Art II ..................................................................................................................................304 Art IV(1)(a) .......................................................................................................................339 Art V(1)(a) ........................................................................................................................327 (b) ...................................................................................................................... 327, 338 (d) ..............................................................................................................................338 (2)(a) .............................................................................................................................327 (b) ...................................................................................................................... 328, 339 United Nations Convention on Contracts for the International Sale of Goods 1980 (Vienna Convention) ................................................................... 36, 59 Art 2 .....................................................................................................................................36 Art 3(1) ................................................................................................................................33 United Nations Convention on the use of Electronic Communications in International Contracts 2005 .........................................................................................16 Warsaw Convention for the Unification of Certain Rules Relating to International Carriage by Air 1929 .......................................................................... 221, 222

1 Electronic Consumer Contracts in Private International Law I. Introduction Traditional private international law does not have regard for the protection of consumers in cross-border contracts. 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. Neither 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 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 has social functions providing 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

1 For the history of private international law, see generally, J Fawcett and J Carruthers, Cheshire, North & Fawcett: Private International Law, 14th edn (Oxford, Oxford University Press, 2008) 19–37; 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, ‘Reform’, 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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the improvement in transportation, 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

5

J Hill, Cross-Border Consumer Contracts (Oxford, Oxford University Press, 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; A Anton and P Beaumont, Private International Law: A Treatise from the Standpoint of Scots Law, 2nd edn (Edinburgh, W & Green, 1990) 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, Hartley, ‘Consumer Protection’, 111. 6

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criticised by some distinguished scholars in the US,7 and the trend continued and dominated in the US 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 in bringing consumer protection 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

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 introduction, see S Symeonides, The American Choice-of-Law Revolution: Past, Present and Future (Leidon/Boston, Martinus Nijhoff Publishers, 2006) 11–3. 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, March 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, April 2003, 8.

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Before the EEC adopted the first European jurisdiction and judgment convention in 1968, some Contracting States had already established piecemeal protective 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 Court of Justice 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 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 13 P Jenard, ‘Report on the Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters’ (Jenard Report) [1979] OJ C59/1, 33; P Schlosser, ‘Report on the Convention on the Accession 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 Case 150/77 Bertrand v Ott [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 same policy was followed when the Contracting States negotiated the harmonised Convention on choice of law. The EEC subsequently adopted the Convention on 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 conflict of laws system and are remarked on as the cornerstone of the advanced, comprehensive and systematic protective conflict of laws in consumer contracts. By the end of the twentieth century, e-commerce developed as a new commercial model, the low-cost, international and convenient nature of which caused a further bloom of cross-border consumer transactions. Special attention was paid to protect consumers in e-commerce. The European Community 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 were 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 were replaced by the Rome I Regulation20 in all 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.21 From 10 January 2015, the Brussels I Regulation was replaced by the Brussels I Recast, which extends the protection to transactions with businesses domiciled in third countries, taking into account of the fact that the e-commerce not only boosts the internal consumer market but also improves globalisation of consumer transactions.22 The European legislation has a great influence on the rest of the world. The work not only affects the Member States of the European Union, but also spreads its influence outside Europe. 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. More and more non-Member States have successfully reformed, or are prepared to reform, their traditional conflicts rules to

18 [1980] OJ L266/1, Art 5. The Rome Convention is implemented in the UK by the Contracts (Applicable Law) Act 1990 (c 36). 19 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, Arts 15–17. 20 Regulation (EC) No 593/2008 of the European Parliament and the Council on the law applicable to contractual obligations (Rome I) [2008] OJ L177/6, Art 6. 21 For more discussion, see Ch 2, s II. and Ch 5, s IV. below. 22 Regulation (EU) No 1215/2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (recast) [2012] OJ L351/1, Arts 17–19.

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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,23 the Uniform Commercial Code of the United States,24 the Korean Private International Law,25 the Turkish Code on Private International Law and International Civil Procedure,26 and the Application of Law to Foreign-Related Relationships of China.27 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 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.28 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.29 Even for those countries generally adopting a neutral model, some protective elements have been gradually introduced by recent legislation or modest judicial adjustment.30

23

SQ 1991 c64, ss 3117, 3149 and 3168(5). Uniform Commercial Code (UCC) of the United States, S 1-301(e). 25 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 July 2008. 26 Arts 26 and 45. For more information, see G Tekinalp, ‘The 2007 Turkish Code Concerning Private International Law and International Civil Procedure’ in A Bonomi and P Volken (eds), Yearbook of Private International Law (Munich, Sellier European Law Publishers, 2007) 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. 27 This Act was adopted at the 17th session of the Standing Committee of the 11th National People’s Congress on 28 October 2010, and promulgated and entered into force on 1 April 2011, Art 42. 28 eg Consumer contracts are expressly excluded in the Hague Convention of 22 December 1986 on the Law Applicable to International Sales of Goods, the Convention of 30 June 2005 on Choice of Court Agreements and the Draft Hague Principles on Choice of Law in International Commercial Contracts (2014 version). 29 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. 30 eg, although the US generally kept its common law choice of law rules, which contains no specific consideration of consumers, the UCC introduced a special provision to protect consumers in choice of law. In some cases, the US courts have taken consideration of special requirements for consumers when deciding forum non conveniens. See Golden Rules Insurance Co v Manasherov 200 Ill App 3d 961 (Ill App 5 Dist, 1990); Ch 3, s IV.B. below. 24

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B. Difficulties of 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.31 Party autonomy can establish certainty, predictability and efficiency. However, the existence of inequality of bargaining power questions the 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,32 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 cause injustice to consumers in international commerce.33

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.34 Private international law based on the objective

31 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, in general, P Nygh, Autonomy in International Contracts (Oxford, Oxford University Press, 1999) 1–31; A Briggs, Agreements on Jurisdiction and Choice of Law (Oxford, Oxford University Press, 2008). 32 Nygh, Autonomy, 140. 33 For party autonomy and the protection of the weaker party, see generally Nygh (n 31) 139–71, and Chs 6 and 8 below. 34 For jurisdiction, see Brussels I Regulation, Art 5(1); Brussels Convention, Art 5(1); Civil Procedural Rules (CPR), 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), s 188; Inter-American Convention of 1994, Art 9; Hague Sales Convention 1955, Art 3; UCITA, s 109(b).

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connecting factors 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 consumers 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 I Regulation presumes that the country which has the closest connection with a contract is the habitual residence of the seller or service provider, or 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.35 Even if the country with the closest connection to the contract is decided based on weighing and balancing all connecting factors,36 this country would usually be the country with close connections to the business, which is in the position to choose the location of most of the connecting factors. The ‘neutral and objective’ conflict of law can hardly work properly in consumer contracts.

iii. Defendant’s Jurisdiction and Inequality of Litigation Power 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’.37 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.38 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.

35 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. 36 eg Art 4(5) of the Rome Convention; Arts 4(3) and 4(4) of the Rome I Regulation. 37 CMV Clarkson and J Hill, The Conflict of Laws, 3rd edn (Oxford, Oxford University Press, 2006) 52. 38 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.

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iv. Forum Non Conveniens There are also jurisdiction rules aiming to achieve fairness and justice on a caseby-case basis. 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.39 Where a consumer brings an action against a foreign business in his home, the business can use forum non conveniens to persuade the court to decline jurisdiction by claiming that the natural forum is located in another country.40 The consumer’s weak 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.41 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 most connecting factors which usually makes the centre of gravity located in the business’s home state.42

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.43 This argument is unrealistic due to the narrow scope of overriding rules and public policy. They only deal with issues which are crucial for safeguarding justice,

39 See J Harris, ‘Consumer Protection in Private International Law’ in F Meisel and P Cook (eds), Property And Protection: Legal Rights And Restrictions (Oxford, Hart Publishing, 2000) 245. 40 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). 41 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. 42 For more on forum non conveniens, see Ch 3, s IV. 43 This suggestion is discussed in Sauveplanne, ‘Consumer Protection’, 102–3.

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morality, or 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.44

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’,45 which breaks down traditional borders between each country and creates a virtually borderless market.46 It is a decentralised system,47 where it is hard to efficiently control the access and transfer of data messages online, which provides businesses with a partially aimless market, where their promotion has the potential to ‘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.48

A. Identification and Territorial Connection of Parties Identification and legal location of parties are essential to private international law. Especially in those states where specific protective rules are provided to 44

For more discussion, see Ch 5, s IV. and Ch 6, s V. 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. 46 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. 47 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. 48 For more discussion, see DJB Svantesson, Private International Law and the Internet ( The Netherlands, Kluwer Law International, 2007) Ch 2. 45

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consumer contracts, it is crucial to clarify the identity of both parties in order to decide whether the contract is a consumer contract.49 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 a 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 enables many unprofessional individuals to sell second hand products online. In many internet marketplaces, such as eBay50 and Amazon,51 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 identity of contractual parties. Furthermore, it is more difficult to determine the country with relevant territorial connections to the parties in e-commerce.52 Many conventional conflicts rules frequently rely on the personal connecting factors of the parties. A contractual party needs to know the other party’s domicile or habitual residence 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 Internet Protocol address (IP address) and the party’s statement. The website domain and the email address might be inaccurate or misleading. 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,53 which will not give other internet users any clue as to the probable location of the party. Taking note of 49 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 March 2006. 50 ‘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. 51 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. 52 See S van der Hof, ‘European Conflict Rules Concerning International Online Consumer Contracts’ (2003) 12 Information & Communication Technology Law 165, 167. 53 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.

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the IP address might avoid the above inaccuracy, but recognition of the IP number requires more than ordinary technology and knowledge.54 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, 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. 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 the problem. For example, the E-Commerce Directive requires an e-supplier to provide other internet users with its details, such as its name, geographic address or email address in an easy, direct and permanent way.55 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.56 Thirdly, most buyers may not bother to check the identity and location of the supplier before placing an order, especially in a contract supplying intangible digital products.

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,57 the place of performance,58 the place of breach of the 54 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. 55 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, Art 5(1). 56 See generally, J Fawcett, J Harris and M Bridge, International Sale of Goods in the Conflict of Laws (Oxford, Oxford University Press, 2005) para 10.06–7. 57 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). 58 Brussels I Recast, Art 7(1); Hague Sale of Goods Convention 1986, Art 8(2)(b); Swiss Private International Law, Art 113.

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contract,59 the place where necessary steps are taken to conclude the contract,60 the place of advertising,61 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 actually affects the activity.62 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,

59

CPR Pt 6 Practice Direction B, para 3.1(7). Rome Convention, Art 5(2). This connecting factor is now removed in the Rome I Regulation, Art 6(1). 61 Ibid. 62 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. 60

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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 brings a new question as to whether a server can contribute as a new connecting factor for the conflict of laws in e-commerce.63

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,64 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,65 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.66

63

See Ch 2, s IV. below. This is the common practice currently relating to the substantive validity of contracts. See Rome I Regulation, Art 10. 65 Usually, the uniform rules are accepted for the formal validity of an agreement. Brussels I Recast, Arts 25(1) and 25(2); the Hague Choice of Court Convention 2005, Art 3(c). 66 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. 64

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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, mostly 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.67 It breaks the necessary link between the virtual world and physical world and regards the internet as a new jurisdiction immune from the activity and regulation in the physical world. In fact no element on the internet could occur without its real world existence. E-commerce has challenged various factors in traditional private international law, but it does not mean traditional private international law is rendered useless or redundant. While recognising the challenges described above, the traditional private international law is intact in the following occasions. The performance of contracts involving delivery of physical goods or personal services is unchanged. In this type of contract, e-commerce only changes the means and procedure to form the contract, but not the ways in which to perform the obligation in question. The place of performance, thus, is of no difference from that in offline commerce. In e-commerce, payment usually is made by providing credit card details through the online payment system, which is no different from payment by credit card in traditional commerce. Furthermore, the place of payment is not changed in e-commerce. It is a question of law and, depending on the applicable law, it takes place in either the domicile of the creditor or that of the debtor.68 Finally, if the parties specify the place of performance, the agreement usually will be recognised in law, simplifying the task in private international law.69 If an e-business has taken reasonable steps to require the buyer to disclose his personal information before entering into the contract, it could reduce the uncertainty as to the personal territorial connection of the other party. The chance of error is no higher than in traditional commerce, where the business also replies to the buyer’s statement or disclosure to assess its habitual residence or domicile. 67 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 4 February 2004; DG Post, ‘Governing Cyberspace’ (1996) 43 Wayne Law Review 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. 68 For the difference between the law in English and German law, see J Hill and A Chong, International Commercial Disputes, 4th edn (Oxford, Hart Publishing, 2010) para 5.6.47–48. 69 Hill and Chong, International Commercial Disputes, para 5.6.48; P Rogerson, Collier’s Conflict of Laws, 4th edn (Cambridge, Cambridge University Press, 2013) 84.

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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.70

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. It can easily avoid the difficulty of localisation and identification brought by e-commerce.71 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.72

B. Targeting Since ordinary conflicts rules cannot work properly in consumer contracts, some jurisdictions, such as the EU, provide protective conflicts rules, where the default

70 See eg Fawcett, Harris and Bridge, International Sale of Goods, paras 10.242–10.258; Hill, CrossBorder, 25, 149–50. 71 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. 72 See s II.A. above.

New Trend in Consumer Cross-Border Access to Justice

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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.73 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 email 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.74

V. New Trend in Consumer Cross-Border Access to Justice and Private International Law In the past decades, the focus of the cross-border protection of consumers has gone through significant development. The early stage of consumer protection focuses on legislation on substantive rights and providing cross-border consumers with the standard of protection no lower than that given to domestic consumers. In the EU, for example, protective jurisdiction and choice of law were adopted and later updated to facilitate consumers’ easy access to justice in cross-border transactions.75 The EU authorities also adopted the European Small Claims Regulation, aiming to provide simplified, speedy and low-cost litigation procedure for small value claims,76 together with the European Enforcement Order Regulation77 and the European Order for Payment Procedure Regulation78 to simplify and

73 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 itself of the jurisdiction of a particular State. 74 See s III.A. above. 75 See s 4 of the Brussels I Recast and Arts 5 and 6 of the Rome I Regulation, previously s 4 of the Brussels Regulation and Art 5 of the Rome Convention. 76 Regulation (EC) No 861/2007 establishing a European Small Claims Procedure [2007] OJ L199/1. 77 Regulation (EC) 805/2004 creating a European Enforcement Order for uncontested claims [2004] OJ L143/15. 78 Regulation (EC) 1896/2006 creating a European order for payment procedure [2006] OJ L399/1.

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speed up litigation and cross-border enforcement.79 Regardless of these attempts, however, many consumers still fail to receive effective remedy for infringement of their rights. A survey shows that only 16 per cent of consumers have taken action by contacting either relevant consumer associations or public authorities, and the majority of consumers would not consider court action to be a rational option.80 It does not mean there were no alternative dispute resolution (ADR) mechanisms in the EU. Instead, the European Commission founded the EEJ-Net in 2001 to help consumers access ADR for cross-border disputes. However, compared to judicial redress, the development of cross-border ADR requires not only cross-border collaboration in procedure and access to information, but also the establishment of credible ADR providers. The legislative effort in encouraging ADR services was not strong in the past. More efforts were put into improving individual access to courts. Recognising the real life weakness of court actions in cross-border consumer disputes arising out of e-commerce, the European legislators started to focus more on alternative means of dispute resolution, taking into account the specific characteristics of e-commerce. Two major approaches are adopted, ie improving collective methods to seek private remedies and improving cross-border ADR and online dispute resolution (ODR) services. The European Commission has worked on consumer collective redress since 2007, which resulted in a non-binding initiative in 2013 providing common principles for each Member State to establish national collective redress mechanisms.81 The European legislators have recognised the importance of ADR since 1998, but did not produce effective and binding legislation until 2008 when the Directive on cross-border mediation was published and, in 2013,82 the EU adopted two further importance instruments, the Directive on Consumer ADR and the Regulation on Consumer ODR.83 In the EU the authorities have shifted the focus from improving consumers’ individual cross-border access to court, to the establishment of a comprehensive dispute resolution system. This system combines not only judicial redress, but also out-of-court dispute resolution mechanisms; it includes both individual access to redress and collective redress schemes; it allows dispute resolution to be conducted both offline and online. Given the potential mass harm, small value and simple

79

For more discussion, see Ch 8 below. Hill (n 5) 181–5. European Commission, Communication from the Commission to the European Parliament, the Council, the Economic and Social Committee and the Committee of the Regions, ‘A European Consumer Agenda—Boosting Confidence and Growth’, COM(2012) 225 final. 81 Commission Recommendation of 11 June 2013 on common principles for injunctive and compensatory collective redress mechanisms in the Member States concerning violations of rights granted under Union law [2013] OJ L201/60. 82 Directive 2008/52/EC on certain aspects of mediation in civil and commercial matters [2008] OJ L136/3. 83 Directive 2013/11/EU on alternative dispute resolution for consumer disputes and amending Regulation (EC) No 2006/2004 and Directive 2009/22/EC [2013] OJ L165/63; Regulation (EU) No 524/2013 on online dispute resolution for consumer disputes and amending Regulation 9EC) No 2006/2004 and Directive 2009/22/EC (Regulation on consumer ODR) [2013] OJ L165/1. 80

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fact of consumer disputes, this is the right path to protect consumers and to balance the interest between consumer protection and business efficiency. Studying private international law against this background brings new challenges. Firstly, private international law in e-consumer contract concerns not only the proper balance of interests between consumers and businesses in individual access to justice and the technical challenges brought by the internet, but also the application of private international law in innovative dispute resolution methods, including collective court actions, ADR and ODR. In cross-border collective actions, questions concerning jurisdiction, choice of law and enforcement of foreign judgments are inevitable, and they may be more complicated and novel than those conflict issues in individual litigation. In ADR and ODR, questions arise as to the validity and enforceability of ADR/ODR agreements, due process of ADR/ ODR, applicable law to the ADR/ODR procedure, applicable law in relation to the settlement/decision, and cross-border recognition and enforcement of ADR/ODR settlements or decisions. Secondly, the main purpose of modern consumer legislation is to provide an economically effective framework for dispute resolution. Private international law should play an appropriate role to facilitate this particular aim. Research on private international law has to step out of the traditional doctrinal and theoretical research methods, and has to adopt new research methods, including economic and behavioural analysis, to test the real life effect of private international law in improving consumers’ effective access to justice, and facilitating an efficient transnational e-market. Finally, although very few cases on e-consumer contracts have been brought to the courts, it does not mean private international law in individual consumer litigation is of no value.84 Some contracts, such as contracts relating to timeshares, package holidays, distance education, credit sales, or the purchase of expensive or luxury goods, could be of large value, where litigation would more likely arise. Some disputes, such as claims on the cancellation or long-delay of a flight, are easy to prove and a reasonable sum of compensation is guaranteed by the EU law. Consumers are more willing to bring such claims to courts.85 More importantly, the value of law does not merely depend on the number of cases. A good law will be one which can not only resolve disputes, but also ensure fair practice and prevent disputes from arising.86

84 Some commentators refuse to adopt special consideration to protect consumers in conflict of laws because they observe the current law suffers no difficulty in practice. 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 22 March 2015. 85 Compared to other consumer actions, a large number of actions were brought on compensation under the Regulation (EC) No 261/2004 establishing common rules on compensation and assistance to passengers in the event of denied boarding and of cancellation or long delay of flights, and repealing Regulation (EEC) No 295/91 [2004] OJ L46/1. See Ch 7, s II.C. below. 86 Hill (n 5) 2; ZS Tang, ‘Private International Law in Consumer Contracts: A European Perspective’ (2010) 6 Journal of Private International Law 225–48.

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In consumer contracts, the most efficient means to resolve disputes is by directly contacting the other party, and hopefully a company will adopt a customerfriendly policy to handle consumer complaints fairly. The company’s consumer policy partly depends on the company’s self-regulation, the profit-motivation, and 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 the consumer’s 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. The protective conflicts rules could also provide the consumer with 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 of redress.

VI. 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 balancing 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, generating confusion and uncertainty. Furthermore, the international trend of consumer protection is to provide multiple dispute resolution mechanisms in addition to individual court proceedings. While the majority have recognised the necessity of this move, not enough research has been done on examining conflict of laws issues in cross-border consumer ADR/ODR and collective redress. This book examines private international law in light of the recent movement in cross-border consumer protection. It does not only cover traditional consumer litigation, but also includes ADR, ODR and collective redress. The book is divided into four parts. Part II focuses on examining conflicts of laws in individual consumer litigation. It carries out a comparative study, primarily based on the current conflict rules in the European Union, and the discretion based approach in the English common law87 and the US. Contributions from other jurisdictions and

87 The European choice of law has been implemented in England which largely replaces its traditional choice of law, but the English traditional jurisdiction rules continue to apply in the area uncovered by the European regime.

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international organisations are considered in due course as relevant and necessary supplements. Part III discusses ADR, ODR and collective redress in cross-border consumer dispute resolution and associated conflict of laws problems. Based on the discussion, Part IV aims to establish a proposal for an enlightened multitiered dispute resolution scheme for cross-border consumer disputes, suggests the proper private international law approach that this scheme should adopt, and provides insight into potential international cooperation and harmonisation in this very controversial area.

2 Protective Jurisdiction in the Brussels I Recast I. Introduction 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. Secondly, there are discretion-based approaches without specific rules for consumer protection where the weaker position of consumers could be considered on a case-by-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.1 The rule-based model is studied by examining the Brussels I Recast, which is the most typical and updated legislation in answering the urgent requirement to regulate jurisdiction issues in electronic consumer contracts. This chapter focuses on the general protective jurisdiction rules in the Brussels I Recast 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 the EU.2

II. The Scope of Protection—Article 17 The protective jurisdiction rules will only apply if three conditions are satisfied. Firstly, one party of the contract is protected as a consumer; secondly, the contract falls within the provided categories of Article 17; thirdly, the contract is concluded.3

1 There are also rule-based approaches providing no protection or discretion to protect the weaker party in a contract. It is clearly inappropriate (see Ch 1, s II.B. above) and will not be examined in detail. 2 Jurisdiction in consumer contracts with choice of forum clauses will be discussed in Ch 6. 3 Case C-419/11 Ceska Sporitelna, AS v Feichter [2013] ILPr 22, para 30.

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Protective Jurisdiction in the Brussels I Recast

The condition for applying the protective jurisdiction rules is provided in Article 17. Article 17(1) provides three specific categories of contract that fall within the scope of protection, where a consumer contract falls within the scope of protection. Article 17(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 17(2) will be examined in section IV. Besides, Article 17(3) excludes a contract of transport except a contract of package travel from the scope of protection. The exclusion is justified by the 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.’4 Jurisdiction rules applying to ordinary contracts in Sections 1 and 2 of the Recast 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 Recast 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;5 (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 24(1);6 (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. Consumer protection in these special contracts will be systematically discussed in Chapter 7 below.

A. One Party is a Consumer There is no international, uniform definition of consumer. The EU adopts a negative definition, where a consumer is someone contracting for a purpose, which is

4 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, Oxford University Press, 2008) 125–7. 5 Art 24(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 24(1) and be subject to the protective jurisdiction rules. See Ch 7 below. For more discussion, see Hill, Cross-Border, 107–13. 6 Hill (n 4) 107–13.

The Scope of Protection—Article 17

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outside his trade or profession.7 The Hague Conference on Private International Law uses a positive definition, where a consumer is someone acting for a purpose for personal or domestic family use.8 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.9 The concept of ‘consumer’ in the Brussels I Recast shall be given a uniform EU meaning,10 irrespective of the relevant national law of each Member State. Article 17(1) provides that a consumer is a person who concludes a contract for a purpose ‘which can be regarded as being outside his trade or profession’. This definition generates a few questions in practice, which need to be addressed.

i. The Status of the Other Party Article 17(1) is silent as to who could be the other party. 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 either of them as the consumer.11 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 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. Although the Brussels I Recast does not specify the requirements for the other party, clarification is provided in other EU legislation. The Rome I Regulation for choice of law in contractual obligations has clearly provided that in order to protect a person as a consumer the other party must act within the exercise of his trade or profession.12 Prior to the Rome I Regulation, the explanatory report for

7 A similar definition has been widely accepted in the EU legislation. Rome I Regulation, Art 6(1); Brussels I Recast, Art 17(1); Directive 2005/29/EC 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 and Reg (EC) No 2006/2004 (Unfair Commercial Practices Directive) [2005] OJ L149/22, Art 2(a); Directive 2000/31/EC on certain legal aspects of information society services, in particular electronic commerce, in the Internal Market (‘Directive on electronic commerce’), Art 2(1). 8 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). 9 Art 120. 10 Case C-89/91 Shearson Lehman Hutton v TVB [1993] ECR I-139. 11 A Briggs and P Rees, Civil Jurisdiction & Judgments, 4th edn (London, Lloyds of London Press, 2005), para 2.77; J Harris, ‘Consumer Protection in Private International Law’ in F Meisel and P Cook (eds), Property and Protection: Legal Rights and Restrictions (Oxford, Hart Publishing, 2000) 245. 12 Art 6(1). See also Fair Trading Act 1973 (c 41), s 137(2); Unfair Contract Terms Act 1977 (c 50) s 12; Directive 1999/44/EC on certain aspects of the sale of consumer goods and associated guarantees [1999] OJ L171/12, Art 1(2)(c).

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the Rome Convention, the Guiliano-Lagarde Report, also provides 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’.13 This issue was later confirmed in the CJEU decision on Vapenik v Thurner,14 where an enforcement order was sought under Council Regulation (EC) No 805/2004, for a judgment against a Belgium debtor in a loan agreement. Both the creditor and the debtor were not contracting within their trade or profession. The application was refused by the Austrian district court on the basis that the judgment was not given in the Member State of the consumer debtor’s domicile.15 The CJEU conducted purposive interpretation by referring to not only the legislative purpose of Brussels I, but also other consumer protection instruments.16 Rules protecting consumers are based on the principle of balancing the inequality of bargaining, economic, knowledge and experience power between consumers and businesses.17 The CJEU clearly concluded that protective jurisdiction will not apply to two persons with no power imbalance.18

ii. 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 Court of Justice in Benincasa v Dentalkit,19 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 CJEU nevertheless held that a consumer should conclude contracts outside and independent of any trade or professional activity or purpose, whether present or future.20 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

13 M Giuliano and P Lagarde, ‘Report on the Convention on the Law Applicable to Contractual Obligations’ (‘Guiliano-Lagarde Report’) [1980] OJ C282/1, 22. 14 Case C-508/12 Vapenik v Thurner [2014] 1 WLR 2486 (unreported in the ECR). 15 Regulation (EC) No 805/2004 creating a European Enforcement Order for uncontested claims [2004] OJ L143/15, Art 6(1)(d). 16 Regulation No 805/2004 is supplementary to Regulation No 44/2001. Vapenik v Thurner (n 14) para 35–37. This Article is consistent with s 4 of the Brussels I Regulation. 17 Vapenik v Thurner (n 14) para 26–30. 18 Ibid, para 33–34. 19 Case C-269/95 Benincasa v Dentalkit [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. 20 Benincasa v Dentalkit (n 19) paras 17 and 18.

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regard to its scope and purpose.21 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 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.22 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.23

iii. 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 protective conflict of law rules as a consumer.24 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 CJEU in Gruber v Bay Wa AG has provided a distinct approach by classifying contracts with mixed purposes as nonconsumer contracts, except where the usage for business purposes was so little as to be negligible.25 The CJEU 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

21

Ibid, opinion of Advocate General (AG) Ruiz-Jarabo Colomer, para 38. Ibid, para 49–52. A buyer in such a contract can be protected as a small business. For example, 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’, Pt 3.11. 23 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. 24 Giuliano-Lagarde Report, 23. 25 Case C-464/01 Gruber v Bay Wa AG [2005] ECR I-439, para 39, and also Advocate General Jacobs, AG para 29–32. 22

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trade or profession, even if only partially for this purpose.26 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 CJEU suggests taking into consideration the content, nature and purpose of a contract, as well as all the objective circumstances in which it was concluded.27 This statement can only provide a general principle for interpretation, which hardly contributes to certainty in practice. A more restrictive test was adopted in the later case of Ceska Sporitelna, AS v Feichter,28 where the CJEU provides that ‘(o)nly contracts concluded outside and independently of any trade or professional activity or purpose, solely for the purpose of satisfying an individual’s own needs in terms of private consumption’ are consumer contracts.29 The word ‘solely’ suggests that there is no exemption for contracts concluded partially within someone’s profession. If a person has close professional links with a company, being the managing director or major shareholder, and this person has conducted activities on behalf of the company, for example, by providing a personal guarantee of the obligation of the company, this person is not treated as a consumer.30 This further narrows the scope of consumers and excludes all private persons whose contracts have anything to do with a trade or profession. It may argue that this test is incompatible with the Gruber decision, but it at least removes the difficulty in assessing what is meant by ‘negligible’ business purposes.

iv. Investment 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.31 However, the English High Court held that private investors, who 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.32 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.33 The interpretation could be too broad, because it can lead to a result where a person who frequently buys with the sole purpose of reselling, can still be protected as a consumer, if he does not

26 27 28 29 30 31 32 33

Ibid, para 39. Ibid, para 47. Case C-419/11 Ceska Sporitelna, AS v Feichter [2013] ILPr 22. Ibid, para 34. Ibid, para 37–40. Benincasa v Dentalkit (n 19) para 17. Standard Bank London Ltd v Dimitrios and Styliani Apostolakis [2000] ILPr 766, 771. Ibid, para 21.

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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 the secondary dealing as a hobby. Should one take into account 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, which shows that private investors are also consumers in the Rome I Regulation. It is likely that no distinct line can be draw to classify investors and special circumstances of each individual case shall be considered.34 Factors that need to be taken into consideration include the investor’s profile, the regularity and amount of the investment, the nature and pattern of investment, and taxation.35

v. 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, 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.36 The Hague Convention on the Law Applicable to Contracts for the International Sale of Goods 1986 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.37 This requirement is necessary for it protects the reasonable expectation of the business.38 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 intention of the buyer 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

34 AMT Futures Ltd v Marzillier, Dr Meier & Dr Guntner Rechtsanwaltsgesellschaft mbH [2014] EWHC 1085 (Comm), para 58. 35 Ibid. 36 Giuliano-Lagarde Report, 22. 37 Art 2(c). See also United Nation Convention on Contracts for the International Sale of Goods 1980 (‘Vienna Convention’), Art 3(1). 38 Hill (n 4) 90.

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is acting within his trade or profession.39 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.

vi. 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.40 However, this purpose aims to protect the whole category of people who are generally weaker against the other category who are generally stronger.41 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.42 Considering the comparative financial or personal situation of the contractual parties in every single case is unworkable.43

vii. 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.44 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.45 However, it is submitted that, for the purpose of the EU consumer conflict of laws, 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 does not generally find itself in this weaker position in need of protection.46

39

Gruber v Bay Wa (n 25), the Advocate General’s (AG) Opinion para 49, and judgment para 51. Shearson v TVB (n 10) para 16; Joined 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; Giuliano-Lagarde Report, 22. 41 Cape Snc v Indealservice Srl (n 40), para 14. 42 Gruber v Bay Wa (n 25), AG, para 36. 43 Briggs and Rees, Civil Jurisdiction, para 2.77. 44 See Directive 97/7/EC of 20 May 1997 on the protection of consumers in respect of distance contracts [1997] OJ L144/1, Art 2(2); Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts (‘Unfair Terms Directive’) [1993] OJ L95/29, Art 2(b); US Uniform Commercial Code, Art 2–102. 45 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 Snc v Indealservice (n 40) para 19. 46 Cape Snc v Indealservice (n 40) para 15. 40

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Secondly, the natural person purchases for personal or family use, while the legal person purchases for the purpose relating 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.47 Finally, consumer protection also includes human rights and health considerations, neither of which is applicable to legal persons.48 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’.

viii. 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, the Brussels I Recast only requires a contract to be concluded by a person for the purpose outside his trade or profession,49 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. Comparatively, the seller is 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.50

B. Contracts for Consumer Credit—Articles 17(1)(a) and (b) Article 17(1) provides three categories of contracts that fall within the scope of protection. Article 17(1)(a) and (b) follows the precedent 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

47

Shearson v TVB (n 10) para 22. European Union, ‘Overview of the European Union Activities—Consumers’, europa.eu.int/pol/ cons/overview_en.htm, last accessed on 7 May 2006. 49 The same lack of clarification also exists in the Rome I Regulation. See Brussels I Recast, Art 17(1); Rome I Regulation, Art 6(1). This problem does not exist in the Rome Convention (Art 5(1)) and the Brussels I Convention (Art 13(1)), which define a consumer as a person receiving the goods or services. 50 Hill (n 4) 99. 48

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automatically entitled to have litigation in the court of his domicile. Article 17(1) (c) relates to all contracts other than contracts for consumer credit and is discussed separately in section C below.

i. ‘Sale of Goods’ in E-Commerce Strong protection is provided for credit sales. Whenever there is a contract for, or relating to credit sales, the protective jurisdiction rule applies irrespective of whether the business has ‘targeted’ the consumer’s domicile. However, it is necessary to note that the protection is only provided for the ‘sale of goods’ by consumer credit. In other words, if credit is provided to purchase services, or something rather than goods, Article 17(1)(a) and (b) will be irrelevant. This generates one special question in electronic commerce, ie what is ‘sale of goods’? As a term included in the EU Regulation, ‘sale of goods’ should be interpreted as an autonomous EU meaning instead of referring to the national law of an individual Member State.51 In Car Trim GmbH v KeySafety System Srl,52 the Court of Justice provides guidance in distinguishing ‘sale of goods’ from ‘provision of services’. Pursuant to the judgment, the Court of Justice accepts that the relevant provisions of EU law and international conventions should be taken into consideration when providing the EU definition for ‘sale of goods’ in the Brussels regime.53 At international level, 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 and can only be treated as imprecise guides.54 None of them provide a positive and precise definition of ‘sale of goods’ other than an incomprehensive list of the ‘goods’ that might or might not be covered.55 This list cannot show whether a particular subject matter in e-contracts shall be excluded or included in the scope of ‘goods’, which produces confusion. These conventions predate the development of e-commerce and demonstrate a notable absence of any consideration of the concept of ‘sale of goods’ in e-commerce. At EU level, in a Recommendation published in 2010, the European Commission classifies ‘goods’ into a few sub-categories, including information and communication technology goods, which cover computer software, computer software upgrades and leisure

51 Case 150/77 Bertrand v Paul Ott KG [1978] ECR 1431; Shearson v TVB (n 10); Benincasa v Dentalkit (n 19); 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, Oxford University Press, 2005) para 3.148; Hill (n 4) 81–3. 52 Case C-381/08 Car Trim GmbH v KeySafety Systems Srl [2010] ECR I-1255. 53 Ibid, para 34. 54 Cf Fawcett, Harris and Bridge, International Sale, para 3.148. 55 Vienna Convention, Art 2; Hague Sales Convention 1955, Art 1; Hague Sales Convention 1986, Art 2.

The Scope of Protection—Article 17

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goods, which cover electronic games, video-game software.56 Other internet or digital products, such as news subscriptions, chat rooms, pay per view or videoon-demand, are classified as services.57 It suggests that software may be classified as goods, though no clear test is provided. Clearer guidance is provided by the Directive on Consumer Rights.58 Art 2(3) of the Directive defines ‘goods’ as ‘any tangible movable items’ but also including intangible products such as water, gas and electricity put up for sale in a limited volume or a set quantity. The words ‘tangible movable’ excludes tangible digital products from being classified as goods.59 However, the Directive has provided guidance for digital products, which are data ‘produced and supplied in digital form, such as computer programs, applications, games, music, videos or tests, irrespective of whether they are accessed through downloading or streaming, from a tangible medium or through any other means’.60 It is suggested that if digital products are supplied through a physical medium, such as a CD, a cassette, a DVD, etc, they are defined as ‘goods’, while digital products supplied without a tangible medium are classified as neither goods or services.61 Categorising digital contents supplied through a physical medium as ‘goods’ was supported by the reason that these products meet the requirement of ‘tangibility’ and ‘mobility’ of common goods.62 It has similar features to the sale of hardcopy books, music CDs and movie DVDs. What is actually purchased is the ‘information’, which is contained in a different form. Although Lord Penrose in the Beta Computers (Europe) Ltd v Adobe Systems (Europe) Ltd63 case argued that the means of access and use of software are different from those of books, it is suggested that the means of access and use of products by the buyer do not change the nature of these products.

56 Commission Recommendation 2010/304/EU of 12 May 2010 on the use of a harmonised methodology for classifying and reporting consumer complaints and enquiries [2010] OJ L136/1. 57 Ibid. 58 Directive 2011/83/EU on consumer rights, amending Council Directive 93/13/EEC and Directive 1999/44/EC and repealing Council Directive 85/577/EEC and Directive 97/7/EC (‘Directive on Consumer Rights’) [2011] OJ L304/64. 59 Ibid, Art 2 and recital 19. 60 Ibid, Art 2(11) and recital 19. 61 Ibid, recital 19. 62 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. The decision has been confirmed by Sir Iain Gildewell in obiter dictum in the appeal, [1997] FSR 251, 265 (reversed in other part). Some US cases treat all digital products carried by a physical medium as goods. 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 (D NH, 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). 63 Beta Computers (Europe) Ltd v Adobe Systems (Europe) Ltd [1996] FSR 367.

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Excluding digital products in an intangible form from being ‘goods’ is not surprising either, though exception is given to utility products.64 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’.65 In England, Lord Penrose in Beta v Adobe rejected the idea that software transferred through a telephone line is covered by goods.66 Compared to services, it may be more appropriate to classify this product as sui generis,67 because services require the supply of labour or skills, where the purchase of intangible digital products transfers the right to use the digital contents.68 A comparison should be made between digital products sold in the 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.69 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.70 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

64 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 L145/1, Art 5(2); Directive 1999/44/EC on certain aspects of the sale of consumer goods and associated guarantees [1999] OJ L 171/12, Art 1(2)(b); Directive on Consumer Rights, Art 2(3). However, intangible products were classified as goods by other authorities in the past. See the decisions in German and Swiss courts: Oberlandesgericht, Koblenz, of 17 September 1993 (cisg3.law-pace.edu/cases/930917gi. html); the Commercial Court (Handelsgericht) of the Canton of Zurich of 17 February 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 February 1999, 6; F Debussere, ‘International Jurisdiction Over E-Consumer Contracts in The European Union: Quid Novi Sub Sole?’ (2002) International Journal of Law and Information Technology 10 and fnn 31–6 therein. 65 UCITA 2002, s 102(a)(33). 66 Beta v Adobe (n 63) 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 intangible supplies as something other than goods. 67 Beta v Adobe (n 63) 376. 68 C Reed, Internet Law: Text and Materials, 2nd edn (Cambridge, Cambridge University Press, 2004) 182; Fawcett, Harris and Bridge (n 51) para 10.49. See also Beta v Adobe (n 63) 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. 69 Eurodynamics Systems Plc v General Automation Ltd (6 September 1988 unreported). 70 Beta v Adobe (n 63) 376.

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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.71 It is thus argued that in theory digital products downloaded or streamed in a tangible form, or such products carried by a physical medium, should be treated as the same type. However, there are policy reasons for extending the scope of goods, in order to provide consumers with a similar standard of protection in the sale of digital products. In the Directive on Consumer Rights, digital products contained in a tangible media are classified as goods and consumers in these contracts are provided with the same level of protection as contracts selling ordinary goods, while digital products supplied in intangible form are classified as sui generis,72 where different rules are provided in terms of cancellation and return and the supplier’s duty of information.73 This should reflect the EU uniform definition of goods in electronic commerce. Finally, the classification of digital products is not only associated with their form, ie whether they are carried by a tangible medium or intangible digital stream. It also relates to the characteristics or type of digital content, ie whether the products are standardised, ‘off the shelf ’ products, or ‘customised’ products. In the US, some courts tend to draw a distinction between the ‘off the shelf ’ purchase and the ‘customised’ purchase, and hold the former as the ‘sale of goods’ while the latter the ‘provision of services’.74 The position in the EU is not very clear. In Car Trim, the Court of Justice provides guidance in order to distinguish goods from

71 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 v Adobe (n 63) 376. Cf Sir Iain Gildewell held tangible software as goods but intangible software was not in the appeal in St Albans City v International Computers (n 62) 265. 72 Directive on Consumer Rights (n 58), recital 19. 73 Art 5(2); Art 6(2); Art 14(4)(b); Art 16(m); Art 17(1). 74 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 (ND Cal, 2006) 1062–63; Geotech Energy Co v Gulf States Telecommunications and information Systems 788 S W 2d 386 (Tex App, 1990) 389.

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services in customised sale. Firstly, for specifically manufactured products, one should take into account the origin of the raw material and the supplier of those materials. If most materials for producing products are supplied by the manufacturer, the contract is a sale of goods contract.75 This guidance may not be helpful in the production of digital content, such as customised software, as there is no physical raw material as such. Secondly, if the seller is responsible for the quality of goods, or the result of the goods’ functioning and activity, the contract may be a sales contract; while the seller is responsible only for the correct implementation in accordance with the purchaser’s instructions, the contract is a services contract.76 In designed and customised software, the responsibility of the seller will usually be specified in the contract, which makes it necessary to examine the characteristics of the contract on a case-to-case basis. However, if the contract does not specify the seller’s responsibility in detail, it may cause difficulty, because the application of default law in most cases depends on whether the contract is classified as ‘sales’ or ‘services’. It is clear that producing customised software in compliance with the consumer’s requests and instructions includes the provision of labour and skills. The object of the contract includes services. Recital 5 of the Directive on Consumer Rights provides that the ‘sales contract’ includes any contract, the purpose of which is to transfer the seller’s ownership of a product to the consumer for payment, ‘including any contract having as its object both goods and services’. In this Directive, goods include ‘goods made to the consumer’s specifications’.77 Furthermore, the Directive on Consumer Sale also provides that contracts ‘for the supply of consumer goods to be manufactured or produced shall also be deemed contracts for sale’.78 The Directive on Consumer Rights is not completely consistent with the decision in Car Trim. It is also necessary not to confuse digital products in intangible form with supplying intangible specialised ability or rights. 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 or articles. 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

75 76 77 78

Car Trim v KeySafety (n 52) para 40. Ibid, para 42. Recital 49 and Art 16. Directive 1999/44/EC, Art 1(4).

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by 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 sui generis. 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. Taking all these authorities into consideration, ‘sale of goods’ in Art 17(1)(a) and (b) in the purchase of digital products in e-commerce shall cover the purchase of digital content on a physical medium, including both standard and customised digital products. Contracts for the purchase of intangible digital content is excluded from ‘sale of goods’, and should be treated as sui generis contracts, where Art 17(1)(a) and (b) is irrelevant.

ii. Consumer Credit on Instalments or Other Forms of Credits Article 17(1)(a) and (b) applies to contracts for consumer credit sales. It provides wide jurisdictional protection to all consumers in credit sales contracts, without it being necessary to consider the marketing strategy and intention of the seller or lender. Credit sales, as a result, should be interpreted restrictively. ‘Sale by instalments’ is given an autonomous meaning in Bertrand v Paul Ott KG.79 Consumer credit sale on instalments is defined as ‘a transaction in which the price is paid by way of several payments or which is linked to a financing contract’.80 Credit sales may induce consumers to buy in cases where payment as a lump sum would exceed their financial ability.81 However, although consumers’ payment burden is reduced on each instalment, the total amount payable by consumers might largely exceed the agreed price. Credit sales, thus, may mislead consumers as to the real amount owed and may lead consumers to the risk of losing the goods while remaining obligated to pay any outstanding instalments.82 If the agreed price is discharged by several payments before the transfer of possession, this is not considered ‘sale on instalment’.83 79

Bertrand v Paul Ott (n 51) para 13–15. Ibid, para 20. Cited in Mietz (n 51) 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 C59/1, 33. 81 Bertrand v Paul Ott KG (n 51), Opinion of Advocate General (AG) Capotorti, para AG 3; cited by Advocate General Leger in Mietz (n 51), para AG 52. 82 Mietz (n 51), para 31. 83 Ibid. 80

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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. This level of protection would not infringe the reasonable expectation of the business, because the credit sale agreement or selling by instalment surely requires the consumer to disclose his personal information, including his permanent address, bank account details, credit card history, etc. A contract for sale on consumer credit can exist in e-commerce. Where businessto-consumer e-commerce becomes common, the subject matter purchased online may not be 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. The purpose is the same, namely to induce a consumer, who may be reluctant to pay the full price, to buy. Would credit sale be common in the purchase of digital products, such as software? It is common to buy expensive business software by paying an initial fee by instalment.84 Software financing for consumers is very unusual, but it does not mean that flexible payment for purchasing software for individual or family use may not develop in the future. Furthermore, it is less unusual for consumers to contract for a loan repayable by instalments to finance the purchase of expensive software.85 Of course, selling software on credit terms may cause practical difficulties. Some Member States may allow the creditor or seller to repossess the goods in credit sales upon default of payment. Returning software already installed in the consumer’s computer or other digital products may prove impossible.86 These Member States may have to update their domestic law to address this obstacle in the future, or rely on technology to make ‘return’ feasible.87 Anyway, the purchase of software or other digital products on a tangible medium is covered in Art 17(1)(a) and (b). Unfortunately, the protection would not apply to the same purchase of intangible digital products on credit terms,88 though the existence of a physical medium would not make a fundamental difference to the transaction.

84 S Stokes, ‘Intellectual Property and Technology Issues’ (2014) 113 Compliance Officer Bulletin 1, 15. Besides the initial fee, the company has to pay an annual licence fee and a support and maintenance fee. For eg Colorado Interstate Corp v CIT Group/Equipment Financing Inc, 993 F.2d 743 (10th Cir 1991); IBM, ‘Software Financing’, www-03.ibm.com/financing/uk/itsoftware/index.html, accessed on 2 January 2015. 85 DA Szwak, ‘Uniform Computer Information Transactions Act: The Consumer’s Perspective’ (2002) 63 Louisiana Law Review 27, 34. 86 K Hull, ‘The Overlooked Concern with the Uniform Computer Information Transactions Act’ (2000) 51 Hastings Law Journal 1391, 1405. 87 For example, the software may need periodical activation by inserting an activation code, which will only be generated after the consumer has paid the agreed instalment. 88 Because the subject matter is classified as sui generis under the EU law. See s A. above.

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C. General Consumer Contracts—Article 17(1)(c) Article 17(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.89 A consumer of a contract can be protected in jurisdiction under Article 17(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 17(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 17(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; (3) the contract has to be concluded within the scope of the business’s activity.

i. Pursuing Commercial Activities in the Consumer’s Domicile 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 17(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. It is suggested ‘pursuing’ activities

89 European Commission, ‘Proposal for a Council Regulation (EC) on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters’ (‘Commission Proposal’), COM(99)0348 final [1999] OJ C376E/1, 16.

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may range from ‘continuous business management, to more sporadic occurrences of commercial activities’ by considering its natural meaning.90 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 17(1)(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.91 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.92 This could be the case where the business is physically present, or its representative is present, in the targeted 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. Could the business 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.93 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. 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.94 Furthermore, the place where

90

J Øren, ‘International Jurisdiction Over Consumer Contracts in E-Europe’ (2003) 52 ICLQ 665,

676. 91

See in general, ibid. Discussed in ibid, 676–7. For the status of a server, see C Reed, ‘Managing Regulatory Jurisdiction’ (2001) 38 Houston Law Review 1003; J Øren, ‘Electronic Agents and the Notion of Establishment’ (2001) 9 International Journal of Law and Information Technology 249. For more discussion, see s IV. below. 94 GB Delta, Law of the Internet (Aspen Publishers Online, 2009) fn 59. 92 93

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the company is physically present and the place where the company is actually engaged in doing business could have a fortuitous and superficial connection.95 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? Does the ‘pursue … in’ test require purposeful, planned and deliberate commercial activities? In other words, 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, frequency, quantity and value. If commercial activities have been carried out in a country continuously for a certain period of time, or have been carried out repeatedly and brought the business a certain amount of value, the business has pursued its commercial activities in the country.96 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 17(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 17(1)(c) specifically indicates that the targeted country could be a ‘Member State’ or ‘several States including that Member State’. A literal reading 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

95 The lack of genuine connection between the physical location of the company and its market exists not only in e-commerce but traditional commerce, but the internet makes the situation worse. See J Berk, P DeMarzo, et al, Fundamentals of Corporate Finance (Frenchs Forest, New South Wales, Pearson Higher Education Australia, 2013) 455; MV Soriano, FJG Alferez, The European Insolvency Regulation (The Netherlands, Kluwer Law International, 2004) 41; OH Jacobs, A Schafer, International Company Taxation in the Era of Information and Communication Technologies (Frankfurt, Springer, 2007) 109. 96 The similar test is adopted in the US to assess whether a business has substantial contacts with the forum. See Ch 3, s II. below.

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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 causes unnecessary trouble in practice. It is thus submitted that regardless of the text of Article 17(1)(c), a business is able to pursue commercial activities in more than one Member State. d. Conclusion It is suggested by Øren 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 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.97 For example, an e-agent is used only to accept orders from England. 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 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

97

J Øren, ‘International Jurisdiction’, 676–7.

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purpose in establishing this provision.98 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.99 For example, recital 13 of the Commission Proposal for the Brussels I Regulation stating that: 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.100

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.101 This option potentially subjects an e-business to the jurisdiction

98

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. 100 European Commission, ‘Proposal for a Council Regulation’, recital 13. The text literally is contrary to the Explanatory Memorandum of Art 15, fn 2, 16. It shows that the Commission does not make a clear clarification between ‘accessibility’ and ‘activity’ of a website. 101 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. 99

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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’.102 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(1)(c).103 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.104

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, unless 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. This approach is clearly rejected by the CJEU.105 (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 should not operate as a principal consideration for jurisdiction.106 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

102

Euromarket Designs Incorporated v Peters & Anr [2001] FSR 20. 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 2006. 104 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 November 2008. 105 C-585/08 and C-144/09 Pammer v Reederei Karl Schlüter GmbH & Co KG, and Hotel Alpenhof GesmbH v Oliver Heller [2010] OJ C55/4, para 94. 106 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, September 2007 (‘Heidelberg Report’), para 343. 103

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subject to the protective jurisdiction. This implication is obviously inconsistent with the purpose of Article 17(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.107 (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 not indicating otherwise, the website is targeting the particular country shown by the country-specific indicia.108 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 ccTLD,109 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 gTLD110 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 EU. As to the accepted currency, with the adoption of the euro, the currency provides little guidance as to the targeted state. The Council and the Commission say in a Joint Statement that the countryspecific indicia are not relevant factors to make the protective jurisdiction rules apply.111 This suggestion is over restrictive. Regardless of the weakness, countryspecific 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, these indicia can be strong factors for a court to take into consideration. Although they cannot be used as negative defence to show

107

For more criticisms of this approach, see Øren (n 90) 682. 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, ‘Multi-State Advertising’, 923; DTI, ‘Brussels Regulation’, para 1.16. 109 Country code top-level domain, see A Stacey et al, Effective Information Retrieval from the Internet (Oxford, Chandos, 2004) 27–8. 110 Generic top-level domain, such as ‘.com’, ‘.net’ and ‘.org’. See Stacey, Effective Information, 29–30. 111 The Council and the Commission, ‘Joint Statement’. The language or currency which a website uses does not constitute a relevant factor. 108

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that the business does not direct its commercial activities to other countries,112 it could be used as a positive factor to show a business certainly has targeted the country indicated by those country-specific indicia. (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 or objective activity.113 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,114 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’.115 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.116 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 activities need to appear to be a planned and intended transaction.117 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

112 DTI (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, ‘Brussels Regulation’, para 1.15. 113 Øren (n 90) 687, and fn 64. 114 Giuliano-Lagarde Report, 22, 23. 115 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’ (‘Parliament Proposal’), A5-0253/2000 COM(1999) 348-C5-0169/1999–1999/0154 (CNS), [2001] OJ C146/94, 97–8. 116 Øren (n 90) 681 and fn 64. 117 Ibid, 687.

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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.118

The distinction between ‘passive’ and ‘active’ websites has been widely accepted but not adopted in the Joint Statement of the Council and Commission.119 However, this approach generates similar difficulties as the ‘accessibility’ approach.120 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 the 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. In Pammer v Reederei Karl Schlüter GmbH & Co KG and Hotel Alpenhof GesmbH v Oliver Heller,121 for example, the CJEU rejected the submission that including the contacting address, email and telephone number without the international code in a website would make the website active to justify protective

118 ‘Commission Proposal’, 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 the US. 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. 119 ‘Joint Statement’; Heidelberg Report, para 340. 120 See s (i). ‘Accessibility’ above. 121 Pammer v Reederei, and Hotel Alpenhof v Heller (n 105).

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jurisdiction. The above information is also necessary for domestic trading and is mandatory to regulate internet trading by the EU law.122 Secondly, it is based on an unrealistic view that a website can easily be classified into ‘active’ and ‘passive’.123 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 be of any help without giving proper interpretations to both ‘active’ websites and ‘purposeful’ activities of businesses. This suggestion is rejected by the CJEU in Pammer and Hotel Alpenhof GesmbH, because it may weaken protection for consumers by requiring the evidence to prove the business’s intention to ‘develop activity of a certain scale’ in the consumer’s domicile.124 The attempt to explore the subjective intention and purpose of the business is usually difficult and impractical. (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’.125 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

122 Ibid, para 77–9. Art 5(1)(c) of the Directive 2000/31/EC on certain legal aspects of information society services, in particular electronic commerce, in the Internal Market (‘Directive on Electronic Commerce’), OJ L2000/178, 1. 123 Reed, Internet Law, 197. 124 Pammer v Reederei, and Hotel Alpenhof v Heller (n 105) para 82. 125 Amendment 37, ‘Parliament Proposal’.

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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,126 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.127 The second method is the employment of computer programmes, which can identify the location of a computer that a consumer uses to connect to 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. Software 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 while 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 human intervention. For example, a consumer is required to input his country, post code or his telephone number, including the international dialling code, into the online order form. The electronic agent can refuse to enter into a contract with a person whose country, post code or international dialling 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. 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. Some businesses only request that the consumer provides a delivery address and presume this is the

126 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. 127 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, 26–27 July 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 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 April 2006.

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consumer’s domicile. Although the reasonable expectation of the business needs protection, the business may be happy to ‘permit’ or ‘encourage’ the consumer to provide a delivery address other than his domicile in order to profit from the transaction.128 Regardless of all the concerns over the present ring-fencing methods, there are no good reasons to abandon the ring-fencing approach in e-commerce. Ringfencing 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.129

The EU refused to accept the ‘ring-fencing’ approach proposed by the Parliament, by claiming that it is ‘running counter to the philosophy of the provision’ and ‘based on the essentially American concept of business activity as a general connecting factor determining jurisdiction’.130 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 EU protective jurisdiction rules 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 17(1)(c). The Commission also claims that the adoption of the ring-fencing approach would fragment the market within the EU.131 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

128 These methods are also called ‘jurisdictional avoidance’ mechanisms in US writings. They are widely discussed in academic writings, see eg Øren (n 90) 691–4; Foss and Bygrave, ‘International Consumer’, 121 and fnn 64, 65; Internet Law and Policy Forum, ‘Ottawa Preliminary Statement for the Ottawa Meeting’. 129 Amendment 37, ‘Parliament Proposal’. 130 European Commission, ‘Amended Proposal for a Regulation on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters’ (‘Amended Proposal’), COM (2000)689 final, Explanatory Memorandum, 5–6. 131 European Commission, ‘Amended Proposal’, 6.

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ring-fencing method has its weaknesses and advantages, it is suggested to combine some of these methods together for a more efficient result. (vi) Hybrid Approach 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. It means the court should avoid using a rigid test to determine whether a business has targeted the consumer’s domicile, but should adopt a flexible approach to consider all the circumstances of a contract in order to make a decision.132 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 Member 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 in different circumstances. 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.133 The active behaviour of the business should easily be regarded as

132 This approach is adopted in the CJEU in Pammer v Reederei Karl Schlüter GmbH & Co KG, and Hotel Alpenhof GesmbH v Oliver Heller (n 105). The cases include both website and email trading. For more discussion, see s (ii) c. below. 133 The sending of unsolicited email advertisement to consumers is regulated. According to the Canadian E-Commerce Code of Practice 2003, unsolicited commercial emails are not allowed unless the parties have a pre-existing relationship and the Spam Control Act 2003 was passed to control unsolicited emails. See E Gratton, Internet and Wireless Privacy (Canada, CCH Canada Ltd, 2003) 102. Controlling the Assault of Non-Solicited Pornography and Marketing Act 2003 was passed to enable the US to control unsolicited email. In the EU, the Directive 2002/58/EC on Privacy and Electronic Communications [2002] OJ L201/37 tackles unsolicited email without consumers’ consent or opt-in. See A Savin, EU Internet Law (Cheltenham/Massachusetts, Edward Elgar, 2013) 252–4.

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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.134 However, in electronic commerce, it is too imprudent to assume a business knows the domicile of a consumer simply through the email address, which 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, the business ‘directs’ commercial activities to the consumer’s domicile, no matter where it is.135 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. Although in the EU, a business can only legitimately send unsolicited emails with the consumer’s consent or by the consumer opting-in,136 the consumer is in a totally passive position 134 135 136

Foss and Bygrave (n 71) 122. For the same view, but by different reasoning, see ibid; Øren (n 90) 689. Directive on Privacy and Electronic Communications, Art 13.

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in terms of each email promotion and will not enter into the contract without the business’s invitation. Furthermore, an e-business should be professional 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,137 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 where a business sends an email responding to a consumer’s invitation. In this situation it seems that it is the consumer who targets the jurisdiction of the business in 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 commercial activities of the business as a whole. If a business in fact has frequent transactions with consumers domiciled in that particular state, the business has directed its commercial activities to that state, no matter which party contacts the other first. The second approach is to judge the consumer’s email address and the information provided by the consumer. If a consumer’s email address informs the business of the consumer’s 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 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.138 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 137 138

See Øren (n 90) 688. This is similar to the ‘ring-fencing’ approach. See s a (v). above.

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has directed its commercial activities to the consumer’s domicile regardless of the statement. It is suggested that 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-by-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. 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 with a valid email address for any inquiry. In these cases, all the relevant factors that lead to the conclusion of the contract should be taken into consideration. The hybrid approach combining all tests should be adopted.139 In Pammer v Reederei Karl Schlüter GmbH & Co KG,140 an Austrian consumer entered into a voyage contract with a German company via the website of a German intermediary. The consumer contacted the intermediary company by email to acquire further information and made the booking by post. In Hotel Alpenhof GesmbH v Oliver Heller,141 a German consumer booked hotel accommodation with an Austrian company. The consumer initially consulted the hotel’s website which referred to an email address and the reservation was made by

139 140 141

For the hybrid approach, see s a (vi). above. Pammer v Reederei, and Hotel Alpenhof v Heller (n 105). Ibid.

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subsequent emails. Both cases concern consumers entering into a consultation through website advertisement, concluding contracts at a distance by email and receiving services in another country. Since consumers’ activity and mobility is irrelevant, the key is whether the businesses have directed activities to the consumers’ domicile. The CJEU decided that in order to apply the protective jurisdiction, the business must ‘have manifested its intention to establish commercial relations’ with consumers from their domicile.142 The intention shall be proved by evidence. Information which must be disclosed by law and which is necessary also for domestic transactions are insufficient to prove the business’s intention to target the consumer’s home.143 On the other hand, if there is a clear statement suggesting the company has the intention to trade with consumers from certain countries, the evidence is decisive.144 Most cases would have no such decisive evidence and the court must consider all the relevant factors, including the international nature of the activity at issue; the provision of the international code of the business telephone number; using the top-level domain of a particular foreign country; using the neutral top-level domain; providing itineraries, guiding travel from other Member States to the business’s home to receive services; mentioning the composition of international customers from various Member States;145 and language and currency used.146 The hybrid approach taking all factors into consideration can be applied to all types of internet trading, including trading via a third party’s website. If a company engages in trading by providing information to an agent which includes the information on its website that could conclude a contract with consumers on behalf of the company, the company’s intention shall be determined by the choice of the agent and the nature of the agent, and what is demonstrated on the agent’s website.147

D. Contracts Concluded within the Scope of Such Activities i. A Concluded Contract The consumer can only rely on the protective jurisdiction for a dispute arising out of a 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.148 The EU intends to provide a harmonised definition for concepts

142

Ibid, para 75. Ibid, para 77–8. 144 Art 5(1)(c) of the Directive on Electronic Commerce. Pammer v Reederei, and Hotel Alpenhof v Heller (n 105) para 82. 145 Pammer v Reederei, and Hotel Alpenhof v Heller (n 105) para 83. 146 Ibid, para 84. 147 Ibid, para 89–90. 148 eg Hague Sale of Goods Convention 1955; Hague Sale of Goods Convention 1986; Vienna Convention 1980; Inter-American Convention 1994. 143

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used in the European instruments.149 The CJEU has provided some guidance to the concept ‘matters relating to a contract’ in Article 7(1) of the Brussels I Recast. 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,150 but it is uncertain whether there must be such a matter if a freely assumed obligation exists,151 whether the definition is wide enough to cover restitutions, pre-contractual obligations and other related issues, and whether ‘matters relating to a contract’ in Article 7(1) have the same range as a contract in the consumer protective jurisdiction. ‘Matters in relation to a contract’ is interpreted broadly. In an earlier decision, the Court of Justice also provides a wide definition to ‘matters in relation to a contract’ in Article 7(1) of the Brussels I Recast, which covers a dispute concerning the existence of a contract.152 Furthermore, the Rome II Regulation on the law applicable to non-contractual obligations provides further guidance on classification.153 The Rome II Regulation expressly covers quasi-contractual issues, namely unjust enrichment, negotiorum gestio and culpa in contrahendo. The definition and scope should be consistent between the three European conflicts of laws instruments.154 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 Regulation. 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 suggested that these noncontractual obligations, if in connection to a contract, can be included within the scope of ‘matters relating to a contract’ in Article 7(1) of the Brussels I Recast, 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

149 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. 150 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 I-6367, para 36; Re Jurisdiction in a Claim Based on a Prize Draw Notification (BGH(Ger)) [2007] ILPr 15, para 9. 151 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 11), para 2.126. 152 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 (n 150) para AG38. 153 Regulation (EC) No 864/2007 on the law applicable to non-contractual obligations of 11 July 2007 [2007] OJ L199/40. 154 Recital 7 of Rome II and recital 7 of Rome I.

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be governed by the same law applicable to a contract.155 As a result, matters relating to a contract in Article 7(1) cover disputes on the very existence of a contract, the consequence of an invalid contract, unjust enrichment, negotiorum gestio and culpa in contrahendo in relation to an existing contractual relationship. Protective jurisdiction, however, applies to a consumer ‘contract’, instead of matters in relation to a consumer contract. It is likely that a narrower definition may be provided to ‘contract’ in Article 17(1) in contrast with Article 7(1). The question of what obligations should be covered in the protective jurisdiction becomes frequent with the development of ‘prize winning’ mail promotions. Where a consumer receives a mail from a foreign mail order company stating that he is the winner of a prize, the consumer may wish to sue the business for the prize if the contract is not successfully concluded. In Engler v Janus,156 an Austrian consumer received a letter from a German mail order company which made her believe that she had a prize and she could claim by returning a payment notice confirmation. Together with the letter, a catalogue and an order form were sent to induce the consumer to order from the company. The consumer did not order but returned the payment notice confirmation. The company refused to pay the sum, arguing there was no contract concluded. It is determined that the dispute does not fall within the scope of protection which only applies to a ‘contract concluded’.157 This is justified by the literal reading of the provision,158 and the policy to interpret protective jurisdiction restrictively.159 Although an ‘over-restrictive’ interpretation is not favoured by Advocate General Jacobs,160 he also sticks to the ‘clear wording’ of the Article, which states that it applies to ‘a contract concluded’ by a consumer.161 Engler is distinguished from Gabriel v Schlanck & Schick GmbH,162 which is similar in all senses apart from the fact that the consumer indeed ordered goods from the company after receiving the notification. Gabriel was held to be covered by the protective jurisdiction because a contract was concluded by the consumer and the prize draw is indispensable to this contract.163 The Austrian Court, which is the court of the consumer’s domicile, had jurisdiction over the concluded contract anyway. If the prize draw dispute was brought to another court, there might have

155 Cf Kleinwort Benson v Glasgow City Council [1999] 1 AC 153. This case does not exclude all claims for restitution from Art 7(1). If the restitution arises out of a valid contract, Art 7(1) shall apply. See Cheshire, North & Fawcett, Private International Law, 14th edn (Oxford, Oxford University Press, 2008) 231. 156 Engler v Janus (n 150). 157 Ibid, para 40. 158 Ibid, para 40. 159 Ibid, para 42–3. 160 Ibid, AG Opinion, para 23. 161 Brussels I Recast, Art 17(1); Brussels I Regulation, Art 15(1); Brussels Convention, Art 13(1). 162 Gabriel v Schlanck (n 150). 163 Engler v Janus (n 150) AG Opinion, para 29; Gabriel v Schlanck (n 150), para 47–8, AG Opinion, para 35.

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been concurrent proceedings relating to the same contract.164 Furthermore, the objective of the Regulation should be taken on board. The purpose of the protective jurisdiction is to protect consumers and a purely literal interpretation that is contrary to this purpose should not be appropriate.165 Both decisions are confirmed in Ilsinger v Dreschers,166 where a consumer responded to a prize draw notification without placing an order. The Court held that in order for the protective jurisdiction to apply, there might be a contract concluded. The mail order company should have made a firm offer and committed to legal obligations, which did not exist in this case.167 The prize draw notification shall only be interpreted as ‘pre-contractual obligations’ and should fall within the scope of Article 5(1) of the Brussels I Regulation.168 The situation of consumers targeted by prize draw advertisement is now clear. Consumers are entitled to sue pursuant to the protective jurisdiction rules only if contracts, that are indispensible from the prize draw notification, are concluded. Jurisdiction is not taken to decide an independent prize draw claim, but to determine a contract concluded as a consequence, where the prize draw notification is a related matter. AG Jacob, who provided opinions for both Engler and Gabriel, distinguishes prize draw claims from other claims based on concluded contracts in that the consumer ‘has incurred no outlay’ in the former and the protection to consumers does not aim to provide them enrichment.169 The decision, however, is open to criticism. Firstly, consumers who are targeted by misleading advertising cannot take home forum advantage. Whether or not a contract is concluded cannot vary the fact that the parties have, indeed, inequality of bargaining and litigation power and unequal access to information. It is hard to claim, from a policy perspective, that this group of consumers should not be protected. Secondly, it is hard to justify that judicial protection to consumers should depend on the economic advantages taken by consumers. Consumers, who are targeted by such advertisement but who do not proceed to place an order, do not have any financial obligations or suffer any loss. However, there may be other consumers, who are the winners of a special promotion which allows them to pay negligible sums to receive valuable goods. These consumers are protected in the protective scheme even if they are ‘enriched’ in this contract. Thirdly, it is questionable whether the ‘conclusion’ of a contract can be a consistent standard and can provide certainty within the EU. Different laws provide different conditions for the ‘conclusion’ of a contract. One contract may be ‘concluded’ in German law but not in English law. Should a court then consult the applicable law to determine whether the contract in dispute is indeed concluded? Fourthly, the definition of

164 165 166 167 168 169

Gabriel v Schlanck (n 150) AG Opinion, para 40. Ibid, AG Opinion, para 42–5. Case C-180/06 Ilsinger v Dreschers [2009] ECR I-3961. Ibid, para 55. Ibid, para 57. Engler v Janus (n 150) AG Opinion, para 29.

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contract is inconsistent between special jurisdiction and protective jurisdiction.170 The inconsistency causes confusion and questions whether the purpose of protective jurisdiction can be properly achieved, where it is introduced to provide exception to the common jurisdiction rules in Article 7(1) by sub-classifying contracts in Article 7(1) into consumer contracts and ordinary contracts. It is submitted that the definition and scope of ‘contract’ should be consistent between Article 7(1) and Article 17(1). 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 at a 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 will 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 may be easily convinced that he has won a prize and perform 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 arises. 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.

ii. Contracts within the Framework of Business 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, the protective jurisdiction rule may still not apply. The final requirement is that the contract should 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.171

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

170 In Ilsinger (n 166) para 57, the Court held that pre-contractual obligations or quasi contract obligations fall within the scope of Article 5(1) of the Brussels I Regulation. See P Nielsen, in U Magnus and P Mankowski, Brussels I Regulation (Germany, Sellier-European Law Publishers, 2007) 309. See also Hill (n 4) 85–7. 171 ‘Joint Statement’, point 1, para 3.

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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. A broad interpretation, fortunately, is provided by the CJEU. In Emrek v Sabranovic,172 a German consumer bought a car in France. The defendant maintained a website providing its contact details, which included a German mobile number and a French telephone number with the international dialling code. The German consumer, however, entered into the transaction not through browsing the defendant’s website but through his acquaintances. The question is whether the consumer could rely on the protective jurisdiction rule to sue the defendant in Germany. There is not much doubt that the business had ‘directed’ its commercial activities to Germany. The major debating point is the ‘causal link’ between the means used in targeting the consumer’s domicile and the conclusion of the contract, ie whether the website should form the basis of, or lead to, the transaction. This 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. Furthermore, while a consumer is lured by a website to enter into a contract but indeed concludes the contract in person, it is very difficult for the consumer to prove the existence of the causal link between the website and the transaction.173 Removing the requirement of a causal link would reduce the difficulty of proof and could provide better protection to consumers. However, the CJEU also provides that although the causal link is not the condition to apply the protective rule, its existence nevertheless could help to prove that the business has indeed ‘directed’ its activities to the consumer’s home.174 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

172 173 174

Case C-218/12 Emrek v Sabranovic [2014] Bus LR 104. Ibid, para 25. Ibid, para 26.

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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 the 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.

iii. Distance Contract? It is also questionable whether the protection should apply if a consumer approaches the business actively in the business’s domicile and enters into transactions there. In Mühlleitner v Yusufi,175 an Austrian consumer accessed a German research website to look for information of suppliers of second-hand vehicles, which directed her to the website of the German defendant. The website provided the phone number containing the international dialling code for Germany. The consumer made a phone call, let the defendant know he was an Austrian resident, and acquired further information through email. The consumer then travelled to Germany to conclude the contract at the defendant’s premises. There is no doubt that the commercial activities were directed to Austria; the question is whether it is reasonable to protect the consumer in this circumstance, where the contract is not concluded at a distance but at the defendant’s domicile. This question should not be difficult to answer. The law does not explicitly narrow its scope to distance selling, though the main purpose of Article 17(1)(c) is to provide necessary protection to distant consumers.176 Furthermore, Article 17(1)(c) following Article 15(1)(c) of the Brussels I Regulation has reformed the old Article 13 of the Brussels Convention, which clearly requires the consumers to take all the necessary steps to conclude the contract in its domicile. The old Article 13 is unfriendly to consumers by excluding mobile consumers from the scope of protection.177 and it has been removed in the new Regulation.178 This change suggests that the new provision aims to apply to all contracts, irrespective of the ‘mobility’ of the consumer.179 Article 17(1)(c) applies to a contract concluded in the business’s domicile as far as the business has directed its activities to the consumer’s home country. However, it is also necessary to note that although Article 17(1)(c) is not restricted to distance contract, the fact that the consumer

175

Case C-190/11 Mühlleitner v Yusufi [2012] ILPr 46. Ibid, para 35. 177 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 25; S van der Hof, ‘European Conflict Rules Concerning International Online Consumer Contracts’ (2003) 12 Information & Communication Technology Law 165, 172. 178 See a detailed description by AG Cruz Villalon, para 14–23. 179 Ibid. 176

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concludes a contract in the business’s domicile is a relevant consideration to determine whether the business has directed its commercial activities to the consumer’s domicile.

III. Competent Courts in Consumer Contracts—Article 18 A. Protective Jurisdiction Under Article 18 The basic jurisdiction rule in the Brussels I Recast is founded on the doctrine of actor sequitur forum rei. It has provided that ‘jurisdiction is generally based on the defendant’s domicile’ and ‘(j)urisdiction should always be available on this ground save in a few well-defined situations’.180 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.’181 The basic principle of jurisdiction in consumer contracts is set up in Article 18 of the Brussels I Recast, 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, regardless of the domicile of the other party, in the courts for the place where the consumer is domiciled. 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 Article shall not affect the right to bring a counterclaim in the court in which, in accordance with this Section, the original claim is pending.

2.

3.

This basic principle indicates a strong tendency to protect the consumer as the weaker party in international transactions. It has been justified by the CJEU 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.182

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

180 181 182

Brussels I Recast, recital 15. Recital 18. Shearson v TVB (n 10) para 18.

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foreign action. In addition, it would be more reasonable to require the business to have foreign litigation. 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.183 However, the protective jurisdiction should not be applied to a level that will unduly increase business costs 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.184 In order to achieve a reasonable balance between consumer protection and business promotion, the Brussels I Recast limits the application of the protective jurisdiction rules by providing certain pre-requisites under Article 17. These pre-requisites are crucial to the efficiency of jurisdiction rules and require detailed analysis.185

B. Extending the Concept of Domicile In order to provide more protection to consumers, the Brussels I Recast extends the concept of domicile of companies. Besides Article 63, which provides alternative domiciles for a company, Article 17(2) clearly indicates that the protective rules should not prejudice Article 7(5) of the Regulation,186 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 7(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,187 in Germany as the place of the branch,188 or in the Member State which is the consumer’s domicile.189

183 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. 184 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. 185 See s II. above. 186 Art 17(1) provides that for consumer contracts ‘jurisdiction shall be determined by this Section, without prejudice to Article 6 and point 5 of Article 7’. 187 Art 4(1). 188 Art 7(5). 189 Art 18(1). If the consumer is domiciled outside any one of the Member States and meets the conditions in Art 17(1)(a) and (b), Brussels I Recast 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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C. Extending Protection Against Third Country Businesses In the Brussels I Regulation, application of the EU protective jurisdiction rules in consumer contracts had an important territorial limitation. The protective rules applied only between EU consumers and EU businesses.190 This might cause difficulty for EU consumers in international transactions. If this consumer wanted to sue a non-EU defendant, this consumer might not be able to benefit from the protective jurisdiction rule of the Brussels I Regulation. Applying the national law of the individual Member State, the consumer’s domicile might not necessarily have competence to hear this dispute.191 The Brussels I Recast has extended the territorial application of the protective jurisdiction rules. Under the Recast Regulation, Article 18(1) clearly provides that a consumer could sue the other party in the courts for the place where the consumer is domiciled, ‘regardless of the domicile of the other party’.192 It allows a consumer to bring a non-EU business to the court of the consumer’s home under the protective jurisdiction rules. Extending the protective jurisdiction rules to non-EU businesses is necessary, especially in e-commerce, where businesses can target the European market without being domiciled in any Member State. Otherwise, European consumers cannot be properly protected and they have to know 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 the 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 receive benefits from the EU market without being subject to the protective rules.193 However, it does not mean full international effects are now given to the protective jurisdiction rules. EU consumers are still unprotected if the third country business brings an action out of the EU against these consumers, and nothing could prevent a EU Member State from taking jurisdiction against a third country consumer.

190 See Brussels I Regulation, Arts 15–17. The Regulation applies the protective jurisdiction rules to cases where the defendant is domiciled within a Member State. If a non-EU consumer wants to sue an EU business, he cannot benefit from Art 16 to bring the action in his own domicile; if a non-EU business wants to sue an EU consumer, it is possible for this business to bring an action in a third country which is not bound by EU law; if an EU business wants to sue a non-EU consumer, it could bring the action within a Member State under the national law of this state. 191 A Nuyts, ‘Study on Residual Jurisdiction’ 2007, 40–3, http://ec.europa.eu/civiljustice/news/docs/ study_residual_jurisdiction_en.pdf, accessed on 20 March 2015. 192 Art 18(1) of the Brussels I Recast. Similar extension is also provided to employment contracts. See Art 21(2). Art 6 of the Recast classifies that the residual jurisdiction rules will not apply to these contracts. 193 However, it is not completely certain the non-application of s 4 of the Brussels I Recast would benefits e-companies. Domestic laws of each Member State may also provide protective jurisdiction grounds to protect consumers.

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Furthermore, Article 17(2) provides: Where a consumer enters into a contract with a party who is not domiciled in a 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 operations of the branch, agency or establishment, be deemed to be domiciled in that Member State.

This provision aims to further broaden consumers’ choice. Besides suing in the consumer’s domicile, the consumer can also choose to sue the business within the Member State where the business has its branch, agency or other establishment.

IV. Branch, Agency or Establishment of an E-Company Both Article 7(5) and Article 17(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.194 The CJEU made an important statement in Somafer SA v Saar-Ferngas 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.195

Based on Somafer and other relevant CJEU decisions, theoretically, the existence of a business establishment usually requires: (1) it holds an appearance of permanency;196 (2) it is subject to the direction and control of the parent;197 (3) it has a certain degree of autonomy;198 (4) it is so presented to the third parties.199

194 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 Heidelberg Report, para 343. 195 Somafer SA v Saar-Ferngas (n 194) para 13; Heidelberg Report, para 12. 196 Somafer SA v Saar-Ferngas (n 194) para 13. 197 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. 198 Blanckaert (n 197); Somafer (n 194) para 13. 199 Somafer (n 194) para 13. For other summaries of the requirements of a business’s branch, agency or other establishments, see Cheshire, North & Fawcett, Private International Law, 259; Reed (n 68) 232–8; Fawcett, Harris and Bridge (n 51) para 10.81.

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A. The Appearance of Permanency i. Physical Appearance v Virtual Appearance The first question 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 equipment.200 A more ambitious interpretation is that the physical presence is not decisive for an ancillary establishment.201 The requirement of a ‘physical’ or ‘fixed’ appearance is not expressed in the Somafer decision. E-commerce was undeveloped at the time of the judgment and it is reasonable to presume that the CJEU did not intend to cover virtual appearance at the time of decision. However, it does not mean that the CJEU 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.202 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.203 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.204

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

200 Reed, ‘Managing Regulatory Jurisdiction’, 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 December 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 March 2000) 6. 201 Øren, ‘Electronic Agents and the Notion of Establishment’, s 4.1.3. This idea is also proposed by the Spanish and Portuguese governments, see OECD revised clarification, 2. 202 Somafer (n 194) para 12. 203 Øren (n 93) s 4.1.4. 204 OECD revised clarification; Øren (n 93) s 4.1.3.

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one country to another and it definitely should not appear on 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 Recast, holding too many domiciles or holding domiciles in all Member States obviously causes difficulties in law.205 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.

B. Direction and Control of the Parent Body According to the CJEU decision in Ets A de Bloos SPRL v Société en commandite par actions Bouyer, an ancillary establishment has to be subject to the direction and control of the parent body.206 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 CJEU 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.207 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.

205 For the same point of view, see the expert meeting on the Electronic Commerce and International Jurisdiction organised by the Hague Conference on Private International Law held in Ottawa from 28 February to 1 March 2000, Pre Doc No 12, 9. See also, recital 19 of the E-Commerce Directive. 206 Ets A de Bloos (n 197) 1497. 207 Case 218/86 Sar Schotte Gmbh v Parfums Rothschild [1987] ECR 4905.

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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 is not present to be the extension of the e-company to a third party, so that it is not the business’s establishment.208 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’,209 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’.210 Only when a server functions under the control 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 principalsubsidiary relationship.211 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 Recast.212 For example, if an e-business is only responsible for the technical problems of a server instead of the functioning of the core business activities through the server, the server does not have the principal-subsidiary relationship with the e-company.213 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.

208

OECD proposed clarification, para 3. E-Commerce Directive, Art 2(c). 210 Ibid. 211 Øren (n 93) s 4.1.2. 212 Blanckaert (n 197) para 13l; Case C-212/97 Centros Ltd v Erhvervs-og Selskabsstyrelsen [1999] ECR I-1459, Opinion of AG La Pergola, para 19; Ets A de Bloos (n 197). 213 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 June 1997. 209

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C. Certain Degrees of Autonomy Somafer provides examples to an ancillary establishment, which shall be the extension of a parent body, have a management and be materially equipped to negotiate business with third parties.214 It implies that the ancillary establishment has certain degrees of autonomy and can conclude substantive commercial activities on behalf of the parent.215 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 CJEU 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. 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.

D. 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.216 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 CJEU decision in Lloyd’s Register of Shipping v Societe 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.217 The CJEU 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.218 214

Somafer (n 194) para 12. Blanckaert (n 197). 216 Somafer (n 194) para 13. 217 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. 218 Lloyd’s Register of Shipping v Socieete Compenon Bernard (n 217) para 20. 215

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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. 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.

E. Necessity of Human Intervention Another issue which has not been dealt with in the CJEU 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.219 219

See Reed (n 68) 233; Fawcett, Harris and Bridge (n 51) para 10.83.

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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.220 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.221 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 computer 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 CJEU 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.222

V. Multiple Defendants in Consumer Contracts A. Actions Against Multiple Defendants in the Protective Jurisdiction Jurisdiction in consumer contracts falling within the scope of protection is usually easy to determine. Difficulty may arise in cases where the claimant wants to sue multiple defendants. If a business wants to sue multiple consumers, the business may not be able to bring one action against all consumers in one country, and may have to sue consumers separately according to the protective jurisdiction. However, related actions against multiple consumers might be rare in practice.

220 221 222

OECD revised clarification, 6. OECD revised clarification, 6–7. See also, European Commission Interpretative Communication.

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Related claims against multiple companies may be more common. If a consumer enters into an e-contract with foreign businesses through an online agent website, protective jurisdiction should apply to both defendants. The online agent, by operating a website accessible in the consumer’s domicile that enables the consumer to enter into contracts with the foreign company, has clearly targeted the consumer’s domicile, while the foreign company, by commissioning an e-agent to facilitate the conclusion of the contract, has directed commercial activities to the consumer’s domicile. The consumer can sue both defendants in the consumer’s domicile pursuant to the protective jurisdiction rules. In Maletic v lastminute.com GmbH, multiple consumers domiciled in Bludenz, Austria booked a package holiday on lastminute.com GmbH, a company registered in Germany, and the holiday was operated by a company registered in Vienna, Austria. Consumers claimed that the booking confirmed a hotel different from what had been described and they brought an action for compensation. The action was brought in Bludenz, Austria, against both defendants jointly and severally pursuant to Article 16(1) of the Brussels I Regulation (Article 18(1) of Brussels I Recast). Clearly, Bludenz had jurisdiction to hear disputes between the consumers and lastminute.com as it was the consumers’ domicile. However, consumers and the holiday operator were domiciled in different legal districts of the same country. If this relationship is not ‘international’, it may prevent the application of the Brussels jurisdiction rules. The CJEU held that ‘international elements’ did not mean the respective domiciles of the parties involve more than one Member State.223 Although the holiday operator and the consumers had their domiciles in the same Member State, international elements were present. Firstly, one contract was concluded between the consumers and both defendants, and international elements were present in disputes against both defendants arising out of one contract. Secondly, if one treats the transaction as two separate contractual relationships, the relationship between the consumers and the holiday operation was inseparably connected to the contractual relationship between the consumer and lastminute.com.224 Furthermore, the objectives of the protective jurisdiction are to protect consumers, to minimise concurrent proceedings and to avoid irreconcilable judgments.225 The policy prevents the interpretation that may lead to concurrent proceedings in closely connected actions in more than one Member State. This policy requires the flexible interpretation of the scope of protective jurisdiction and extends the scenario when the protective jurisdiction rules may be applied. It may conflict with another policy which is to provide certainty to defendants and all special or protective jurisdiction rules that will deprive

223 Case C-478/12 Maletic v lastminute.com GmbH [2014] 2 WLR 260 (unreported in ECR), para 26–27. 224 Ibid, para 29. 225 Ibid, para 30.

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defendants of their rights to be sued in their home country should be interpreted restrictively. A more controversial issue is if a consumer wants to sue more than one defendant and the claims against some fall within the protective scheme, while the claims against others fall outside the scope of protection. The CJEU applies the policy to allow consumers to bring one action on related claims in one country. However, the policy can not replace the law. If it is clear that the legal relationship between the consumer and one of the defendants is not covered by the protective jurisdiction scheme, the consumer may have to sue this defendant pursuant to the national law of the relevant Member State. If jurisdiction pursuant to the national law coincides with the consumer’s domicile, consolidated proceedings are possible.

B. Actions Against Multiple Defendants Under Article 8(1) If a consumer cannot bring a consolidated action against all defendants in the consumer’s domicile under Article 18, or under both Article 18 and the national law of the Member State where the consumer has his domicile, it is questionable whether the consumer could rely on Article 8(1), which provides that a EU defendant could be sued in the domicile of any one of the co-defendants, providing ‘the claims are so closely connected that it is expedient to hear and determine them together to avoid the risk of irreconcilable judgments resulting from separate proceedings’.226 This issue is not addressed in consumer disputes, but in an employment dispute. In Glaxosmithkline and Laboratoires Glaxosmithkline v Jean-Pierre Rouard,227 the CJEU was asked to provide instruction as to whether an employee could bring an action against two joint employers in one employer’s domicile pursuant to Article 6(1) of the Brussels I Regulation (Article 8(1) of the Recast), even though the dispute would fall within the protective jurisdiction rule in Section 5. The CJEU rejected this suggestion. It has taken a literal interpretation of Section 5 which appears to be exhaustive and could not be amended or supplemented by other jurisdiction rules without clear reference.228 The CJEU has also taken into account the policy to interpret Article 6(1) restrictively and to balance the interest between employees and employers.229 Since the equal treatment should be provided to both parties, if the weaker party is allowed to depart from the protective jurisdiction rules by freely relying on other jurisdiction provisions as far as it may lead to sound administration of justice, the strong party should be provided the same freedom of choice.

226

Art 8(1), Brussels I Recast. Case C-462/06 Glaxosmithkline and Laboratoires Glaxosmithkline v Jean-Pierre Rouard [2008] ECR I-3965. 228 Ibid, para 18. 229 Ibid, para 18. 227

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As a result, consumers cannot bring a consolidated action against multiple defendants falling within the scope of the protective jurisdiction section pursuant to Article 8(1). It may lead to concurrent proceedings, extra cost, irreconcilable judgments, and inconvenience to consumers. It is hard to say whether this interpretation has brought about an appropriate consequence. It is thus necessary to consider and balance various policies, namely consumer protection, preventing concurrent proceedings and irreconcilable judgments, and sound administration of justice. It is suggested that the legislators may need to consider whether a restrictive exception may be provided in consumer disputes that allow a consumer to choose either Section 4 or Article 8(1) in suing multiple defendants. This may facilitate sound administration of justice and, at the same time, would not cause too much litigation burden and uncertainty to businesses. Apart from the anchor defendant, other businesses would be sued in the consumer’s domicile in Section 4, or in the other defendant’s domicile in Article 8(1), neither of which is their home and both are reasonably expected by these businesses.230

VI. Conclusion Applying the protective jurisdiction in e-consumer contracts generates uncertainty as to how some traditional terminology, such as the concept of ‘goods’ and ‘establishment’, should be defined in an electronic context, and how the ‘pursue in’ and ‘direct to’ tests can be interpreted in e-commerce. However, it is necessary to note that these difficulties are technical rather than fundamental. The technology continues to improve, together with the understanding and knowledge of e-commerce. It has been recognised that some of the previously predicted difficulties can be properly tackled by providing innovative interpretation and adopting a flexible approach in practice. This has been demonstrated by the definition of ‘goods’ in the Directive on Consumer Rights and the CJEU decision in Pammer and Heller. In e-commerce, due to the quick development of technology and change in the commercial/marketing model, providing rigid interpretation to the concept of ‘targeting’ is problematic. The current method adopted by the CJEU in adopting flexible criteria to determine whether a business has targeted the consumer’s domicile that makes taking jurisdiction reasonable is a more appropriate and effective approach. A more fundamental difficulty is that the effect and influence of the protective jurisdiction in the international context may be limited by the territorial restriction of the Recast Regulation. Even though the Recast Regulation has already expanded

230 For more discussion, see ZS Tang, ‘Multiple Defendants in the European Jurisdiction Regulation’ (2009) 34 European Law Review 80, 95–7.

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the extraterritorial scope of the EU protective jurisdiction compared to the Brussels I Regulation, it is still insufficient to provide a full and non-discriminatory protection to consumers in the international market. An EU consumer could be able to sue a non-EU defendant in the court of the consumer’s domicile; a nonEU defendant can also sue 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 an EU company by directing commercial activities outside the EU. 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 1999231 and the Interim Text of 2001.232 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-tobusiness contracts.233 As a result, the protective model of the Brussels I Regulation works with the inevitable geographic restrictions. It is questionable as to how far the Brussels rule could go in a wider scenario. Finally, the protective jurisdiction fails to consider the potential disputes against multiple defendants. There is no instrument to allow any leeway to consolidate related consumer claims in one action, which may be important to facilitate sound administration of justice and prevent concurrent proceedings. The overall design of the framework is rigid. It is suggested that flexibility should be introduced to link the protective jurisdiction in consumer contracts with the special jurisdiction rules in disputes where there are multiple defendants to allow the consumer a choice. Otherwise, it may be worthwhile to introduce a specific provision into the protective jurisdiction scheme to consolidate actions in certain circumstances.

231 Preliminary Draft Convention on Jurisdiction and Foreign Judgments in Civil and Commercial Matters, adopted by the Special Commission on 30 October 1999, Art 7. 232 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. 233 Convention on Choice of Court Agreements of 2005, Art 2(1)(a).

3 Discretion-Based Jurisdiction in E-Consumer Contracts I. Introduction Unlike the rule-based approach, the discretion-based approach contains neither specific jurisdiction rules to protect consumers, nor new rules specially designed to deal with the challenge of e-commerce. The courts in the countries with the discretion-based tradition make decisions based on their discretion and aim to provide justice and fairness on a case-by-case basis. However, it is wrong to claim that discretion-based jurisdiction rules are simply outdated and unsuitable for online activities and thus cannot cope with the development of e-commerce. Although the basic jurisdiction doctrines and principles are unchanged, courts in common law countries have provided innovative interpretation and new tests to assist in the exercise of discretion. This chapter analyses how the discretion-based instruments 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.1

II. Personal Jurisdiction for Internet Activities in the US Personal jurisdiction in the US is complicated.2 As with most other countries, personal jurisdiction principally rests on the doctrine of actor sequitur forum rei. 1 This chapter only studies the substantive jurisdiction rules, but not the manner and form of service. 2 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.

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For non-resident defendants, a US court can exercise jurisdiction if the following two requirements are met: firstly, the long-arm statute of the relevant forum must be met; secondly, the exercise of jurisdiction should accord with the due process under the Fourteenth Amendment of the US Constitution.3 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.4 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 longarm 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. Due process is satisfied if a non-resident defendant has ‘minimum contacts’ with the forum. The court should exercise its discretion to decide whether the non-resident 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.5 In general, there are two types of personal jurisdiction that a court in the US can take over non-resident defendants: general jurisdiction and specific jurisdiction. General jurisdiction enables a court to take jurisdiction over a non-resident defendant for non-forum related activities, if the defendant’s contact with the forum is ‘systematic’ and ‘continuous’ enough.6 Specific jurisdiction requires the defendant to have purposive activities directed at the forum. The defendant is deemed to have consented jurisdiction of this forum in exchange for benefiting from forum-related activities. The court of this forum is thus only competent to exercise jurisdiction for claims related to those contacts.7

A. General Jurisdiction General jurisdiction requires the defendant to have substantial contact with the forum. The test of substantial contact is rigorous for it requires the defendant to maintain such substantial, continuous and systematic contact with the forum state

3 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. 4 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’. 5 International Shoe Co v Washington 326 US 310, 316 (1945). 6 Ibid, 318; Helicopteros Nacionales de Colombia SA 466 US 408, 414–6 (1984); Perkins v Benguet Consolidâtes Mining Co 342 US 437 (1952); Millennium Enterprises v Millennium Music 33 F Supp 2d 907, 909 (D Or, 1999). 7 Int’l Shoe (n 5) 318; Burger King Co v Rudzewicz 471 US 462, 472 (1985); Dudnikov v Chalk & Vermilion Fine Arts, Inc, 514 F3d 1063, 1078 (CA10 (Colo), 2008).

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so the forum can assert jurisdiction over the particular defendant regardless of the nature of the dispute.8 When deciding general jurisdiction over an e-business, one should not only examine online contacts, but all commercial contacts with the forum.9 These commercial activities, put together, should ‘approximate physical presence’ in that forum.10 This does not only concern the quantity and frequency of transactions with residents of that forum. If the e-business mainly sells products to non-residents, but the commercial contact with the forum is so substantial and strong, general jurisdiction is also possible.11 If the e-company has recruited agents, established branches, commissioned representatives, kept its record, made key business decisions, held directors’ meetings, held a license, and stored products in the forum, substantial physical presence may be present.12 Solely online activities and contacts through the internet may make it hard to approximate physical presence. 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,13 so that the contact is actually reaching a portion of the state’s population.14 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?

i. Contacts Through a Website Most US courts consider it insufficient to establish jurisdiction based on a website continuously accessible in that forum. Maintenance of a website accessible in, or transmission of electronic signals regularly and systematically to, the forum is insufficient to establish substantial and continuous contact.15 There must be something more than the accessibility of a website. The website must have been 8 Perkins v Benguet (n 6); Helicopteros Nacionales (n 6); Millennium Enterprises (n 6). 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. 9 Shrader v Biddinger, 633 F.3d 1235, 1241–2, 1243 (CA10 (Okla), 2011). 10 Ibid, 1243. 11 Ibid. 12 Perkins v Benguet (n 6) 438; Revell v Lidov, 317 F.3d 467 (CA5(Tex) 2002) 471; Bancroft & Masters v Augusta National Inc 223 F3d 1082, 1086 (9th Cir 2000). 13 A Wright and A Miller, Federal Practice & Procedure (St Paul, Thomson West, 2005) s 1073.1. 14 Coastal Video Communications v Staywell 59 F Supp 2d 562 (ED Va, 1999); Lakin v Prudential Sec Inc, 348 F3d 704, 712–3 (8th Cir 2003) (quantity of transactions with forum residents are relevant to establish general jurisdiction); Gorman v Ameritrade Holding Co, 293 F3d 506, 513 (DC Cir 2002). 15 Tamburo v Dworkin, 601 F.3d 693, 701 (CA7 (Ill) 2010); Bird v Parsons, 289 F3d 865, 874 (6th Cir 2002); ALS Scan, Inc v Digital Service Consultants, Inc 293 F3d 707, 715 (CA4 (Md), 2002); Collazo v Enterprise Holdings, Inc, 823 F Supp 2d 865, 869 (ND Ind, 2011).

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open and accessible for a substantial length of time.16 The nature and quality of the website may be relevant.17 Some courts have taken the ‘sliding-scale’ test adopted in Zippo Manufacturing Co v Zippo Dot Com to determine general jurisdiction.18 This test classifies websites into passive, interactive and active ones and find more intended substantial contact in the latter. However, some judgments suggest that the ‘sliding-scale’ test combining transactions with the locals should not be proper to determine general jurisdiction, because ‘even repeated contacts with forum residents by a foreign defendant may not constitute the requisite substantial, continuous and systematic contacts required for a finding of general jurisdiction.’19 It is clear that the test for general jurisdiction is more stringent than specific jurisdiction.20 There is almost no doubt that a ‘passive’ website will not give rise to general jurisdiction.21 However, it does not mean whenever a website is ‘active’ or ‘interactive’ in nature, general jurisdiction shall be granted.22

ii. Contacts Through Transactions Contacts through websites are insufficient to establish general jurisdiction. More weight should be attached to contacts through transactions. In order to establish general jurisdiction, the non-resident defendant must not only do business with the locals, but do business ‘in’ the local area.23 What makes the difference depends on the level of contacts. Sporadic transactions with the locals are insufficient, while systematic, continuous and substantial transactions are enough.24 Whether a non-resident e-business has done business ‘in’ the forum makes the test substantively higher. The website must be used continuously, frequently and systematically by local residents. 16 FC Inv Group LC v IFX Markets Ltd, 529 F3d 1087, 1093 (CADC, 2008) (the website was open for only six months, which was too short a time period to establish substantial and continuous contacts). 17 Spuglio v Cabaret Lounge, 344 Fed Appx 724 (CA3 CPA) 2009. 18 Zippo Manufacturing Co v Zippo Dot Com 952 F Supp 1119 (WD Pa 1997); Spuglio (n 17) 726; Roblor Marketing Group v GPS Industries, Inc 645 F Supp 2d 1130; Shrader v Biddinger (n 9); Tamburo v Dworkin (n 15); FC Inv Group v IFX (n 16); ALS Scan v Digital Service (n 15). For the ‘sliding-scale test’, see s B. ii. below. 19 Revell v Lidov (n 12) 471. 20 Metropolitan Life Ins v Robertson-Ceco Corp, 84 F3d 560, 568 (2d Cir 1996); Gorman v Ameritrade Holding (n 14) 510, fn 2; Bancroft v Augusta (n 12) 1086; Brand v Menlove Dodge, 796 F2d 1070, 1073 (9th Cir 1986); Gates Learjet Co v Jensen, 743 F2d 1325, 1331 (9th Cir 1984); Agape Flights v Covington Aircraft Engines 771 F Supp 2d 1278 (ED Okla, 2011). 21 Shrader v Biddinger (n 9) 1241–2 (the internet forum operator did not interfere with the activities of the internet forum users, who used the forum to exchange information and post offers); Smith v Basin Park Hotel, 178 F Supp 2d 1225, 1235 (ND Okla, 2001); Spuglio (n 17) (Google’s website only provides information about businesses and is passive); Remick v Manfredy, 238 F3d 248, 259 (3d Cir 2001) (posting information and advertisement is insufficient to give rise to general jurisdiction); FC Inv Group v IFX (n 16) 1092; GTE New Media Servs, Inc v BellSouth Corp 199 F3d 1343, 1348 (DC Cir 2000). 22 Collazo (n 15) 869; be2 LLC v Ivanov, 642 F3d 555, 559 (7th Cir 2011); Illinois v Hemi Group, 622 F3d 754 (CA7 (Ill), 2010); Breschia v Paradise Vacation Club, 2003 WL 22872128, 4 (ND Ill, 2003). 23 Revell v Lidov (n 12) 471; Access Telecom v MCI Telecomm.corp, 197 F3d 694, 717 (5th Cir 1999); Bancroft v Augusta (n 12) 1086. 24 GTE (n 21) 1350; FC Inv Group v IFX (n 16) 1092; Smith v Basin Park Hotel (n 21) 1235.

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It is likely that the number of residents that have viewed the website should not be crucial in establishing general jurisdiction, though this may be a relevant factor. For example, the US Court of Appeals, Tenth Circuit has repeatedly ruled that advertisement in nationally distributed magazines does not support general jurisdiction, regardless of its factual reach of the national population.25 The courts should consider the quantity of transactions with local residents,26 and the number of local consumers involved in online transactions.27 It is relatively easy to refuse general jurisdiction in cases where the local transactions are sporadic and isolated.28 It is equally easy to grant general jurisdiction where millions of dollars in sales are generated locally, which account for six per cent of the total sales, and ‘driven by an extensive, ongoing, and sophisticated sales effort involving large number of direct email solicitations and millions of catalog sales’.29 The volume and frequency of contacts are substantial enough to approximate physical presence.

iii. Contacts Through a Server 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. The US courts held that even if the business has held itself out as having an office in the forum, it is indecisive to establish general jurisdiction. Consideration has to be given to the factual degree of contacts with the forum.30 It shows that businesses’ intention, or choice of fortuitous office, does not affect the determination of general jurisdiction. 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

25 Shrader v Biddinger (n 9) fn 6; Doering ex rel. Barrett v Copper Mountain, 259 F3d 1202, 1210 (10th Cir 2001); Federated Rural Elec Ins Corp v Kootenai Elec Coop 17 F3d 1302, 1305 (10th Cir 1994). 26 Campbell Pet Co v Miale 542 F3d 879, 884 (Fed Cir 2008); Revell v Lidov (n 12); Soma Medical Intern v Standard Chartered Bank 196 F3d 1292 (CA10 (Utah), 1999); ESAB Group Inc v Centricut, Inc 126 F3d 617, 623–4 (4th Cir 1997); Gator.com Corp v L.L. Bean, Inc 341 F3d 1072, 1080 (9th Cir 2003); Smith v Basin Park Hotel (n 21) 1235; Bird v Parsons (n 15); Shrader v Biddinger (n 9) 1243. 27 FC Inv Group v IFX (n 16) 1093 (one local customer); Pacas v Showell Farms, 83 F3d 415 (4th Cir 1996) (one local customer); Atlantigas Corp v Nisource, Inc 290 F Supp 2d 34 53 (DDC, 2003) (three local customers). 28 The US courts are never reluctant to hold very small numbers, such as twenties or thirties, of sales over a few years are insufficient. Campbell Pet Co (n 26) (12 internet sales over eight years); Revell v Lidov (n 12) (35 sales in two years); ESAB Group (n 26) (26 sales); and see FC Inv Group v IFX (n 16) 1093 (one local customer); Pacas v Showell Farms (n 27) (one local customer); Atlantigas (n 27) 53 (three local customers). Hockerson-Halberstadt v Propet USA, Inc, 62 Fed Appx 322, 337 (Fed Cir 2003) (forum transactions accounted for 0.00008% of the total sales); Rice v PetEdge 975 F Supp 2d 1364 (ND Ga, 2013) (businesses did not specifically target the forum and local sales accounted for 1–2% of total net sales in five years). 29 Gator.com (n 26) 1080; also cited in Shrader v Biddinger (n 9) 1343. 30 Alkanani v Aegis Defense Services 976 F Supp 2d 13, 33 (DDC, 2014); Estate of Thompson ex rel Thompson v Mission Essential Pers, LLC 2013 WL 6058308, 6 (MD NC, 2013).

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a substantial period of time, is located in the forum state in a permanent way. Since the general jurisdiction subjects 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.31 Although a server can be deemed as the business’s establishment in exceptional cases, the relationship between 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. In a few cases, the US courts held that the use of sales agents that facilitate sales in multiple states could not establish general jurisdiction.32 The same philosophy should prevent an e-agent or a server to be used to find out general jurisdiction. The threshold to establish general jurisdiction is high and very difficult to fulfil simply by online activities.33

B. Specific Jurisdiction 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.34 The defendant’s conduct with respect to the forum must be such that he would reasonably anticipate being brought into that forum’s court.35 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 the US courts as responses to how the discretion should be exercised in e-commerce.36

31 Rhodes, ‘Clarifying General Jurisdiction’, 818ff. Of course, if jurisdiction is improper, US courts can use forum non conveniens to decline jurisdiction. 32 Simplicity v MTS Products 2006 WL 924993, 6 (ED Pa 2006). 33 Tamburo v Dworkin (n 15) 701; Purdue Research Found v Sanofi-Synthelabo, S.A, 338 F3d 773, 787 (CA7 (Ind), 2003); ALS Scan, Inc v Digital Service (n 15) 712; Gorman v Ameritrade Holding (n 14). 34 Hanson v Denckla 357 US 235 (1958); Asahi Metal Industry v Superior Court of California 480 US 102 (1987). 35 World-Wide Volkswagen Corp v Woodson 444 US 286 (1980). 36 For this reason, this chapter does not examine other discretion-based jurisdiction rules in the US, such as forum non conveniens.

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i. ‘Sustained Contact’ Test This test has been established by the comparatively early case concerning electronic commerce. In Inset System v Instruction Set,37 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.38 The court based its decision on the analogy between a promotion website and print, television or radio advertisement, and concluded that internet advertisement is more powerful because it is continuously accessible, and assumed that thousands of Connecticut residents could access the site.39 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 directed to the state.40 The ‘sustained contact’ test is unfortunate. Firstly, it is not logical to compare the available time in which 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 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.41 Thirdly, the continuous accessibility does not indicate the intention of the website owner, because continuous accessibility 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 37

Inset System v Instruction Set 937 F Supp 161 (D Conn, 1996). Ibid, 165. 39 Ibid, 164–5. 40 Doe v Ciolli, 611 F Supp 2d 216 (D Conn, 2009); Smith Enterprise, Inc, v Capital City Firearms, Not Reported in F Supp 2d (D Ariz, 2008); EDIAS Software International, LLC v BASIS International LTD, 947 F Supp 413 (D Ariz, 1996); Online Partners.Com v Atlanticnet Media Corp 2000 WL 101242 (ND Cal, 2000); Brookridge Funding v King 2009 WL 1764559 (D Conn, 2009); Johnsen, Fretty v Lands South, LLC 526 F Supp 2d 307 (D Conn, 2007); Szollosy v Hyatt 2000 WL 1576395 (D Conn, 2000); ALS Scan v Wilkins 142 F Supp 2d 703 (D Md, 2001); ESAB Group (n 26); American Eyewear v Peeper’s Sunglasses 106 F Supp 2d 895 (ND Tex, 2000); Telephone Audio Productions v Smith 1998 WL 159932 (ND Tex, 1998); Maritz v Cybergold 947 F Supp 1328, 1332–4 (ED Mo, 1996); Telco Communications v An Apple A Day 977 F Supp 404, 405–7 (ED Va, 1997); State ex rel Humphrey v Granite Gate Resorts 568 NW2d 715, 720–1 (Minn Ct App, 1997). 41 GTE (n 21) 1349 (‘Additionally, personal jurisdiction surely cannot be based solely on the ability of District residents to access the defendants’ websites, for this does not by itself show any persistent course of conduct by the defendants in the District.’); Digital Control Inc v Boretronics Inc 161 F Supp 2d 1183, 1186 (WD Wash, 2001). 38

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contact’ with the forum, the website owner has purposefully availed himself of the benefit and law of the state.42 Fourthly, the ‘sustained accessibility’ does not 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.43 Based on the above reasons, the decision has been criticised by many courts,44 and this test has very rarely been adopted in other cases.

ii. ‘Sliding-Scale’ Test The ‘sliding-scale’ test has been established by the milestone case Zippo Manufacturing Co v Zippo Dot Com.45 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.46 (Citation omitted.)

The Zippo innovation may be seen as ‘one of the seminal authorities regarding personal jurisdiction based upon the operation of an internet website’,47 and has been followed by numerous later cases across the country.48 Compared with the 42

Bensusan Restaurant v King 937 F Supp 295, 297 (SDNY, 1996). Rannoch, Inc, v Rannoch Corp 52 F Supp 2d 681, 686–7 (ED Va, 1999); Cybersell, Inc v Cybersell, Inc 130 F3d 414, 420 (9th Cir 1997); JB Oxford Holdings v Net Trade 76 F Supp 2d 1363, 1367 (SD Fla, 1999); Hy Cite Co v Badbusinessbureau.com 297 F Supp 2d 1154, 1159 (WD Wis, 2004); Digital Control, Inc v Boretronics, Inc 161 F Supp 2d 1183, 1186 (WD Wash, 2001); Millennium Enterprises (n 6) 922; Rothschild Berry Farm v Serendipity Group LLC 84 F Supp 2d 904, 908–10 (SD Ohio, 1999); E–Data Corp v Micropatent Corp 989 F Supp 173, 177 (D Conn, 1997). 44 eg Digital Control v Boretronics (n 43) 1186; Millennium Enterprises (n 6) 922; Rothschild Berry Farm v Serendipity Group (n 43) 908–10; E-Data Copr v Micropatent Copr 989 F Supp 173, 177 (D Conn, 1997); Clapper v Freeman Marine Equipment WL 33418414, 13–4 (Mich App, 2000). 45 Zippo Manufacturing Co (n 18). 46 Ibid, 1124. 47 Kloth v Southern Christian University 320 Fed Appx 113, 116 (CA3 (Del), 2008). 48 Rice v PetEdge (n 28) 1370; Shymatta v Papillon 99 USPQ2d 1854, 1854 (D Idaho, 2011); Foreign Candy Co, Inc v Tropical Paradise, Inc 950 F Supp 2d 1017, 1026 (ND Iowa, 2013); Jones v Dirty World Entertainment Recordings LLC, 766 F Supp 2d 828, 832 (ED Ky, 2011); Lexmark Intern, Inc v Laserland, Inc 304 F Supp 2d 913, 917 (ED Ky, 2004); Ford v Mentor Worldwide 2 F Supp 3d 898, 904 (ED La, 2014); Henderson v Laser Spine Institute 815 F Supp 2d 353, 375 (D Me, 2011); Mor-Dall Enterprises Inc v Dark 43

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‘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.49 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, telephonelike 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.50

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

Horse Distillery, LLC 16 F Supp 3d 874, 876 (WD Mich, 2014); Lifestyle Lift Holding Co, Inc v Prendiville 768 F Supp 2d 929, 934 (ED Mich, 2011); N.C.C. Motorsports, Inc v K-VA-T Food Stores, Inc 975 F Supp 2d 993, 999 (ED Mo, 2013); 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 (n 12); Multi-Tech Systems v VocalTec Communications 122 F Supp 2d 1046 (D Minn, 2000). 49 eg in Canada, it was followed in Braintech Inc v Kostiuk [1999] WWR 133, and considered in Equustek Solutions v Jack [2014] 10 WWR 652; Wiebe v Bouchard [2005] BCWLD 1593; it was referred to in Australia by Dow Jones v Gutnick [2003] ALMD 1359. cf the Council and the Commission, ‘Joint Statement on Articles 15 and 73’. 50 Winfield Collection v McCauley 105 F Supp 2d 746, 750 (ED Mich, 2000).

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‘toll free’ telephone number, it is still a ‘passive’ website, according to the Zippo definition,51 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.52 Some courts would not be reluctant to take jurisdiction over the defendant if the website enables the parties to enter into contracts online,53 while others believe a few online sales are not enough to make the website ‘active’.54 The ‘sliding-scale’ test established in the Zippo case focuses too much on whether the website can directly exchange information with the customer, but not on the nature and characteristics 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 ‘subpassive’ websites within the interactive scale, which brings us back to the original unsettled problem of classifying the characteristic of a website.55 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 featured little more than an email link and some basic correspondence functionality. Today, sites with that level of

51

Zippo Manufacturing Co (n 18) 1124. Spuglio (n 17) 727 (hyperlinks to the administrators’ email addresses cannot turn the website into an ‘active’ website. The nature of the website depends on the content of the hyperlink. It implies that if the hyperlink refers to an active website where contracts can be made directly, the original website may become active). 53 Euromarket Designs, Inc v Crate & Barrel Limited 96 F Supp 2d 824, 838 (ND Ill, 2000); Stomp v NeatO, LLC 61 F Supp 2d 1074, 1078 (CD Cal, 1999). 54 Millennium Enterprises (n 6) 921. 55 In FC Inv Group v IFX (n 16), fn 6, the Court contrasted two ‘interactive’ websites and held one to be more active than the other. The difference is the former allowed online account registration while the latter required the consumer to download the registration form, fill in offline, and register by mail. The Court might take jurisdiction over the former but not the latter. 52

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interactivity would probably be viewed as passive, since the entire spectrum of passive versus active has shifted upward with improved technology’.56 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.57 However, applying the Zippo test to establish personal jurisdiction in contractual or contract related claims has never been ruled out.58 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 is useless, as the characteristic of a website cannot indicate the intention of the consumer. Fourthly, if one relies on the nature and quality of a website to determine the defendant’s purpose, one prerequisite is that the defendant should own and control the website. In e-commerce, many e-businesses conduct commercial activities through a virtual market platform, provided, managed and operated by a third

56 M Geist, ‘Is There a There There? Toward Greater Certainty for Internet Jurisdiction’ (2001) 16 Berkeley Technology Law Journal 1345, 1354; M Geist, ‘On Target? The Shifting Standards for Determining Internet Jurisdiction’ in LF Cranor and S Greenstein (eds), Communications Policy and Information Technology (Cambridge MA, MIT Press, 2002) 65, 77; P Berman, ‘The Globalisation of Jurisdiction’ (2002) 151 University of Pennsylvania Law Review 311, 410. 57 J Hill, Cross-Border Consumer Contracts (Oxford, Oxford University Press, 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. 58 Thompson v Handa-Lopez 998 F Supp 738 (WD Tax, 1998); Kloth v Southern Christian University (n 47); 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).

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party. The Zippo test is useless in such cases.59 ‘Interactivity’ cannot be equivalent to ‘purposeful targeting’ in every case,60 especially where the business affects commercial activities through the website of the third party.61 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.62 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. 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 … 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.63

For these reasons, faith in the ‘sliding-scale’ test has weakened as people gain a deeper understanding of e-commerce. Some states have clearly cast doubt on this test. For example, the Fourth District Court of Appeal of Florida stated in one case that ‘(w)hile a clear majority of federal courts has adopted the Zippo analytical framework, Florida never has’.64 This test has been described as ‘a way of establishing the “likelihood” that personal jurisdiction would be proper over a given defendant’,65 but not a personal jurisdiction litmus test. It is also said that the test 59 Foley v Yacht Management Group, Note Reported in F Supp 2d (ND Ill, 2009); McGuire v Lavoie (n 58) 3; Action Tapes v Weaver 2005 WL 3199706, 2 (ND Tex, 2005); United Cutlery Corp v NFZ, Inc, 2003 WL 22851946 (DMd, Dec1, 2003); Machulsky v Hall, 210 F Supp 2d 531 (D NJ, 2002); Winfield Collection v McCauley (n 50). 60 See the critique in Hy Cite Co v Badbusinessbureau.com (n 43) 1160; Bancroft v Augusta (n 12) 1087; 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 (n 47). 61 Such as sales on eBay and Amazon. See s IV. below. 62 Zippo Manufacturing Co (n 18) 1124. 63 Shamsuddin v Vitamin Research Products 346 F Supp 2d 804, 813 (D Md, 2004); quoted in Instabook v Instantpublisher.com (n 60) See also Sayeedi v Walser 15 Misc 3d 621, 627 (NY City Civ Ct, 2007). 64 Caiazzo v American Royal Arts Co, 73 So.3d 245, 253 (Fla App, 2011). 65 Wright and Miller, Federal Practice and Procedure.

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should be understood ‘at best as a jurisprudential heuristic, and at worst as potentially misleading’.66 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.67 A tailored Zippo test, however, has been adopted by some courts. In Caiazzo v American Royal Arts Co, the Florida Court of Appeal asserted specific jurisdiction over a non-resident defendant because this defendant has used an interactive website to enter into contracts with Florida residents, which involved the ‘knowing and repeated’ contacts with the forum.68 The Court explained that this decision was not based on the arbitrary distinction of ‘interactive’ versus ‘active’ websites, but based on the actual level of contact, including contracts entered into and sales made to the Florida consumers.69 This approach, in fact, refuses to adopt any internet-oriented new test, but resumes the traditional principles, which are more appropriate, realistic and easy to apply.70 The Court simply relied on the traditional ‘purposeful availment’ principle and considered all the relevant factors to assess the quality of ‘contracts’. It is suggested that this should have been the original intention of the Zippo Court, which did not attempt to provide an independent new test for internet jurisdiction and stated that traditional principles should continue to apply and ‘(d)ifferent results should not be reached simply because business is conducted over the Internet.’71

iii. ‘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,72 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

66

Ibid. Shamsuddin (n 63); S Morantz, Inc v Hang & Shine Ultrasonics, Inc 79 F Supp 2d 537, 543 (ED Pa, 1999). 68 Renaissance Health Publishing v Resveratrol Partners 982 So.2d 739, 742 (Fla 4th DCA, 2008). 69 Caiazzo (n 64) 253. 70 Buckles v Brides Club, Not Reported in F Supp 2d (D Utah, 2010); AS Hornsby, ‘Internet Transactions and Communications’ (2009) 70 Alabama Lawyer 378, 379. 71 Zippo Manufacturing Co (n 18) 1124; Shamsuddin (n 63) 812; Note, ‘No Bad Puns: A Different Approach To The Problem Of Personal Jurisdiction And The Internet’ (2003) 116 Harvard Law Review 1821, 1831–2. 72 Winfield Collection v McCauley (n 50). 67

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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.73 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.74 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.75 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.76 It is also held that ‘foreseeability alone is insufficient to support the exercise of personal jurisdiction under the Federal Due Process Clause’,77 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’.78 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.79 Furthermore, the random,

73

Ibid, 749. 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 (n 59); 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 (n 63). 75 United Cutlery v NFZ (n 59); McGuire v Lavoie (n 58); Sayeedi v Walser (n 63). 76 Metcalf (n 74) 1226. 77 Ibid, 1227. 78 Burger King (n 7). 79 Ibid, 475. 74

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fortuitous, or attenuated contact might show a prima facie case that the seller does not avail himself of the jurisdiction of the named state.80 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 utilised by them, to which the parameters of specific jurisdiction apply’,81 it is likely to generate uncertainty without practical standards for assessment.

iv. ‘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,82 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.83 These basic requirements of the effects test have been followed by some internet cases with certain restrictions,84 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

80 Burger King (n 7) 475; Dagesse v Plant Hotel N V 113 F Supp 2d 211, 215 (DNH 2000); Metcalf (n 74) 1226; United Cutlery (n 59). 81 Millennium Enterprises (n 6). 82 Calder v Jones 465 US 783 (1984). 83 Ibid, 788–90. 84 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 v Augusta (n 12) (the defendant had to ‘target a known forum resident’).

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contract actions than in tort claims’.85 However, taking ‘effects’ as one of the considerations for jurisdiction in contractual obligations has never been completely excluded.86 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.87 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 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.88 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.89 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 business’s home state. If a consumer fails to pay, the effect of the activity is felt by the business in the business’s home state.

85 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. 86 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). 87 Puurunen, ‘The Judicial Jurisdiction of States’, 201. See also the same argument for using the ‘sliding-scale’ test for contractual claims. See s B. ii. above. 88 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). 89 Snowney v Harrah’s Entertainment 35 Cal 4th 1054, 1066 (Cal, 2005).

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C. Conclusion Since International Shoe,90 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, 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 non-contractual 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 Recast. The US approach and the Brussels I approach have substantive differences: 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 90

International Shoe (n 5).

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Brussels I Recast applies only when the business, whether acting as a defendant or claimant, has targeted the consumer’s home.91 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 Recast. These tests would provide some innovative views which could help the interpretation of Article 17(1)(c) in the context of e-commerce. Some authorities, however, refuse to adopt any of the tests to come to a decision. They consider that internet contact is more complicated and each test inevitably simplifies this situation.92 A number of authorities have also recognised that the unique internet-oriented tests are not independent enough to replace traditional jurisdiction principles. The internet only increases the level and quantity of traditional challenges, instead of generating completely new jurisdiction questions.93 Since the courts have acquired more knowledge on the internet and have dealt with internet jurisdiction on a more frequent basis, many have started to resume the traditional jurisdiction standards, instead of simply relying on the innovative tests to make decisions.94 This probably is the correct approach. The nature and quality of the website, express intention and purpose of the defendant, online soliciting and marketing approaches, quantity and volume of sales, and the length of maintaining the website are all relevant factors which, combined with the other offline activities of the defendant, demonstrates whether the defendant has ‘minimum contacts’ with the forum that makes jurisdiction appropriate.

III. Discretion-Based Jurisdiction in English Common Law In English common law, an English court has jurisdiction in claims in personam where the defendant is present in England, where the defendant submits to the 91

Art 15(1)(c), except cases falling within Art 15(1)(a) and (b). Hy Cite Co v Badbusinessbureau.com (n 43); cited in Sublett v Wallin 136 NM 102 (NN App, 2004). 93 Howard v Missouri Bone and Joint Center 373 Ill App 3d 738, 743–4 (Ill App, 2007). 94 In Illinois v Hemi Group (n 22), the Court states that ‘we think that the traditional due process inquiry … is not so difficult to apply to cases involving Internet contacts that courts need some sort of easier-to-apply categorical test’, quoted in Roser v Jackson, No 10 C 1894, 2010 WL 4823074, 4 (ND Ill, 2010); JDA eHealth Systems v Chapin Revenue Cycle Management, Not Reported in F Supp 2d (ND Ill, 2010). 92

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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 (CPR).95 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 CPR is satisfied; second, the claim has a reasonable prospect of success; third, England is the proper place in which to bring the claim.96

A. Jurisdiction Grounds 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;97 (2) the contract was made by or through an agent trading or residing in the jurisdiction;98 (3) the contract is governed by English law;99 (4) there is a choice of forum agreement choosing this jurisdiction;100 or (5) the breach of contract was committed within the jurisdiction.101 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.102 Some of the above connecting factors may cause difficulties in e-commerce. Unlike the US courts, no innovative tests are provided by English courts. Instead, English courts take a relevant conservative approach by applying traditional English law in e-commerce.

i. The Contract was Made within the Jurisdiction As to the place where an e-contract was concluded, most struggle to figure out whether an online contract concluded through a webpage or through sending an email should be treated as a contract concluded by post or by instantaneous communication. According to English law, a contract is concluded at the place where the acceptance has been posted if it is concluded by post,103 but at the place where the acceptance has been received if it is concluded by instantaneous

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SI 1998/3132 (L 17). CPR 6.37. Practice Direction 6B, para 3.1(6)(a). 98 Ibid, para 3.1(6)(b). 99 Ibid, para 3.1(6)(c). 100 Ibid, para 3.1(6)(d). 101 Ibid, para 3.1(7). 102 Ibid, para 3.1(8). 103 Adams v Lindsell [1818] 1 B & Ald 681; British and American Telegraph Co v Colson 1871 LR 6 Exch 108; Household Fire Insurance Co v Grant 1879 4 Ex D 216; Benaim & Co v Debono [1924] AC 514. 96 97

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communication.104 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 via different routes. It is different from real instantaneous communication where the information is transmitted simultaneously and together.105 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 option would be if the parties communicate through an instantaneous communication programme, such as Skype or Windows Messenger. The communication can be completely analogised with the situation described in the Entores Ltd v Miles Far East Corporation case,106 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 to be processed 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 also possible that the acceptance is made in 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 although the acceptance is made in the business’s office hours, the member of staff does not notice it straightaway. However, it is difficult 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 additional burden for the party to prove that in the specific case the communication does not come to the recipient’s attention immediately. Furthermore, even if the recipient does not access the message immediately, it has arrived at the place where the sender could reasonably expect the recipient to access it. The recipient should be deemed as being able to access 104 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. 105 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. 106 Entores (n 104).

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the message immediately. As a result, it is better to provide the receipt rule to all such communications for practical reasons. A similar situation exists in email communication. The email will be delivered to and stored in the recipient’s email box, hosted by the server, within a few seconds. The recipient could then use a computer and software to download the email to read. It is more appropriate to treat email communication as instantaneous. Another question is where the place of receipt in e-commerce is. Several different physical locations may be involved in the consideration: 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. Firstly, it is not difficult to exclude the actual location of the recipient. A recipient can read an email from any computer located anywhere, even from his laptop on the train or airplane during his journey, where the actual location is accidental and fortuitous. Secondly, it is also recommended that the location of the server should not be chosen as the place of posting, for the location of the server can be 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 receipt as the place where the recipient is habitually located.107 Furthermore, Mann J suggests that traditional offer and acceptance of formation of contracts may be dated in the modern market where new distance communication technology is developing quickly.108 There is no conceptual barrier to reject that a contract might be made in two jurisdictions.109 Although this solution may simplify the difficulty in determining the place of offer and acceptance, 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.110 This usually is not the case in e-contracts, where all major steps to conclude the contract are carried out online and recorded. The law also requires the business to provide the consumer with the different technical steps to follow in order to conclude the contract in a clear, comprehensible and unambiguous manner.111 Secondly, this approach can be applied only where the parties intend to do so and they have adopted a procedure to reflect the intention.112 In website

107 United Nations Commission on International Trade Law (UNCITRAL) Model Law on Electronic Commerce 1996, Art 15(4). A similar provision can be found in Australian Electronic Transaction Act 1999, s 15(5)(6). 108 Apple Corp v Apple Computer [2004] 2 CLC 720, para 38; Gibson v Manchester [1979] 1 WLR 294 297. 109 Apple v Apple (n 108), para 37. 110 For example, a contract is concluded by telephone without any record, and none of the parties can prove who actually made the acceptance. ibid, para 35. 111 Electronic Commerce (EC Directive) Regulations 2002, SI 2002/2013, s 9(1), implementing the Directive 2000/31/EC on certain legal aspects of information society services, in particular electronic commerce, in the Internal Market (‘Directive on Electronic Commerce’) [2000] OJ L178/1, Art 10(1)(a). 112 Appl e v Apple (n 108), para 42.

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trading, however, the procedure is pre-established, and the contract is concluded semi or fully automatically. There will rarely be such intention indicated for an individual case.

ii. An Agent Trading or Residing within the Jurisdiction The contract can be either made by the agent on behalf of the defendant, or through the agent which simply obtains and transmits orders.113 As a result it includes independent commercial agents, which are not under the direction or control of the parent company. In e-commerce, a question that may arise is whether an ‘electronic agent’ can be regarded as the ‘agent’ for the purpose of Practice Direction 6B para 3.1(6)(b). From a functional perspective, an e-agent is able to carry out the similar commercial activities as 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.114 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.115 Secondly, an e-agent cannot carry legal liability towards the principal, or vice versa.116 Thirdly, there are no consents or agreements between an e-agent and its principal in order to create a traditional ‘principal-agent’ relationship.117 A principal can terminate the employment of an e-agent or change the programme at any time without any legal restriction. Fourthly, an e-agent works for free without any commission. From an effect perspective, using an e–agent to generate the jurisdiction ground could lead to unreasonable results. There is no express authority requiring an agent to hold an appearance of permanency, or 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,118 for example, which is able to search relevant English suppliers 113 Citadel Insurance Co v Atlantic Union Insurance Co SA [1982] Lloyd’s Rep 543, CA; L Collins et al (eds), Dicey, Morris and Collins on the Conflict of Laws, 15th edn (London, Sweet & Maxwell, 2014) 377. 114 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. 115 S Cross, ibid, 179–80; Andrade, Novais, Machado and Neves, ibid, 359. cf Wettig and Zehendner, ibid, 122–32. 116 S Cross, ibid, 178. 117 Andrade, Novais, Machado and Neves, ‘Contracting Agents’, 360. 118 There are different types of e-agents; some of them could make legal decisions and activities, such as receiving orders, sending confirmation, permitting downloading, providing passwords. These

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and provide its results to any English user, can also be regarded as ‘trading’ in England. More importantly, some e-agents are free to be employed by any internet user to provide agent-like services. Any consumer can use the search agent of google.com or google.co.uk to search product information and compile a list of links to available product 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 an e-agent in para 3.1(6)(b) would make the coverage of the ground unreasonably wide.

iii. The Contract is Breached within the Jurisdiction The place of breach will be different according to different applicable law. English law should be applied to decide this place. The breach of contract usually takes two forms: the repudiation, and the failure to perform the obligation in question. 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.119 If communication is conducted through electronic communication technology, the recipient rule should be adopted and the contract is breached in the place where the innocent party has their habitual residence or domicile.120 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. It is important to identify the place where the concerned obligation has been performed or should otherwise be performed.121 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. The existing English case authority seems to hold the view that intangible digital products are not ‘goods’.122 As a result, the domestic law concerning the place of delivery of goods shall not be applied.123 Some commentators thus suggest that it is necessary to figure out the factual place where a digital product/information has been, or should

e-agents are called decision agents. Others are programmed to search for 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 called search agents. 119

Dicey, Morris and Collins (n 113) 382. See discussion in s A. i. above. Dicey, Morris and Collins (n 113) 383. 122 St Albans City and District Council v International Computers Ltd [1997] FSR 251, 265. 123 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. 120 121

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have been, provided.124 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 by 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 they are 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 occurs. 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,125 the place of receipt would be the place the consumer has close personal connections with, 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 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 occur 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 location of the server. 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

124 J Fawcett, J Harris and M Bridge, International Sale of Goods in the Conflict of Laws (Oxford, Oxford University Press, 2005) para 10.104. 125 If the place of receipt is the place where the data is actually downloaded at the time of the transaction, this may lead to further uncertainty. For example, the consumer can travel to different states and carry on this transaction, and the business will have no idea regarding the real destination of the product.

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that is responsible for designing the software especially for 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 section A. ii. above can be used here. If the contract is for the provision of online services, 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 registration 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 have been sent. If the username and PIN are supposed to be shown in the refreshed webpage, the failure to show any such information happens in the place of the server, where the programme for providing the username and PIN is 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. The normal practice in an electronic consumer contract requires the consumer to pay in advance. After payment, 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 within a ‘buy now and pay later’ promotion. It is possible for the consumer to settle the payment in the traditional way, for example, by sending a cheque or by providing the credit card number over the telephone. A consumer may also be required to pay online. However, the place of payment is no 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.126 If the consumer fails to perform his obligation to pay, either in the traditional way or via the internet, the place where the breach of contract occurs should be the place of the business.

iv. Simplification by Agreements Finally, the parties could explicitly agree on the place where the contract is concluded and the place where the contract should be performed. Such agreements

126 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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are allowed in English law.127 If agreements exist, the challenge imposed by e-commerce is removed. 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 and performance is not substantial to the interest of the consumer, and the rules to determine the place of contracting and performance cannot be regarded as mandatory or protective in nature. It is not necessary to prohibit the parties from consenting on a place of contracting or performance. Secondly, although the agreed place could be arbitrary, the English court could exercise its discretion as to whether or not to serve out of the jurisdiction.128 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.129

B. Forum Conveniens Common law jurisdiction is based on discretion. It means the court may not take jurisdiction simply because a jurisdiction basis is met. The court will exercise discretion to consider whether or not taking jurisdiction is ‘appropriate’ or could achieve the ends of justice.130 Even if the claimant could prove that at least one of the grounds in Part 6 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’.131 The relevant principles have been stated by the House of Lords in Spiliada Maritime Co v Cansulex Ltd.132 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 court. In other words, it is no longer purely technical rules that link a dispute with a country. Value consideration plays an important part. The question is whether the discretion-based jurisdiction rules can provide the most reasonable results in cross-border e-consumer contracts.

127 Fawcett, Harris and Bridge, International Sale, para 4.35. See also UNCITRAL Model Law, Art 15 (4) ‘unless otherwise agreed between the originator and addressee …’; Uniform Computer Information Transactions Act (UCITA), s 203. 128 See s III.B. below. 129 Ibid. 130 P Rogerson, Collier’s Conflict of Laws, 4th edn (Cambridge, Cambridge University Press, 2013) 165. 131 Spiliada Maritime Co v Cansulex Ltd [1987] AC 460, 480; CPR, r 6.37(3). 132 Spiliada (n 131).

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i. Appropriate Forum Test To ascertain whether England is the appropriate forum, Lord Goff provides in Spiliada: [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.133

In general, four groups of factors can be considered: (1) the personal connections to the parties; (2) the factual connections between the event and the particular court; (3) the applicable law. a. Personal Connections to the Parties134 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 in practice, 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,135 the court would nevertheless take the common residence seriously and not grant the permission.

133 134 135

Ibid, 478. Ibid; Trendtex Trading Co v Credit Suisse [1980] 3 All ER 721, 734. Spiliada (n 131) 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 UNCITRAL 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.136 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 businesses a great advantage by unilaterally selecting their 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

136

UNCITRAL Model Law, Art 15(4).

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deciding the natural forum,137 but they are less important in e-commerce. For example, 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.138 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.139 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.140 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.141 Giving the chosen law much weight is unfriendly to the consumer and might be abused by the business. Secondly, the current consumer choice of law rules would result in dépeçage in some cases, which reduces the weight that may be granted to the applicable law.142 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.143 Theoretically, if the ‘target’ test is satisfied the consumer’s habitual residence should be predictable for the business in most cases.

137 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. 138 UNCITRAL Model Law, Art 10(1). 139 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. 140 Spiliada (n 131) 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. 141 Art 6(2) of the Rome I Regulation. Ch 5 below. 142 Ibid. 143 Art 6(1) of the Rome I Regulation. Ch 5 below.

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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,144 where the otherwise competent forum court is seriously incompetent in dealing with the dispute,145 where the claimant will suffer prejudice in the foreign forum, for reasons of insecurity,146 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.147 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,148 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 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.149

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.150 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.

144 145

Middle East Banking Co SA v Al-Haddad (1990) 70 OR (2d) 97. Islamic Arab Insurance Co v Saudi Egyptian American Reinsurance Co [1987] 1 Lloyd’s Rep 315,

319. 146 147 148 149 150

Oppenheimer v Louis Rosenthal and Co AG [1937] 1 All ER 23. Carvalho v Hull, Blyth (Angola) Ltd [1979] 3 All ER 280. Connelly v RTZ [1998] AC 854. Ibid, 873. Ibid, 874.

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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 Hoffmann: 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.151

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 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 Hoffmann 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.152

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

151 152

Ibid, 876. Ibid.

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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 (ECHR).153 However, the effect of Article 6 of the ECHR in English jurisdiction is marginal and controversial.154 The English courts usually refuse to use Article 6 of the ECHR as a new ground outside the current justice consideration test.155 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. 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

153 The ECHR has been implemented in the UK under the Human Rights Act 1998. The European Court of Human Rights (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. 154 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. 155 In Lubbe v Cape (n 154) 281, Lord Bingham said: ‘I do not think article 6 supports any conclusion which is not already reached on application of Spiliada principles.’

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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 have 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,156 which would give 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,157 for example, the claimant cannot receive a fair trial abroad,158 the law that is meant to be applied by the foreign court is contrary to English public policy,159 or the foreign court lacks specialists concerning the specific issues.160 However, there is not much consideration to the judicial advantage the claimant could get in the forum.161 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 justice.162 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. Forum Non Conveniens In a discretion-based jurisdiction system, if a court is competent, it has the discretionary power not to exercise jurisdiction. Discretion usually is based on the ground that there is another forum that is more appropriate,163 or the trial court

156

See Chs 4 and 6 below. Such as the claimant cannot receive a 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. 158 Oppenheimer v Louis Rosenthal (n 146). 159 Coast Lines v Hudig and Veder Chartering NV [1972] 2 QB 34. 160 Islamic Arab Insurance v Saudi Egyptian (n 145). 161 Lord Goff said in Spiliada (n 131) 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, 482–4. 162 Connelly (n 148). 163 This is the British forum non conveniens. See Spiliada (n 131). 157

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is an inappropriate forum.164 Although the specific test for forum non conveniens varies from country to country, the same philosophy is followed in all countries where the forum non conveniens doctrine is adopted, ie the court will only take jurisdiction if it is appropriate and could achieve the ends of justice of individual cases. Forum non conveniens is examined on a case-by-case basis. Common law jurisdiction rules will not classify cases and apply different rules for different types of dispute. Instead, the court only follows a general principle and taking jurisdiction largely relies on the courts’ discretion to interpret the general principle in each case. Presumably, such flexibility should be able to provide a reasonable result in every consumer contract case. In practice, however, the effect of the discretionbased rule is rather uncertain. Since the principle is developed mainly in ordinary commercial contracts, it has not taken the special requirement of consumer disputes into consideration. It is too ready to argue that the discretion certainly would provide the most appropriate result for consumer disputes. This section examines how the existing forum non conveniens works in consumer contracts. It focuses on the British and US forum non conveniens.

A. British Forum Non Conveniens The British forum non conveniens is followed by many commonwealth countries.165 It follows a two-limb test established by Spiliada Maritime Co v Cansulex Ltd:166 firstly, the defendant has to satisfy the court that there is another, clearly more appropriate forum available;167 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.168 The two-limb test involves both the appropriateness test and the justice test, which are identical to the tests used in forum conveniens.169 What is different is the procedure. English common law jurisdiction over a foreign defendant will be taken under forum conveniens. Jurisdiction will only be taken if the court is satisfied that it is the appropriate forum and taking jurisdiction is better for the end of justice. As a result, forum non conveniens will not be exercised in this scenario. Forum non conveniens will be relevant if the defendant is present in England where jurisdiction is granted as of right. With the harmonisation of the EU jurisdiction rules,

164 This is the Australian forum non conveniens. See Oceanic Sun-Line Special Shipping Co Inc v Fay (1988) 165 CLR 197. For the comparative study of forum non conveniens in general, see J Fawcett, ‘General Report’ in J Fawcett (ed), Declining Jurisdiction in Private International Law (Oxford, Clarendon Press, 1995) 10. 165 Fawcett, ‘General Report’, 11. 166 Spiliada (n 131). 167 Ibid, 474. 168 Ibid, 478. For further discussion, see J Fawcett and J Carruthers, Cheshire, North & Fawcett: Private International Law, 14th edn (Oxford, Oxford University Press, 2008) 427–40. 169 Cheshire, North & Fawcett, 427–40; Rogerson, Collier’s, 164–8.

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defendants domiciled in a Member State170 or deemed to have their domiciles in Member States171 shall now be covered by the Brussels I Recast, where the application of forum non conveniens is excluded.172 The protective jurisdiction extends the scope of the rules to cover the situation where the EU consumer sues a non-EU defendant in a Member State. Where the English court is seised in this situation, the defendant could not rely on forum non conveniens at all. With the influence of the Brussels I Recast, the English court may only use forum non conveniens when an English business sues a non-EU consumer in England. 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. 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. Furthermore, it sometimes may not be 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.173 The consumer usually cannot successfully persuade the court to stay the proceedings at the first stage.

B. US Forum Non Conveniens US forum non conveniens allows a court to decline jurisdiction if the proposed alternative forum is ‘adequate’ and the local court is ‘seriously inconvenient’.174 The court will exercise its discretion to consider whether it is in the interest of the parties and the public to direct the claimant to a more convenient forum.175 US courts usually take both private and public interest tests to exercise their discretion.176 The procedure, compared to UK forum non conveniens, is more flexible in that this doctrine can be applied by courts using their own motive and there is no two-stage test with specified burden of proof.177 However, it does not mean consumers can be better-off. Both the private and public factors do not, in particular, consider consumers’ rights to access to justice. Private factors mainly concern any practical issues that may make a trial ‘easy, expeditious and inexpensive’.178 This includes the cost and convenience incurred

170

Recital 13 of the Brussels I Recast. Arts 7(5) and 17(2) of the Brussels I Recast. Case C-281/02 Owusu v Jackson [2005] ECR I-1383. 173 For example, the business’s website is located in California, the business has its registered office in Delaware, the website domain is ‘.de’, and the consumer is located in England. 174 Fawcett (n 164) 14; Piper Aircraft Co v Reyno 454 US 235 (1981). 175 Fawcett (n 164) 14. 176 Ibid, 14; Gulf Oil Corp v Gilbert 330 US 501 (1947). 177 Fawcett (n 164) 15–16. 178 Ibid, 14; Gulf Oil Corp v Gilbert (n 176) 508. 171 172

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by both parties. Public interest factors mainly concern courts’ difficulty to hear or administrate a case, the difficulty to apply and prove foreign law, and difficulty of citizens in jury duty.179 These factors are neutrally applied to all cases.180 Although the US courts frequently take into account of the effect of the case on general US consumers, as this is considered as a public interest factor,181 there is no particular consideration on the protection of individual consumers in cross-border access to justice or on the balance of litigation power between the parties. It is also observed by commentators that if the claimant is a local resident, his right to sue may outweigh the defendant’s inconvenience.182 In other words, this rule may act more to protect the local claimant irrespective of whether this person is a consumer or a company. A local consumer certainly has a better chance of taking advantage of local proceedings against a foreign company.183 However, if a local firm sues a foreign consumer in a US court, the court may take jurisdiction irrespective of the inconvenience to the foreign consumer. On the other hand, if a foreign consumer chooses to sue in the US for contracts performed abroad or a class action is brought in the US against a local manufacturer, the US court would likely decline jurisdiction because evidence is located in another country,184 or because the event occurs in another country which gives that country a great public interest to hear the dispute.185 On the contrary, the Supreme Court explicitly stated that the plaintiff ’s right of choice of forum presumption is weakened if the plaintiff is foreign.186 This statement, again, is neutral in the consumer-versusbusiness situation. It is argued that consumer protection has been gradually incorporated in the US forum non conveniens consideration.187 In some cases, the US court has taken into account the policy to protect consumers and decline jurisdiction in favour of the country where the consumer resides. In Golden Rules Insurance Co v Manasherov,188 the Appellate Court of Illinois held that, besides traditional private and public interest factors, the policy to protect the weaker party, ie the consumer and the insurance policy holder, should also be considered. The Court recognised the legislative intention to protect the consumer’s easy enforcement of their rights 179

Fawcett (n 164) 14. J deLisle, E Trujillo, ‘Consumer Protection in Transnational Context’ (2010) 58 American Journal of Comparative Law 135, 142. 181 Piper (n 174). 182 Fawcett (n 164) 16; EF Smith, ‘Right to Remedies and the Inconvenience of Forum Non Conveniens’ (2010) 44 Columbia Journal of Law and Social Problems 145, 164; Koster v Lumbermans Mut Cass Co 330 US 518 (1947). 183 Williams v AOL, No.00-0962, 2001 Mass Super LEXIS 11 (Super Mass, 2001) 11–2. 184 Clark v TAP Pharmaceutical Products, Inc 343 Ill App 3d 295 (5th Dist 2003); Paolicelli v Ford Motor Co 289 Fed Appx 387 (11th Cir 2008); Avery v Pfizer, Inc 891 N.Y.S.2d 369. 185 Clark (n 184); In re Vioxx Litigation, 395 NJ Super 358, 928 A.2d 935 (App Div, 2007). 186 Vu v Ortho-McNeil Pharmaceutical, Inc 602 F Supp 2d 1151, 1155 (ND Cal, 2009). 187 EE Daschbach, ‘Where There’s a Will, There’s a Way: The Cause for a Cure and Remedial Prescriptions for Forum Non Conveniens as Applied in Latin American Plaintiff ’s Actions against U.S. Multinationals’ (2007) 13 Law and Business Review of the Americas 11, 51. 188 Golden Rules Insurance Co v Manasherov 200 Ill App 3d 961 (Ill App 5 Dist, 1990). 180

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against insurance companies and believed this should be an added factor to reduce the weight granted to the claimant’s court selection.189 In other cases, however, the US court does not consider the ‘convenience’ of trial, but takes a more valuebased approach by considering the substantive rights of the consumers. The US has a regulatory interest to protect consumers by imposing higher standards on companies. While disputes have arisen, justice and the legislative purpose can be better achieved in the US courts by applying the US law. As a result, the US court may refuse to decline jurisdiction based on forum non conveniens and hold it as in the public interest to try the case brought by the foreign consumer in the US court.190 Furthermore, a US company’s malpractice which harms foreign consumers may also hamper US consumers due to the increasingly globalised and interactive market.191 These decisions, however, remain exceptional. Applying traditional forum non conveniens results in the decline of jurisdiction brought by foreign consumers against local companies in many circumstances.192 It is recommended that the current forum non conveniens is reformed193 or even abandoned in specific cases involving strong consumer protection interest.194

V. Anti-Suit Injunction Anti-suit injunction is a common law instrument that restrains the respondent from commencing or continuing proceedings in a foreign country.195 Since this instrument may be regarded as infringing (directly or indirectly) the other country’s sovereignty, it is usually used with great caution and in exceptional circumstances. However, once issued, the anti-suit injunction can act as a powerful weapon preventing oppressive or vexatious proceedings from being commenced abroad. The purpose of anti-suit injunction is to prevent injustice.196 Would this instrument be effective in providing justice to cross-border consumer disputes?

189

Ibid, 968–9. De Melo v Lederle Labs 801 F.2d 1058 (8th Cir 1986). 191 Dow Chemical Co v Castro Alfaro 786 S.W.2d 674 (Tex, 1990), cert denied, 498 US 1024 (1991). Daschbach, ‘Where There’s a Will’, 53; PJ Carney, ‘International Forum Non Conveniens’ (1995) 45 American University Law Review 415, 455–6. 192 De Melo (n 190) 1062–3 (8th Cir 1986); Aguinda v Texaco, Inc 303 F.3d 470 (2d Cir 2002); Clark (n 184); Paolicelli (n 184); Avery v Pfizer (n 184); In re Vioxx Litigation (n 185). 193 Daschbach (n 187) 53; K Carter-Stein, ‘In Search of Justice’ (1995) 18 Suffolk Transnational Law Review 167, 192. 194 Dow Chemical Co (n 191). SP Baumgartner, ‘Is Transnational Litigation Different?’ (2004) 25 University of Pennsylvania Journal of International Economic Law 1297, 1368–9; Carney, ‘International Forum Non Conveniens’ 455–6. 195 See, in general, T Raphael, The Anti-Suit Injunction, 2nd edn (Oxford, Oxford University Press, 2010). 196 Rogerson (n 130) 198. 190

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A. Anti-Suit Injunction in the UK Using anti-suit injunction in the UK is prohibited under the regime of the Brussels I Recast.197 An injunction will only be permissible as against a third country respondent. Therefore, if an English consumer is entitled to sue a third country business in England pursuant to the protective jurisdiction of the Brussels I Recast,198 an injunction can be granted if the defendant wants to bring another action against the consumer outside the EU Member State. However, if the defendant brings an action against the consumer within any EU Member State, issuing an injunction is not permitted. The English courts are more willing to grant an injunction to protect jurisdiction or arbitration agreements.199 This preference could not work well in consumer contracts. While an agreement is entered into choosing English courts, the agreement is rendered prima facie unenforceable by the protective jurisdiction in the Brussels I Recast.200 Anti-suit injunction may be granted to prevent vexatious or oppressive proceedings abroad.201 For example, if a US company sues an English consumer in California for non-payment, the consumer may claim that the proceedings cause great financial difficulty and oppression. However, the test applied to decide vexation and oppression has a high threshold. Mere financial difficulty or additional trouble to defend in the foreign court is not strong enough to justify an injunction. If the consumer travels to California to enter into the contract, or the consumer enters into the contract while understanding that the other party is a US company, the US may be considered an appropriate forum or even a natural forum. Application will be declined.

B. Anti-Suit Injunctions in the US The US courts take the equally stringent approach in issuing anti-suit injunctions.202 The discretion should be exercised with a ‘robust appreciation for considerations for international comity’,203 and the courts should accept as a general principle that ‘parallel proceedings on the same in personam claims generally should be allowed to proceed simultaneously’.204 The court will usually follow a

197 Case C-159/02 Turner v Grovit [2004] ECR I-3565; Case C-187/07 West Tankers v Allianz SpA (Fromt Comor) [2009] ECR I-663. 198 Art 18(1) of the Brussels I Recast. 199 Rogerson (n 130) 198–9. 200 Art 19 of the Brussels I Regulation. Ch 4 below. 201 Airbus Industrie GIE v Patel [1997] ILPr 230. 202 Athina Invs Ltd v Pinchuk 443 F Supp 2d 177, 180 (D Mass, 2006); Quaak v Klynveld Peat Marwick Goerdeler Bedrijfsrevisoren, 361 F3d 11 (1st Cir 2004). 203 Maroc Fruit Board v M/V ALMEDA STAR 961 F Supp 2d 362, 264–5 (D Mass, 2013). 204 Quaak v Klynveld (n 202) 16; Maroc Fruit (n 203) 365.

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three-part test: whether the two actions are the same; whether the foreign action would frustrate a policy of the forum; whether the impact on comity from an injunction would be tolerable.205 Discretion is used when considering parts two and three of the test. In part two, the courts should consider a series of factors, including the nature of the two actions, the posture of the proceedings, whether the parties have conducted in good faith, whether there are important policies at stake, and whether the foreign proceedings have the potential to undermine the forum’s ability to reach a just and speedy result.206 Comity balance is considered in weighing each of these factors. In general, a court is allowed to issue an antisuit injunction if foreign actions would cause ‘unnecessary delay and substantial inconvenience and expense to the parties and witnesses’, ‘inconsistent rulings’ and race to the court.207 An injunction may be granted if concurrent proceedings in countries located thousands of miles away results in ‘inequitable hardship’, ‘frustration’ and ‘delay’.208 There is no factor specifically designed for contracts including the inequality of bargaining power. The one that is more relevant is probably the public policy ground. In the US, consumer protection is public policy that may generate the use of anti-suit injunction.209 However, this argument may only have academic value because there is no case law where consumers have successfully applied for an injunction based on consumer protection policy. Some cases on employment disputes nevertheless exist, which may be used to infer the court’s general attitude in using anti-suit injunction to protect the weaker party. In these cases, there is hardly any authority supporting the view that financial hardship for the weaker party to respond to actions in another country frustrates public policy.210 What if the US consumer claims that the foreign proceedings deprive him of the standard of consumer protection law that he may otherwise have in US litigation? This is a light argument. The difference in substantive law cannot justify an anti-suit injunction.211 Even if suing in another country may lead to the nonapplication of consumer law enacted as public policy, this is irrelevant. The court should consider whether the strong party has the intention to use the foreign proceedings to evade public policy, which is interpreted narrowly.212 If the business has strong connections with the foreign country, eg it has its registered office or place of business there, bringing foreign actions in its home is prima facie normal

205

E & J Gallo Winery v Andina Licores 446 F3d 984, 991 (9th Cir 2006). Quaak v Klynveld (n 202) 19; Maroc Fruit (n 203) 365. 207 Seattle Totems Hockey Club v The National Hockey League 652 F2d 852, 855–6 (9th Cir 1981). 208 Kaepa v Achilles Co 76 F3d 624, 627 (5th Cir 1996); Ronlake v US-Reports, 2012 WL 4468431, 4 (ED Cal, 2012). 209 JP Waguespack, ‘Anti-Suit Injunctions and Admiralty Claims’ (2011) 24 University of San Francisco Maritime Law Journal 293, 301. 210 Ronlake v US-Reports (n 208) 6. 211 TSMC North America v Semiconductor Mfg 161 Cal App 4th 581, 590 (Cal App, 2008); Advanced Bionics Corp v Medtronic, Inc 29 Cal 4th 697, 705 (Cal, 2002). 212 Advanced Bionics (n 211) 716; TSMC North America (n 211) 598. 206

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and not for the purpose of evading public policy.213 Furthermore, some courts hold that since foreign actions do not prevent the weaker party from bringing concurrent proceedings in the local court, foreign actions should not be an infringement to the forum policy.214 A US court may be more ready to issue anti-suit injunction to enforce a jurisdiction or arbitration agreement, which is unfortunate for consumers.215 Since most jurisdiction or arbitration agreements are unilaterally inserted into the contract by the business, they would usually designate the business’s domicile as the competent forum. A US consumer thus would have almost no chance of being successful in challenging foreign proceedings pursuant to a choice of forum clause. If a foreign consumer brings a foreign action in breach of the US choice of forum clause, the US business may have chance to have the foreign action restrained by an anti-suit injunction.

VI. Conclusion The discretion-based jurisdiction rule allows the court to exert jurisdiction by considering all the 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 aims to provide reasonable results in all cases, including consumer contracts. 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. The English approach is relevantly conservative. There is no, or limited, innovative interpretation provided to address the specific jurisdictional challenge imposed by the internet. The courts continue to apply the old test and criteria by analogising electronic transactions with traditional transactions. This approach works in certain circumstances but may not work in others. Applying traditional criteria in e-commerce may be stretching it sometimes. Comparatively, the US approach is more up-to-date and innovative. The US courts have made an important contribution to the development of law, practice and doctrine in cross-border electronic transactions. It has also contributed to the better understanding of telecommunication technology and its real life impact in commerce. Although many 213 TSMC North America (n 211) 599; Advanced Bionics (n 211) 716 (employers bringing a parallel action in China against US employees was not seen as evading public policy because employers had substantial business in China). 214 Ronlake v US-Reports (n 208) 6. 215 WW Heiser, ‘Using Anti-Suit Injunctions to Prevent Interdictory Actions and to Enforce Choice of Court Agreements’ (2011) Utah Law Review 855, 870. The US allows compulsory arbitration in consumer contracts. For more on choice of jurisdiction clauses, see Ch 4; for more on US consumer arbitration, see Ch 10.

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attempts are not particularly successful and prove unrealistic in later practice, they have generated advanced research in this area and continue to add value to the future development of e-commerce. What is equally problematic in both the English and US common law approach is the application of discretion-based instruments, such as forum non conveniens/ forum conveniens and anti-suit injunction in e-consumer contracts. These instruments are applied without specific consideration to protect consumers as the weaker party. Although the courts are said to take the inequality litigation power into consideration to achieve the ends of justice, it is uncertain how much weight can be attached to it. The existing case authorities nevertheless suggest this factor is not weighed heavily and consumers cannot receive sufficient protection simply by relying on the courts’ discretion.

4 Choice of Court Agreements in E-Consumer Contracts I. Introduction A choice of court agreement demonstrates the contractual parties’ intention to submit their disputes to a particular forum. There are two types of choice of court clauses: exclusive and non-exclusive. An exclusive choice of court agreement submits disputes to the chosen court(s) to the exclusion of the jurisdiction of any other courts, which may be competent otherwise. It has both prorogation and derogation functioning. A non-exclusive choice of forum clause only provides jurisdiction to the chosen forum without derogating other competent courts from taking jurisdiction. Allowing the parties to choose a competent court in international civil and commercial matters is a common practice. A choice of court agreement is very common in international commercial transactions and its enforceability is recognised by most of the countries. This is one of few areas where consensus can be achieved. The Hague Conference in Private International Law, for example, has successfully harmonised rules in choice of court agreements, after it failed the original purpose to harmonise jurisdiction rules in the world.1 A choice of court agreement could provide certainty, predictability and efficiency in international transactions. These advantages are particularly important in international e-commerce. E-commerce challenges traditional jurisdiction rules and the concept of territorial nexus. The international characteristics of e-commerce make it difficult for both parties to predict the potential forum for dispute resolution. A choice of court agreement could reasonably reduce the risk and make jurisdiction predictable for both parties. While a business conducts e-commerce, the business website usually includes standard terms and conditions, including a choice of forum agreement.2 However, the effectiveness of a jurisdiction clause is challenged in e-consumer contracts. The inequality of bargaining power between the parties questions the 1 For the history of the Hague Judgment Project, see www.hcch.net/index_en.php?act=text. display&tid=149, accessed on 18 March 2015. 2 ‘Choice of forum agreements’ include not only choice of court but arbitration agreements. However, arbitration agreements may be held void or voidable under EU law. See more discussion in Ch 10.

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fairness of enforcing a jurisdiction clause in e-consumer contracts. A business may use a jurisdiction clause to reduce commercial risk but the effect would eventually subject a consumer in a foreign jurisdiction, and result in depriving the consumer’s right to access to justice. On the other hand, prohibiting the choice of court agreement in consumer contracts would deprive the parties from enjoying the certainty and predictability that this agreement could offer. Uncertainty and high transaction risk, unfortunately, continues to exist in e-consumer contracts.

II. Choice of Court Clauses in the Brussels I Recast The Brussels I Recast adopts the general principle to respect party autonomy, subject to two exceptions: (1) exclusive jurisdiction; (2) contracts with inequality of bargaining power, including consumer contracts.3 The autonomy to choose a competent court is not completely banned in consumer contracts, but its effectiveness is largely limited. In general, a court should handle a choice of court agreement in consumer contracts by following two steps. One, the court should be satisfied that this clause is valid both as to form and as to substance pursuant to Article 25 of the Brussels I Recast. Secondly, a valid choice of court agreement will only be granted enforceability if it falls within one of the three exceptional circumstances described in Article 19 of the Recast Regulation.

A. Validity of Choice of Court Clauses A choice of court agreement should be valid before its enforceability can be considered. The validity requirements mainly concern the existence of consent and the safeguards in relation to consent.4 Validity includes formal validity and substantive validity. Formal validity generally refers to the external manifestations of consent, which is usually evidenced and expressed in contracts. Substantive validity usually covers other circumstances present during the negotiation and the

3 Recital 19 provides: ‘The autonomy of the parties to a contract, other than an insurance, consumer or employment contract, where only limited autonomy to determine the courts having jurisdiction is allowed, should be respected subject to the exclusive grounds of jurisdiction laid down in this Regulation.’ 4 This delineation provides a wide definition of formal validity for the sake of certainty. See eg: M Giuliano and P Lagarde, ‘Report on the Convention on the Law Applicable to Contractual Obligations’ [1980] OJ C282/1, 22, 29; J Fawcett and J Carruthers, Cheshire, North & Fawcett, Private International Law, 14th edn (Oxford, Oxford University Press, 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, Oxford University Press, 2005) para 21.38.

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process to conclude contracts, which may affect parties’ decision and the quality of consent.5 The Brussels I Recast, as other civil law legislation, provides different rules in deciding formal and substantive validity of a choice of court agreement.6 It is sometimes hard to classify one issue as to form or substance. The Brussels I Recast provides uniform rules for formal validity, and it implies all other issues uncovered in the formal requirements are substantive validity.

i. Formal Validity Formal validity aims to provide proof that both parties have given free and informed consent.7 Traditionally, it only concerns the format of a contract, such as whether a contract is in writing and signed by both parties. The Brussels I Recast provides a broad scope for the formal requirements. Three alternative forms are allowed. A choice of court agreement will be valid if it is in writing or evidenced in writing,8 in a form consistent with the regular usage between the parties,9 or in a form according to the common usage in the particular trade or commerce.10 These forms are challenged in e-commerce, which changes the way in which a contract term may be concluded. a. In Writing or Evidenced in Writing Traditionally, the requirement of ‘writing’ constitutes recording contract terms in the paper document.11 A written document is characterised by repeated accessibility, legibility, durability, accuracy, and unchangeability. This is the most widely used and reliable way to demonstrate the parties’ genuine consent to a contract and to ensure that no party would find a contract term an unfair surprise. E-commerce, however, challenges the traditional ‘writing’ requirement. The contract and terms are electronic data stored in hard drives, memory sticks, memory cards, servers, discs and other hardware. They can be demonstrated in a computer screen as text. The electronic data is intangible and unreadable without the assistance of the right hardware and software. The form of electronic contracts is fundamentally different from traditional contracts and it questions the viability of the requirement of ‘in writing’ in e-commerce.

5

Fawcett and Carruthers, Cheshire, North & Fawcett, 747. Art 25(1) of the Brussels I Regulation. See also Hague Convention on Choice of Court Agreements 2005, Arts 3, 5, 6 and 9. 7 See Case 24/76 Estasis Salotti v RUWA [1976] ECR 1831; Case 25/76 Galeries Segoura v Bonakdarian [1976] ECR 1851. 8 Art 25(1)(a). See also the Hague Choice of Court Convention 2005, Art 3(c). 9 Art 25(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). 10 Art 25(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. 11 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.’ 6

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Many countries have adopted the ‘functional equivalent’ approach to recognise that the electronic form satisfies the ‘writing’ requirement if it has the similar basic function of traditional paper-based ‘writing’.12 This approach provides necessary flexibility to apply the old legal term in the new internet era. The same approach is adopted in Article 25(2) of the Brussels I Recast, which specifically provides that: ‘Any communication by electronic means which provides a durable record of the agreement shall be equivalent to “writing”’13 (emphasis added). It focuses on the character of ‘durable record’ of paper-based writing. If an electronic contract can provide durable record, it can be accessed repeatedly, unchangeable and could provide permanent evidence of what has been agreed on for the parties’ reference. A similar definition is provided in the Hague Choice of Court Convention, Article 3(c)(ii) of which recognises choice of court agreements concluded ‘by any other means of communication which renders information accessible so as to be usable for subsequent reference’ (emphasis added). This definition, from the perspective of technology, may not be perfect. The data that are permanently stored in a hard driver, for example, provide durable record of the agreement. It, however, does not mean the parties could access and read the contract terms at the time of contracting. The visual form of the e-contract requires the assistance of a computer screen and appropriate conversion software. With programme or mechanical errors, the e-contract may appear as the hash code on the computer screen. In order words, the pure durable record cannot ensure legibility of an e-contract and cannot properly protect the parties from being bound by an unforeseen contract term. Some countries provide different interpretation, focusing on the accessibility and readability at the time of contracting. For example, the Chinese Contract Law 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’14 (emphasis added). However, such a requirement is also partial and may validate an e-contract concluded in a temporary form, which disappears when the computer is switched off. The most appropriate definition should combine both durability and legibility. Furthermore, even if the form of the original e-contract may be in doubt, this contract may still be valid if it is ‘evidenced in writing’. This form is introduced primarily to validate oral agreements evidenced by subsequent written confirmation.15 It may have unpredicted importance in e-commerce to validate all e-contracts. Although the e-contract is in a paper-free intangible form, the content can be easily printed in a paper document. The copy is an accurate record of the terms agreed, and is the mirror image of the original contract. The e-contract is thus evidenced in writing.

12 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. 13 See also Arts 3(c)(i) and (ii) of the Hague Choice of Court Convention. 14 Contract Law of the People’s Republic of China of 2001, Art 11. 15 Case 25/76 Segoura SPRL v Société Rahim Bonakdarian [1976] ECR 1851.

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Article 25(2) of the Brussels I Recast only focuses on durability of an e-contract, but it does not mean the legibility and readability of the contract term is not a consideration in the Brussels I Recast. The ‘writing’ requirement in the Brussels I Recast requires more than recording something permanently in paper to enable repeated access. It also requires the contract terms recorded in a way that could provide sufficient notice to the parties about their existence and content. The purpose of the written form in the Brussels I Recast aims to ensure genuine consent is actually reached between the parties.16 A jurisdiction clause duly recorded in a paper contract may fail to meet the ‘writing’ requirement if it is printed on the reverse side of a contract without an express reference directed to it,17 or written in a language unintelligible to one party.18 Therefore, an e-jurisdiction clause durably recorded in a hard drive but not readable at the time of contracting cannot satisfy the requirement of ‘in writing’, which includes not only the written form, but also the quality of writing.19 E-commerce brings innovative issues to the quality of writing. Firstly, e-commerce enables a business to target consumers in multiple jurisdictions. The business may adopt various languages to enable consumers from different countries to enter into transactions, but the general terms and conditions may be shown in one language for all consumers. The choice of court agreement in the general terms and conditions may be in an unfamiliar language to some consumers and invalid in Article 25(1)(a). Secondly, some e-contracts originally are in a tiny or fine print, which makes reading difficult. However, most web browsers allow the user to adjust the size, or zoom in/out the screen. The contract terms may be tiny in the original size, but the consumer could enlarge the text and make reading easy. Would this jurisdiction clause be invalid? In 7E Communications Ltd v Vertex Antennentechnik GmbH, a pragmatic approach is adopted by the English court, which suggests that if the party is made known of the existence of small print, the clause is valid even if the print is small and the resisting party does not read it.20 Thirdly, some jurisdiction clauses are included in long contracts, which may not be able to be shown in one screen and the consumer is required to turn to the next page or to scroll down the screen in order to read the whole contract. Fourthly, many jurisdiction clauses are not directly shown when the contract is concluded, but will be shown in a refreshed screen or a pop-up window after clicking a hyper link. Some websites may even include multiple hyperlinks. For example, before

16 Estasis Salotti (n 7); Segoura (n 15); Case 784/79 Porta Leasing [1980] ECR 1517, para 5; Case 201/82, Gerling Konzern Speziale Kreditversicherungs-AG v Amministrazione del Tesoro dello Stato, [1983] ECR 2503, para 13; Case 313/85, SpA Iveco Fiat v Van Hool NV [1986] ECR 3337, para 5; Case C-106/95 MSG v Gravières Rhénanes [1997] ECR 1-911, para 15. 17 Estasis Salotti (n 7). 18 Yackee, ‘A Matter of Good Form’ (n 4) 1182; A Briggs, Agreements on Jurisdiction and Choice of Law (Oxford, Oxford University Press, 2008) para 7.43. 19 See Z Tang, ‘Exclusive Choice of Forum Clauses and Consumer Contracts in E-Commerce’ (2005) 1 Journal of Private International Law 237, 242–9. 20 7E Communications Ltd v Vertex Antennentechnik GmbH [2007] EWCA Civ 140.

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the consumer proceeds to pay and confirm, there is a hyperlink directing the consumer to ‘Terms and Conditions’. After clicking the hyperlink, the Terms and Conditions website shows another hyperlink to ‘Dispute Resolution’, and then the third hyperlink to ‘Jurisdiction’. In the latter two cases, reading is possible but with efforts. Strictly applying Salotti v RUWA may, however, suggest the jurisdiction clause is valid as in writing, because the business has provided adequate notice to the existence of the jurisdiction clause by informing the consumer to turn the page, to scroll down, or to click the hyperlink. More importantly, many websites require the consumer to confirm that the terms and conditions, including the jurisdiction clause, are read and accepted before allowing the consumer to conclude the contract. Various techniques are adopted to ensure reading has taken place. For example, some businesses will inactivate the icon marked ‘place the order’ or ‘conclude the contract’ unless the consumer clicks to confirm they have read and accepted the general terms and conditions; some may inactivate contracting functioning of the website until the terms and conditions page or window has been displayed for over a few minutes; others may only allow the contracting process to continue after the consumer has scrolled down the screen showing the terms and condition to the end. No matter what technique is adopted, it cannot change the fact that most consumers still will not read. They may click ‘accept’, scroll the screen down to the end or just wait for the lapse of the pre-designed mandatory reading time without actually reading. However, there is no authority to invalidate jurisdiction clauses in an electronic form as far as the consumer is notified of their existence and requested to read before concluding a contract. Finally, it is important to note that signature is not mandatory to the formal validity requirement of the Brussels I Recast. A choice of court clause concluded online will not be invalidated simply because the parties did not sign. Most businesses, nevertheless, require consumers to ‘sign’ in order to avoid future disputes, given consumer contracts may be treated differently in practice and the court is more willing to apply exceptions from general rules to consumer contracts. The functional equivalent approach can be adopted to validate an e-signature.21 The purpose of a signature is to identify the signatory and to demonstrate the signatory’s consent.22 An electronic signature will be recognised and valid if it has equal functioning. E-signatures may be present in different forms, including typing the signatory’s name, scanned manual signature, a PIN or password, clicking the ‘I accept’ icon, or digital signature.23 As far as they could satisfy the functions 21 C Reed, ‘What is a Signature’ (2000) 3 Journal of Information, Law and Technology, para 1.3; OA Orifowomo, JO Agbana ESQ, ‘Manual Signature and Electronic Signature’ (2013) 24 International Company and Commercial Law Review 357, 358–9. 22 Orifowomo, Agbana ESQ, ‘Manual Signature’, 359. 23 The technology of a digital signature is described in Orifowomo, Agbana ESQ (n 21) 361. A digital signature produces signature by ‘using a system of asymmetric cryptography. It uses algorithmic functions to create a compressed form of the document called the hash result to generate two different but mathematically related keys called the public and the private key. A digital signature method

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of traditional signatures, they should be valid. The EU Regulation on Electronic Identification which was adopted in 2014, provides a common foundation for the legal recognition of e-signature in the Member States.24 An e-signature will not be denied legal effect solely based on the ground that it is an electronic form.25 The Regulation recognises two types of e-signature: an advanced e-signature and a qualified e-signature. The former 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 relates in such a manner that any subsequent changes of the data are detectable.26 The latter is the advanced signature based on a qualified certificate involving the secure signature creation device with high-level cryptographic techniques.27 Most e-consumer contracts are concluded by combining a PIN and clicking the ‘I accept’ icon. By registering and logging in with a PIN, the consumer is identified and the authenticity of the signatory is ascertained, and clicking the ‘I accept’ icon clearly shows the consent to the contract term. This signature thus should satisfy the requirement of an advanced signature. b. Regular Usage Between the Parties Article 25(1)(b) of the Brussels I Recast provides that a jurisdiction clause may be valid if it is ‘in a form which accords with practices which the parties have established between themselves’. Regular usage between the parties requires continuous, long-term and repeated business relationship between the parties. The long-term business relationship and repeated dealings form the business pattern between the parties. In the future transactions, the parties no longer need to follow strict formal requirements to conclude their contracts and it is presumed that the parties are fully notified of, and understand, the existence of a jurisdiction clause if the clause is concluded in the same manner in their past transactions. Regular usage may exist in e-consumer contracts. Most business websites require a consumer to register in the first transaction. The consumer is directed

generally defines two complementary algorithms, one for signing and the other for verification; that is, the signer’s private key and a verification algorithm, requiring the signer’s public key. The private key kept by the sender of the message is employed to encrypt the message and the public key is made available to the public to decode or decrypt the message, usually utilising a public key infrastructure (“PKI”). The PKI is the enabling software, hardware and procedures providing the necessary key management, directory and revocation services.’ 24 Regulation (EU) No 910/2014 on electronic identification and trust services for electronic transactions in the internal market and repealing Directive 1999/93/EC [2014] OJ L257/73. The Regulation shall apply from 1 July 2016. 25 Art 25(1). 26 Art 26 of the Regulation. The rule follows the precedent Art 2(2) of the E-Signature Directive. For more on the EU E-Signature Directive and the proposed reform, see S Mason, ‘Revising the EU E-Signature Directive’ (2012) 17 Communications Law 56; S Farmer, ‘If at First You Don’t Succeed’ (2012) 18 Computer and Telecommunications Law Review 509. 27 Art 25(3). The requirement for the qualified signature and qualified signature device is in Annex 1 and 2.

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to the full terms and conditions including a jurisdiction clause and the consumer must accept the general terms before entering into the contract. For a regular consumer, the website will no longer require the consumer to confirm all the details and the acceptance to the contract terms, and the consumer could proceed to contract much more quickly simply after confirming the price and credit card details. Some websites even ask no credit card details before accepting the order of a repeated consumer.28 The choice of court agreement in the new contract, as a result, is not validly ‘in writing’ pursuant to the Court of Justice’s interpretation in Salotti v RUWA.29 It, however, may conform with the alternative form in Article 25(1)(b). Whether or not a regular usage is established depends on the length of parties’ relationship, the frequency of transactions, the nature of transactions, etc. Unfortunately, the asymmetric information in consumer contracts is not taken into account. Applying the same rule to consumer contracts, as a result, generates doubt and injustice. Consumers may not be able to understand the consequence of repeated online transactions with the business supplier. Most consumers will not even read the general terms and be aware of the jurisdiction clause in the first transaction, needless to say the subsequent ones. It is hard to justify the ‘regular usage’ approach could prove genuine consent of consumers.30 c. Common Usage in the Particular Trade or Commerce Common usage is a conduct or practice regularly used by the parties conducting a particular trade or commerce.31 Since concluding a jurisdiction clause online by displaying the terms and asking the consumer to click to accept is a common practice used by most e-businesses conducting website trading, it is likely that this jurisdiction clause is in the form accords to the common usage in e-commerce. However, it is also necessary to consider whether the parties should be aware of the common practice. The alternative form in Article 25(1)(c) aims to ensure the genuine consent to the jurisdiction clause and to provide flexibility and efficiency to international business transactions. The purpose cannot be achieved if the one or both parties are unaware of the existence of such a common usage.32 The lack of awareness may nevertheless exist in the part of consumers.

ii. Substantive Validity All issues not relating to formal validity fall into substantive validity, which mainly concerns the quality of consent to an agreement.33 The Brussels I Recast provides 28

Such as the ‘One-click shopping’ programme adopted by Amazon.com. Estasis Salotti (n 7). 30 Tang, ‘Exclusive Choice’, 249. 31 Case C-106/95, MSG v Les Gravieres Rhenanes [1997] ECR I-911; P Rodgerson, Collier’s Conflict of Laws, 4th edn (Cambridge, Cambridge University Press, 2013) 115. 32 Rodgerson, Collier’s, 116. 33 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 29

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a uniform choice of law rule to determine substantive validity of a jurisdiction clause. A jurisdiction clause may be null and void under the law, including private international law, of the Member State which is chosen in the agreement.34 This uniform choice of law rule has resolved the long-lasting debate and uncertainty in deciding substantive validity of a choice of court agreement in the European jurisdiction regime.35 The EU legislators do not provide a harmonised substantive validity rule like what has been done for formal validity. This is mainly because the EU harmonisation in this issue proves impossible in a short term.36 Applying the law of the chosen court may be criticised for providing opportunities for abuse. The strong party, while unilaterally inserting the jurisdiction clause in the contract, may select the country, the national law or conflicts rules of which, known by the strong party, may lead to the application of the lower standard to protect the genuine consent of the other party and to render the choice of court agreement valid. However, the Brussels I Recast is a major improvement compared to its precedents in that it prevents forum shopping and ensures the uniform result to the substantive validity of a jurisdiction clause to be delivered irrespective of which court is seised to make the decision. The domestic law on substantive validity varies in EU Member States. Substantive validity includes duress, mistake, misrepresentation, undue influence and other factors that may affect the quality and authenticity of consent. It is also important to note that these challenges must be directed to the jurisdiction clause instead of the main contract, due to the doctrine of severability. Article 25(5) of the Recast Regulation expressly states that ‘(t)he validity of the agreement conferring jurisdiction cannot be contested solely on the ground that the contract is not valid’. Since a jurisdiction agreement is rarely subject to negotiation or enquiry and hardly a reason that induces the consumer to enter into an agreement, the allegation on duress, mistake, misrepresentation and undue influence are usually irrelevant in challenging the substantive validity of a jurisdiction agreement. The most relevant challenge is the lack of genuine consent on the part of a consumer to a standard jurisdiction clause not subject to individual negotiation. The harmonised EU standard on this substantive challenge has been provided in the Unfair Terms in Consumer Contracts Directive.37 A contract term can be regarded as 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. 34

Art 25(1). Tang (n 19) 249–50. E McKendrick, ‘Harmonisation of European Contract Law’ in S Vogenauer and S Weatherill (eds), The Harmonisation of European Contract Law (Oxford, Hart Publishing, 2006) 15; L Miller, The Emergence of EU Contract Law (Oxford, Oxford University Press, 2011) 62; A Shulz, ‘The Hague Conference Project for a Global Convention on Jurisdiction, Recognition and Enforcement in Civil and Commercial Matters—An Update’ in J Drexl and A Kur (eds), Intellectual Property and Private International Law (Oxford/Oregon, Hart Publishing, 2005) 6, 12. 37 Directive 93/13/EEC of 5 April 1993 on Unfair Terms in Consumer Contracts (‘Unfair Terms Directive’) [1993] OJ L95/29. 35 36

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‘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. An exclusive jurisdiction clause, which chooses the forum of the business’s home and derogates 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’. An example provided is the pre-dispute compulsory arbitration agreement in consumer contracts.40 Exclusive choice of court agreements are similar to arbitration agreements in that both provide exclusive jurisdiction to the chosen forum, and both derogate other otherwise competent courts their jurisdiction.41 In Oceano Group Editorial SA v Murciano Quintero, the Court of Justice applied Article 3 of the Unfair Terms Directive to assess the validity of a jurisdiction clause in a consumer contract.42 If an exclusive jurisdiction clause is ‘unfair’ in Article 3(1) of the Unfair Terms Directive, it will not bind the consumer.43 However, it does not mean all pre-dispute standard exclusive choice of court agreements that choose the court of a Member State other than the consumer’s home are unfair terms. Discretion should be made to consider whether the choice of court agreement is contrary to good faith and it has caused significantly imbalanced rights and obligations between the parties. Firstly, if an exclusive jurisdiction clause chooses the court of a third country, which is neither the consumer’s domicile nor the business’s domicile, it may not cause ‘significant imbalance’ between the parties. Both have the equal rights and obligations to access a foreign court. Secondly, it may not exclude the consumer’s right to access to court. The consumer cannot access his home court but could take actions in the chosen forum. This may not amount to excluding access to justice as far as the chosen forum is not oppressive or vexatious. Thirdly, if a business has chosen the court of his own domicile, this is a common commercial practice, which aims to protect the 38

Ibid, Art 3(1). Ibid, Art 3(2). 40 Annex to the Unfair Terms Directive, point (q). For more on arbitration clauses in consumer contracts, see Ch 10, IV.B. 41 AJ Belohlavek, B2C Arbitration (New York, Jurist, 2012) 112. 42 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; AMT Futures Ltd v Marzillier, Dr Meier & Dr Guntner Rechtsanwaltsgesellschaft mbH [2014] EWHC 1085 (Comm), para 61. 43 Art 6(1) of the Unfair Terms Directive. But consumers may enforce it against the business. The unfair term is not void but voidable. 39

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business from unreasonable commercial risk rather than to hinder the consumer’s right to take actions. It is hard to argue this practice is contrary to good faith. The Unfair Terms Directive could bring some challenges to the validity of an exclusive jurisdiction clause in consumer contracts, but it is likely many jurisdiction clauses may stand intact after careful assessment of the criteria.

B. Enforceability of Choice of Forum Agreements in E-Consumer Contracts Consumers cannot receive sufficient protection by simply relying on validity of a jurisdiction clause. Article 25(1) and (2) could validate most electronic jurisdiction clauses concluded in consumer contracts and the Unfair Terms Directive may not be enough to render most exclusive jurisdiction clauses unfair even if they are included in a consumer contracts. The protection, therefore, primarily relies on the restriction of enforceability. A valid jurisdiction clause may not be enforceable. Article 19 of the Recast provides that a choice of court agreement in a consumer contract, irrespective of its validity, should be prima facie ineffective, except in three circumstances: (1) the jurisdiction clause is entered into after the dispute has arisen;44 (2) the jurisdiction clause broadens the consumer’s options;45 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.46

i. Three Exceptional Circumstances a. Post-Dispute Jurisdiction Clauses It is justified that after the dispute has arisen, the consumer should be aware of his rights and obligations and should be cautious not to enter into jurisdiction clauses too readily. From the economic perspective, requiring consumers to read and understand contract terms before the dispute has arisen may increase marginal transaction cost, but such a requirement is not unreasonable and inefficient after the dispute has arisen.47 If the consumer fails to read and to find out their rights after the dispute has arisen before entering into a jurisdiction clause, the consumer should be fully responsible and be bound by the agreement that they have freely entered into.48 44

Art 17(1). Art 17(2). 46 Art 17(3). 47 EJ Leib, ‘What is the Relational Theory of Consumer Form Contract’ in J Braucher et al (eds), Revisiting the Contracts Scholarship of Stewart Macaulay (Oxford, Hart Publishing, 2013) 259, 268; in general, CL Knapp, ‘Is There a ‘Duty to Read’?’ in Braucher et al, 315; Lee Goldman, ‘My Way and the Highway’ (1992) 86 Northwestern University Law Review 700, 717. 48 Of course, after the dispute has arisen, the inequality of bargaining power continues to exist. The business can still abuse the bargaining power and force a consumer to enter into a choice of court agreement. This may make the choice of court agreement invalid either formally or substantively and thus unenforceable. 45

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E-commerce, however, may bring practical challenges to this condition. Firstly, when does the dispute arise? 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’.49 This explanation is vague and outdated.50 One needs to exercise discretion to decide whether legal proceedings are imminent or contemplated. Due to the different experience, knowledge and expectation between consumers and businesses, it is likely that one party feels legal proceedings are imminent while the other does not see potential proceedings are forthcoming. In e-commerce, disagreements are communicated in distance, where the parties cannot have faceto-face negotiation and cannot judge the other party’s intention through their tone, facial expression, gesture and other body language. It is harder to predict what is contemplated by the other party. Judging when the dispute has arisen in e-commerce is thus difficult. Furthermore, this explanation may be unrealistic and unduly postpone the time when dispute has actually arisen. In e-consumer contracts, individual litigation is not an efficient choice given its cost and inconvenience in comparison with the small value of the contract. Both parties may not see litigation proceedings a viable option and thus legal proceedings will never be contemplated or imminent. It does not mean dispute has never arisen. Secondly, the parties usually will conduct informal negotiation. They will not consider legal proceedings imminent during this stage unless negotiation is expected to fail. It is hard to argue that the dispute has not arisen during negotiation, which is used to settle the dispute. If the parties enter into a choice of court agreement during negotiation, it is unreasonable to argue that the consumer simply signs without reading and the agreement is not based on the genuine consent. It is suggested that this exception is provided based on the fact that the consumer should be cautious after the dispute has arisen and any agreements entered into at this stage should be based on the genuine consent of the consumer. Taking this purpose into account, whether a dispute has arisen should depend primarily on the consumer’s expectation. If the consumer complains to a company, the consumer has already expected something wrong in the product and will reasonably read contract terms or seek legal advice before entering into any agreements. It is reasonable to argue that the dispute has arisen the first time the consumer makes a complaint to the business. The second challenge by e-commerce is when the jurisdiction clause is entered into. The time to conclude an electronic agreement is subject to uncertainty.51 Since this is the interpretation to the Brussels I Recast, an EU autonomous

49 P Jenard, ‘Report on the Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters’ (Jenard Report) [1979] OJ C59/1, 32; Nygh and Pocar, Preliminary Draft Convention, 53. 50 A Briggs and P Rees, Civil Jurisdiction & Judgments, 4th edn (London, LLP, 2005) 97. 51 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 3, s III.A.i.

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meaning should be provided to decide the time of conclusion of the contract. Although there is not yet enforceable harmonisation on substantive EU contract law and no interpretation is provided by the Court of Justice, guidance may be drawn from the Proposal for the Common European Sales Law (CESL). Article 35 of the proposal adopts the recipient rule, ie the contract is concluded when the acceptance reaches the offeror.52 According to Article 11(1) of the E-Commerce Directive, if an order or acknowledgement is made through technological means, it is deemed to be received when the addressee is able to access it. Since it is usually the business that proposes a choice of court agreement, the consumer will be the offeree. An electronic jurisdiction agreement is entered into when the business is able to access the acceptance by the consumer. 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 the email. This interpretation could provide certainty and has been accepted in legislation in other jurisdictions.53 The same interpretation should be accepted in the EU.54 b. Broadening Consumers’ Options A jurisdiction clause that might broaden the consumer’s options may be enforceable. This exception refers to asymmetric jurisdiction agreements. An asymmetric jurisdiction clause provides one party additional choices without providing the other party the equal right. According to Article 19(2), the jurisdiction clause will be enforceable if it broadens the consumer’s option without derogating any otherwise competent fora of jurisdiction. More importantly, 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 18 of the Recast 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. The validity of an asymmetric jurisdiction clause is questioned by the court of some Member States. In Rothschild, the French Cour de cassation held an asymmetric jurisdiction clause invalid under Article 23 of the Brussels I Regulation (Article 25 of the Brussels I Recast).55 The main reason is that the enforcement of 52

The same rule is adopted in the Principles of the European Contract Law, Arts 2-205(1) and (2). US Uniform Electronic Transaction Act, s 15(b)(1); Uniform Computer Information Transactions Act, s 214(a). 54 It is argued that this ground is not useful in practice because no consumer would agree on foreign jurisdiction after dispute has arisen. See J Hill, Cross-Border Consumer Contracts (Oxford, Oxford University Press, 2008) 197. 55 Cass, Civ, 1, 26 Sept 2012, Mme X. c./Banque Privee Edmond de Rothschild, No 11-16.022. Other courts have taken a similar approach under the national law, see, eg Russkaya Telefonnaya Kompaniya v Sony Ericsson Mobile Communications Rus [2012] Supreme Arbitrazh Court of the Russian Federation of 19 July 2012. A Briggs, ‘One-Sided Jurisdiction Clauses’ (2013) Lloyd’s Maritime and Commercial Law Quarterly 137. 53

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this type of jurisdiction clause completely depends on the will of one party and lacks finality and object.56 Invalidating asymmetric jurisdiction clauses may not be straightforwardly justifiable under formal validity in Article 25 of the Brussels I Recast, but the choice of law rules may direct to the application of national law. If this agreement is invalid substantively, Article 19(2) will no longer be applicable and consumers are not able to enjoy the benefit and flexibility contemplated by this provision. It is also uncertain whether the French judgment can be different if the asymmetric jurisdiction clause intends to benefit the consumer instead of the business. However, with the obvious biased effect, it is unusual for a business to insert an asymmetric jurisdiction agreement in favour of the consumer in the standard-form contract. Finally, if a jurisdiction clause is non-exclusive, which broadens both parties’ options, would this clause be held unenforceable or it is selectively enforceable by the consumer but not the business pursuant to Article 19(2)? Since Article 19 should be read in conjunction with Article 25 of the Brussels I Recast, the interpretation is that once a jurisdiction clause satisfies the validity requirements under Article 25, it will be valid and the enforceability shall be decided by Article 19. As a result, a non-exclusive jurisdiction clause can be unilaterally enforced by the consumer, but cannot be relied on by the business to sue the consumer in a country other than the consumer’s domicile. c. Common Domicile or Habitual Residence Qualification 3 applies in a domestic contract between the parties, who had the same habitual residence or domicile at the time of contracts. If the consumer has changed his domicile afterwards, it may not render the jurisdiction clause unenforceable. This exception applies to very limited circumstances and is not useful in e-commerce. The purpose of this exception is to protect reasonable expectation of a business when dealing with a domestic consumer. While a business conducts international e-commerce, it would not predict the domicile or habitual residence of potential consumers. Without knowing the other party’s domicile, the business would not have any expectation that the jurisdiction clause in the particular contract is enforceable.57

ii. The Prima Facie Ineffective Principle The prima facie ineffective principle is generally justifiable in the EU jurisdiction regime. It is mainly because the rule-based approach on choice of court agreements lacks flexibility, which will provide pre-designed conditions to validate/

56 JG Anderson, The Validity of Asymmetric Jurisdiction Clauses (Master Dissertation, submitted to the Aalborg University, Denmark) 42–8; M Ancel, L Marion and L Wynaendts, ‘Reflections on OneSided Jurisdiction Clauses in International Litigation’ available on SSRN, http://papers.ssrn.com/sol3/ papers.cfm?abstract_id=2258419, accessed on 2 February 2015. 57 Hill, Cross-Border, 198.

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invalidate jurisdiction agreements without considering specific requirements in individual bargain. The uniform formal validity requirement in Article 25 is designed to meet the purpose of ordinary commercial contracts and can hardly provide justice and sufficient protection in consumer contracts. Although national law in substantive validity may provide the second tier of protection, the standard varies between countries. Since the law of the chosen court shall be applied, it also allows abuse by permitting the stronger party to assign jurisdiction to a Member State, the national law of which provides, or the conflict of laws of which may direct to, a lower level of protection. The Unfair Terms Directive cannot help much at the EU level. Relying on validity and the regulation of bargain is insufficient and it is necessary to limit the effect and enforceability of jurisdiction agreements in consumer contracts. This approach, however, is criticised for failing to consider certainty and business needs in e-commerce.58 A company can no longer freely expand its market and enjoy the reduced risk in such expansion provided by a jurisdiction clause. All e-companies now have to face a choice: either to restrain its market, or to take the risk of pan-EU litigation. The commercial benefit and potential that e-commerce might otherwise bring is hampered by the prima facie ineffective principal. Furthermore, economists may argue the prima facie ineffective principal reduces efficiency. Without an effective and enforceable choice of forum clause, the transaction cost increases, which may result in a higher price, eventually being transferred to e-consumers.59 Other businesses may decide not to trade overseas, which may reduce consumers’ choice of products from various traders. This principal may also be contrary to the uniformity and certainty required in transnational e-commerce. 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 may be too restrictive and unreasonable.

iii. Territorial Limitation on the Application of the Brussels I Recast Article 25 of the Brussels I Recast applies where the parties have chosen a court or the courts of a Member State to hear their disputes, irrespective of the parties’ domicile. If the consumer is domiciled within a Member State, regardless of the business defendant’s domicile, while the court of a Member State is chosen, the consumer could sue the defendant in the consumer’s domicile pursuant to Article 18(1), which will only be departed from by the parties’ agreement under Article 19. If a business is domiciled within a Member State and the consumer,

58 ‘Electronic Commerce and International Jurisdiction’ (Hague Conference on Private International Law, Ottawa, 28 Feb to 1 Mar 2000, Prel Doc No 12) 7. 59 For criticism to this argument, see Lee Goldman, ‘My Way and the Highway’. See s IV. below.

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as a defendant, is domiciled out of the Member State, and the court of one of the Member State is chosen, Article 25 is applicable, but the protective conflict of laws is not.60 If both parties are domiciled in third countries, while the choice of court agreement has designated the court of a Member State, the court again should apply Article 25 instead of Section 4. In both cases, the Brussels I Recast allows the chosen court to take jurisdiction pursuant to Article 25 even if it requires the consumer to participate in foreign proceedings. Situations may be more complicated if the parties have chosen the court of a nonMember State. If an EU consumer wants to rely on Article 18(1) to sue a defendant, regardless of its domicile, within the consumer’s home, Article 19 is applicable. But should the validity requirements in Article 25 be relevant? Different suggestions exist. Some commentators suggest the same conditions should be applied to agreements choosing the court of a non-Member State pursuant to ‘reflexive effect’.61 Others suggest that the jurisdiction clause choosing a non-Member State should be excluded from the scope of the Brussels I Recast and the validity and prerequisites should be determined according to national law.62 Another suggestion is validity and effects of this jurisdiction clause should be determined pursuant to the Hague Choice of Court Convention 2005. The Council of the EU adopted the decision on the approval of the Hague Convention,63 and the Convention will enter into force between EU Member States (except Denmark) and Mexico in the near future. However, the Hague Convention may not help much at this stage. Firstly, it only applies between Contracting States. Besides EU Member States, Mexico is the only state that has ratified this Convention. The US has signed but not yet ratified the Hague Convention.64 Secondly, consumer contracts are excluded from the Hague Convention, which means that the Hague rules shall not be relied on to determine validity of jurisdiction clauses in consumer contracts. It is thus clear that the Brussels I Recast extends the scope of protection to cover non-EU business defendant, but it does not protect non-EU consumers. It also does not protect EU consumers, if the defendant decides to bring an action in a third country, which is not subject to the EU Regulation.

III. Choice of Court Clauses in the US The US has adopted the policy to hold a choice of court agreement prima facie enforceable subject to limited exceptions. The policy in favour of enforcing 60

See Arts 18(2) and 6 of the Brussels I Recast. M Harding, Conflict of Laws (Abingdon, Routledge, 2013) 50. 62 Case C-387/98 Coreck Maritime GmbH v Handelsveem [2000] ECR I-9337; Opinion 1/03 [2006] ECR I-1145; Harding, Conflict of Laws, 50. 63 Council Decision 2014/887/EU of 4 December 2014 [2014] OJ L353. 64 See status table of the Hague Choice of Court Convention, www.hcch.net/index_en.php?act= conventions.status&cid=98, accessed on 5 January 2015. 61

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jurisdiction agreements is provided by the Supreme Court in the milestone case M/S Bremen v Zapata Off-Shore.65 The same principle applies to standard-form contracts and consumer contracts.66 Pursuant to Bremen, a jurisdiction clause in consumer contract is enforceable unless enforcement is unreasonable, unfair and unjust. Furthermore, the ordinary contractual requirements should continue to apply to ensure that a jurisdiction clause is indeed validly concluded between the parties and absent of fraud or overreaching.

A. Validity of Choice of Court Clauses Validity of jurisdiction clauses is a question of law and choice of law is involved in deciding the governing law. The applicable law to a jurisdiction clause, however, is uncertain in the US. Some courts refer to the contract law of the lex fori,67 some apply the law governing the main contract,68 some apply the conflict of laws of the forum,69 and some the general contract principle in the US common law.70 Most state law does not include strict formal requirements for 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,71 contained in small-print, incorporated through course of dealing,72 incorporated by an invoice,73 or included in a purely oral agreement.74 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. The validity of a choice of court clause largely depends on the existence of genuine consent. The genuine consent may be questioned in consumer contracts, where the consumer usually will not read the standard contract terms and could not provide genuine consent to the jurisdiction clause. The law does not require the factual consent to exist, but a consumer is deemed to have given genuine consent in law if the business has reasonably communicated the jurisdiction clause to the consumer, the consumer has the opportunity to read, and the consumer manifested an

65

M/S Bremen v Zapata Off–Shore Co (The Bremen), 407 US 1 (1972). Carnival Cruise Lines, Inc v Shute 499 US 585, 595 (1991); Gipson v Wells Fargo 563 F Supp 2d 149, 154 (DDC, 2008); Monsanto Co v McFarling 302 F.3d 1291 (CAFed (Mo), 2002). 67 Specht v Netscape 306 F.3d 17, 28–32 (2d Cir 2002); Serrano v Cablevision 863 F Supp 2d 157, 164 (EDNY, 2012). 68 Abbott Labs v Takeda Pharms 476 F.3d 421, 423 (7th Cir 2007); Yavuz v 61 MM 465 F.3d 418, 428 (10th Cir 2006). 69 Nutter v New Rents 1991 WL 193490, 5 (4th Cir 1991). 70 Jallali v National Bd of Osteopathic Med Examiners 908 N.E.2d 1168, 1173 (Ind Ct App, 2009). 71 Roberts & Schaefer Co v Merit Contracting 99 F 3d 248, 252–3 (7th Cir 1996). 72 Magdalena v Lins 123 A.D.3d 600 (NYAD, 2014); Nordyne (n 9) 847; Bell, Inc v IFS Industries, Inc 742 F Supp 2d 1049 (DSD, 2010); Highland Supply Co v Kurt Weiss Greenhouses 2009 WL 2365244, 2 (SD Ill, 2009); Quality Wood Designs v Ex-Factory, Inc 2014 WL 4168463 (DSD, 2014). 73 CFMOTO Powersports v NNR Global Logistics USA 2009 WL 4730330, 4 (D Minn, 2009); TSR Silicon Resources v Broadway Com Co 2007 WL 4457770 (SDNY, 2007). 74 See Yackee (n 4) 1192–3. 66

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unambiguous consent.75 The focus is the extrinsic factors, instead of the subjective consent on the part of the consumer.76 These requirements may be challenged in e-commerce, where most jurisdiction clauses are contained in a click-wrap or browse-wrap contract.

i. Jurisdiction Clauses in Click-Wrap Contracts A click-wrap contract requires the consumer to click on an ‘Agree’ or ‘Accept’ icon in order to access to the product or service, or to continue the transaction.77 Whether or not the consumer is given sufficient notice to the terms depends on all the factors, including the size of the text, the presentation of the terms, the length of the terms, the wording and clarity, and other mechanisms adopted to encourage reading. The jurisdiction clause will be valid where the business website has adopted the programme that prevents the consumer from proceeding unless the consumer has clicked through the text of the agreement.78 However, the requirement does not impose a high threshold and the courts have enforced jurisdiction clauses in contracts where the consumer clicks on an icon stating ‘Agree and Complete Reservation’ without checking on a box or clicking on a separate button to specifically accept the terms and conditions,79 where the full text is included in a hyperlink which directs the consumer to a pop-up or refreshed window,80 where the contract is very lengthy appeared in a scroll box with only portions visible with the jurisdiction clause located at the end,81 and where the jurisdiction clause is presented in small font-size in lower case.82 On the other hand, the jurisdiction clause is not reasonably communicated if the jurisdiction clause or the reference to it is not directly visible but requires the consumer to turn or to scroll down to the

75 Specht (n 67) 28–32; Serrano (n 67) 164; Guadagno v ETrade Bank 592 F Supp 2d 1263, 1271 (CD Cal, 2008); Feldman v Google, 513 F Supp 2d 229 (ED Pa, 2007); Rocky Creek Ret Props, Inc v Estate of Fox ex rel Bank of Am 19 So.3d 1105, 1108 (Fla Dist Ct App, 2009); Hancock v American Tel and Tel Co 701 F.3d 1248 (CA10 (Okla), 2012); Phillips v Audio Active Ltd 494 F.3d 378, 383 (2d Cir 2007); DH Blair v Gottdiener 462 F.3d 94, 103 (2d Cir 2006). 76 See discussion in KM Das, ‘Forum-Selection Clauses in Consumer Clickwrap and Browsewrap Agreements and the ‘Reasonable Communicated’ Test’ (2012) 77 Washington Law Review 481, 492–6. 77 PJ Morrow, ‘Cyberlaw: The Unconscionability/Unenforceability of Contracts (Shrink-Wrap, Clickwrap, and Brow-Wrap) on the Internet’ (2011) 11 University of Pittsburgh Journal of Technology Law and Policy 7, 7; RC Anderson, ‘Enforcement of Contractual Terms in Click Wrap Agreements’ (2007) 3 Shidler Journal of Law, Commerce and Technology 11, para 3; Register.com, Inc v Verio, Inc 356 F.3d 393, 429 (2d Cir 2004); Feldman v Google (n 75) 236; TradeComet.com LLC v Google, Inc 693 F Supp 2d 370, 377 (SDNY, 2010); Feldman v Google (n 75) 236. 78 TradeComet.com (n 77) 377–8. 79 In re Online Travel Co 953 F Supp 2d 713, 717 (ND Tex, 2013); Recursion Software Inc v Interactive Intelligence, Inc 425 F Supp 2d 756, 783 (ND Tex, 2006); Barnett v Network Solutions Inc 38 S.W.3d 200, 204 (Tex App-Eastland, 2001). 80 Person v Google Inc 456 F Supp 2d 488, 496–7 (SDNY, 2006); Novak v Overture Services 309 F Supp 2d 446, 451 (EDNY, 2004); Universal Grading Service v eBay 2009 WL 2029796, 12 (EDNY, 2009). 81 Forrest v Verizon Communications 805 A.2d 1007, 1010–11 (DC, 2002); Caspi v Microsoft Network 323 NJ Super 118, 125–7 (App Div 1999). 82 Forrest v Verizon (n 81) 1010–11; In re RealNetworks 2000 WL 631341 1, 5–6 (ND Ill, 2000); Caspi v Microsoft Network (n 81) 125–7.

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next screen,83 the jurisdiction clause or the contract containing the jurisdiction clause is in a submerged screen,84 or the jurisdiction is hidden below the ‘Accept’ icon on the next screen.85 The key is whether adequate notice is given to the existence of the jurisdiction clause, by providing clear reference to the terms where the clause belongs before concluding the contract. There is no requirement to specifically bring the attention to the content of the jurisdiction clause. Furthermore, the consumer needs an opportunity to read the clause. If such opportunities are given, whether the consumer has in fact read the clause is unimportant.86 The court usually holds the opportunity is given if the terms are reasonably communicated. However, in some circumstances, the court should also consider the time that the consumer is allowed to read. If the terms and conditions are shown through an automation video or autoplay powerpoint and there is no device to turn it forward and backward, the consumer may not be able to properly read, think and review. Some websites have adopted the timing programme. When the consumer has chosen a product, the website will show ‘You have 30 minutes to make the purchase’, or ‘The best price will be reserved for you for 20 minutes’.87 The consumer may be urged to proceed quickly in order to get the deal and may not have time to read at his own pace. The opportunity to read will be challenged. Finally, by clicking on ‘Agree’ or ‘Accept’, the consumer has expressed unambiguous assent to the jurisdiction clause. The clarity of the consent may be questioned if the icon is marked ‘Proceed’, ‘Continue’ or ‘Download’, which convey the incontestable intention to be bound by the terms.88

ii. Jurisdiction Clauses in Browse-Wrap Contracts More challenges may arise out of a browse-wrap agreement, which allows a consumer to continue transactions, or to access to products or services without manifesting consent.89 A browse-wrap contract is displayed on the website which expressly binds the users who continue to browse the website, download the software, use the products or services, or continue transactions.90 83

Specht (n 67) 22–3. Ibid, 32. 85 Ibid, 35. 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, 125–6 (Ill App Ct, 1998); Tandy Computer Leasing v Terina’s Pizza 784 P 2d 7, 8 (Nev, 1989). 86 In Bagg v HighBeam Research 862 F Supp 2d 41, 45 (D Mass, 2012), the Court says: ‘With regard to forum selection clauses in clickwrap agreements—despite the fact that probably less than one person in 10,000 ever reads them, or has the slightest idea what they say—courts routinely hold that they are valid and enforceable.’ Segal v Amazon.com 763 F Supp 2d 1367, 1369; Feldman v Google (n 75) 236. 87 For example, China Eastern Online Ticket Purchasing Instructions provides: ‘The ticket purchaser must complete the purchasing procedure (ie online payment) within 30 minutes after booking the seat.’ http://en.ceair.com/guide2/xqfw/t201347_10248.html, accessed on 18 March 2015. 88 Specht (n 67) 29–30. ProCV v Zeidenberg 86 F 3d 1447 (7th Cir 1996). 89 Specht (n 67) 23. 90 Pollstar v Gigmania 170 F Supp 2d 974, 981 (ED Cal, 2000); In re Online Travel (n 79) 719; Recursion (n 79) 781; Specht (n 67) 22–3; Register.com v Verio; Hotels.com v Canales 195 S.W.3d 147 (Tex App, 2006). 84

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Notably, the major difference between a browse-wrap contract and a click-wrap one is the express of unambiguous consent. While clicking on an ‘Agree’ icon, the consumer expresses consent clearly, continuing visiting the website may not be interpreted as showing unambiguous consent. For this reason, jurisdiction agreements included in browse-wrap contracts are held invalid by many courts in the US.91 However, some courts even enforce browse-wrap contracts holding the action to continue browsing the website or accessing the products an unambiguous consent.92 The key to the decision is whether the consumer has ‘actual or constructive knowledge’ of the contract terms and their binding effect upon conducting clearly specified activities.93 The existence of such knowledge primarily depends on the way the terms are communicated to the consumer.94 Given the fact that the consumer is not required to click a clear icon ‘Agree’ or ‘Accept’, the requirement for reasonable communication is higher in browse-wrap contracts than in click-wrap contracts. 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 button ‘Look for Tickets’.95

iii. Fraud or Overreaching A jurisdiction clause is invalid where a consumer is induced into accepting the jurisdiction clause fraudulently, by misrepresentation or by duress or other unconscionable means that may hinder the consumer’s freedom to give consent.96 The US courts, however, apply the principle of separability which requires the consumer to prove that it is the alleged fraud that induces the jurisdiction clause instead of the whole contract.97 It is contemplated that in very few cases the consumer is fraudulently induced to accept a jurisdiction clause in particular. Fraud or overreach, if exists, will intend to induce the consumer into entering into the main contract, not only a jurisdiction clause.

B. Enforcement of Choice of Court Clauses in Consumer Contracts A valid choice of court clause is prima facie enforceable in the Bremen principle, unless enforcement is unjust and unreasonable. Injustice and unreasonableness 91 Edme v Internet Brands, 968 F Supp 2d 519, 525 (EDNY, 2013); Hines v Overstock.com 668 F Supp 2d 362, 367 (EDNY, 2009). 92 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); Edme (n 91) 525; Zaltz v JDATE 952 F Supp 2d 439, 453–5 (EDNY, 2013). 93 Edme (n 91) 525; Hines (n 91) 368. 94 Edme (n 91) 525; Specht (n 67) 32; Hines (n 91) 368. 95 Druyan v Jagger 508 F Supp 2d 228, 237 (SDNY, 2007). 96 Bremen (n 65) 12, 15; Preferred Capital v Associates in Urology 453 F.3d 718, 722 (CA6 (Ohio), 2006). 97 Moses v Bus Card Express 929 F.2d 1131 (6th Cir 1991); Scherk v Alberto–Culver Co 417 US 506, 519 (1974); Preferred Capital (n 96) 722; Muzumdar v Wellness Intern. Network, Ltd 438 F.3d 759 (CA7 (Ill.), 2006); Villanueva v Barcroft, 822 F Supp 2d 726, 735–6 (ND Ohio, 2011).

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may exist if the opposing party cannot receive a fair trial in the chosen court, enforcement would contravene a strong public policy of the forum, or the chosen forum would cause grave difficulty and inconvenience that would deprive the opposing party of their day in court.98

i. Fair Trial A choice of court clause may be held unreasonable or unjust if the chosen court is incompetent or has inherent flaw, if the law that may be applicable is fundamentally unfair, or if the party may suffer any injustice, prejudice or unfair treatment in the chosen forum. A jurisdiction clause may be held unreasonable or unjust if suing in the foreign court designated in the clause may deny the consumer any remedy.99 It is not enough if it only leads to a different applicable law or less favourable treatment to the consumer.100

ii. Serious Inconvenience A choice of court clause may also be held unreasonable if the chosen forum is so inconvenient that it may deprive the consumer the opportunity to access to justice.101 The standard is high and the mere inconvenience is insufficient.102 Unfortunately, most consumers will suffer ‘mere inconvenience’ by being forced to sue abroad. Consumers usually can only prove extra expenses and costs to take actions abroad, which, however, may be held insufficient. The US courts frequently enforce jurisdiction clauses in consumer and employment contracts that require the weaker party to sue in a distance forum.103 Unless the consumer could prove the financial difficulty by suing abroad may deprive him the day in court, the court will not hold the jurisdiction clause unreasonable and unjust.104 Serious inconvenience may be argued where the consumer’s home state provides class action, which the consumer will participate but barred by the jurisdiction clause, and the chosen forum has no class action mechanism. In Dix v ICT Group,105 the Supreme Court of Washington held that if the lack of class action in the chosen forum deprives the claimant of any meaningful ways to seek remedy,

98 Bremen (n 65) 15; Cheney v IPD Analytics 593 F Supp 2d 108, 118 (DDC, 2008); Song fi Inc v Google Inc 2014 WL 5472794, 3 (DDC, 2014). 99 Wong v PartyGaming 589 F.3d 821, 829 (CA6 (Ohio), 2009). 100 Ibid. 101 Preferred Capital (n 96) 722. 102 The potential unavailability of certain claims recognised in the chosen court cannot make the jurisdiction clause unjust or unreasonable. Kasper Global Collection & Brokers, Inc v Global Cabinets & Kasper Global Collection & Brokers 952 F Supp 2d 542, 565–6 (SDNY, 2013); BNY AIS Nominees v Quan 609 F Supp 2d 269, 278 (D Conn, 2009); New Moon Shipping (n 9) 32–3. 103 Spradlin v Lear Siegler Management Services Co Inc 926 F.2d 865 (CA9 (Cal), 1991) (the jurisdiction clause requiring the employee to sue in Saudi Arabia was enforced); Chudner v TransUnion Interactive, Inc 626 F Supp 2d 1084 (D Or, 2009). 104 Hancock v American Tel and Tel Co, Inc 804 F Supp 2d 1215, 1223 (WD Okla, 2011). 105 Dix v ICT Group 160 Wash.2d 826 (Wash, 2007).

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the jurisdiction clause is unenforceable.106 In Wong v PartyGaming, however, the consumer claimed that enforcing the jurisdiction clause choosing Gibraltar would prevent him from participating in class action. The Court refused this claim arguing the consumer could still sue in Gibraltar in other forms.107 The decisive factor is whether, in the absence of class action, it is possible for the consumer to access redress in the chosen forum. If the chosen forum has a small claims procedure that simplifies individual litigation, the lack of class action does not make the jurisdiction clause unreasonable. If the consumer does not intend to participate in class action in his home forum anyway, the lack of class action in the chosen forum is unimportant.108

iii. Public Policy Enforcing a jurisdiction clause will be declined if it is contrary to the forum’s public policy. This may be the case where the legislator of the state has expressed public policy against enforcing a jurisdiction clause in certain contexts. For example, Puerto Rico passed Regulation 7504 prohibiting enforcement of forum selection clauses in documents securing the consent of medical patients.109 Some states have strong public policy to protect the consumer’s access to remedy. A jurisdiction clause may be held contrary to public policy if it is impossible for the consumer to bring actions in the chosen court.110 This usually can be proven by the lack of class action in the chosen forum. It has been held by the Supreme Court of California, Florida and Washington that the right for consumers to participate in class action for small value claims is a fundamental public policy, which should not be derogated from by any clause.111 Class action not only protects the individual consumer’s access to justice, but also provides protections to the general public of the state,112 by deterring illegitimate conducts, aiding fair competition, and avoiding waste of public funds in concurrent proceedings.113 Public policy, as a result, is proved based on a wider policy consideration that regards the fundamental interest of a state, instead of protecting consumers alone. However, not all courts hold jurisdiction clauses equivalent to class-action waiver,

106

Ibid, 841. Wong v PartyGaming (n 99) 829. West Consultants v Davis 177 Wash App 33 (Wash App Div 1, 2013). 109 Office of the Patient’s Advocate of P.R., Regulations to Implement the Provisions of Public Law 194 of August 25, 2000, Regulation No 7617, Article 13, Section 8(C)(2) (21 November 2008); Gonzalez-Morales v UBS Bank USA, 2014 WL 6792086 (D Puerto Rico, 2014); Garcia–Mones v Groupo Hima San Pablo, Inc 875 F Supp 2d 98, 105 (DPR, 2012) (Besosa, J); Rivera v Centro Medico de Turabo, Inc 575 F.3d 10, 23 (1st Cir 2009). 110 Brown v Scripps Inv & Loans, Inc 2009 WL 1649947, 5 (WD Wash, 11 June 2009); Huffington v TC Group, LLC 685 F Supp 2d 239, 244 (D Mass, 2010); Dix (n 105) 837. 111 Dix (n 105) 838–40; America Online v Pasieka 870 So.2d 170 (Fla Dist Ct App, 2004); America Online v Superior Court 90 Cal App 4th 1 (2001); Discover Bank v Superior Court 36 Cal 4th 148 (2005). 112 America Online v Pasieka (n 111) 171–2. 113 America Online v Superior Court (n 111) 800. 107 108

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thus violating public policy. Other courts held that the lack of class action in the chosen court alone cannot make the jurisdiction clause unenforceable.114 It is suggested that the test is not rigid on whether or not the lack of class action in the chosen court is contrary to public policy. The test should consider the legislative purpose, the interest the class action seeks to protect and the specific circumstances of the case. If class action simply protects individual consumers’ access to justice, and the consumer is able to bring individual claims in the chosen forum in the absence of class action, the lack of class action in the chosen forum does not infringe public policy of the state. If class action is introduced to encourage enforcement of important legislation, which may not be enforced without this mechanism, to fight against illegitimate or fraudulent practice, or to protect competition and fair trading, purposes of which cannot be achieved by individual actions in a foreign country, the jurisdiction clause may have infringed strong public policy of the state and should not be enforceable.115

iv. Absurd Forum A consumer may claim that the chosen forum is ‘absurd’. For example, the chosen court is in a war-zone, the chosen court has no any connection with the dispute or the parties and the only purpose to choose this forum is to cause difficulty to consumers, or the chosen forum is too remote and hard to access. Assessing whether the chosen forum is ‘absurd’ depends on the distance of the foreign court, the quality of the foreign jurisdiction, the nature of the difficulty and alleged absurdity, and other inconvenience or oppression the consumer may suffer. Absurdity should be assessed in combination with the notice given.116 If the consumer has received sufficient notice to the jurisdiction clause and has actual or constructive knowledge of its content, the jurisdiction clause may more likely to be reasonable.

v. Conclusion The discretion-based approach adopted in the US is insufficient to protect consumers. It generally focuses on regulating bargaining power by requiring the business to take the duty to reasonably communicate the clause to the consumer and by preventing the abuse of bargaining power. Once a jurisdiction clause is held valid, it is prima facie enforceable subject to justice consideration. Many jurisdiction clauses in consumer contracts are enforceable and bind consumers under the US approach. For example, in Carnival Cruise Lines v Shute,117 the claimants, residents of Washington, concluded a carriage contract with the defendant, a Florida company for a cruise trip from California to Mexico. The contracts were in the 114 America Online v Booker 781 So.2d 423 (Fla Dist Ct App, 2001); Koch v America Online 138 F Supp 2d 690 (D Md, 2000); Forrest v Verizon (n 81). 115 Dix (n 105) 840. 116 Preferred Capital (n 96) 723. 117 Carnival Cruise Lines (n 66).

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form of tickets. The face of the tickets contained a clear warning referring to the conditions of the contracts, which included an exclusive jurisdiction clause choosing Florida courts. After the dispute arose, the courts were asked to consider the enforceability of such a jurisdiction clause in consumer contracts. Although the Supreme Court recognised that the given contracts were concluded between the parties with the inequality of bargaining power, it decided to enforce the clause as a matter of principle. The Court strictly followed the test provided by Bremen. The choice of court clause was not induced by fraud or overreaching. The consumers were given notice of the choice of forum agreement. The Supreme Court also refused to accept that the physical and financial difficulty for a consumer to conduct foreign litigation equals ‘serious inconvenience’ of the chosen forum. The chosen forum is the business’s principle place of business, which is not a remote, alien forum, and the dispute is not the one essentially local to another forum. Furthermore, such a choice will not deprive the consumers of their day in court. Hardship alone is insufficient to prove that consumers cannot access the court at all. The chosen forum may not be as convenient as the consumer’s home, but suing in the chosen forum is still possible. The strict approach fails to give the consumer necessary relief nor to ensure the ends of justice in a case-by-case basis. It is questionable whether the rule applying to commercial contract is justifiable in consumer contracts, where inequality of bargaining power exists, which questions the effect of jurisdiction clauses. While jurisdiction clauses may provide certainty and reduce commercial risk, in consumer contracts they provide no certainty to consumers who usually will not read before disputes arise and will increase consumers’ risk by requiring them to take action in a foreign country.

IV. Economic Analysis of Choice of Court Agreements in E-Consumer Contracts A. Economic Justification in Enforcing Choice of Court Agreements in Consumer Contracts: Carnival Cruise Line The EU has provided the protective jurisdiction which makes a choice of court clause prima facie unenforceable in consumer contracts in order to protect consumers as the weaker party in the cross-border contracts. The protective jurisdiction rules may be challenged in economic efficiency. The US Supreme Court, in Bremen, enforced a choice of court agreement in a commercial contract, holding reducing uncertainty was crucial in international trade and commerce and accepting there was ‘strong evidence that the forum clause was a vital part of the agreement, and it would be unrealistic to think that the parties did not conduct their negotiations, including fixing the monetary terms, with the consequences of the

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forum clause figuring prominently in their calculations.’118 In 1990, the US Court of Appeals, Ninth Circuit, refused enforcing a choice of court clause in a standardform passenger contract in Shute v Carnival Cruise Lines.119 The Court of Appeal gave special consideration to the inequality of bargaining power between the parties and concluded that it would not enforce a jurisdiction clause which ‘was not freely bargained for’. It also justified the refusal based on the fact that the consumers were ‘physically and financially incapable’ of pursuing an action in a state away from their home. The reasoning is similar to the EU’s justification for protective jurisdiction in consumer contracts. The reasoning, however, was rejected by the US Supreme Court. The Supreme Court held that standard choice of court clauses are common in business to consumer contracts and it was common sense that such clauses are not subject to individual negotiation.120 The Court then moved on to justify reasonableness and enforceability of such clauses:121 First, a cruise line has a special interest in limiting the fora in which it potentially could be subject to suit. Because a cruise ship typically carries passengers from many locales, it is not unlikely that a mishap on a cruise could subject the cruise line to litigation in several different fora. Additionally, a clause establishing ex ante the forum for dispute resolution has the salutary effect of dispelling any confusion about where suits arising from the contract must be brought and defended, sparing litigants the time and expense of pretrial motions to determine the correct forum and conserving judicial resources that otherwise would be devoted to deciding those motions. Finally, it stands to reason that passengers who purchase tickets containing a forum clause like that at issue in this case 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.

Jurisdiction clauses are thus justified in consumer contracts for three reasons. Firstly, it reduces the risk to business of dealing with multi-state consumers. Secondly, it reduces commercial costs resulting from uncertainty and potential risk. Thirdly, the reduced cost savings may benefit consumers in the form of reduced prices. The three economic benefits require close scrutiny.

B. Risk, Uncertainty and Cost to Businesses in Cross-Border Consumer Contracts Indeed, a business conducting cross-border transactions will face the risk of being sued in multiple jurisdictions where its consumers are located. One approach to reduce this risk is to insert a standard jurisdiction clause in all contracts, providing jurisdiction to one particular forum.

118 119 120 121

Bremen (n 65) 13–14. Carnival Cruise Lines (n 66) 595. Ibid. Ibid.

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In practice, however, the risk of facing multi-jurisdiction litigation will not be large. Whether a consumer would wish to sue a company in order to acquire remedies depends on the value of the claim, the cost of litigation and the convenience in accessing the court. In consumer contracts, the value of the claim usually is small. A consumer will only have incentives to sue if the value of the claim largely exceeds the litigation cost. Besides the litigation cost, a consumer should also consider the possibility and cost to enforce the judgment. Furthermore, what should always affect a consumer’s decision to sue includes time and convenience. In general, a consumer will only bring an individual action against a foreign business if the value of the claim exceeds the sum of litigation cost, enforcement cost, and the cost of time and effort.122 It is also necessary to note that there may also be the possibility of losing. Presuming a consumer has a 50 per cent chance of winning an action, the consumer would only have an incentive to sue if half of the claimed value overweighs the cost. Empirical research done earlier shows under the current protective conflict of laws framework, cross-border consumers would only take advantage of court litigation if the value is above £1,500.123 The average value of electronic consumer contracts is around £55.124 The difference means that the majority of consumers would not take individual litigation against the business anyway. Enforcing a standard jurisdiction clause or not will not largely change the commercial risk and cost resulting from multi-state litigation. It is true that many states, especially within the EU, have worked to simplify and speed up consumer cross-border litigation procedure.125 It would reduce litigation difficulty and cost. Would this largely increase cross-border individual litigation? The answer is still negative. Litigation, no matter how fast and inexpensive, would be more complicated and costly than alternative dispute resolution methods, which makes individual consumer litigation an inappropriate dispute resolution method, especially in speedy and low-cost e-commerce. According to a survey

122 F Weber, The Law and Economics of Enforcing European Consumer Law (Farnham, Ashgate Publishing, 2014) 35; Dale A Reinholtsen, ‘Role of California’s Attorney General and District Attorneys in Protecting the Consumer: Substantive Areas of Action’ (1971) 4 UC Davis Law Review 35, 37, 54. 123 See Advertising Association (adassoc), ‘Position Paper on the Proposal to Adopt the Amended Brussels Convention and the Draft Rome I Convention as EU Regulation Pursuant to Article 55 of the Amsterdam Treaty’ (2003), quoted in D Gawith, ‘Model Laws Relevant to Preparation for the International Regulation of International Consumer Transactions’ (2010) 6 Journal of Business Law 474, 496. The figure is EUR 2,000 according to the ECLG report. See M Pullen, ‘The European Union Proposed Legal Framework for E-Commerce’ (1999) International Company and Commercial Law Review 21, 27. It is also necessary to note that the position paper was provided before the EU small claim procedure was enforced. It is possible that the threshold figure in the EU could be lower now. 124 E Crawford, ‘Book Review: Cross-Border Consumer Contracts’ (2009) 13 Edinburgh Law Review 346, 347. See also H von Freyhold, V Gessner, EL Vial and H Wagner, ‘The Cost of Judicial Barriers for Consumer in the Single Market’, Report for the European Commission, DG Consumer Policy and Consumer Health Protection (Brussels, 1996) and B Feldtmann, H von Freyhold and EL Vial, ‘The Cost of Legal Obstacles to the Disadvantage of the Consumers in the Single Market’, Report for the European Commission, DG Consumer Policy and Consumer Health Protection (Brussels, 1998). They concluded that the cost of litigation may exceed the dispute value by EUR 2,000. 125 See Ch 8.

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commissioned by the European Commission in 2013, 25 per cent of EU consumers had encountered a problem in the past 12 months. According to the survey, 72 per cent complained, within which 34 per cent were unsatisfied. Out of the consumers who were not satisfied, two per cent said they would take a court action.126 Suppose a company enters into 1,000 contracts, it may face about 1.22 court proceedings.127 A similar survey has been done for four consecutive years and the figure does not vary much between 2010 and 2013. Based on the survey, on average the litigation risk a business may face in domestic transactions is 1.25 per cent.128 The figure is based on domestic transactions and it is expected that the number of litigation cases may be much lower in cross-border contracts, where consumers may feel more uncertainty, cost and obstacles. The figure may be lower in international transactions, where no speedy and simplified procedure is provided for consumer litigation and enforcement of judgments. Since the majority of consumers would not proceed to sue a foreign company, either abroad or locally, the worry of high cost and risk resulting from multi-state litigation is exaggerated. Table 1: EU Consumer Complaints and Access to Courts129 Year

Disputes

Complaints

Dissatisfaction after Complaints

Court action

Litigation per 1,000 transactions

2013

25%

72%

34%

2%

1.22

2012

17%

80%

42%

2%

1.14

2011

17%

76.5% (13% in total)

46%

2%

1.20

2010

14%

71% (10% in total)

48%

3%

1.44

If one only takes into account the minority of cases where consumers intend to sue, would the jurisdiction clause provide great benefits to businesses? Taking the data provided above, presuming a business has 1,000 transnational sales, one consumer will bring litigation to court. Inserting the jurisdiction clause requires 126 Flash Eurobarometer 332, ‘Consumer Attitudes Towards Cross-Border Trade and Consumer Protection’, published in May 2012, conducted by TNS Political & Social, co-ordinated by the European Commission, Directorate-General for Communication, 9, http://ec.europa.eu/public_opinion/flash/ fl_332_en.pdf, accessed on 15 January 2015. 127 1,000 × 25% × 72% × 34% x 2% = 1.12. 128 See Table 1. The figure is the average of the litigation rate between 2010 and 2013. (1.22 + 1.14 + 1.20 + 1.44)/4 = 1.25. 129 Data is collected from Eurobarometer, ‘Consumer Attitudes towards Cross-Border Trade and Consumer Protection’, published between 2010–2013 (fieldwork done between 2009–2012). Published by the European Commission, Surveys of Consumers and Retailers, http://ec.europa.eu/consumers/ consumer_evidence/consumer_scoreboards/survey_consumers_retailers/index_en.htm, accessed on 15 January 2015.

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this one consumer to bring action in the chosen court. The business will reduce the cost for one action and the cost reduced will be the difference in litigation costs between the chosen court and the consumer’s domicile, and the additional cost to take foreign action, including the cost of travel, accommodation, and translation.130 This may not be a considerably huge saving for each transaction and it is questionable whether the business would get insurance to cover this risk. Furthermore, since the value of the consumer claim is usually small and given the difficulty and cost to enforce a judgment in another country, a business may have motive not to defend abroad, especially if the difference between the domestic and overseas litigation cost outweighs the claim value.131 The risk and cost reduced by a jurisdiction clause would be smaller.

C. Risk and Cost to Consumers One argument provided by the US Supreme Court in Shute is that jurisdiction clauses reduce business cost, and the reduced cost may benefit consumers in the form of the reduced price. This argument causes considerable difficulties. Firstly, it has been argued above that the cost reduced by a jurisdiction clause in consumer contracts is considerably small, given the fact that majority of consumers will prefer not to bring disputes to courts, even in their home jurisdiction. Secondly, even if the cost reduced is large, it is questionable whether the business could benefit consumers by reducing the price. If the market is perfectly competitive, the price truly reflects the cost and allocation of risks. If two businesses supply the same products, one with an unfavourable jurisdiction clause to consumers, consumers will choose to buy from the other. The only way for the former business to survive with a jurisdiction clause is to reduce the price to reflect the inconvenience and the potential cost to consumers.132 Therefore, consumers could also benefit from the jurisdiction clause by enjoying the same products with the lower price. However, this argument is based on a clear fallacy that a consumer is able to compare products supplied by all available suppliers, including the quality, the price, and the contract terms, before making a decision. This is an illusion. Consumers rarely read and compare contract terms before concluding any contract, no matter whether they buy face-to-face or online. In practice, consumers will only check a few elements before making a decision: the quality and description of the goods, the price, and, perhaps, the delivery policy and the cancellation 130 If the consumer gives up his right to sue due to the remote court, the business will save all the litigation cost. However, the latter should not be the legitimate reason to enforce a jurisdiction clause. 131 For the enforcement of judgments, see Ch 8 below. 132 AT Chiu, ‘Irrationality Bound’ (2011) 21 Southern California Interdisciplinary Law Journal 167, 183–4; MJ Meyerson, ‘The Efficient Consumer Form Contract: Law and Economics Meets the Real World’ (1990) 24 Georgia Law Review 583, 623–5; Goldman (n 47) 714–6; RA Hillman and JJ Rachlinski, ‘Standard-Form Contracting in the Electronic Age’ (2002) 77 New York University Law Review 429, 442–5.

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and return policy.133 They will not examine other contract terms, including a choice of court clause. Secondly, consumers should not bear the risk of failing to read, which is not due to negligence but is rational economic behaviour.134 It is unreasonable to invest time and effort in reading something one could not understand in most cases, and one cannot negotiate. In practice, reading makes no difference. Thirdly, even if consumers do read, understand and could compare rationally among available suppliers, consumers can hardly predict the true cost effect of a jurisdiction clause choosing another country.135 The situation is worse in e-commerce. While businesses can better predict commercial risks and allocate risks in a way that favours themselves, consumers are even worse off in regards to detecting unfair allocation of risks and unfair terms. E-consumers have lower incentives to read an e-contract online. Being driven by the speedy transactions characterised by e-commerce, e-consumers are usually more impatient.136 It is less likely for e-consumers to question any particular contract terms or bargain.137 In order to attract e-consumers into contracts and to provide easy to read terms, the information provided online is usually very general and simplified. The important terms will be highlighted, such as the price, the description of the product, and maybe the cancellation and refund policy, but other terms are easily neglected and consumers have to look for them in general terms and conditions. Consumers may be empowered by relying on some comparison websites to search for the best deal. These websites usually highlight the price and products only, ignoring other terms. Furthermore, although consumers could easily access information online and if they prefer, could find information regarding the legal effect of a jurisdiction clause online, almost no consumers would make the effort, which would largely increase the marginal cost for the transaction.138 As a result, even if a business has inserted a jurisdiction clause in its contract, which enables the cost per sale to be reduced, the business does not need to deduct this figure from the price. It will not affect the consumer’s decision to buy and will not affect its competition with other businesses in the market. Furthermore, the business may even take advantage by reducing individual price by, for example, half of the cost saved, which may place this business in a superior position over other contesters. Consumers, while shopping around and comparing prices, would be more likely to choose the seller with the lower price. Consumers, however, fail to predict the risk allocated to them by the jurisdiction clause. Assuming suing in

133

Hillman and Rachlinski, ‘Standard-Form’, 446–7. Goldman (n 47) 717; Hillman and Rachlinski (n 132) 446–7. 135 According to Professor Eisenberg, consumers systematically underestimate risk and cannot make truly rational decisions. MA Eisenberg, ‘The Limits of Cognition and the Limits of Contract’ (1995) 47 Stanford Law Review 211, 216–7; Chiu, ‘Irrationally Bound’, 185–6; Hillman and Rachlinski (n 132) 451–4. 136 Hillman and Rachlinski (n 132) 479. 137 Ibid, 480. 138 Goldman (n 47) 717. 134

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the chosen court costs the consumer £1,000 more than domestic litigation and the consumer has a 1.25 per cent possibility of suing, the jurisdiction clause will cost the consumer £1.25. The true cost for consumers is the shown price plus £1.25. If the business reduces the price by £1, consumers would be happy to select this supplier over others while failing to realise that the transaction actually costs them £0.25 more.139

D. Efficient Allocation of Risk The above analysis shows that a standard jurisdiction clause may not reduce business risk and cost to a significant level, and, even if there is reduction of cost, it may not benefit consumers by reducing the price accordingly. The saving to the business equals the cost to the consumer when a jurisdiction clause is enforced, and vice versa. While the cost to the whole society is the same, one needs to consider to which party the risk should be allocated. Risk may be allocated efficiently according to a few principles. The first is based on the hypothetical rational bargain.140 Risk should be allocated in the way which the parties given the full information, knowledge and equal bargaining power will agree in their free bargain. Presuming the business and the consumer have the equal bargaining power, would they agree to resolve disputes in the business’s or the consumer’s domicile? There is no absolute answer to this question. It is likely that the jurisdiction in favour of one party is chosen and the other party is receiving monetary compensation for taking the risk. It is also likely that no agreement can be entered into under such circumstances. This principle, unfortunately, could not provide practical help in deciding the enforceability of jurisdiction clauses in consumer contracts.141 The second principle is that risk is more efficiently allocated to the party that is in a better position to control the risk. It is a common practice that consumers should pay the purchase price before the business delivers the goods. The disputes in consumer sales are usually consumers’ claim for non-delivery, delay, poor quality, false description, etc. Risk in the transaction is better controlled and assessed by the business. Thirdly, risk is more efficiently allocated to the party that can better handle it. Businesses could better assess the risk and could disseminate the risk by insurance. It is unreasonable to ask consumers to take insurance cover for litigation risk. When disputes indeed occur, businesses have stronger litigation power than

139 See also ibid, 726; D Horton, ‘The Shadow Terms’ (2010) 57 UCLA Law Review 605, 646–7; R Korobkin, ‘A “Traditional” and “Behavorial” Law-and-Economics Analysis of Williams v. WalkerThomas Furniture Company’ (2004) 26 University of Hawaii Law Review 441, 449. 140 A Schwartz, ‘Proposals for Products Liability Reform: A Theoretical Synthesis’ (1988) 97 Yale Law Journal 353; R Craswell, ‘Efficiency and Rational Bargaining in Contractual Settings’ (1992) 15 Harvard Journal of Law and Public Policy 805, 827–8. 141 See criticism in Craswell, ‘Efficiency’, 828–9.

Conclusion

151

consumers to commence an action or to defend abroad. Consumers are in an inferior position to handle litigation risk. If treating litigation risk as a mere contingency, the costs to businesses and consumers are alike. However, if the litigation risk materialises, the challenge to consumers is much higher than for businesses. Suppose suing abroad costs £1,000 more than suing at home. The £1,000 will be regarded as a substantial financial commitment for most consumers.142 It will not be too much of a burden for many businesses. It is thus justified that litigation risk should be allocated to businesses instead of consumers.

V. Conclusion Based on the above discussion, rule-based jurisdiction and discretion-based jurisdiction have taken very different approaches in treating choice of forum clauses in consumer contracts. The Brussels I Recast 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 Recast 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 an 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 Recast 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 to 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 Recast. More importantly, the limit on a jurisdiction clause raises concern. It forces a business to restrain its market and give up the potential benefit 142 In the UK, the median annual gross income of a single adult is £17,600, which makes income after tax and other deductions £1,243.56 per month. See the Guardian, ‘UK Incomes: How Does Your Salary Compare?’www.theguardian.com/money/2014/mar/25/uk-incomes-how-salary-compare, accessed on 16 January 2015.

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that e-commerce may bring in order to reduce the commercial risk. The rulebased approach is criticised for its rigidity and restriction, which does not meet the criterion for the development of consumer-oriented e-commerce. 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.143 More consideration is given to 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 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 a jurisdiction clause, and secondly, they do not provide for specific concerns for consumer protection. Finally, the economic analysis shows that, although the Brussels I Recast model is imperfect, it is more appropriate than the discretion-based model. Consumers do need protection against unilaterally inserted jurisdiction clauses, which is justifiable in terms of not only consumer policy but also efficiency. In an imperfect competitive market, relying on competition and market power cannot prove effective in consumer contracts. The foreign litigation risk is more efficiently allocated to the business instead of consumers.

143

Yackee (n 4) 1205.

5 Protective Choice of Law in the European Union 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 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 protect the fundamental order of the forum or international society.4 The similarity between civil law and common law choice of law rules, however, does not help in creating consistency in consumer contracts. It has been questioned whether these principles can work appropriately in consumer contracts.5 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, 15–6 (‘Guiliano-Lagarde Report’). 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 I Regulation, Art 3(1); Hague Sale of Goods Convention of 1955, Art 2; Hague Sale of Goods Convention of 1986, Art 7. 3 Rome I Regulation, Art 4; American Law Institute, Restatement, s 188; Guiliano-Lagarde Report, 20. 4 Rome I Regulation, Arts 3(3), 3(4), 6(2), 9 and 21; 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 rules included in Directive 93/13/ EEC on unfair terms in consumer contracts [1993] OJ L95/29, Directive 1999/44/EC on certain aspects of the sale of consumer goods and associated guarantees [1999] OJ L171/12 and Directive 2011/83/ EU on consumer rights [2011] OJ L304/64. Mandatory rules are also recognised in Canada eg Bank of Montreal v Snoxell (1982) 143 ELR (3d) 349 and USA, see Ch 6 below. 5 See Ch 1, s IV. above.

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Some legislators in civil law countries have started to sort out distinct choice of law principles for consumer contracts in order to resolve disputes in consumer contracts in an effective and fair way. This purpose has been indicated in the Rome I Regulation, which is a typical, and by far the most influential, choice of law instrument with specific choice of law rules for consumer contracts.6 The Rome I Regulation 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 I Regulation and in particular aims to examine their application in e-commerce.

II. History of the Protective Choice of Law A. Protective Choice of Law in the Rome Convention The protective choice of law was first adopted in Article 5 of the Rome Convention.7 It applies only to contracts for the supply of goods or services.8 It provides a well-designed scope of protection, 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 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.9 A consumer will not be protected by the protective default law in the following situations: (1) the contract is a contract of carriage; or (2) 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,10 except the contract of a package tour.11 If a contract falls within the scope of protection, the Rome Convention

6 7 8 9 10 11

Art 5 of the Rome I Regulation. Convention on the Law Applicable to Contractual Obligations of 1980 (80/934/EEC). Art 5(1); Giuliano-Lagarde Report (n 1) 24. Art 5(2) of the Rome Convention. Art 5(4). Art 5(5).

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requires the consumer to be protected by the law of his habitual residence in the absence of the parties’ choice of law. If there is a choice of law agreement within the contract, it cannot deprive the consumer the protection provided by the mandatory rules of the law of the consumer’s habitual residence.12 Following the development of transnational consumer contracts and e-commerce, the Rome Convention has been criticised for being out-of-date and inappropriate for the innovative business model. 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. For example, ‘goods’ may cover only tangible goods,13 which may exclude the supply of digital products.14 ‘Special invitation’ is interpreted in the Guiliano-Lagarde Report as ‘business proposals’ made ‘individually through a middleman or by canvassing’ and ‘mail order and door-step selling’.15 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 email box specifically targets the particular recipient. Secondly, the test for the scope of protection is clearly outdated for e-commerce. Many requirements do not accord with the reality of e-commerce. For example, it requires that ‘special invitation’ to be addressed and ‘advertising’ happened in consumers’ habitual residence. One special characteristic of e-commerce is that it does not require an activity to occur within a particular country in order to have effect in this country. The power of e-commerce is to create impact at a distance. The criterion is no longer whether a company has done business or promotion activity within the territory of a country, but targeting a particular country.16 Furthermore, 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

12

Art 5(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 Modernization’ COM(2002) 654 final, fn 56. See also the French version of Art 5 of the Rome Convention, which covers ‘objets mobiliers corporel’. 14 For further discussions, see Ch 2, s II.B. 15 Giuliano-Lagarde Report (n 1) 22. 16 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, 117–8; 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, 156–9; P Kaye, Civil Jurisdiction and Enforcement of Foreign Judgments (Abington, Oxon, Professional Books, 1987) 835–6; L Collins et al, Dicey, Morris & Collins: The Conflict of Laws, 14th edn (London, Sweet & Maxwell, 2006) 1638; Giuliano-Lagarde Report (n 1) 24. 13

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evidence. Determining where the order is received in e-commerce by the business or its e-agent also causes uncertainty.17 Thirdly, the 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 effect on either the parties’ expectations, or the country with the closer connection to the contract.18 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.19 Fourthly, the rules provide protection only to ‘passive’ consumers.20 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 solicited 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. Fifthly, some commentators also criticise the choice of law rules other than the scope of protection. It requires the court to conduct complicated comparisons between two legal systems to determine the ‘better’ protection for consumers, which is not always easy.21 It may create dépeçage by applying the mandatory rules of the consumer’s habitual residence and non-mandatory rules of the chosen law.22 It provides cross-border consumers with better protection than consumers in domestic transactions. It is doubtful whether this was the original intention of the legislator, but just benefitting the economy as a whole.23

17 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. 18 Unless the business has adopted effective technology to block contracting from some states. 19 Giuliano-Lagarde Report (n 1) 24; CGJ Morse, ‘Consumer Contracts, Employment Contracts and the Rome Convention’ (1992) 41 ICLQ 1, 7; Foss and Bygrave, ‘International Consumer’, 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. 20 ‘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. 21 Z Tang, ‘Parties’ Choice of Law in E-Consumer Contracts’ (2007) 3 Journal of Private International Law 113, 125–6. 22 Ibid, 126. 23 Ibid, 126. For more discussion, see s IV. below.

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B. Reformation of the Rome Convention 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 1996.24 In January 2003, the European Commission published a Green Paper to convert the Rome Convention into the Rome I Regulation.25 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:26 (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;27 (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. Some of these options are not strictly alternative and the possibility of combining two or more of them together would create more options.28 This list is not exhaustive and there may be more options available. The proposed revision can be classified into two groups: (1) updating the scope of protection taking account of the requirement of e-commerce and the equivalent scope of protection in the Brussels I Regulation; (2) reforming the choice of law rules by adopting a more effective model to deal with party autonomy in consumer contracts taking into account the special characteristics of EU consumer legislation. Due to the complex nature of the variations, most respondents did not provide detailed examination of each of these options.

24 The Member States started to consider revising the consumer protective choice of law rules under the Rome Convention at the time of the 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 C191/11, 12. 25 European Commission, ‘Green Paper’ (n 13). 26 European Commission, ‘Green Paper’ (n 13) 28–32. 27 This proposal is favoured by most respondents, eg the Ministry of Justice of the Czech Republic, the Dutch Government, the Ministry of Justice of Norway, the UK Government, the Consumer Council of Norway, Max Planck Institute for Foreign Private and Private International Law. 28 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.

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Some responses, generally consumer groups, support the alternative of systematically applying the law of the habitual residence of consumers and excluding party autonomy all together from consumer contracts.29 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.30 Based on information derived from the Green Paper, public hearings, replies from governments, universities, legal professions and economic actors,31 the European Commission published a proposal to reform the current rules under the Rome Convention in 2005 (Commission proposal),32 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 the objective 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 (Article 17(1) of the Brussels I Recast) 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;33 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 habitual residence on the basis of the consumer’s conduct, will it be subject to the protective provision.34 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,35 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

29 eg the European Consumers’ Organisation (BEUC), Nordic Group for Private International Law, the Eurocouncil of the Alliance Internationale de Tourisme. 30 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 Sparkassenund Giroverband, Amazon Europe, EuroCommerce (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. 31 These responses are published on the European Commission Justice and Home Affairs website, see ec.europa.eu/justice_home/news/consulting_public/rome_i/news_summary_rome1_en.htm, last accessed on 12 January 2007. 32 European Commission, ‘Proposal for a Regulation of the European Parliament and the Council on the law applicable to contractual obligations (Rome I)’(‘Commission Proposal’ hereafter) COM(2005) 650 final. 33 It is also suggested by the European Commission, ‘Green Paper’ (n 13) vi. 34 Ibid, vii. 35 Commission Proposal (n 32), Memorandum, 6.

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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 due to 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.36 The amendment rejected the exclusion of choice approach and re-adopted the preferential law approach in the current Rome Convention.37 And in the Parliament Final Compromise Amendments released in November 2007,38 the ‘awareness’ test and the territorial limitation has been removed. The final compromise amendment in consumer contracts was accepted in the Rome I Regulation, which was adopted by the Council in June 2008. The Rome I Recast entered into force from 17 December 2009 in all the Member States except Denmark.39 The UK Government decided not to adopt the Rome I Regulation in 2006, but after a long debate and following a public consultation,40 changed its mind and expressed the wish to adopt the rules under the Rome I Regulation in 2008.41 The new choice of law rules on consumer contracts are within Article 6 of the Rome I Regulation. It is interesting to note that although the Rome I Regulation intends to address the difficulty 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 consistent with the old law, where party autonomy is effective in consumer 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 17(1)(c) of the Brussels I

36 European Parliament, Committee on Legal Affairs, presented by Rapporteur Ian Dumitrescu Compromise Amendment 1, PE 390.306v01-00, 23 May 2007. 37 Art 5(2a). 38 European Parliament Committee on Legal Affairs, Compromise Amendment 87, DT/Rome IEN. doc, PE 000.000v01-00, 14 November 2007. 39 Recital 46. 40 Ministry of Justice, ‘Rome I—Should the UK Opt in?’, Consultation Paper CP05/08 of 2 April 2008, 14. 41 European Council, Press Release, 2887th Council Meeting, 11653/08 (Presse 205), 24 and 25 July 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] OJL10/22.

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Recast;42 (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.43

III. Protective Default Law The Rome I Regulation 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.44 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. An opposite opinion is that a consumer rarely pays attention to the substantive law either of his own country or of a foreign country,45 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 argument 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. 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.46 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.47 There is an argument indicating that a consumer 42

Arts 6(1)(a) and (b). Art 6(4). This will be discussed in Ch 7 below. 44 eg s 1-301(e)(2)(A) of the Uniform Commercial Code (US); Civil Code of Quebec, Art 3117. 45 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. 46 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, 18–22 August 2002), strategis.ic.gc.ca/epic/internet/inoca-bc.nsf/vwapj/ca01862e. pdf/$FILE/ca01862e.pdf 9, accessed on 06 May 2006. 47 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. 43

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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.48 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.49 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 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

48 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 June 2008. 49 P Nygh, Autonomy in International Contracts (Oxford, Oxford University Press, 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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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.50 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 participating 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.

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.51 However, in order to protect the weaker party, it is necessary to provide certain restrictions on the freedom of choice.52 The Rome I Regulation 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 I Regulation states that ‘a contract shall be governed by the law chosen by the parties’. The agreement on the choice will normally be 50 eg International Chamber of Commerce, ‘Jurisdiction and Applicable Law in Electronic Commerce’ www.iccwbo.org, accessed on 6 June 2001. 51 In very rare cases, the freedom of choice principle is excluded from consumer contracts, such as the 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 Nygh, Autonomy, 155–6. 52 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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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 I Regulation 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,53 rules encouraging the validity of contracts as to form,54 and uniform rules relating to formal validity. As an example of the first category, the Rome I Regulation 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.55 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.56 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 increases the costs

53

Rome I Regulation, Art 11(4). Rome I Regulation, Art 11(1)–(3); Hague 1986, Art 11. See also American Law Institute, Restatement, s 199, comment c. See also Swiss Private International Law, Art 124 (b)(2). 55 Rome I Regulation, Art 11(5). See also Swiss Private International Law, Art 124 (b)(3). 56 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. 54

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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 I Regulation. It states that the existence and validity of a contract and contract terms shall be determined by the law which would govern it under this Regulation if the contract or term were valid.57 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.58 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 I Regulation 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.59 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.

57

Rome I Regulation, Art 10(1). J Fawcett and J Carruthers, Cheshire, North & Fawcett: Private International Law, 14th edn (Oxford, Oxford University Press, 2008) 744. 59 Rome I Regulation, Art 10(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.’ 58

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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,60 or the law of the consumer’s habitual residence. In e-commerce, the issue as to form or substance becomes more obscure, 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.61 The implied choice has been accepted in the Rome I Regulation, 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.’62 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’.63 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 60

Such as the traditional common law approach in England. 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. 62 Rome I Regulation, Art 3(1). 63 Art 6. This draft has never become a convention. 61

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borderline between tacit choice and a hypothetical one is vague.64 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.65 These relevant factors can be summarised as follows: the contract is in a standard form known to be governed by a particular system of law;66 the contract contains certain terms or legal doctrines which are particular to the domestic law of a particular state;67 the previous dealings or relevant transactions between the parties contain an express choice of law clause;68 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;69 and the conduct of the parties after conclusion of the contract could imply their tacit choice.70

i. 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.71 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.

64

European Commission, ‘Green Paper’ (n 13), para 3.2.4.2; Nygh (n 49) 105–11. 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. 66 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/luxembourgGraham3.rtf, accessed on 17 May 2004. 67 Giuliano-Lagarde Report (n 1) 17. See also American Law Institute, Restatement (n 1) s 187, comment a. 68 Giuliano-Lagarde Report (n 1) 17; Gan Insurance Co Ltd v Tai Ping Insurance Co Ltd [1999] ILPr 729, CA. 69 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. 70 J Fawcett, J Harris and M Bridge, International Sale of Goods in the Conflict of Laws (Oxford, Oxford University Press, 2005) para 13.56. 71 There is no specific e-commerce issue here. 65

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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. b. Previous Courses of Dealing in Related Transactions In traditional business-to-business commerce, the court would find that the existence of 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.72 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.73 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.74 With regard to consumer contracts, consumers as laymen would be even less likely to realise the relationship 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.75 72

Gan Insurance Co v Tai Ping (n 68). An example is the 1-Click ordering service provided by Amazon. After the consumer places the first order by providing the payment details and delivery address, the service is activated automatically. The consumer no longer needs to go through the whole process, but just click the 1-Click icon to conclude the contract with all the default terms in the first order. See www.amazon.co.uk/gp/help/ customer/display.html?nodeId=502542, accessed on 31 May 2015. 74 Fawcett, Harris and Bridge, International Sale (n 70) para 13.46. 75 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 25(1)(b) of the Brussels I Recast. See Ch 4, s II. 73

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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.76 The European Commission in the proposed Rome I Regulation has suggested inserting the following text into the Article: 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.77

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 I Regulation, but simply clarified its application.78 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 Recast, the recent authorities suggest that each Member State has to take jurisdiction irrespective of the clause choosing a non-Member State court, if jurisdiction is otherwise provided by the Brussels I 76 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. 77 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). 78 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.

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Recast.79 The same problem can occur in consumer contracts, where the effect of a non-Member State choice of court agreement is uncertain. 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 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 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 an 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 Recast, an exclusive jurisdiction clause is not enforceable in consumer contracts except in two specific circumstances.80 The same difficulty occurs in arbitration agreements where some countries prohibit enforcing pre-dispute compulsory arbitration agreements against consumers.81 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 the 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 79 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 58) 328. 80 Arts 19(1) and (3) of the Brussels I Recast. Art 19(2) enforces a jurisdiction clause where it provides consumers with additional choice, which should be considered as a non-exclusive jurisdiction clause. See Ch 4, s II. above. 81 In Europe, a compulsory arbitration clause may be considered as an unfair term and cannot bind a consumer, see Ann (q) of the Unfair Contract Terms Directive 93/13/EEC, and discussion in Ch 6, s II.A.ii. For jurisdictions outside Europe, some countries, such as Japan, also prevent enforcing predispute arbitration clauses against consumers.

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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 their consumers.82 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.83 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 using 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.

82 Art 10(1)(d) of Directive 2000/31/EC on certain legal aspects of information society services, in particular electronic commerce, in the Internal Market (‘Directive on Electronic Commerce’) [2000] OJ L178/1 also requires the business to state the languages offered for the conclusion of a contract. 83 Fawcett, Harris and Bridge (n 70) para 21.46–7. See also the German case, Oberlandesgericht (OLG) Dusseldorf, 9 June 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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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 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 I Regulation adopts the preferential law approach for the effect of a valid choice of law agreement in consumer contracts. Article 6(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.84 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. 84

The Rome I Regulation, Art 6(2); Hague Consumers Sales, Art 6; Civil Code of Quebec, Art 3117.

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i. Mandatory Rules in Article 6(2) Mandatory rules’ has been defined by Article 3(3) of the Rome I Regulation, ie laws which cannot be derogated from by contracts. 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.85 According to the specific purpose of Article 6(2), the mandatory rules herein should be protective in nature.86 Article 6(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 6(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),87 but they are not relevant in Article 6(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 200288 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;89 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.90 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.

85 For further discussion on basic theories on mandatory rules, see generally Cheshire, North & Fawcett (n 58) 729–38; Fawcett, Harris and Bridge (n 70) para 21.38, 760–4. 86 L Collins et al (eds), Dicey, Morris and Collins on the Conflict of Laws, 15th edn (London, Sweet & Maxwell, 2015) 1640; A Jaffey, ‘The English Proper Law Doctrine and the EEC Convention’ (1984) 33 ICLQ 531, 538; Morse, ‘Consumer Contracts’. 87 Nygh (n 49) 220. 88 SI 2002/2013, which implements the E-Commerce Directive into the UK. 89 Reg 9(1). 90 Reg 11(1).

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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 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 6(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.91 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.92 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 6(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 6(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 6(2) even if it is more familiar to the consumer. 91 92

Nygh (n 49) 210. Reg 15.

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ii. Mandatory Rules in E-Commerce E-commerce brings another challenge to the application of mandatory rules. 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 applicable in e-commerce.93 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’.94 The existing English case law authority suggests that the supply of digital products is not ‘the sale of goods’, but the sui generis supply.95 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.96 The determination of ‘better’ law is not always easy. For example, a consumer may acquire the right to cancel a distance contract and receive a refund. State A grants a 30-day cooling-off period and requires the business to refund within 90 days after receiving the returned goods; State B may only permit its consumers to cancel distance contracts within 14 days, but requiring the business to refund within 30 days commencing from the day when cancellation is communicated.97 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 (30 days), and that of State B applies for the 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 crossborder consumer. Furthermore, unless the chosen law provides systematically

93 It has to be noted that this is also the problem of applying most substantive law created before e-commerce to e-contracts. 94 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. 95 St Albans City and District Council v International Computers Ltd [1997] FSR 251, 265. Ch 2, s II. above. 96 Dicey, Morris and Collins, Ch 33; Morse (n 19) 8–9; Nygh (n 49) 156–8. 97 Tang, ‘Parties’ Choice’, 125.

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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 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.98 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.99 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 state 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.100 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

98

Ibid, 125–6. Ibid, 126. 100 Commission’s explanatory memorandum to Proposal for a Directive concerning unfair business-to-consumer practices Directive June 2003, paras 10 and 22. 99

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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.101 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 a consumer in getting redress.102

V. 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, 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 101 Tang (n 21) 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. 102 Tang (n 21) 125–7.

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is hard to assess, the old rule is maintained. The Rome I Regulation is not a dramatic improvement compared to the 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 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.

6 Other Choice of Law Approaches in E-Consumer Contracts: A Comparative Study I. Introduction The legislative work in the EU is a typical example of the preferential law approach. Besides, there are other choice of law approaches in deciding the governing law and the substantive rights under e-consumer contracts. The exclusion of choice approach takes an even stronger stand to protect consumers by preventing party autonomy in consumer contracts altogether. The minimum protection approach suggests that ordinary choice of law rules could apply in areas, such as the EU, where the harmonisation of minimum standards of protection exists. The optional harmonisation approach provides fully harmonised rules to transnational consumer contracts, which could completely remove choice of law difficulty. The neutral law approach adopted in the US does not provide special protection in the choice of law rules and relies on the general contract law doctrines to protect consumers. This chapter aims to examine these alternative choice of law approaches, to compare them with the approach in the Rome I Regulation and to explore the most appropriate approach in e-consumer contracts.

II. Exclusion of Choice Approach During the Rome Convention modernisation process, the European Commission argued that the preferential law approach is complicated and hard to apply in practice.1 In order to address the difficulty caused by the preferential law approach, the European Commission proposed the ‘exclusion of choice’ approach, which 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 1 Ch 5, s IV.C. Z Tang, ‘Parties’ Choice of Law in E-Consumer Contracts’ (2007) Journal of Private International Law 113, 125–7.

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has usually been regarded as too radical and could be found only in the Swiss Federal Code on Private International Law of 1987.2 The European Commission justifies this approach for its simplicity, fairness and practicality. However, all these three reasons are not convincing enough for the radical 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.3

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’.4 Simplification is particularly important in consumer contracts.5 However, it is also necessary to point out that the preferential law approach 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 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 provide the lower standard of protection to the consumer than the law of the consumer’s habitual residence. 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 to one contract. The court has to decide what rules are mandatory in nature and which law provides the higher standard of protection to consumers. Even if in some cases the preferential law approach does not cause the hybrid result, the court still has 2

Art 120.2. European Commission, ‘Proposal for a Regulation of the European Parliament and the Council on the law applicable to contractual obligations (Rome I)’ COM(2005) 650 final (‘Commission Proposal’) 6. 4 Ibid, 6. 5 Ibid, recital 10; Nordic Group for Private International Law, ‘Proposal for Amendments to the Convention on the Law Applicable to Contractual Obligations’, 37; Ch 5, s IV. 3

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to make efforts to figure these issues out. Comparatively, the exclusion of choice approach provides a straightforward solution, where no such difficult process exists. However, although the exclusion of choice approach is superior to the preferential law approach in terms of simplicity, it is not the only, or the most appropriate, approach to improve simplicity. It is provided by the European Commission: 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.6

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 In its proposal, 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.7

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. 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 6 7

Commission Proposal, 6. Ibid, 6.

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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.8 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 on 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 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.9

It is absolutely true that under the preferential law approach, 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.10 The reason 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 8 The negative effect on traders has caused strong criticism. See European Parliament Committee on Legal Affairs Amendments 32–85, PE 382.371v01-00, 7 December 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. 9 Commission Proposal, 6. 10 Ibid, 6.

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mandatory but have substantial impact 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, which can have a substantial impact on the nature of the contractual relationship between the parties’,11 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’.12

D. Arguments Against the Exclusion of Choice Approach It is clear that the justification for the exclusion of choice approach is not convincing. On the contrary, many arguments can be found to criticise it. 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.13 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 may choose the applicable law after the dispute has arisen.14 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’.15 Another argument against the exclusion of choice approach is that it would act as a disincentive to transnational trade.16 The massive marketing power of 11 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’, April 2006, www. fmlc.org/papers/April06Issue121.pdf, accessed on 2 July 2007, para 7.11. 12 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. 13 Commission Proposal, recital 7; 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 (‘Green Paper on Rome I’), para 1.5. 14 It is also interesting to compare Art 19(1) of the Brussels I Recast 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. 15 See P Nygh, Autonomy in International Contracts (Oxford, Oxford University Press, 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. 16 City of London Law Society Financial Law Sub-Committee, ‘Submission to the European Commission: The 1980 Rome Convention’, http://ec.europa.eu/justice/news/consulting_public/ rome_i/contributions/city_london_law_society_financial_sub-committee_1_en.pdf, accessed on 30 May 2015, 18.

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e-commerce 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.17 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.18 The exclusion of choice approach may be superior to the preferential law approach 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. Minimum Protection Approach 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 is harmonised to a certain level, the 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 the EU, 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. Full harmonisation provides definite substantive

17 18

Ibid, 18. Ibid. Tang (n 1) 128–9.

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rights and obligations to the parties. The European harmonisation only provides the minimum standard of protection to consumers, which does not prevent each Member State from introducing more stringent protection above the minimum standard. The harmonised minimum standard may make a difference in choice of law. This chapter examines the possible simplified choice of law in the region, which has established minimum protection standards.

A. Background for the Application of the Minimum Protection Approach An important condition for proper functioning of the minimum standard approach is the existence of comprehensive harmonisation of substantive law in the region. In the past decades, a large number of consumer protection Directives or other Directives including provisions protecting consumer interests have been established in the EU, which create minimum protective standards for consumers. The European consumer law has a wide range, covering unfair contract terms,19 misleading or comparative advertising,20 guarantees in consumer sales,21 door-step selling contracts,22 distance selling contracts,23 the indication of prices,24 consumer credits,25 timeshare contracts,26 package travel,27 and 19 Directive 93/13/EEC on unfair terms in consumer contracts (‘Unfair Terms in Consumer Contracts Directive’) [1993] OJ L95/29. 20 Directive 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; Directive 97/55/EC of 1997 amending Directive 84/450/EEC concerning misleading advertising so as to include comparative advertising [1997] OJ L290; Directive 2005/29/EC concerning unfair business-toconsumer commercial practices in the internal market (‘Unfair Commercial Practice Directive’) [2005] OJ L149/22. 21 Directive 1999/44/EC of 1999 on certain aspects of the sale of consumer goods and associated guarantees (‘Directive on Consumer Sales and Guarantees’) [1999] OJ L171/12. 22 Directive 2011/83/EU on consumer rights (‘Directive on Consumer Rights’) [2011] OJ L 304/64, which repeals Directive 85/577/EEC of 1985 to protect the consumer in respect of contracts negotiated away from business premises [1985] OJ L 372/31. 23 Directive on Consumer Rights, which repeals Directive 97/7/EC on the protection of consumers in respect of distance contracts (‘Distance Selling Directive’) [1997] OJ L144/19; Unfair Commercial Practices Directive. 24 Directive 98/6/EC of 1998 on consumer protection in the indication of the prices of products offered to consumers [1998] OJ L80/27. 25 Directive 87/102/EEC of 1986 for the approximation of the laws, regulations and administrative provisions of the Member States concerning consumer credit [1987] OJ L42/48. Amended by: Council Directive 90/88/EEC [1990] OJ L61/14 and Directive 98/7/EC [1998] OJ L101/17; Directive 2008/48/EC on credit agreements for consumers and repealing Council Directive 87/102/EEC [2008] OJ L 133/66. 26 Directive 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 L280/83. 27 Directive 90/314 EEC of 1990 on package travel, package holidays and package tours [1990] OJ L158/59. European Commission, ‘Proposal for a Directive on package travel and assisted travel arrangements, amending Regulation (EC) No 2006/2004, Directive 2011/83/EU and repealing Council Directive 90/314/EEC’, COM(2013) 512 final.

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financial services.28 Some legislation, which does not take consumer protection as the primary concern, also provides rules that would objectively protect consumers.29 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,30 such as the regulation of unsolicited emails,31 the availability of the information service provider’s real identity,32 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.33 These Directives are expected to be implemented into the domestic law of each Member State. Although different Member States, by implementing the Directives 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 EU 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 EU level. If the applicable law is outside any Member State, it should not deprive the consumer of the protection provided by the minimum EU standard and the preferential law approach should apply. This approach is not completely new in the EU. Some old consumer protection Directives have adopted similar approaches to prevent the application of the lower protection under the law of a non-Member State.34 However, this approach has only been used as a supplement to the rules in the Rome I Regulation 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. 28 Directive 2002/65/EC of 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 L271/16; Unfair Commercial Practices Directive; 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 L319/1. 29 European Commission, ‘Green Paper on European Union Consumer Protection’, 2 October 2001, COM (2001) 531 final, 4. 30 Directive 2000/31/EC on certain legal aspects of information society services, in particular electronic commerce, in the Internal Market (‘Directive on Electronic Commerce’) [2000] OJ L178/1. 31 Arts 7.1 and 7.2. 32 Art 5.1 33 Art 10. 34 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.

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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.35 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’s Green Paper on the Review of the Consumer Acquis.36 Nevertheless, after the preferential law approach in the Rome I Regulation was finally adopted, the minimum protection approach is largely abandoned. For example, the 2011 Directive on Consumer Rights provides that the Rome I Regulation should be used to determine whether the EU mandatory consumer rules should apply if the governing law is the law of a third country.37

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 framework within the region. Although the EU 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 the EU 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.38 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.39 35 European Commission, ‘Green Paper on Rome I’ (n 13) I 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 September 2008. 36 European Commission, ‘Green Paper on the Review of the Consumer Acquis’, COM(2006) 744 final, 8 February 2007. 37 Recital 58 of the Directive on Consumer Rights. 38 City of London Law Society Financial Law Sub-Committee, ‘Submission to the European Commission: The 1980 Rome Convention’, http://ec.europa.eu/justice/news/consulting_public/rome_i/ contributions/city_london_law_society_financial_sub-committee_1_en.pdf, 13, accessed on 31 May 2015. 39 European Commission, ‘Green Paper on Rome I’ (n 13) 5.

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The minimum protection approach cannot work in the context where there are no minimum rules set up. In areas not covered by those Directives, consumers will be left unprotected. 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.40 Consumers habitually resident in a country with a higher level of 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. The answer 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 that the consumer is 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 a Directive and met 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 EU have implemented the relevant Directive and the chosen law or the default applicable law

40 ‘Commission Staff Working Document accompanying the proposal for a directive on consumer rights: Impact Assessment Report’, http://ec.europa.eu/smart-regulation/impact/ia_carried_out/docs/ ia_2008/sec_2008_2544_en.pdf, 24, assessed on 31 May 2015.

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of any Member State can be applied without restriction. If some Member 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’.41 However, it could lead to uncertainty, as some small businesses, especially those habitually resident in a Member 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,42 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, and 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.

41 42

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

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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. 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 EU meaning, different Member States would provide different interpretations according to their legal tradition, which will lead to 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.43

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 processes. 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. Territorial Limitation The minimum protection approach also has territorial limitations. Should this approach be used to protect all consumers, including non-EU consumers? Or should it be limited to protect consumers within the EU? 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

43

Ibid.

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within the Member States, when it is reasonable to apply the EU 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 minimum protection provided by the EU 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 I Regulation, is usually the law of the habitual residence of the business. Since it is within one of the Member States, 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 EU 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 EU law. However, it is only reasonable to apply the minimum EU law if the non-EU business could reasonably expect such a law to apply, ie it targets the market within the EU. 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 non-EU 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 should 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. Finally, 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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IV. Optional Substantive Law Harmonisation: Common European Sales Law A. Introduction Irrespective of the EU harmonisation of minimum standards, the variety in national law and the resulting uncertainty are considered to be one of the obstacles in the development of the internal market. It is suggested that an additional average of EUR 10,000 in spending would be the result of applying different national law in one additional export country.44 Updating website information to meet the different requirements of national law costs businesses an additional average of EUR 3,000.45 The European Commission proposes a Common European Sales Law (CESL) to further smooth cross-border trade.46 The purpose is not to harmonise and replace national law in each Member State, but to set aside an alternative instrument, which is a stand-alone option for the trade parties to choose by agreement. The proposal was published in 2011, immediately receiving a majority support in the European Parliament plenary in 2011,47 the Committee for Legal Affairs in 2013,48 and the European Parliament in 2014.49 The purpose of the CESL is to reduce transaction costs by allowing businesses, especially small and mediumsized businesses, to conduct cross-border transactions based on a uniform substantive law, and to ensure consumer confidence by providing the high standard of protection. It aims to increase commercial incentives to trade abroad and remove consumer concern about entering into cross-border contracts, which, put together, could increase consumer choice for better products with lower prices.

44 Press Release, ‘European Commission Proposes an Optional Common European Sales Law to Boost Trade and Expand Consumer Choice’, http://europa.eu/rapid/press-release_IP-11-1175_en.htm, accessed on 5 January 2015. 45 http://europa.eu/rapid/press-release_MEMO-11-680_en.htm?locale=en, accessed on 5 January 2015. 46 European Commission, ‘Proposal for a Regulation on a Common European Sales Law’ (‘CESL Proposal’ hereafter), COM (2011) 635 final. 47 Press Release, ‘European Commission Welcomes Parliament’s Support for an Optional EuropeWide Contract Law’, http://europa.eu/rapid/press-release_IP-11-683_en.htm, accessed on 5 January 2015. 48 Press Release, ‘Optional European Sales Law: Commission Proposal Backed by European Parliament Committee’, http://europa.eu/rapid/press-release_MEMO-13-792_en.htm, accessed on 5 January 2015. 49 On 26 February 2014, the proposal was supported by a majority in the European Parliament (416 for, 159 against and 65 abstentions). See, Press release, ‘Optional European Sales Law Receives Strong Backing by the European Parliament’, 26 February 2014, http://europa.eu/rapid/press-release_ MEMO-14-137_en.htm, accessed on 5 January 2015.

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B. CESL in General CESL applies to cross-border sale of goods and covers both business-to-business and business-to-consumer sales. Since it is designed with the particular intention to facilitate cross-border trade in the internal market, especially the growth of e-commerce, its scope extends to cover not only traditional goods, but also the supply of digital content, irrespective of whether it is carried in a tangible medium,50 though it does not clearly define any of these transactions as sale of goods. It also covers certain services closely related to the sale of goods or supply of digital content.51 CESL does not harmonise the concept of ‘contract’, but provides that it applies irrespective of whether a price is paid,52 which avoids the difference between civil law and common law countries in the requirement of consideration for the formation of a contract. The application of CESL is optional, which means it will only be applied upon the parties’ express choice. In order to protect consumers, the business should provide a standard information notice for consumers to make an ‘informed’ choice.53 CESL is inseparable in that the parties can only choose to apply CESL as a whole instead certain parts of it.54 CESL covers a wide arrange of contract law matters, including pre-contractual information duties; formal validity of a contract; the right of withdrawal and consequences; legal consequences of mistake, fraud, undue influence and duress; interpretation of contracts; unfair terms, rights and obligations of the parties; and remedies for non-performance, avoidance and termination.55 However, CESL is incomprehensive in that a number of important issues, such as capacity, illegality and IP related issues are left out, where national law should continue to apply pursuant to the conflict of laws to fill the gap.56

C. CESL and the Rome I Regulation CESL also needs to be made compatible with the Rome I Regulation. Firstly, it is doubtful whether the Rome I Regulation allows the parties to choose a non-state law to govern their disputes.57 Recital 13 of the Rome I Regulation allows the parties to incorporate ‘by reference into their contract a non-State body of law or an

50

CESL Proposal, Art 5, recital 17. Ibid, Art 3, recital 19. 52 Ibid, Art 5, recital 18. 53 Ibid, Art 8(2), recital 23. 54 Ibid, Art 8(3), recital 24. 55 Ibid, recital 26. 56 Ibid, recital 27. 57 FJG Alferez, ‘The Rome I Regulation: Much Ado About Nothing?’ (2008) 2 The European Legal Forum 61, 67; O Lando, P Neilson, ‘The Rome I Proposal’ (2007) 3 Journal of Private International Law 29, 36; AJ Belohlavek, Rome Convention-Rome I Regulation (New York, Juris, 2011) 695–6; H Heiss, ‘Party Autonomy’ in F Ferrari and S Leible (eds), Rome I Regulation (Munich, Sellier, 2009) 1, 11–2. 51

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international convention’. It implies that non-state law may only be incorporated into a contract as contract terms subject to a superior governing national law. This certainly is not what CESL intends.58 Recital 14 of the Rome I Regulation continues to state that ‘(s)hould the Community adopt, in an appropriate legal instrument, rules of substantive contract law, including standard terms and conditions, such instrument pay provide that the parties may choose to apply those rules’. It does not provide that the chosen Community instrument shall acquire the position as the governing law or not. Anyway, the explanatory memorandum of the CESL proposal suggests that the CESL will be treated as ‘a second contract law regime within the national law of each Member State’.59 By incorporating the CESL into the national system, the choice of CESL will be deemed as the choice of one legal instrument within the national law framework.60 For example, if the parties choose to use CESL and apply English law as the governing law, the agreement may be read: ‘English law should be applied to decide rights and obligations arising out of the contract, including CESL as part of English law.’ Secondly, would the choice of CESL be compatible with the protective choice of law in the Rome I Regulation? Pursuant to the Rome I Regulation, if the contract falls within the protective scope, the parties’ choice of governing law will not deprive the consumer of the protection that he might otherwise receive in the mandatory rules of his habitual residence.61 If the parties have chosen CESL, the Commission explains that CESL is the second set of sales law in the national legal system which provides a ‘complete set of fully harmonised mandatory consumer protection rules’,62 the choice of CESL as part of the business’s domestic law is no different from CESL as part of the consumer’s national law.63 The problem is that CESL does not have the effect of replacing national consumer sales law, which is an alternative set of law pursuant to the feature of CESL. The question, thus, becomes whether the choice of CESL of any country could deprive consumers of the standard of protection that they may otherwise have under the mandatory rules of the other set of national law. It is presumed that this should be the original purpose of the Rome I Regulation, which does not consider the functioning of an optional harmonisation instrument such as CESL. Furthermore, this should be the concern of most consumer associations. Although CESL intends to provide a protection no lower than EU Directives,64 it is far from certain whether CESL rules

58 Recital 29 provides that CESL should be interpreted autonomously according to principles on the interpretation of Union legislation. It cannot be interpreted according to applicable national law. 59 CESL Proposal, 6. 60 Ibid, explanatory memorandum, 6; recital 10. H Eidenmuller et al, ‘The Proposal for a Regulation on a Common European Sales Law’ (2012) 16 Edinburgh Law Review 301, 312. 61 Art 6(1) and (2) of the Rome I Regulation. 62 CESL Proposal, recital 11. 63 Ibid, explanatory memorandum, 6; recital 12. 64 Ibid, 6–7.

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will definitely provide the highest standard of protection than the national law of all Member States.65 Thirdly, what is the relationship between CESL and overriding mandatory rules of national law? Overriding mandatory rules are applicable irrespective of an otherwise applicable law. They concern the fundamental interest and social order of a country. A court is free to apply overriding mandatory rules of the forum,66 or overriding mandatory rules of the place of performance if such rules make performance illegal.67 Application of CESL, as a result, should be subject to overriding mandatory provisions of either the forum or the relevant third country.68

D. CESL and Global Effects What is the international effect of CESL? The Commission suggests the universal application of CESL. As far as one of the parties is domiciled within the EU, the parties are free to choose CESL to govern their contracts.69 Where an EU consumer enters into a contract with a business from a third country, this consumer usually will not propose the governing law. It is completely up to the non-EU business to decide whether choosing CESL to govern the contract is backed by the standard information notice. A non-EU business may have an incentive to choose CESL, if CESL provides lower standards of protection to consumers than the law of the relevant third country, and if most EU consumers would prefer to choose CESL, which provides uniform results throughout the EU. If an EU business trades with a non-EU consumer, the business may wish to choose CESL if CESL is widely adopted within the EU and the business has successfully used one website for all trading purposes within the internal market. There is no harm in using the same website to trade with non-EU consumers. Therefore, whether CESL is used by EU businesses in international transactions depends on how CESL is received in the EU. However, as to a third country consumer, the choice of CESL means the choice of a foreign law, the effect of which may be subject to the relevant conflict of laws. It depends on which country’s court takes jurisdiction. Since the consumer is likely to sue the business in the third country, if the third country adopts an ‘exclusion of choice’ approach, such as Switzerland, the agreement to use CESL will be invalid.70 If the third country adopts a similar ‘preferential law’ approach, the application of CESL is subject to the better protection of mandatory rules of the consumer’s home. If the third 65 There is concern that consumers in countries providing the high standard of protection in domestic law may be worse off. See UK Ministry of Justice, ‘A Common European Sales Law for the European Union: The Government Response’, https://consult.justice.gov.uk/digital-communications/ common-european-sales-law/results/cesl-government-response.pdf, accessed on 20 March 2015, para 70–7. 66 Art 9(2) of the Rome I Regulation. 67 Art 9(3), ibid. 68 Art 9, ibid. 69 CESL Proposal, recital 14. 70 H Eidenmuller et al, ‘The Proposal’, 315.

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country adopts an ‘unlimited choice’ or ‘neutral law’ approach, subject to the conscionability test, full effects may be given to CESL.71 Given the diversity of third country conflict of laws, full harmonisation and certainty may not be achieved by CESL at the international level.

E. How Effective will CESL be? The substantive rules proposed in the CESL are no lower than the EU Directives and national law of Member States in protecting consumers.72 The rationale is that both parties would have incentives to use CESL. As to businesses, they could benefit from the use of a single law for all cross-border transactions, which could largely reduce costs, in exchange for agreeing to comply with a higher standard. As for consumers, they could receive better protection, in exchange for giving up their domestic law. This justification, however, may be questioned. Firstly, the intended effect will only happen if the CESL has provided comprehensive harmonisation of sales law, which is not the case. The CESL has many gaps, uniform rules on which are extremely difficult, if not impossible, such as capacity; illegality and immorality; language of contracts; non-discrimination; representation; plurality of debtors and creditors; change of parties including assignment, set-off and merger; property law issues; IP law matters; and tort matters.73 Secondly, as discussed above, the preferential law approach does not aim to provide consumers with the best protection they could get. Instead, it only provides them with the protection which is most familiar to consumers, and which consumers may most easily seek information and legal advice. CESL provides a separate set of rules. It takes time for it to be known, understood, and properly relied upon by consumers. CESL is optional and its effect is based on ‘express agreements’.74 The CESL will only be successful if most players opt for it. Otherwise, this instrument will have no real effect. For example, if an e-business wishes to opt for the CESL, it must make sure that its trade partners and customers are willing to agree on this choice. If one of the customers refuses this choice, the e-business is subject to the application of two different laws for their transactions. This would cause difficulty in practice, especially in e-commerce. While a business establishes a website and adopts general terms and conditions and a general business model and consumer policy, the purpose is to use this website and the general pattern to conduct trade with all potential clients. However, the business could not be sure that all potential customers located in all Member States should agree on this choice.75 Furthermore, 71 The choice requirement for CESL makes it hard to be an unconscionable choice. For more on the unlimited choice approach, see infra Ch 6, s V. 72 CESL Proposal, Art 1(3). 73 Ibid, recital 27. 74 Ibid, recital 9. 75 C Kelly, ‘The Proposal for a Common European Sales Law’ (2013) 7 Journal of Business Law 703, 711.

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strict requirements are there to protect the genuine consent of consumers in the choice. Since the agreement to CESL should be explicit, it is not enough to insert a standard term in favour of CESL into the sales contract, or make a reference to the business’s general terms and conditions where CESL is chosen.76 The consumer must give the ‘informed’ choice, and the business has the obligation to draw the consumer’s attention to the choice of CESL and the nature of CESL.77 Although a standard information notice would release the business from the burden of notice, it is hard to argue that such a standard information notice can really bring out the ‘informed’ choice. The true ‘informed’ choice requires the consumer to understand not only what is chosen, but also the content of CESL and the advantages and disadvantages compared to other available options. The standard information notice summarises the key features of CESL in understandable language to the layman.78 However, it is not comprehensive and it cannot effectively make a consumer aware of the benefits and weaknesses in opting for CESL compared to their domestic law. Furthermore, although the standard information notice is short and easy to read, it is likely that few consumers will take the time to read it in practice. Finally, although CESL provides the information notice contains a hyperlink where the website of CESL text can be obtained free of charge, it is extremely doubtful how many consumers would download CESL and read it, and how many consumers would understand the content and even be able to compare it with their domestic law.79 Because of the lack of relevant knowledge, a truly ‘informed choice’ of CESL would never exist in consumer contracts. It is hard to predict real consumer expectation and reaction to the CESL. There is a possibility that most consumers may wish to rely on the law of their own country irrespective of the standard of protection provided. Whenever a business has adjusted its website and business pattern according to the CESL, it exposes itself to the risk that some consumers in various Member States refuse to opt for CESL.80 Finally, CESL applies only to cross-border contracts.81 However, it is in the interest of e-businesses to operate one website for multiple markets, including both domestic and international markets. The application of CESL thus would cause arbitral dichotomy between domestic and international sales. Businesses intending to target both should operate at least two websites, one compatible with national law and the other with CESL. Realising the potential difficulty, the

76 C Bisping, ‘The Common European Sales Law, Consumer Protection and Overriding Mandatory Provisions in Private International Law’ (2013) 62 ICLQ 463, 468. CESL Proposal, Art 8(2), recital 22. 77 CESL Proposal, recital 23. 78 The content of the standard information notice is included in Annex II of the CESL Proposal, which is 626 words in length, covers rights for information before signing contracts, rights after signing contracts (cooling-off period and confirmation), rights on faulty or undelivered products and unfair terms. 79 The CESL Proposal is 115 pages long (including explanatory memorandum), and covers 186 Articles and two Annexes. 80 Kelly, ‘The Proposal’, 712; Bisping, ‘Common’, 469. 81 CESL Proposal, Art 4, recital 9.

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Commission suggests that Member States should be free to make CESL applicable to domestic sales.82 It is doubtful how many Member States would opt for this. Since the agreement to apply CESL does not amount to choice of law in the conflict of laws,83 the protection of national interest in a purely domestic contract provided by Article 3(3) of the Rome I Regulation is irrelevant. In other words, once Member States allow CESL to be extended to domestic sales, it opens the door for the parties to evade the mandatory rules of a country in a purely domestic contract.

V. Neutral Law Approach in the US A. Introduction Although the recent international tendency to protect the weaker party in private international law leads to a departure from the neutral law approach, the neutral law approach has still been followed in many important jurisdictions.84 The neutral law approach does not mean that consumers receive no protection at all, but the level of protection provided to consumer contracts is no different from ordinary commercial 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 was replaced by the protective choice of law approach.85 In the contemporary world, the neutral choice of law has been adopted in some discretion-based countries. This section takes US common law as an example. 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 Laws86 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.

82

Ibid, recital 15. Ibid, recital 10. The choice of CESL is the option to apply the second set of national law. 84 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. 85 It only applies to contracts concluded before 1 April 1991, and contracts excluded by the Rome Convention. 86 American Law Institute, Restatement 2nd (n 84). 83

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B. 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 abandoned their traditional choice of law rules based on rigid connecting factors,87 and adopted more flexible choice of law rules generally based on the most significant connection principle.88 This approach requires consideration of all the circumstances, and is primarily based on the connecting factors, as well as the significance of certain relationships.89 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.90 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.91 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,92 the internet users downloaded free software from the defendant’s website, which contained a license agreement. When deciding which law applied 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 was 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

87 eg for the rigid rules, see generally the American Law Institute, Restatement 1st Conflict of Laws (St Paul, American Law Institute, 1934). 88 See the Restatement 2nd (n 84) 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. 89 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. 90 Restatement 2nd (n 84) s 188(2). 91 eg ibid, 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’. 92 Specht v Netscape 150 F Supp 2d 585 (SDNY, 2001).

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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, Specht only considered the physical place where a person had conducted the activity, instead of where a virtual event happened 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. 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 49 states.93 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.94 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,95 which could be complicated and fortuitous.

i. Place of Contracting and Place of Negotiation The place of contracting is an unimportant factor when standing alone.96 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.97 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

93 Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, District of Columbia, Florida, Georgia, Hawaii, Idaho, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, US Virgin Islands, Utah, Vermont, Virginia, West Virginia, Wisconsin, Wyoming. More information can be accessed from the Uniform Law Commission website, www.uniformlaws.org/Act.aspx?title=Electronic%20Transactions%20Act, accessed on 31 May 2015. 94 Restatement 2nd (n 84) s 15(d), and accompanied comment para 4. 95 See Ch 3, s II, which discusses the location of some online factors under English law. 96 Restatement 2nd (n 84), s 188, comment e; J Fawcett, J Harris and M Bridge, International Sale of Goods in the Conflict of Laws (Oxford, Oxford University Press, 2005), para 21.75. 97 Restatement 2nd (n 84).

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carried out in different states, both of which no longer have real connection with the place of contracting. Not 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.

ii. 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 obvious relation to the nature of the performance and the party who performs his obligation.98 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.99 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 one 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.

iii. Location of the Subject Matter The location of the subject matter would be a weighty factor if the subject matter was immovable or localised.100 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.

98 99 100

Ibid. Ibid. Ibid, comment e.

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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 uploaded 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.101 The location of the original digital product is usually the place of the server, which acts as the business’s warehouse hosting the subject matter of the transaction.

iv. 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.

C. Neutral Law Approach on Choice of Law Agreements The common law approach recognises the enforcement of a choice of law agreement, without specific limitations for consumer contracts.102 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. The approach is summarised in section 187 of the Restatement 2nd Conflict of Laws, which pragmatically attempts to reflect the real practice of the courts.103 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

101 Specht v Netscape (n 92) 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). 102 Other general limitations are permitted, such as the limitation provided by the mandatory rules and public policy of the forum. 103 L Ribstein, ‘From Efficiency to Politics in Contractual Choice of Law’ (2003) 37 Georgia Law Review 363, 371. The Restatement 2nd (n 84) 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).

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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.104

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.105

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.106 The following sections examine these issues and their application in e-commerce.

i. 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.107 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

104

Restatement 2nd (n 84) s 187. Ibid, 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. 107 Restatement 2nd (n 84) s 187, comment b. 105 106

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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.108 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 should be considered unconscionable, the courts have made controversial decisions. In the early case of Siegelman v Cunard White Star,109 the choice of law clause in a voyage ticket was enforced, while in Fricke v Isbrandtsen Co,110 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.111 In Szetela v Discover Bank, 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.112

In terms of 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.113 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.114 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 108

Ibid. Siegelman v Cunard White Star 221 F2d 189 (CA2, 1955). 110 Fricke v Isbrandtsen Co 151 F Supp 465 (DCNY, 1957) 468. 111 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). 112 Szetela v Discover Bank (n 111) 1099. 113 Ibid; Flores v Transamerica HomeFirst 93 Cal App 4th 846 (Cal App 1 Dist, 2001). 114 Craig v Brown & Root 84 Cal App 4th 416 (Cal App 2 Dist, 2000); Carideo v Dell 492 F Supp 2d 1283 (WD Wash, 2007); Jones v Genus Credit Management 353 FSupp2d 598 (D Md, 2005). 109

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choice of law clause is substantively unconscionable.115 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 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.116 As a result, substantive unconscionability could rarely be used to invalidate a choice of law clause even in an e-consumer contract. 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.’117 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’118 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,119 the Court invalidated the browse-wrap agreement, because

115

24 Hour Fitness v Superior Court 66 Cal App 4th (Cal App 1 Dist, 1998). See s iii. below. Szetela v Discover Bank (n 111) 1100; Armendariz v Foundation Health Psychcare Services 24 Cal 4th 83 (Cal, 2000) 144. 118 Restatement 2nd (n 84) s 187, comment b. 119 Szetela v Discover Bank (n 111). 116 117

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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,120 the 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’.121 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,122 although the agreement was a browse-wrap contract and the terms appeared in small grey print on a grey 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.123 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. 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?124 120

William v American Online 2001 WL 135825 (Mass Super, 2001). Ibid, 2. 122 Pollstar v Gigmania Ltd 170 F Supp 2d 975 (ED Cal, 2000) 981. 123 Ibid. See also Meridian Project System v Hardin 426 F Supp 2d 1100 (ED Cal, 2006); Adobe v Stargate Software 216 F Supp 2d 1051 (ND Cal, 2002); Lexmark v Static Control 387 F 3d 522 (6th Cir 2004). 124 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. 121

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Many scholars believe that the unconscionable test is sufficient even in consumer contracts.125 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.126 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.

ii. 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,127 and it could prevent choice in bad faith. The reasonable ground could be either the ‘substantial relationship’ or ‘any other reasonable basis’.128 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.129 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.130 It generally indicates the parties’ reasonable expectation based on something other

125 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. 126 O’Hara, ‘Choice of Law’, 1938. 127 Restatement 2nd (n 84), s 187, comment f. 128 Ibid, 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). 129 Restatement 2nd (n 84), s 187, comment f. 130 Ibid.

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than the territorial connection to the contract.131 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.132 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.133 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

131 eg 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 (n 128). 132 The Restatement 2nd (n 84) 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. 133 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.134 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.135 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.

iii. 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.136 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,137 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 Virginia law 134 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 October 2006. 135 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). 136 Restatement 2nd (n 84) 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). 137 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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violated ‘an important public policy underlying California’s consumer protection law’.138 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? a. 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. Public policy can be found in the constitution, legislative enactment, and judicial decisions.139 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.140 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 could use its discretion to uphold this policy and derogate from the applicable law if it would act to impede e-commerce.141 138

Ibid, 4-5. Building Serv Employees International Union Local 262 v Gazzam 339 US 532, 537–8 (1950). 140 Industry Canada, ‘Electronic Commerce in Canada: Canadian Strategy’ www.ecom.ic.gc.ca/ english/60.html, accessed on 14 February 2001; A Framework for Global Electronic Commerce, www. w3.org/TR/NOTE-framework-970706, accessed on 31 May 2015. 141 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. 139

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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’,142 that the chosen law is ‘contrary to pure morals and abstract justice’,143 or the enforcement of the chosen law ‘would be of evil example and harmful to its people’,144 can overriding the choice of law by the parties be justified.145 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,146 even if the chosen law might provide less protection to consumers than the law of the forum.147 Public policy should have a high threshold so that it would not be used frequently against the certainty provided by party autonomy.148 Public policy will be initiated more often in contracts with inequality of bargaining power.149 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,150 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 customers from seeking redress for small amounts of damages.151 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.152 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

142

Potomac Leasing Co v Chuck’s Pub 156 Ill App 3d 755 (2nd Dist, 1987). Champagnie v WE O’Neil Constr Co 77 Ill App 3d 136 (1st Dist, 1979). Ibid. 145 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, 365–7 (1931). 146 See eg Demitropoulos v Bank One Milwaukee 915 F Supp 1399 (ND Ill, 1996) 1414; Midway Home Entertainment Inc v Atwood Richards Inc 1998 WL 774123, 3 (ND Ill, 1998). 147 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). 148 M Giuliano and P Lagarde, Report on the Convention on the law applicable to contractual obligations [1980] OJ C 282/1, 38. 149 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 (n 147). 150 Szetela v Discover Bank (n 111). 151 Ibid, 1101–2. 152 Ibid. 143 144

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a contract with fair bargaining power.153 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.154 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. b. 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.155 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,156 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 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 plaintiffs 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.157 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. 153

Banek v Yogurt Ventures 6 F 3d 357, 361 (6th Cir 1993). Lowery v Zorn 243 Ala 285 (Ala, 1942); Banek v Yogurt (n 153). Nedlloyd Lines v Superior Court (n 128). 156 Klussman v Cross Country Bank 123 Cal App 4th 1283 (Cal App 1 Dist, 2005). 157 Ibid, 1299. See also Oestreicher v Alienware 502 F Supp2d 1061 (ND Cal, 2007); Kaltwasser v Cingular Wireless 543 F Supp 2d 1124 (ND Cal, 2008). 154 155

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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.158 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.159 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 protecting its consumers, but it had no greater interest in protecting other states’ consumers.160 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 158

Klussman v Cross Country Bank (n 156) 1299. Discover Bank v Superior Court 134 Cal App 4th 886 (Cal App 2 Dist, 2005). 160 Ibid, 895. Also in Gay v CreditInform (n 135), 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. 159

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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. c. 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 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.161 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.

D. Conclusion Compared with the European protective choice of law approach, the neutral law approach is characterised by its flexibility and justice in individual cases. It also 161

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

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provides advantages as follows. 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.162 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 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.163 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 winwin result. This chapter examines whether the neutral choice of law could work as effectively as it is presumed to do in e-consumer contracts. 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.164 162 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’, http://ec.europa. eu/justice/news/consulting_public/rome_i/contributions/beuc_en.pdf, accessed on 31 May 2015. 163 Unless the parties choose to resolve their dispute by using online dispute resolution. Ch 7. 164 Section 1-301.

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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.

VI. Efficient Choice of Law in Consumer Contracts There are various choice of law models provided for consumer contracts but it is considerably difficult to find a model which is perfect in providing appropriate protection to consumers without sacrificing efficiency and certainty. Some considerations are similar in both jurisdiction and choice of law. Firstly, although businesses could allocate risk in an efficient way, there is no reason to trust that businesses will always do so. In fact, businesses, in the absence of legal regulation, may inefficiently allocate risk to consumers. Secondly, there is no reason to believe that if businesses reduce transaction costs by allocating risk to consumers, they will reduce prices accordingly in favour of consumers. Consumers cannot benefit from completely free autonomy due to information asymmetries, bounded rationality, and market failure.165 However, choice of law is also different from jurisdiction. Firstly, consumers may act more irrationality in choice of law in that they normally lack knowledge as to the content of law and which law is more favourable to protect them. In jurisdiction, it is a no-brainer that consumers wish to enjoy the low cost, convenience and familiarity of local forum. Secondly, a win-win situation may be to achieve in choice of law in that consumers are protected by a ‘better’ or ‘appropriate’ law, while businesses will not suffer unreasonable compliance cost. Taking these reasons into consideration, it is suggested that the exclusion of choice approach is inefficient. Businesses have no means to minimise commercial risks resulting from applying multi-state law in international transactions and have to limit the scope of its market to avoid the application of foreign law. The preferential law approach adopted in the Rome I Regulation equally suffers high compliance costs resulting in the application of multi-state mandatory rules. The only means to avoid the complexity to apply multi-state law is to race to the top by complying with the most stringent consumer protection law. This, again, increases transaction costs. For example, a business may supply to two countries. Country A is the business’s domicile, Country B provides the higher standard of consumer protection. If the business wants to use one website to target both countries, the business must comply with the law of Country B. Since Country B provides the higher protection to consumers than the law of Country A, it induces extra compliance cost. If the compliance cost reduces the profit by £10 per transaction 165 See in general, G Ruhl, ‘Consumer Protection in Choice of Law’ (2011) 44 Cornell International Law Journal, 569; R Korobkin, ‘The Efficiency of Managed Care “Patient Protection” Laws’ (1999) 85 Cornell Law Review 1; D Horton, ‘The Shadow Terms’ (2010) 57 UCLA Law Review 605; MI Meyerson, ‘The Efficient Consumer Form Contract’ (1990) 24 Georgia Law Review 583. See Ch 4, s IV. above.

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in Country A and 1,000 contracts are concluded domestically, the total loss of profit is £10,000. The business must acquire more than £10,000 profit from Country B to make compliance cost reasonable. The profit received in Country B per transaction should be lower than that in Country A due to the cost for delivery and currency exchange. It means that the business must attract a larger number of consumers from Country B than Country A to justify the compliance cost. This usually will not be the case, because most consumers are more reluctant to purchase abroad.166 Of course, the business may manage the compliance cost by increasing the price, which prejudices consumers. The neutral model cannot achieve efficiency either. The neutral model focuses on addressing information asymmetries by imposing the conscionability test for a choice of law agreement to be valid. Procedural conscionability primarily focuses on the business’s duty of notification to provide relevant information to consumers to adjust asymmetric information. Besides, the neutral model also regulates autonomy by imposing substantive conscionability to ensure the choice will not be unjust, unfair or contrary to fundamental policy. This aims to address the behaviour anomalies or irrationality of consumers.167 This approach also fails the efficiency test. Firstly, it presumes that information asymmetries can be corrected, which is unrealistic. Even being given sufficient information, consumers are not going to read, understand correctly, or seek legal advice before contracting. The marginal cost of seeking information is unreasonably high for consumers to take.168 Secondly, the threshold is very low for the conscionability test to be satisfied and the threshold is high for the public policy defence to be relied upon. That means only extremely absurd consequences or clear abuse of power will be addressed by law, while the law does not intervene simply because consumers are induced to make an irrational choice.169 Thirdly, this approach may not reduce risk and cost to businesses as it is supposed to, because the choice of law clause may be open for challenge in practice and the court discretion leads to uncertainty. It is thus concluded that it is difficult to rely on choice of law to achieve efficiency in e-consumer contracts. There is inevitable conflict between compliance cost and consumer expectation or between business certainty and consumer protection. The most efficient approach is to harmonise the applicable law, at least to a certain extent, like the minimum protection approach and the optional harmonisation approach suggest. However, compromise is very difficult to achieve between business sectors and consumer associations. Partial harmonisation will not change the situation because high compliance cost and uncertainty continues to exist. 166 In a survey done by the Eurobarometer in 2013, 26% of respondent consumers stated they were confident purchasing in their home but not in another EU country, 68% were not interested in purchasing cross-border within the EU in the next 12 months and 56% were not prepared to purchase goods and services using another EU language. See Eurobarometer, ‘Consumer Attitudes towards Cross-Border Trade and Consumer Protection’ (Flash Eurobarometer 358, 2013), http://ec.europa.eu/ public_opinion/flash/fl_358_en.pdf, accessed on 12 March 2015, 23–40. 167 Ruhl, ‘Consumer Protection’, 569. 168 Lee Goldman, ‘My Way and the Highway’ (1992) 86 Northwestern University Law Review 700, 717. See also Ch 4, s IV. above. 169 See s V. above.

7 Consumers in Special Contracts I. Introduction The discretion-based approaches generally apply the same conflicts rules for all contracts. The rule-based conflict of laws is based on rigid and stereotyped connecting factors. In order to achieve the reasonable results for individual cases and to relax the rigidity of the system, the legislators distinguish different consumer categories according to the different characteristics of specific industries. For ordinary consumer contracts, protective jurisdiction and choice of law rules apply.1 For special consumer contracts, differential treatments have been provided. Special treatments are provided in four circumstances: (1) some contracts are subject to existing international conventions to which all Member States are Contracting Parties;2 (2) some contracts concern other, more important interests than the interest to protect consumers, such as state sovereignty or the protection of the general public;3 (3) some consumer contracts are substantively different from ordinary consumer contracts in that the consumers are in a more vulnerable position and need more specific protection;4 (4) the special characteristic of some industries make it difficult to predict the origin of consumers, or practically impossible for the business to apply different law.5 The EU does not provide the consistent jurisdiction and choice of law rules for special consumer contracts. Some of these contracts are subject to the protective jurisdiction but a different set of choice of law.6 This may cause difficulty and uncertainty in practice but distinction may be necessary due to the difference between jurisdiction and applicable law. A business may have targeted the consumer’s domicile and could expect to be sued in the given state. It is, however, economically unpractical to subject the business to a different applicable law of

1

See Ch 2 and Ch 5. Such as consumers in transport contract or carriage contract. See Art 17(3) of the Brussels I Recast and Art 6(4)(b) of the Rome I Regulation. 3 Such as consumers in contracts concerning a right in rem in, or tenancy of, immovable property. See Art 24(1) of the Brussels I Recast; Art 6(4)(c) of the Rome I Regulation. 4 Such as consumers in credit sales. See Art 17(1)(a) and (b) of the Brussels I Recast. 5 Such as consumers for supply of services exclusively in another country and certain financial consumers. See Art 6(4)(a), (d) and (e) of the Rome I Regulation. 6 Compare Art 6(4) of the Rome I Regulation and Art 17 of the Brussels I Recast. 2

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each consumer’s habitual residence, because the nature of the business requires the same standard of practice to be provided to all consumers.7

II. Transport/Carriage Contracts A. Package Travel Contracts In the EU, protective jurisdiction and choice of law does not apply to consumers in transport contracts/contracts of carriage other than package travel.8 Package travel is defined in the Brussels I Recast as ‘a contract which, for an inclusive price, provides for a combination of travel and accommodation’.9 This definition is criticised for its narrowness, as there are also contracts combining travel and/or accommodation with other tourist services.10 This definition is narrower than the definition provided in the Package Travel Directive,11 which is referred to in the Rome I Regulation.12 Since an independent EU meaning should be provided to all concepts in the conflicts Regulations, it is suggested that the same definition in Article 2(1) of the Directive should be adopted for package travel in both the Brussels I Recast and the Rome I Regulation.13 The Package Travel Directive 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.14

Pursuant to the Package Travel Directive,15 package travel must combine tourist services sold at an inclusive price including more than two items of the following: transport, accommodation and other services not ancillary to transport and 7

Such as hotel services. See Art 6(4)(a) of the Rome I Regulation. The Brussels I Recast uses the term ‘contracts of transport’ and the Rome I Regulation uses the term ‘contracts of carriage’. They refer to the same category of contracts. C-585/08 and C-144/09 Pammer v Reederei Karl Schlüter GmbH & Co KG, and Hotel Alpenhof GesmbH v Oliver Heller [2010] OJ C55/4 (unreported in ECR) para 40. 9 Art 17(3). 10 See also P Kaye, The New Private International Law of Contract of the European Community (Aldershot, Dartmouth, 1993) 206. 11 Council Directive 90/314/EEC of 13 June 1990 on package travel, package holidays and package tours (Package Travel Directive) OJ 1990 L158/59. 12 Art 6(4)(b). 13 Pammer and Heller (n 8) para 43. 14 Package Travel Directive, Art 2(1). 15 Ibid. 8

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accommodation which account for a significant proportion of the package.16 It should also cover over 24 hour tour and overnight accommodation.17 Every tour service which fulfils the above requirements shall be covered in the package travel, including a voyage by freighter.18 Consumers in package travel require specific protection because it involves more than one supplier. The breach of one may affect the performance of another. Contracts are usually signed through a local agent and it is very difficult to deal with sub-contractors in foreign countries. Sometimes consumers may not have contracts with direct travel operators. Contracts are usually performed exclusively in a foreign country, which makes consumers vulnerable, especially when the destination is a non-EU Member State.19 In order to protect package tourists, special protections are provided to make the organiser liable for the mal-performance of all suppliers.20 The purpose of protection cannot be achieved if the consumer is required to bring an action abroad or apply the law of another country. Furthermore, most package travel contracts are concluded between consumers and their local travel agents or travel operators. Both parties could reasonably expect that the law of their common residence would apply to the contract. The protective jurisdiction and choice of law, thus, continue to apply to package travel contracts. Identifying package travel in e-commerce, however, is not easy. E-commerce opens opportunities for consumers to make their own package by putting together the travel components customised to meet their needs instead of the pre-arranged package sold by travel agencies or operators. It usually happens where a travel supplier provides the hyperlink and facilitates the subsequent purchase of another supplier’s services.21 For example, after booking an air ticket the airline’s website usually gives consumers the opportunity to book accommodation with lower fees. By clicking relevant links consumers are 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. Is this a package tour contract? Three issues should be considered. Firstly, the separate billing of various travel services will not prevent the contract from being a package tour contract.22 Secondly, package travel is not limited to the traditional, prearranged, and ready-to-go package, but also includes ‘combined travel arrangements’ that are put together as a result of the consumer’s wishes and needs.23 Thirdly, the combination of travel components must be put together at the time

16 Case C-400/00 Club-Tour v Barrido [2002] ECR I-4051, para 13; Pammer and Heller (n 8) para 37. 17 Club-Tour (n 16) para 13; Pammer and Heller (n 8) para 37. 18 Pammer and Heller (n 8) para 46. 19 European Commission, ‘Bringing the EU Package Travel Rules into the Digital Age’, COM(2013) 513 final, 4. 20 Package Travel Directive, Art 5. 21 European Commission, ‘Bringing the EU’, 5. 22 Package Travel Directive, Art 2(1). 23 Club-Tour (n 16), para 19.

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when the contract is concluded.24 The package must be sold at an ‘inclusive’ price and all the components should be bought and paid for as a whole.25 As a result, if in the ‘dynamic packaging’, the consumer has concluded with different companies separate contracts paid separately, it is not a package travel contract. A package travel contract, according to the definition, must be one single contract combining various travel components. Some companies may practice ‘contract splitting’, which provides online the combination of transport, overnight accommodation and other travel services, but the purchase in fact results in separate contracts that sell the component separately.26 Consumers, unfortunately, cannot benefit from protective conflict of laws in this situation. Furthermore, paying separately for different contracts certainly is not a package sale, but paying an inclusive price alone is indecisive for a package tour contract. If the travel components are not ‘offered’ as a whole package, but offered as separate services at the same time, the consumer is not purchasing a package tour. A clear distinction, however, is very difficult in e-commerce. The existence of ambiguous ‘dynamic packaging’ in e-commerce reduces the number of typical package travel contracts that can be protected in private international law and may cause uncertainty to both parties.27 It is doubtful whether it is sufficient to use ‘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. It is expected that the EU will modernise the package travel legislation and bring it in line with e-commerce.28 The European Commission published a Proposal in 2013,29 which provides a clearer definition for package travel. According to the Proposal, consumers are treated as package travellers irrespective of whether separate contracts for various travel components are concluded, as far as the purchase was done through a single point of sale within the same booking process, offered and paid for as a whole at an inclusive price, advertised by using the term ‘package’, combined after the conclusion of a contract by which the seller allows the traveller to choose selected travel components, purchased from separate suppliers through linked online booking processes where the consumer’s name and travel information is transformed and shared by all suppliers.30 The proposed definition tries to

24

Ibid, paras 19–20. Association of British Travel Agents Ltd (ABTA) v Civil Aviation Authority [2006] ACD 49. 26 Ibid. 27 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 July 2007, available from https://ec.europa.eu/consumers/rights/commission_working_document_final26-07-2007.pdf, 5–6, accessed on 20 July 2008. 28 European Commission (n 19) 6. 29 European Commission, ‘Proposal for a Directive on package travel and assisted travel arrangements, amending Regulation (EC) No 2006/2004, Directive 2011/83/EU and repealing Council Directive 90/314/EEC’, COM(2013) 512 final. 30 Ibid, Art 3(2). 25

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improve the protection to package travellers and has taken specific characteristics of online sales into consideration.

B. Carriage/Transport Contracts Apart from package travel, protective jurisdiction and choice of law does not apply to transport contracts. Although the exclusion is not justified in the Brussels I Recast or the Rome I Regulation, answers can be found in the explanatory report to the precedent of the Brussels I Recast. The exclusion is necessary to avoid the conflict between the EU instruments and the treaty obligations in existing international conventions. As Schlosser points out, transport contracts ‘are subject under international agreements to special sets of rules with very considerable ramifications, and the inclusion of those contracts … purely for jurisdiction purposes would merely complicate the legal position.’31 The same justification may be made to choice of law.32 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 jurisdiction rules to provide certainty and facilitate judicial cooperation. They also provide uniform mandatory requirements and 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.33 Relevant international conventions include the Montreal Convention in air transport, the Athens Convention in waterborne transport, the International Convention for the transportation of passengers (CIV) and the Uniform Rules of the Convention concerning international carriage by rail (COTIF). Almost all forms of carriage are covered.34 Practice, however, demonstrates that the justification is not fully convincing. First of all, carriage/transport contracts are not completely excluded from the 31 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 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. 32 M Giuliano and P Lagarde, ‘Report on the Convention on the Law Applicable to Contractual Obligations’ [1980] OJ C282/1 (‘Giuliano-Lagarde Report’) does not provide any reasons for the exclusion of a contract of carriage. CGJ Morse, ‘Consumer Contracts, Employment Contracts and the Rome Convention’ (1992) 41 ICLQ 1, 5. 33 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 Schlosser Report, 119. 34 Hill commented that: ‘(i)n view of the range of international conventions in the field of transport which contain special jurisdiction provisions the number of contracts of transport falling within the scope of the ordinary contract rules (rather than the rules of specialized conventions) is very small or non-existent.’ J Hill, Cross-Border Consumer Contracts (Oxford, Oxford University Press, 2008) 126.

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European conflicts regime. In terms of jurisdiction, Rehder v Air Baltic sets up limitation to the application of the International Convention on carriage by air and allows the application of the Brussels jurisdiction rules to the claim of EU remedies arising out of the EU Regulations on air travel.35 In terms of choice of law, despite the harmonised rules in international conventions, difference still exists and choice of law continues to apply in areas not covered by international conventions. Article 5 of the Rome I Regulation provides special choice of law rules for carriage contracts.36 Since the international conventions are far from comprehensive, applying conflict of law rules is inevitable. Extending protective conflict of laws to passenger contracts falling outside of the scope of the international conventions would not cause conflict or complexity in practice. Secondly, from a consumer’s point of view, such exclusion is unfortunate, especially in e-commerce. Booking flights online is very common. Consumers may feel reluctant to buy physical goods online because of the difficulty in examining and testing the actual product, the worry about the trouble or the cost for return and the concern of unreliable delivery. The same reluctance applies to services where consumers would not buy without observing the venue, viewing the sample, and conducting consultation. More and more consumers are confident in booking flights through the internet, however. Contracts for the carriage by air are usually straightforward. The parties need to know the date and time of departure, the place of departure and arrival, whether it is a single journey or a round trip, the passenger’s personal information, whether the passenger has special dietary requirements and whether the passenger needs special assistance. All of the information is easily provided by passengers. Furthermore, the nature, quality and standard of services usually does not differ between different airlines. Passengers do not need to have an inperson ‘observation’ in order to make decisions. Almost all carriers maintain websites for potential passengers to book transport tickets. Online booking services are fast, convenient and inexpensive. All are welcome by e-consumers. Depriving e-passengers of protection is unwelcome and contrary to the policy to protect the weaker party.37 However, carriers might claim that due to the international nature of the industry, subjecting all carriage contracts to mandatory rules of each passenger’s habitual residence is impractical and may damage the industry. Since the service of the same standard is provided to all consumers on board and cannot be specifically tailored to meet the requirements of different consumers resident in different countries, it is important to apply the same law to all passenger contracts 35 Case C-204/08 Rehder v Air Baltic [2009] ECR I-6073, para 28; Case C-344/04 International Air Transport Association and European Law Fares Airline Association v Department for Transport [2006] ECR I-403. See s C. below. 36 Rome I Regulation, Art 5. 37 Some members of the European Parliament also hold the view that the protective rule should be extended to the contract of carriage. See European Parliament, ‘Amendments 32-85 to the Rome I Regulation (COM(2005)0650-C6-0441/2005-2005/0261(COD), 7.12.2006, PE 382.371v01-00, Amendment 54 by Klaus-Heiner Lehne and Amendment 62 by Jean-Paul Gauzes.

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for certainty and efficiency.38 In terms of jurisdiction, allowing one court to hear all claims arising out of the alleged breach of a package travel contract would save time and cost, benefiting both the parties and the public, but also preventing irreconcilable judgments in related actions.

C. Jurisdiction in Passenger Contracts This section focuses on examining jurisdiction in contracts for the carriage of passengers by air. In the EU, the uniform rules on air carriers’ liability are provided by the Montreal Convention,39 which is ratified and implemented in the Regulation (EC) No 889/2002 amending Council Regulation (EC) No 2027/98 on air carrier liability in the event of accidents.40 The uniform jurisdiction rule is provided in Article 33 of the Montreal Convention. Article 71 of the Brussels I Recast provides that it ‘shall not affect any conventions to which the Member States are parties and which, in relation to particular matters, govern jurisdiction or the recognition or enforcement of judgments’. It is clear that if the disputes fall within the scope of the Montreal Convention, the jurisdiction rules provided in Article 33 of the Montreal Convention should apply instead of the Brussels I Recast. The Montreal Convention covers all disputes arising out of the international carriage of passengers performed by aircraft for reward, where the place of departure and the place of destination are situated in two signatories.41 If it is interpreted broadly, the Brussels I Recast will be largely irrelevant in cross-border contracts in the carriage of passengers by air. However, the scope of the Montreal jurisdiction rules is narrowed by the Court of Justice decision in Rehder v Air Baltic.42 It distinguishes damages arising out of the Montreal Convention and the EU law. The Union compensation is different and independent from remedies covered in the Montreal Convention.43 If the claim is based on the EU Denied Boarding Regulation,44 the Brussels jurisdiction rules shall apply. Based on Rehder, jurisdiction in air passenger contracts is determined by a mixed scheme including both the Montreal Convention and the Brussels I Recast.

38 Comments by 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 carriage in the scope of protection for consumers. D2867/07 SF 2.240, www.marisec.org/submissions.htm, accessed on 19 May 2008. 39 The Convention for the Unification of Certain Rules Relating to International Carriage by Air was agreed at Montreal on 28 May 1999. 40 [2002] OJ L140, 2. 41 Art 1(1) and (2) of the Montreal Convention. 42 Rehder v Air Baltic (n 35). 43 International Air Transport Association (n 35). 44 [2004] OJ L46/1.

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i. Jurisdiction in the Montreal Convention Article 33(1) of the Montreal Convention provides that passengers have the option to sue the carrier either ‘before the court of the domicile of the carrier or of its principal place of business, or where it has a place of business through which the contract has been made or before the court at the place of destination’. Pursuant to this Article, the passenger could select the forum where the carrier has the closest personal connection, where the contract is formed, or where the place of destination is located.45 This rule has taken the consumer’s interest into consideration. In most cases, one of the above countries, especially the place of business where the contract is made or the place of destination, may coincide with the consumer’s habitual residence or domicile.46 It also tries to balance the conflict of interests as all the optional fora are reasonably predictable by the carrier. Furthermore, an additional jurisdiction ground is provided in cases of death or injury of the passenger. The permanent residence of the passenger shall have jurisdiction if the carrier operates services to or from that country.47 This is called the ‘fifth jurisdiction’ which is inserted to protect passengers with high mobility, ie passengers who travel between two foreign states, in case of death or personal injury.48 More importantly, the Montreal Convention prevents the parties from inserting exclusive jurisdiction clauses to derogate from jurisdiction provided by Article 33. Article 49 provides: Any clause contained in the contract of carriage and all special agreements entered into before the damage occurred by which the parties purport to infringe the rules laid down by this Convention, whether by deciding the law to be applied, or by altering the rules as to jurisdiction, shall be null and void.

This provision is useful in the passenger contract, which is a standard form contract drafted unilaterally by the carrier. The passenger has no opportunity to negotiate or bargain on the terms. This situation is worse in e-commerce where the consumer has less incentive to read electronic terms on a computer or bargain at a distance. This provision acts in the same manner as the protective jurisdiction rules in the Brussels I Recast to restrict party autonomy in consumer contracts. The jurisdiction rules in the Montreal Convention are similar to the protective jurisdiction rules in the Brussels I Recast in that both limit the effect of party autonomy, both give consumers the option to choose between difference courts, and both attempt to include consumers’ home country as one of the options. 45

Art 33(1). Pablo Mendes De Leon, Werner Eyskens, ‘The Montreal Convention: Analysis of Some Aspects of the Attempted Modernization and Consolidation of the Warsaw System’ (2001) 66 Journal of Air Law and Commerce 1155, 1164. 47 Art 33(2). 48 B Banino, ‘Recent Developments in Air Carrier Liability under the Montreal Convention’ (2009) 38 SPG Brief 22, 25. eg Stanford v Kuwait Airlines 648 F Supp 657 (SDNY, 1986); Transvalue, Inc v KLM Royal Dutch Airlines 539 F Supp 2d 1366 (SD Fla, 2008); Aikpitanhi v Iberia Airlines of Spain 553 F Supp 2d 872 (ED Mich, 2008). 46

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The Montreal jurisdiction rules are criticised for two reasons. Firstly, Article 33(1) does not take into account of the challenge caused by e-commerce to the conclusion of a contract. In traditional commerce, Article 33(1) usually can provide protection to the passenger purchasing a one-way ticket, who may either have residence in the place of destination or in the place where he purchases the ticket. In e-commerce, the place of business, the place of contracting and the consumer’s domicile may hardly be located in the same country. A consumer may book a one-way flight from his domicile to a foreign destination. When concluding the contract, the consumer is present in his domicile, Country A, but visits and makes the purchase through the website hosted in a server in Country B, belonging to a business in Country C. It is firstly questionable whether the website or server can be deemed to be a place of business. The second uncertainty is where the contract has been concluded.49 It is unlikely that the law would treat the place where the website is accessible as the place of business. A passenger, in this case, is not entitled to sue in his domicile. Secondly, the fifth jurisdiction applies only to death or personal injury. It may lead to a split of jurisdiction where the mobile passenger suffers both damage to his luggage and personal injury. The passenger may wish to sue in his permanent residence for both damages but realise this jurisdiction cannot extend to damages relating to property.50 It leads to the split of actions and causes extra costs.

ii. Jurisdiction in the Brussels I Recast If passengers bring actions to claim remedies pursuant to one of the EU Regulations, the Montreal Convention is irrelevant and the ordinary jurisdiction rules in the Brussels I Recast apply. In Rehder v Air Baltic,51 a German passenger concluded a carriage of passengers by air contract with Air Baltic, the registration office of which is in Latvia. The contract provided transport from Munich to Vilnius but the flight was cancelled which caused a six-hour delay for the passenger after rerouting. The passenger claimed compensation for ‘inconvenience’ pursuant to the Denied Boarding Regulation.52 The Court of Justice applied the Brussels I Regulation (current Brussels I Recast) to this claim. The consumer protective jurisdiction in the Brussels I Recast excludes passengers from its scope. Jurisdiction in passenger contracts is decided by the ordinary jurisdiction rules under Article 7(1) of the Brussels I Recast. Article 7(1)(b) provides that a dispute on the contract for the provision of services may be heard in the Member State where the service is provided or should have been provided. The services provided by the airline includes providing competent crew, providing engineering to prepare the aircraft, checking-in passengers, providing services on 49

See Ch 3, s II. below. SZ Tang, ‘Aviation Jurisdiction and Protection of Passengers’ (2011/2) European Journal of Consumer Law 333, 338–42. 51 Rehder v Air Baltic (n 35). 52 Arts 5(1)(c) and 7(1)(a). 50

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board, and transporting passengers and their luggage according to the agreed time and condition to the place of destination. The relevant places include the place where the head office of the airline is located, the place of departure, the place of transit, and the place of destination.53 The CJEU decided that the services were provided in both the place of departure and the place of destination.54 Where more than one country is competent, the principal place of performance should have jurisdiction to hear the whole claim.55 If the principal place cannot be determined, the claimant is entitled to bring the claim in any place of performance of his choice.56 In carriage by air, services provided in the place of departure and place of destination are indivisible. It is hard to argue whether departure or arrival is more important. The Court of Justice, as a result, decided that the passenger can choose to sue either in the place of departure or in the place of destination.57 The decision is justified by proximity and predictability. Both the place of departure and the place of destination have close connections with the performance of the contract and both are reasonably predictable by the passenger and the airline.58 This decision has been criticised for broadening the scope of Article 5(1)(b) of the Brussels I Regulation (Article 7(1)(b) of the Brussels I Recast) and departing from the principle to interpret special jurisdiction rules restrictively and to protect the defendant’s right to be sued in their home state.59 However, no matter how restrictively one intends to interpret this Article, while a contract concerns continuing, indivisible services provided continuously from one country to another, requiring the court to select one place as the ‘principal’ place is arbitral. There is no other way than accepting that both places are the competent ‘place of performance’ and allowing the claimant the freedom to choose. The Court of Justice did not mention the policy to protect air passengers in the decision. Passenger or consumer protection is not an aim of this decision, but a delightful result. The place of departure or destination usually coincides with the domicile of the passenger. In order words, this interpretation has the effect to enable the passenger to sue the airline in the passenger’s domicile. Although carriage contracts are excluded from the protective jurisdiction, many air passengers are protected in a similar way. To passengers, the protection resulting from the Rehder decision is laudable from the perspective of not only jurisdiction but also applicable law. The Denied Boarding Regulation applies to passengers departing from the territory of a Member State, or departing from an airport located in a third country to the territory 53

Rehder v Air Baltic (n 35), para 39–42. Ibid, para 41–4. 55 Case C-386/05 Color Drack v Lexx [2007] ECR I-3699, para 40. 56 Ibid, para 42. 57 Rehder v Air Baltic (n 35), para 43. 58 Ibid, para 44. For more discussion, see Tang, ‘Aviation Jurisdiction’, 351–4. 59 M George and J Harris, ‘Rehder v Air Baltic Corp (C-204/08): Service Contracts, Carriage by Air and the Brussels I Regulation’ (2010) 126 Law Quarterly Review 30, 34–5. 54

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of a Member State if the operating carrier is a Community carrier.60 Suppose an EU passenger flies from one of the Member States to a third country and he has no right to sue the carrier in the place of departure, even if the third country’s court takes jurisdiction it may not apply the Denied Boarding Regulation to this dispute.61 However, one needs to recognise the obvious limitation of the Rehder decision. Firstly, it only applies in the absence of party autonomy. A valid choice of court agreement in a carriage contract could efficiently exclude the application of Article 7(1) of the Brussels I Recast and subject both parties to the chosen court. Most airlines include an exclusive jurisdiction clause in their standard terms and conditions. Secondly, it does not prevent an airline from suing passengers in a country other than the passengers’ domicile. Thirdly, it does not provide any protection to passengers with high mobility, ie passengers travelling between countries outside of their domicile. Although it is arguable that in such contracts, passengers’ domicile has no proximity with the performance of the contract, this country usually is made known to airlines and becomes predictable because airlines require the personal data of passengers before booking. A counter argument is that airlines will not usually ask for passengers’ domicile but their nationality evidenced by passports, which may or may not be the country where the passenger has his domicile. In practice, providing proper jurisdictional protection to air passengers is important. On one hand, air passengers may have more incentive to pursue redress in courts than ordinary consumers. In ordinary contracts, small contract value, high litigation cost, time and inconvenience make litigation unreasonable. In claims under the Denied Boarding Regulation, the compensation is a fixed sum of EUR 250 for all flights of 1500 kilometres or less, EUR 400 for all intra-Community flights of more than 1500 kilometres and for all other flights between 1500 and 3500 kilometres, and EUR 600 for all other long-haul flights.62 The compensation is no-fault based and is very easy to prove by the passenger. With the small claim procedure in place, many passengers are willing to bring actions in courts in cases of denied boarding, cancellation and long-delay if carriers refuse to meet their Regulation obligation.63 However, if passengers cannot sue in their domicile

60

Denied Boarding Regulation, Art 3(1). The Denied Boarding Regulation should be classified as ‘mandatory rules’, but a third country may not be obliged to the EU law including its mandatory rules. 62 Denied Boarding Regulation, Art 7(1). 63 See, eg Case C-402/07 Sturgeon v Condor Flugdienst GmbH [2009] ECR I-10923; Vergara v Ryanair 2014 SLT (Sh Ct) 119; Dawson v Thomson Airways [2014] 1 All ER (Comm) 193; Jet2.com v Huzar [2014] 2 All ER (Comm) 914; Case C-509/11 OBB-Personenverkehr AG v Schienen-Control Kommission [2014] CEC 787; Case C-11/11 Air France v Folkerts [2013] All ER (EC) 1133; Case C-12/11 McDonagh v Raynair [2013] 2 All ER (Comm) 735; Case C-139/11 Cuadrench More v Koninklijke Luchtvaart Maatschappij NV [2013] 2 All ER (Comm) 1152; Case C-581/10 Nelson v Deutsche Lufthansa AG [2013] All ER (EC) 603; Case C-22/11 Finnair Oyj v Lassooy [2013] 1 CMLR 18; Case C-321/11 Rodriguez Cachafeiro v Iberia [2013] 1 CMLR 19; Graham v Thomas Cook Group UK Ltd, [2012] EWCA Civ 1355; Case C-83/10 Sousa Rodriguez v Air France SA [2011] ECR I-9469; Case C-294/10 Eglitis v Latvijas Republikas Ekonomikas Ministrija [2011] 3 CMLR 16. 61

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in the absence of an easy-to-access jurisdiction scheme, all the convenience and protection provided by the Denied Boarding Regulation are lost. It is clearly contrary to the EU policy of ensuring ‘a high level of protection to passengers’ and protection to consumers in general.64

D. Choice of Law in Carriage Contracts The Rome I Regulation also excludes contracts of carriage other than package travel contracts from the scope of protective choice of law.65 The Rome I Regulation separates carriage contracts into contracts for the carriage of goods and contracts for the carriage of passengers. The ordinary choice of law rules apply to the former. As to the contract for the carriage of passengers, special choice of law rules are provided,66 which has been justified by recital 32 of the Regulation: Owing to the particular nature of contracts of carriage and insurance contracts, specific provisions should ensure an adequate level of protection of passengers … 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, which simply subject consumer carriage contracts to ordinary choice of law rules. The special arrangement in Article 5 intends to achieve a compromise between consumer associations and the transport industry.67 Choice of law rules in Article 5 can be accepted by carriers because they are less radical than Article 6 in affecting the functioning of the carriage industry. They also pay special consideration to protecting passengers, most of them consumers.68

i. The Limited Choice Approach If a contract for the carriage of passengers contains a choice of law agreement, Article 5(2) adopts the limited choice approach which permits party autonomy in principle, but limits the scope of laws which could be chosen.69 The contractual parties can only choose between the law of the country where the passenger has

64

Denied Boarding Regulation, recital 1. Art 6(4)(b) excludes ‘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’. 66 Art 5(2). 67 For opinion on the transport industry, see n 38. 68 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. 69 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. 65

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habitual residence, the law of the country where the carrier has habitual residence, the law in the carrier’s place of central administration, the law in the place of departure and the law in the place of destination.70 The limited choice approach aims to achieve a balance between passenger protection and business certainty. 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 closely connected to the contract and predictable by both parties in most circumstances. However, one may wonder how effective this provision could be. It is practically impossible that an electronic carriage contract will choose the passenger’s habitual residence. Firstly, this place is not apparent to the carrier as other optional countries. This place may not be the same as the place of departure or the place of arrival. Most carriers do not ask the passenger for their habitual residence before entering into the contract.71 Secondly, online carriage contracts are all standard form contracts. The choice of law agreement will be a standard clause included in all contracts. Furthermore, a standard choice of law clause may be designed and used by the same carrier for all carriage services provided worldwide. Selecting either the place of departure or the place of destination is not efficient. Most carriers will choose the law of its habitual residence or its central administration. This is the common practice in the industry and the introduction of the special choice of law rules for the carriage of passengers contracts would make no difference. The limited choice will not bring much protection to passengers in practice. Air industry, however, responds slowly to the change of law. The Rome I Regulation entered into force from 17 December 2009, but some airlines still fail to update their standard terms online. For example, British Airways provides that: Your contract is governed exclusively by English law. If you are a resident of Australia and your travel arrangements commence from Australia, your contract is governed in all aspects by the law of the State of New South Wales (Australia) … If you are a resident of Canada and your travel arrangements commence from Canada, or a resident of the USA and your travel arrangements commence from the USA, your contract is governed in all aspects by the substantive laws of the State of New York (USA) … If you are a resident of Germany and your travel arrangements commence from Germany, your contract is governed in all aspects by German law.72

70

Arts 5(2)(a)–(e). No requirement for information other than passenger’s name and date of birth is required to book flights on the website of most airlines, such as British Airways, Air France, KLM, Lufthansa, Singapore Airline, Air China, Delta and Etihad Airways. A few airlines, however, do require passengers to provide information about their residence, such as American Airlines, or passport information, such as United Airlines. The research was done on 9 July 2014 by accessing these airlines’ websites. 72 British Airways, www.britishairways.com/travel/dptermsconditions/public/en_gb, Art 2, accessed on 9 July 2014. 71

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This provision is drafted pursuant to the old Rome Convention.73 Not all the choices are compatible with the requirement of Article 5 of the Rome I Regulation.

ii. Contracts in the Absence of Choice For contracts in the absence of choice, the law applicable would be determined by two rules. Rule 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; Rule 2: otherwise, the law of the country where the carrier has habitual residence would apply.74 The first rule aims to satisfy the requirement of passenger protection and protect the carrier’s reasonable expectation. Both the place of departure and the place of destination are known to the carrier at the time of contracting. If either of these places coincides with the consumer’s habitual residence, applying the law of the passenger’s habitual residence would not be an unfair surprise to the carrier. However, uncertainty exists in practice due to the fact that the consumer’s habitual residence usually is unknown to the carrier. The second rule applies to a ‘mobile’ passenger who travels between two foreign countries, neither of which has substantive personal connections with him. Applying the law of the consumer’s habitual residence is inappropriate, which is unpredictable to the carrier. In such circumstances, the law of the carrier’s habitual residence shall apply, which may be reasonably predictable by both parties. This approach cannot serve the specific purpose to protect passengers. However, there may not be a better alternative available. Neither the place of departure nor the place of destination is more appealing to consumers. The main problem of Article 5(1) is that it is unpredictable whether Rule 1 or Rule 2 should apply. In practice, the carrier does not know whether the consumer is travelling to or from his habitual residence or not, which may result in the wrongful prediction of the applicable law. With the popularity of booking transport online, more and more transport is 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 might, in most cases, presume the place where the consumer is located when booking the ticket is the consumer’s habitual residence. 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(1), the law of country A should apply to the first contract and the law of the carrier’s habitual residence should apply to the second.

73 74

Art 2.1.5; British Airways Terms and Conditions. Art 5(1).

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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. Due to the complexity and uncertainty of the default applicable law, most airlines will insert a choice of law clause to provide certainty and to reduce the risk.75

III. Contracts Relating to Immovable Property A. Contracts Relating to Right In Rem A contract relating to a right in rem in, or a tenancy of, immovable property, has been excluded from the scope of protection. Although the Brussels I Recast does not expressly exclude such contracts from protective jurisdiction, a conclusion can be safely drawn by analysing the hierarchic structure and the objective of the Regulation.76 Article 24 provides that any proceedings which have as their object rights in rem in, or tenancies of, immovable property should be heard exclusively in the Member State where the property is situated. The exclusive jurisdiction has priority over the protective jurisdiction. It is naturally concluded that consumers in these contracts cannot rely on the protective jurisdiction. Courts of the locus rei sitae are the most appropriate to ascertain the fact, to apply the lex situs as the governing law and the customary practice concerning transfer of immovables, and to assist the requirement of land registration.77 The exclusion is expressly provided in the Rome I Regulation.78 Article 6(4)(c) excludes from the scope of protection a contract relating to a right in rem in immovable property or a tenancy of immovable property other than a contract relating to the right to use immovable properties on a timeshare basis within the meaning of Directive 94/47/EC. 75 Most airlines have inserted a standard choice of law clause choosing the carrier’s habitual residence/central administration, such as easyjet (choosing English law), www.easyjet.com/en/termsand-conditions; Ryanair (choosing Irish law), www.ryanair.com/en/terms-and-conditions/article2/; Brussels Airline (choosing Belgian law), www.brusselsairlines.com/com/misc/conditions.aspx. Some airlines do not include a choice of law clause, such as Air France, see the general conditions for carriage at www.airfrance.co.uk/GB/en/common/transverse/footer/edito_cgt1_airfrance.htm. All accessed on 22 March 2015. 76 J Hill, Cross-Border Consumer Contracts (n 34) 107–13. 77 Case C-73/04 Klein v Rhodos Management Ltd [2005] ECR I-8667, para 16; P Jenard, ‘Report on the Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters’ (Jenard Report) [1979] OJ C59/35. 78 Art 6(4)(c).

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There is no e-commerce-specific issue arising out of the 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.79 The lex situs has priority over all other applicable law, including the law of the consumer’s habitual residence.80 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 this law could meet both parties’ expectation.81 However, it is necessary to note that a contract for the transfer of immovable property is not automatically excluded from the protective conflict of laws, as far as the subject matter is contractual rights and obligations instead of right in rem.82 Private buyers of real property located in another country are nevertheless protected, if the seller is a company and the seller has targeted the consumers’ home market. It is not rare for a buying agent to advertise online to assist potential buyers in buying foreign property. The ordinary ‘pursue … in’ and ‘direct … to’ test shall be applied to hold the seller subject to the protective conflict of laws on the pure contractual disputes.83 The exclusion also does not cover a loan contract with the purpose of funding the purchase of an immovable property.84 Consumers in the loan agreement may be entitled to enjoy the protection provided by the protective jurisdiction and choice of law.

B. Short-Term Tenancy Different rules, however, apply to short-term tenancies. Short-term tenancies are defined as tenancies concluded for temporary private use for a maximum period of six consecutive months.85 If the parties are domiciled in the same country and the tenant is a natural person, the court of their common domicile shall have jurisdiction,86 and the law of the common habitual residence should apply.87 This provision is relevant if a consumer and his local real property company entered

79 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, 26, s 3.2.6.1. 80 Art 4(1)(c) of the Rome I Regulation: ‘a contract relating to a right in rem in immovable property or to a tenancy of immovable property shall be governed by the law of the country where the property is situated’. 81 Art 4(1)(d). 82 Hill (n 34) 106. Case C-518/99 Gaillard v Chekili [2001] ECR I-2771. 83 Art 17(1)(c) of the Brussels I Recast; Art 6(1) of the Rome I Regulation. 84 eg French case, Rousseau v Commerzbank, Tribunal d’Instance de Niort, 1 July 1998. 85 Art 24(1), Brussels I Recast; Art 4(1)(d), Rome I Regulation. 86 Art 24(1), Brussels I Recast. 87 Art 4(1)(c), Brussels I Recast.

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into a short-term tenancy contract to rent a property located in another country. If disputes arise concerning the tenancy, it is presumed that the country that has the closest connection to the dispute is the common domicile/habitual residence of both parties, instead of the place where the property is located. Although no additional difficulties may be caused by the applicable law, this rule may cause difficulty in jurisdiction. If the dispute is on the condition of the property, it is more costly to access evidence and witness.

C. Timeshare Contracts i. Jurisdiction The timeshare contract is defined in the Timeshare Directive as a contract for a duration of more than one year under which a consumer, for consideration, acquires the right to use one or more overnight accommodation for more than one period of occupation.88 It is questionable whether the timeshare contract can be classified as a contract, the object of which is right in rem in, or tenancies of, immovable property. No consistent definition is provided in the national law of Member States.89 Timeshare is classified as a right in rem in Italy, Spain and Portugal, a right of tenancy in Greece, and personal rights in France.90 The 1994 version of the Timeshare Directive clearly stated that since the legal nature of such arrangements varies significantly in domestic laws, it is impossible to harmonise the characterisation.91 Its successor, the Timeshare Directive 2008, does not include the similar statement in its preamble, but there is no evidence demonstrating that EU legislators have changed their position. It continues to be silent on the legal nature of such arrangements and it is likely that the nature of each timeshare contract shall be examined on a case-by-case basis.92 In Klein v Rhodos Management Ltd,93 the German residents concluded a timeshare contract with a company in the Isle of Man to use a hotel complex in Greece. After the dispute arose concerning the performance of the contract, the consumers pursued remedies in their domicile. The question is whether the timeshare agreement concerns the right in rem in, or tenancies of, immovable property, and should be subject to the exclusive jurisdiction of Greece. Advocate General (AG) 88 Directive 2008/122/EC of 14 January 2009 on the protection of consumers in respect of certain aspects of timeshare, long-term holiday product, resale and exchange contracts [2009] OJ L33/10, Art 2(1)(a). 89 Timeshare arrangement is regulated by the law of obligations, company law or property law in different Member States. See Klein v Rhodos (n 77), Advocate General (AG) Opinion, para 20. 90 European Commission, ‘Consultation Paper: Review of the Timeshare Directive (94/47/EC)’, 9. 91 Directive 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 L280/83, preamble 3. 92 Klein v Rhodos (n 77) AG Opinion, para 22–3. 93 Klein v Rhodos (n 77).

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Geelfoed provides three grounds to determine the nature of a timeshare contract for the purpose of determining jurisdiction. One needs to consider, firstly, the substance, instead of the form, of the agreement,94 secondly, whether the principal object amounts to tenancy of immovable property,95 and thirdly, whether the agreement displays the principal characteristics of a tenancy of immovable property.96 Some arrangements take the form of becoming a member of a holiday club. This may not exclude the contract from being classified as a tenancy contract, if the principal object of the contract is to allow the purchaser to possess and use the property, and to provide maintenance, rent payment and utility obligations of the parties.97 Applying these standards, AG Geelfoed concluded that the holiday membership contract which enables the claimant to occupy an unspecified apartment in a hotel complex for a period each year is a contract concerning tenancy of immovable property.98 The Court of Justice, on the other hand, decided differently. It observed that within the total price paid, around 80 per cent is the membership fee charged. Only 20 per cent is the fee paid to occupy and use the immovable property.99 It is concluded that the value of the tenancy right is ‘of only secondary economic importance’.100 Furthermore, the apartment was not identified and the vendor was entitled to assign a different apartment of the specified type to the purchaser every year.101 In addition, the contract also allowed the purchaser to exchange apartments.102 The Court concluded that the membership contract and the immovable property are not sufficiently closely connected to classify the arrangement as tenancy of immovable property.103 The right in rem in, or tenancy of, immovable property is interpreted restrictively indeed. The question is that whether the Court of Justice correctly concluded the value of the right of possessing an apartment is ‘secondary’ by comparing the apparent ‘rent’ and the ‘membership fee’. If the membership fee is not associated with other services, such as transportation and dining, but only allows the member to receive discounted rent, it is reasonable to conclude that the membership fee constitutes the initial rent for the unspecified property. Furthermore, although the property is not specified when the contract is concluded and the consumer may use different property each year, the property used in each stay is specified upon entry and will last during the whole period. Unless the law excludes short-term rent from tenancy contracts, there is not enough reason to exclude such arrangements from tenancy agreements.

94 95 96 97 98 99 100 101 102 103

Ibid, AG Opinion, para 25. Ibid, para 26. Ibid, para 28. Ibid, para 28. Ibid, para 30. Ibid, para 18. Ibid, para 20. Ibid, para 24. Ibid, para 25. Ibid, para 26.

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Exclusive jurisdiction is construed restrictively based on not only the legal nature of the arrangement, but also the dispute concerned. If the timeshare arrangement is classified as a contract concerning rights in tenancy of immovable property, the exclusive jurisdiction may not be relevant if the dispute is on the formation or validity of the contract or the financing of the contract. As a result, the creditor’s personal claim against the debtor upon the transaction of immovable property under security is not a dispute concerning rights in rem;104 the claim on the loss of enjoyment relating to the unsatisfactory condition of the property is not a claim concerning the right in rem;105 the insurance covering the cost at the time of cancellation of a tenancy contract is not covered by the dispute concerning tenancy of immovable property;106 the claim for the nullity of a tenancy contract is not subject to the exclusive jurisdiction.107 In Jarrett v Barclays Bank Plc,108 the consumer bought a timeshare property in Portugal or Spain, financed by the banks in England. The claimants later claimed that they were induced into the contract by seller misrepresentation and commenced actions against the banks pursuant to debtor-creditor-supplier agreements pursuant to s 56(2) and 75 of the Consumer Credit Act 1974. The banks argued that English courts had no jurisdiction because the contracts concerned the tenancy of immovable property and should be subject to the exclusive jurisdiction of the situs. The Court of Appeal, once again, confirmed the right in rem in, or tenancies of, immovable property should be interpreted restrictively. Timeshare contracts entitled the claimants the exclusive control of immovable property for a specified duration they were tenancies. If the action is against the vendors, it falls within the exclusive jurisdiction.109 However, if the action is against the banks that financed the purchase under debtor-creditorsupplier agreements, the object of the action does not concern the tenancies of immovable property and protective conflict of laws should apply.110

ii. Choice of Law The Rome I Regulation specifically exempts timeshare contracts from the immovable property exclusion, which means the protective choice of law in Article 6 continues to apply to timeshare contracts.111 Timeshare contracts give rise to substantial financial commitments from consumers and likely to generate more litigation than other small value consumer contracts.112 The EU pays special

104

Case C-115/88 Reichert v Dresdner Bank [1990] ECR I-27. Case 241/83 Rosler v Rottwinkel [1985] ECR 99, para 29. 106 Case C-8/98 Dansommer v Gotz [2000] ECR I-393. 107 Klein v Rhodos (n 77) AG Opinion, para 39. 108 Jarrett v Barclays Bank Plc [1999] QB 1. 109 Ibid, 14. 110 Cf Lynch v Halifax Building Society and Royal Bank of Scotland Plc [1995] CCLR 42. 111 Art 6(4)(c) of the Rome I Regulation. See 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. 112 European Commission, ‘Consultation Paper’, 11; Hill (n 34) 113. 105

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consideration to protect 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 a consumer would still expect the protection afforded to him in a cross-border timeshare agreement to be the same as that in his habitual residence.113 To include timeshare contracts in the protective scheme of the Rome I Regulation is consistent with the EU policy.

IV. Contracts in the Financial Context A. Contracts Relating to Financial Products Contracts relating to financial products are included in the protective jurisdiction but not choice of law. Excluding contracts in the financial context is new and it is introduced due to the enlarged scope of the Rome I Regulation.114 This type of contract mainly includes contracts relating to financial instruments or related financial products, and contracts concluded in a multilateral system. 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:115 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.

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 barely known to the issuer or offeror. Applying multiple laws depending on the habitual residence of investors to the financial product issuer would inevitably prevent cross-border retail and 113

European Commission, ‘Consultation Paper’, 13. There are no e-commerce-specific issues here. 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. 115 Recital 28. See also Services of the Commission. 114

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online trade of financial products,116 or create irresolvable barriers to the financial market. 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 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.117 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.118 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 accounts 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.119 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.120 The 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

116

Services of the Commission. Recital 29. 118 Recital 26. 119 Sections A and B of Annex I to Directive 2004/39/EC of 21 April 2004 on markets in financial instruments amending Council 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 L145/1. 120 Art 6(4)(d). 117

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participants.’121 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.122

C. Conclusion The exclusions are considered welcome, necessary and adequate by the UK Government,123 because they should ‘adequately address the concerns of the financial sector and avoid any undesirable fragmentation of the applicable law in this important sector.’124 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.

V. Services Contracts The Brussels I Recast does not exclude the provision of services from the scope of protection, as far as the business has targeted the consumer’s domicile, even if the services are provided exclusively outside of the consumer’s domicile the consumer is entitled to sue or be sued in the consumer’s home state.125 These services, however, are excluded from the scope of protection for the purpose of choice of law in the Rome I Regulation.126 The position taken by the Rome I Regulation is strongly supported by service providers, especially hotel and restaurant associations.127 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 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 rules and be consistent to all customers buying services in that country. 121

Services of the Commission, 2. Recital 31 of the Regulation provides that: Nothing in this Regulation should prejudice the operation of a formal arrangement designated as a system under Art 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. 123 Ministry of Justice, ‘Rome I—Should the UK Opt In?’, Consultation Paper CP05/08 of 2 April 2008. 124 Ibid. 125 Art 17-9 of the Brussels I Recast. 126 Art 6(4)(a) of the Rome I Regulation. 127 eg, see German Hotel and Restaurant Association, ‘“Rom I-Verordnung”: Anwendbarkeit ausländischen Rechtsthe’ www.dehoga-bundesverband.de/home/newspage_1549_mn1.html, accessed on 6 July 2008. 122

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Service providers fear that by applying the protective choice of law, the law of each guest would be applied, which is clearly unrealistic and unfeasible for the industry, and would be a serious barrier to small and-medium sized businesses.

A. Offline Services Some services, such as hotels and restaurants, will not cause many e-commercespecific issues. They are traditional services 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 foreign 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 foreign country and should predict being subject to the law of that country. However, the Giuliano-Lagarde Report justifies the exclusion 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.128 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 closest connection reason, however, could only justify applying the law of the place where the service is provided to govern the performance of the contract, namely the provision of services. 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 the 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, and the policy of cancellation and refund. 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 have known the habitual residence of many consumers. It 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.

B. Online Services More difficulties exist in online services. The first difficulty is the definition of online services. A uniform European definition should be provided to interpret this term. It has been submitted before that the transaction of intangible 128

Giuliano-Lagarde Report, 25.

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specialised ability and the transaction of customised software where labour is predominant would be classified as a supply of services.129 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 the 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.130 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.131 According to the explanation report, the subjective 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.132 It is also not clear why distinct approaches have been adopted for the provision of services and the sale of goods or supply of sui generis products, such as digital contents in intangible forms. What if a business supplies goods or intangible products exclusively in some countries other than the consumer’s home? According to Article 6(1) of the Rome I Regulation, in sale of goods or supply of sui generis products, as far as the business has targeted the consumer’s habitual residence, the protective rule should apply regardless of where the country of destination is. There is, however, no fundamental difference between providing online services and supplying intangible products in terms of parties’ expectation, management of business and the method of performance.

129

Ch 2, s II. above. Giuliano-Lagarde Report, 25. 131 Ibid, 25. 132 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 services within the UK, Isle of Man and Channel Islands, and it may use technology to verify the user’s location to prevent unwanted contracts www.tesco.com/ termsandconditions/termsconditionsDownloads.htm, accessed on 21 May 2008. 130

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It is thus suggested that the 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.

VI. Conclusion The EU conflict of laws in consumer contracts is further complicated by the different treatments to special consumer contracts. It is necessary to provide flexibility in the system. It is also realistic to recognise the different characteristics and requirements in different consumer contracts. However, singling out special consumer contracts may not be sufficient to completely eliminate rigidity. Distinguishing consumer contracts into ordinary contracts and special contracts and applying different conflicts rules increases uncertainty and reduces consumer confidence in practice. It is also difficult to design proper conflicts rules for each specific type of consumer contract. Comparatively, the principle and discretionbased approach may work more effectively and provide simplicity and reasonable results in individual disputes.

8 Recognition and Enforcement of Judgments I. Introduction Recognition and enforcement of judgments is fundamental in cross-border consumer disputes. Individual consumer litigation is rarely brought to enhance public interest, but mainly to obtain remedies for individual loss. The goal of litigation usually constitutes enforcing a monetary judgment. If enforcement of foreign judgments is impossible, difficult, or expensive, bringing an action would lose practical value. There is no special rule designed to enforce foreign consumer judgments. Ordinary recognition and enforcement rules should apply to determine the enforceability of foreign judgments in relation to consumer contracts. However, some countries adopt special procedural rules to simplify the enforcement procedure and to speed up enforcement.

II. Recognition and Enforcement in the EU One important objective of the European Union is to maintain and develop an area of freedom, security and justice in the internal market through mutual recognition and enforcement of judgments in civil and commercial matters.1 The Brussels I regime was originated to facilitate free circulation of judgments within the Community,2 which provides the uniform rules on recognition and enforcement of foreign judgments between Member States. Besides, the EU has also adopted other regulations to reduce the cost and procedural barriers to enforce foreign judgments, including Regulation 805/2004 on the European Enforcement

1 Arts 67(1) and 81 of the Consolidated Version of the Treaty on the Functioning of the European Union [2012] OJ C326/1; recital 1–5 of the Brussels I Recast; D Kornobis-Romanowska, ‘Developments in the Area of Freedom, Security and Justice Brought About by the Constitutional Treaty’ (2005) 06 German Law Journal 1623. 2 Recital 6–7 of the Brussels I Recast.

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Order (EEO),3 and Regulation on the European Order for Payment (EOP).4 The Regulation on European Small Claims Procedure (ESCP) also provides special procedural rules on cross-border enforcement of small claim judgments.5

A. European Enforcement Order EEO allows the easy enforcement of judgments between all Member States except Denmark in the internal market without the need of exequatur.6 It applies only to uncontested claims, where the debtor expressly agreed to the creditor’s claim by admission or settlement approved by courts or concluded in court proceedings, the debtor has not objected to the claim in compliance with relevant procedural requirements, the debtor has not appeared at a court hearing which amounts to a tacit admission of the claim or the fact, or the debtor has expressly agree to the claim in an authentic instrument.7 There is a risk of infringement of the defendant’s right, who fails to defend in courts. Thus, sufficient safeguards are required to protect the right of the defendant,8 which is demonstrated by the minimum standards for the proceedings. Detailed definition and description to the uniform minimum standard is provided to overcome uncertainty that may be caused by the divergence of national procedure rules.9 The minimum standard includes detailed requirements for the time, method, form and content of services10 and provision to the debtor of due information about the claim and procedure to contest.11 A judgment on an uncontested claim that is enforceable in the Member State of origin can be certified as an EEO as far as the court of origin does not take jurisdiction in conflict with insurance jurisdiction and exclusive jurisdiction in the Brussels I Regulation.12 However, where the consumer is the debtor, the judgment must be given in the court of the consumer’s domicile in default for the business creditor.13 In other words, if the defendant debtor is a consumer, the EEO can only be issued if the consumer is sued in his home state. It restricts the application of EEO against consumer defendants. Some consumers may be legitimately sued outside of their domicile under the Brussels I Recast, because the business

3 Regulation (EC) 805/2004 Creating a European Enforcement Order for Uncontested Claims [2004] OJ L143/15. 4 Regulation (EC) 1896/2006 on the European Order for Payment [2006] OJ L399/1. 5 Regulation (EC) 861/2007 Establishing a European Small Claims Procedure [2007] OJ L199/1. 6 Art 5. 7 Art 3. 8 Recital 11: ‘This Regulation seeks to promote the fundamental rights and takes into account the principles recognised in particular by the Charter of Fundamental Rights of the European Union. In particular, it seeks to ensure full respect for the right to a fair trial as recognised in Article 47 of the Charter.’ 9 Recital 13. 10 Arts 13, 14 and 15. 11 Arts 16 and 17. 12 Art 6(1). 13 Art 6(1)(d).

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has not targeted the consumer’s domicile. The EEO cannot be used against consumer debtors in these cases. This is the compromise between different Member States in negotiating the Regulation. Austria and the Netherlands worry that EEOs may harm consumers who may not be able to make an appearance in the foreign proceedings, while the UK believes that the protective jurisdiction could provide sufficient safeguards.14 Once the court of the Member State of origin has checked and certified that the minimum standard is met and all other conditions are satisfied, the EEO is issued which will be automatically enforced in other Member States without judicial review and intermediate procedure. This is justified by mutual trust and the safeguard provided by minimum standards.15

B. European Order for Payment EOP is specifically designed to facilitate cross-border enforcement of uncontested monetary claims through a simple and low cost procedure. The EOP aims to find a proper balance between simplified enforcement procedure and the safeguard of the defendant’s procedural rights.16 EOP is based on the existing experience of Member States that have simplified and accelerated enforcement procedure subject to a number of safeguards.17 EOP applies to cross-border cases where the parties have their domicile or habitual residence in different EU Member States, except Denmark.18 When making the application, the claimant should follow jurisdiction rules under the Brussels I Recast.19 However, if the business wants to apply for a payment order against a consumer, it must make the application in the consumer’s domicile.20 If the conditions to issue an order are met, the court issues an order normally within 30 days.21 The order will be served on the defendant, who has 30 days to lodge a statement of opposition.22 The order becomes enforceable unless the defendant objects the order in the court of origin.23 The order, once it becomes enforceable, can be recognised and enforced in other EU Member States without the need of any exequatur procedure and without any possibility of refusal.24 14 ‘Letter from Lord Filkin to the Chairman’, 3 November 2003, the Parliament UK, European Enforcement Order for Uncontested Claims (10630/03), www.publications.parliament.uk/pa/ ld200304/ldselect/ldeucom/71/71we131.htm, accessed on 7 January 2015. 15 Recital 18. See E D’Alessandro, ‘Choosing Among the Three Regulations Creating a European Enforcement Order’ (2010) International Lis 39, 41. 16 Advocate General Opinion in Case C-618/10 Banco Espanol de Credito SA v Joaquin Calderon Camino [2012] (unreported in ECR), para 25. 17 Ibid, para 25. For more on EOP, see D’Alessandro, ‘Choosing Among’, 43ff. 18 Art 3. 19 Art 6(1). 20 Art 6(2). 21 Art 12. 22 Arts 13, 14. 23 Art 18. 24 Art 19.

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In consumer contracts, uncontested claims are usually businesses’ claim for non-payment. If, for example, the consumer sent a cheque, which is dishonoured due to the lack of funds in the consumer’s bank account, the business could apply for EOP. In e-commerce, most businesses may require payment made in advance before any products are delivered. This may reduce the risk of non-payment. Nonpayment, however, may still exist in an online auction site. There may be terms stating that the successful bidder should clear the payment within three or seven days, otherwise he may be liable for a fixed damage. If the successful bidder refuses to pay and rescinds the contract, the business may be able to apply EOP for the damage. However, since the EOP can only be issued in the consumer’s domicile, cross-border enforcement will not exist against consumer debtors in practice.25 A consumer may also rely on EOP against a business. This is less likely in a sales or services contract, because the consumer’s claim on non-conformity or unsatisfactory quality is hardly uncontested. Furthermore, the only remedy the consumer can receive under the EOP will be reimbursement after termination of the contract.26 EOP procedure is not there for other remedies such as replacing the goods or granting damages.27 Uncontested claims may exist if the consumer and the business have entered into settlement where the business has agreed to pay an amount of compensation. The consumer could apply for a payment order based on the settlement agreement, which is hardly contestable. In practice, however, once a settlement is reached, the business usually will voluntarily enforce the settlement and the chance to apply for EOP is small. EOP procedure can be conducted electronically, where both the application and the opposition may be made by submitting electronic forms.28 The forms can also be signed electronically.29 Furthermore, electronic signatures may even be exempted if there is an alternative electronic communications system in the country of origin that is available to a certain group of pre-registered authenticated users and permits the identification of those users in a secured manner.30 If the court of a Member State has established an online system, which requires the user to register in advance and adopted methods to verify the user’s identity, the user can use this system to make application and opposition online. This further simplifies the application procedure for the EOP.

C. European Small Claims Procedure ESCP primarily provides simplified litigation procedure for cross-border small claims, but it also provides easy enforcement of small claim judgments in the

25

J Hill, Cross-Border Consumer Contracts (Oxford, Oxford University Press, 2008) para 6.31. Lithuanian Consumer Institute, ‘Consumers’ Cross-Border Dispute Resolution’, 2011, file:///C:/ Users/royandsophia/Downloads/Tyrimas_Final_EN.pdf, 17, accessed on 7 January 2015. 27 Ibid, 18. 28 Arts 7(5) and 16(4). 29 Arts 7(6) and 16(4). 30 Ibid. 26

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internal market.31 ESCP allows judgments given in the ESCP scheme to be recognised and enforced in other Member States without the need for declaration of enforceability and without the possibility of opposition.32 A minimum standard for the review is provided to protect defendants in judgments made in default.33 Enforcement will be refused if the judgment is irreconcilable with an earlier judgment given in the Member State addressed or in another Member State qualified for recognition in the enforcement Member State.34 ESCP applies to cross-border claims but it does not provide jurisdiction rules. Jurisdiction rules in the Brussels I Recast thus should be followed. It is questionable whether the ground for refusal to enforce judgments in the Brussels I Recast is completely irrelevant to challenge enforcement of judgments made in ESCP, especially since the Brussels I Recast allows the enforcement against a consumer to be refused if the court of origin takes jurisdiction in breach of the protective jurisdiction.35 ESCP is clearly silent on this issue, which causes discrepancy between different legal instruments.

D. Recognition and Enforcement Under the Brussels I Recast The Brussels I Recast requires automatic recognition of judgments given in a Member State without any special procedure,36 and a judgment that is enforceable in the country of origin shall be enforceable in other Member States without any declaration of enforceability being required.37 Compared to the precedent, one major improvement of the Brussels I Recast is the abolishment of exequatur,38 which aims to make enforcement of foreign judgments speedier and cheaper. Reduction of cost and time is welcome in consumer claims, where the value is low, expenses in enforcement in addition to the litigation cost would be another reason making litigation an unfavourable choice in resolving this type of claim. The abolishment of exequatur, however, raises concerns on the safeguard of the interest of the enforcement courts and the respondent. Safeguards are provided to allow refusal of enforcement in certain circumstances.

i. Abolishing Exequatur Exequatur is the procedure for the enforcement court to declare or order the foreign judgment enforceable.39 Under the Brussels I Recast, judgments shall be 31 Art 1. D’Alessandro (n 15) 44–5. Small claims concern values below EUR 2000. See more discussion in Ch 11, s V. below. 32 Art 20; recital 30. 33 Recital 31. 34 Art 22(1). 35 Art 45(1)(e). See s D. below. 36 Art 36(1). 37 Art 39. 38 Art 48(1) of the Brussels I Regulation provides that the enforcement court should have the procedure to declare judgments enforceable. For more on the abolishment of exequatur, see s D. i. below. 39 P Rogerson, Collier’s Conflict of Laws, 4th edn (Cambridge, Cambridge University Press, 2013) 235.

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enforceable between Member States without any declaration of enforceability being required.40 The applicant shall only provide an authentic copy of the judgment or a certificate issued in the form prescribed, which is enough for the court to enforce the judgment given in another Member State.41 The European Commission in its Recast Proposal suggests that exequatur creates an unnecessary barrier to the free circulation of judgments in the internal market. It creates additional time and cost for the judgment creditors.42 And in practice, the declaration of enforceability under the Brussels I Regime is almost always ordered, making the exequatur procedure redundant and unnecessary.43 Abolishment of exequatur is not new. It has been adopted, before the Recast Regulation, in EEO, EOP and ESCP, and in the Maintenance Regulation where a special review procedure is provided to protect the right of the defendants.44 Reduced procedural costs are always welcome in consumer disputes, where the value of claims is low. The cost for exequatur includes the cost of initiating judicial proceedings and recruiting a lawyer.45 Even if it is not high, the extra cost at the enforcement stage undoubtedly causes frustration to the parties, especially the consumer. Furthermore, the judgment debtor may incur costs to defend the declaration of enforceability. Given the low value of the claim, it is doubtful whether both parties wish to incur more costs at the enforcement stage. The judgment debtor may voluntarily enforce the judgment. If not, upon the application of the judgment creditor, the judgment debtor may not contest the enforceability, bearing in mind that the majority of the application is successful and the additional cost for the lawyers versus the value of the judgment may not make it worth fighting. Exequatur serves the purpose for the enforcement court to conduct the final check of the original procedure, to make sure that there is no violation of the defendant’s right to defend in the original forum.46 There is a concern that upon abolishment of exequatur, the fundamental right of the defendant is left unprotected.47 As it has been stated by AG Trstenjak:48 the need for simpler and quicker enforcement has led to many legal orders accepting derogations from the fundamental rules of civil procedure, for instance as regards hearing of 40

Art 39. Art 37. 42 European Commission, ‘Green Paper on the Review of Council Regulation (EC) No 44/2001 on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters’, COM(2009) 175 final, 2. European Commission, ‘Report on the Application of Council Regulation (EC) No 44/2001 on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters’, COM(2009) 174 final, 4, provides that the exequatur procedure in a complete application takes between 7 days to 4 months, and an incomplete application takes longer. 43 European Commission, ‘Green Paper’, 2; European Commission, ‘Report’, 3, provides that between 90 and 100% of applications are successful and only between 1 and 5% of decisions are appealed. 44 Regulation (EC) 4/2009 on maintenance obligations [2009] OJ L7/1. European Commission, ‘Green Paper’, 3. 45 G Cuniberti, ‘Some Remarks on the Efficiency of Exequatur’ University of Luxembourg, Law Working Paper Series, Paper Number 2012-01, available at: http://ssrn.com/abstract=1998030, 569. 46 Ibid, 570. 47 P Beaumont and E Johnston, ‘Can Exequatur be Abolished in Brussels I while Retaining a Public Policy Defence?’ (2010) 6 Journal of Private International Law 249, 253; Cuniberti, ‘Some Remarks’, 570. 48 Opinion of AG Trstenjak delivered on 14 February 2012, Banco Espanol (n 16), para 24. 41

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the parties of the criterion to be applied for the substantiation and proof (plausibility or conclusiveness test) of the claim made.

The data provided by the European Commission suggests only less than one per cent of cases where application for declaration of enforceability was made based on the possible existence of violation of human rights in the original proceedings.49 It is thus questioned whether, from an efficiency perspective, EU citizens should endure extra costs for exequatur procedures in exchange for human rights protection for the less than one per cent of cases.50 This balance, however, cannot be weighed easily. Firstly, the violation of the defendant’s right to defend cannot be assessed simply in terms of money. The loss to the defendant is not the value of judgments in an individual case, but the non-pecuniary right for a fair trial, and the basic social interest of justice. Secondly, the European Commission does not categorise the type of cases where the one per cent of cases fall. Suppose most of them fall in consumer litigation, where consumers are deprived of the rights to be heard, one should only consider how to balance the value of reserving exequatur, the cost of exequatur and the value of judgments in consumer claims, without the necessity to consider efficiency in general. Furthermore, it has also been suggested that in consumer cases, litigation may serve more personal and symbolic purposes beyond simply seeking remedies. Consumers need the chance to be heard in the court and express their suffering, which, in itself, is invaluable.51If consumers are deprived of this right, the loss to consumers is considerably higher than for a business, since the purpose for a business to bring an action is usually financial and less personal.52 Regardless of these concerns, abolishing exequatur in small claims receives great consensus in the EU. Not only the Brussels I Recast, but other EU instruments have reaffirmed the position to abolish exequatur in small claims.53 The legislators pay more attention to the comparative value of the claim and the cost to justify efficiency. The Brussels I Recast does not suggest that enforcement of foreign judgments cannot be contested on any grounds. Abolishment of exequatur is subject to principles superior to the free movement of judgments, which include fundamental rights and public policy.54 The Brussels I Recast provides safeguards to protect the right of the judgment debtor.55

49

European Commission, ‘Report’, 4; Cuniberti (n 45) 570. Ibid, 570. 51 Ibid, 572. 52 Ibid, 572. 53 Such as Regulation (EC) No 2201/2003 concerning jurisdiction and the recognition and enforcement of judgments in matrimonial matters and matters of parental responsibility, repealing Regulation (EC) No 1347/2000 (Brussels II bis) [2003] OJ L338/1; EEO Regulation; EOP Regulation; ESCP Regulation; Regulation No 4/2009 on Jurisdiction, Applicable Law, Recognition and Enforcement of Decisions and cooperation in Matters Relating to Maintenance Obligation [2009] OJ L7/1. 54 Beaumont and Johnston, ‘Can Exequatur’, 253. 55 Arts 45 and 46. 50

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ii. Refusal Grounds Pursuant to Art 45, recognition and enforcement of judgments given in a Member State may be refused if the judgment is manifestly contrary to public policy,56 if the defendant was not properly served and the judgment was given in default of appearance,57 if the judgment is irreconcilable with a judgment given by the Member State or an earlier judgment qualified for recognition in the Member State,58 or a judgment made infringing protective and exclusive jurisdiction.59 This section will only discuss the protective jurisdiction ground and public policy ground, which generate special problems in consumer disputes. a. Infringement of Protective Jurisdiction In consumer contracts, the most relevant refusal ground is based on the contest of jurisdiction. Pursuant to Art 45(1)(e)(i), if the consumer is the defendant and the jurisdiction of a Member State is made in breach of protective jurisdiction, recognition and enforcement may be refused. That means if the defendant is a consumer, and the dispute falls within the scope of protection described in Art 17 of the Brussels I Recast, while the consumer is sued in a court other than the consumer’s domicile, and the court has taken jurisdiction, enforcement of judgment will be denied. This is one of few exceptional grounds based on which the jurisdiction of the original court may be reviewed.60 However, during the review, the enforcement court shall be bound by the finding of fact on which the original court based its jurisdiction.61 If the original court found the business did not target consumers’ domicile, the enforcement court cannot reverse the finding and may have to find that the original court did not take jurisdiction in breach of protective provisions. This may cause additional difficulty for consumers in e-commerce. Although the CJEU has provided some guidance and also ruled in several cases whether an e-business has pursued commercial activities in, or directed such activities to, the consumer’s domicile, domestic practice is far from being consistent.62 Furthermore, due to the complicity of e-transactions and the development of modern communication technology, the form of e-commerce is changing and improving. Deciding whether a business has indeed targeted the consumer’s domicile will largely depend on the court’s discretion. In consumer disputes, the finding of fact is thus crucial for determination of jurisdiction,

56

Art 45(1)(a). Art 45(1)(b). 58 Art 45(1)(c) and (d). 59 Art 45(1)(e). 60 Art 45(3). 61 Art 45(2). 62 B Hess, T Pfeiffer and P Schlosser, ‘Report on the Application of Regulation Brussels I in the Member States’ Study JLS/C4/2005/03, 2007, http://ec.europa.eu/civiljustice/news/docs/study_application_brussels_1_en.pdf, para 340. 57

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which, unfortunately, cannot be reviewed. Furthermore, if a business brings a claim against the consumer in a court out of the consumer’s domicile, there is a big chance that the consumer may not be able to defend in the foreign court due to the financial cost and inconvenience of foreign trial. It is very likely that the original court may rule on jurisdiction without hearing the consumer’s evidence. The consumer’s only chance without incurring high overseas litigation costs is to challenge the judgment in his domicile, where the business may apply for enforcement. However, the chance to win is eliminated due to the impossibility to review the fact finding of the original court when asserting jurisdiction. Prohibiting review of fact finding may be justified by procedural efficiency. Firstly, enforcement is not a re-trial. The opposing party should submit substantive contest in an appeal to the country of origin, instead of taking advantage of the enforcement refusal. Secondly, it prevents the possibility of a party abusing the procedure. If a consumer is properly served, the proper conduct is for the consumer to attend the trial and to submit his defence in the court of origin. If a consumer refuses to make an appearance, he voluntarily gives up the opportunity to submit and should not be allowed the chance to bring new evidence at the enforcement stage. This will lead to a waste of public resources and a waste of both the original court’s and the other party’s time. Thirdly, mutual trust requires Member States to give credit to judgments made by each other, without re-assessing the merit of judgments including fact finding. Procedural efficiency arguments, however, fail to consider the reality of consumer litigation. A consumer fails to contest jurisdiction in a foreign action, not because the consumer has the intention of abusing the procedure, but because the consumer is in real financial difficulty and may find foreign proceedings conducted in a foreign language and following foreign procedure frustrating. Furthermore, realising that individual consumers may hardly contest jurisdiction abroad, businesses may have an incentive to ignore protective jurisdiction rules by bringing claims against consumers in the businesses’ domicile. Without hearing from consumers, the court of the businesses’ domicile may likely take jurisdiction. This would largely reduce the efficiency of protective jurisdiction in Section 4. The jurisdiction challenge is only available for the weaker party to use.63 If the business is a defendant, and the consumer sues it in the consumer’s domicile, the defendant cannot rely on Art 45(1)(e) to challenge the enforcement of judgment. Even if the court of origin simply takes jurisdiction without considering whether the business has targeted the consumer’s domicile, the business cannot challenge enforcement based on the jurisdiction ground and should contest jurisdiction in the original court. Small and medium-sized companies, as a result, may find overseas litigation burdensome. If they do not defend in a foreign court, judgments may be easily enforced against them.

63

Art 45(3).

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b. Public Policy Recognition and enforcement may be refused if it is manifestly contrary to the public policy of the recognition/enforcement country.64 Could the consumer rely on this ground to challenge the jurisdiction of the original court, arguing that the decision was made without hearing the consumer’s submission and the consumer was prevented from arranging for his defence due to the financial barrier? Unfortunately, public policy is not a viable defence. Article 45(3) clearly provides that the public policy test may not be applied to the rules relating to jurisdiction. The public policy defence is frequently invoked but rarely successful.65 Public policy includes substantive and procedural policy. Substantive public policy may be applied if the judgment may cause the fundamental infringement of economic, public and social order and interest of the forum. Generating substantive public policy will inevitably cause concerns on international comity. In the internal market, substantive public policy may be generated in even rarer cases due to the level of harmonisation of EU substantive law and choice of law and the mutual trust between Member States. In consumer contracts, the court should apply the chosen law, as far as the standard of protection is not lower than the mandatory rules of the consumer’s domicile.66 The application of the law of a non-Member State cannot deprive the consumer from the protection provided by EU mandatory rules for a purely EU contract.67 The application of the governing law is also subject to overriding mandatory rules of the forum and maybe a relevant third country.68 If the court has properly applied the Rome I Regulation, the substantive judgment in theory should not infringe public policy of any Member State. It, however, does not mean substantive public policy can never be relied upon by consumers. The court of origin may apply the applicable law in a wrong way. For example, the contract has chosen a non-EU law, and the court of origin applies this law without considering mandatory rules of the consumer’s habitual residence or EU standards. If the business seeks enforcement in the consumer’s domicile, the public policy defence based on the substantive merit of the judgment may be initiated. Compared to substantive policy, procedural policy may have a better chance of success.69 Successful cases usually coincide with infringement of the fundamental rights defence.70 If a consumer is not properly served and has no chance to arrange for his defence, the procedural irregularity in the original procedure infringes public policy.

64 65 66 67 68 69 70

Art 45(1)(a). European Commission, ‘Report’, 4. Art 6(1) and (2) of the Rome I Regulation. Art 3(4) of the Rome I Regulation. Art 9(2) and (3) of the Rome I Regulation. European Commission, ‘Report’, 4. See s III.B.ii; Art 45(1)(b); European Commission, ‘Report’, 4.

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iii. Enforcement Procedure The enforcement procedure is governed by the law of the Member State addressed.71 The applicant shall provide the competent enforcement authority with an authentic copy of the judgment and a certificate duly issued certifying that the judgment is enforceable and an extract of the judgment.72 The competent enforcement authority may require a translation of the contents of the certificate.73 This may create extra cost and delay which may be unreasonable in small value claims. The Brussels I Recast provides that such a translation is only required if the competent enforcement authority cannot proceed without translation.74 It is completely discretionary and uncertain whether the enforcement authority could proceed or not. The application for refusal shall be submitted to the court of the Member State addressed, subject to the procedure law of this country.75 The decision on the application may be appealed against by either party.76 One difficulty is that the Brussels I Recast cannot harmonise national procedure rules. Since the applications for enforcement and for refusal are both based on the national law of the Member State addressed, the limitation period and the time for appeal differ between country to country. Furthermore, the EU abolished exequatur in order to save costs and make enforcement speedier and cheaper. However, the procedure still allows the involvement of judicial intervention by allowing the defendant to apply for refusal in courts, and the court decision is subject to appeal. The difference is in the original procedure where exequatur exists, the cost incurs as far as the judgment creditor applies for declaration of enforceability, even if the defendant does not intend to challenge enforcement. In the current procedure, the cost only arises if the defendant decides to apply for a refusal. In consumer judgments, defendants’ incentive to apply for refusal depends on (1) whether the defendant has a strong ground for refusal; (2) whether the judgment value is larger than the application cost, making application reasonable. If the judgment value is low, the application cost, including court fees and lawyers’ charges, may be higher. The majority of defendants may prefer not to apply for refusal. This may be backed by the fact that courts may apply refusal grounds with great caution and most applications for refusal may be rejected.77 For the same reason, it is even less likely that either party is willing to spend more time and money to appeal the decision.

71 72 73 74 75 76 77

Art 41. Art 42(1). Art 42(3). Art 42(4). Art 47. Art 49. European Commission, ‘Report’, 4.

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E. Comparison Between EEO, EOP, ESPC and Brussels I Recast As more than one Regulation is available for the enforcement of judgments in crossborder cases, parties in consumer contracts may be lost in a sea of Regulations. Both EEO and EOP apply to uncontested claims and provide additional protection for consumer debtors in automatic cross-border enforcement of judgments. However, EOP is a more popular choice than EEO.78 This is probably because EOP not only simplifies the enforcement procedure, but also provides a special simplified litigation procedure. Instead, EEO is used to supplement ordinary civil procedure. Only after the judgment is made, the claimant can apply for EEO to be issued. ESCP applies to all types of cross-border claims as long as the value is ‘small’ and the Brussels I Recast jurisdiction rule is followed. All three Regulations abolish exequatur for free circulation of judgments within Member States without frontiers, which may have a clear advantage compared to the Brussels I Regulation, which reserves the exequatur procedure for cross-border enforcement of judgments. If the claimant wishes to avoid extra cost and delay in enforcement, the claimant would choose EEO, EOP or ESCP. This advantage, however, no longer exists after the Brussels I Recast abolished exequatur for all claims covered by its scope. The Brussels I Recast allows challenge for enforcement based on five refusal grounds, while EEO, EOP and ESCP only expressly allows refusal based on irreconcilable judgments. It is not clear whether the ground for refusal expressly stated in EEO, EOP and ESCP is exclusive.79 With the Brussels I Recast, consumers may receive the final protection at the enforcement stage, claiming jurisdiction of the court of origin is taken in breach of the protective jurisdiction where consumers are the defendant. EEO and EOP provide special jurisdiction protection to consumer debtors, requiring the enforcement order to be issued only in the consumer’s domicile. ESCP does not have similar provisions. A business wanting to enforce judgments against consumers may wish to use ESCP, which may provide the greatest certainty and convenience.

III. Recognition and Enforcement in the US A. Introduction Compared to the free circulation of judgments within the EU, recognition and enforcement of judgments between countries without judicial cooperation is the traditional difficulty in international civil procedure. At the international level, 78 Lithuanian Consumer Institute, ‘Consumers’ Cross-Border Dispute Resolution’, 2011, file:///C:/ Users/royandsophia/Downloads/Tyrimas_Final_EN.pdf, 17, accessed on 7 January 2015. 79 D’Alessandro (n 15) 48.

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there is no instrument in force that facilitates the free movement of judicial judgments in civil and commercial matters. Although the Hague Conference on Private International Law adopted the Hague Convention on Choice of Court in 2005, this Convention is not yet in force. It has been ratified by Mexico, signed by the US and the EU, and the Council of EU has approved this Convention and is in a position to deposit its instrument of approval. The Convention will enter into force on the first day of the month, three months after the deposit. It will then be enforced between all EU Member States (except Denmark) and Mexico.80 This Convention, however, only facilitates recognition and enforcement of judgments based on an exclusive choice of court agreement and excludes consumer contracts from its scope. As to the enforcement of foreign judgments in consumer contracts, individual countries will rely on their domestic law, which varies largely from country to country. Compared to countries with a prima facie position not to recognise and enforce foreign judgments,81 the US takes a better position.82 There is no uniform rule in the US to enforce foreign judgment and each individual state has its own approach.83 Some general principles can be concluded though. The US enforces foreign judgments based on the doctrine of comity.84 Basically, the court will consider a number of issues, including the opportunity of a fair trial for the defendant, the competence of the court of origin, the quality of the judicial system (whether it is impartial and independent), fraud and other irregularity, public policy and the principle of reciprocity.85 In 1962, the Uniform Law Commissioner promulgated the Uniform Foreign Money-Judgments Recognition Act. This Act was later revised into the Uniform Foreign-Country Money Judgments Recognition Act 2005. These Acts include approximately the same consideration provided in common law, apart from no explicit adoption of reciprocity.86 Thirty four states have adopted either Act into state law. The remaining states recognise and enforce foreign judgments according to common law principles.87

80 HCCH, News and Events, ‘European Union to Deposit Instrument of Approval for 2005 Convention on Choice of Court Agreements’, 5 December 2014, www.hcch.net/index_en.php?act=events. details&year=2014&varevent=389, accessed on 7 January 2015. 81 Such as China: Civil Procedure Law of the People’s Republic of China (2012 Amendment), Art 282; Egypt: RE Lutz, A Lawyer’s Handbook for Enforcing Foreign Judgments in the United States and Abroad (Cambridge, Cambridge University Press, 2007) 434; Saudi Arabia: D Campbell et al, International Execution Against Judgment Debtors (Oceana Publications, 2005) 155–9. 82 Judgments made in a sister state will be enforced in other states based on a ‘faith and credit’ clause of the US Constitution, which does not apply to foreign judgments. RH Folsom, International Business Transactions, 3rd edn (London, Sweet and Maxwell, 2014) §35:14. 83 Folsom, International, §35:14. 84 Hilton v Guyot 159 US 113 (1895); RL Haig (ed), Business and Commercial Litigation in Federal Courts, 3rd edn (St Paul, MN, West Publishing, 2014) § 57:22. 85 Folsom (n 82) §35:14. 86 Ibid. In general, SI Strong, ‘Recognition and Enforcement of Foreign Judgments in US Courts’ (2014) 33 Review of Litigation 45, 66–7. 87 Strong, ‘Recognition’, 68.

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B. Non-Recognition/Non-Enforcement Grounds i. Mandatory Refusal Grounds Regardless of the above mentioned difference, the basic principles adopted in all states are nevertheless similar. In general, the foreign judgment must be final, conclusive and enforceable in the country of origin. Such a judgment can be recognised in the US in principle, subject to non-recognition grounds.88 Pursuant to the 1962 Act, the 2005 Act and the Restatement (Third), recognition of foreign judgments may be refused if:89 (1) The judgment was rendered under a system that does not provide impartial tribunals or procedures compatible with the requirement of due process of law; (2) The foreign court did not have personal jurisdiction over the defendant; or (3) The foreign court did not have subject matter jurisdiction. The first refusal ground is based on systematic procedural irregularity. It applies when the judicial system of the country of origin, as a whole, lacks due process. Evidence proving systematic irregularity can be found in the foreign constitution, human rights report, and expert testimony.90 This ground should be interpreted restrictively. The lack of consumer protection policy, or the lack of policy to encourage e-commerce or international trade would not be sufficient. However, if the reliable evidence could prove that the foreign country does not protect the fundamental rights of access to justice or to have a fair trial, this may justify the refusal of recognition. Pursuant to the 1962 Act, 2005 Act and Restatement Third,91 the competent jurisdiction over the defendant is not determined by the law of the country of origin, or the law of the US, but by a set of recognised principles. Jurisdiction is proper if the jurisdiction is based on the personal service within the country of origin, voluntary entry into appearance, choice of court agreements, the defendant’s domicile or principal place of business, the defendant’s business office relating to the dispute, the defendant’s operation of vehicles or airplanes within the court of origin which relate to the dispute,92 and other grounds that are sufficient to support foreign jurisdiction.93 In consumer contracts, for example, the court of an EU Member State may take jurisdiction over a US company under the protective jurisdiction rules. Jurisdiction is thus based on the business’s commercial conduct which has targeted the consumer’s domicile. This ground is not listed in 88

Ibid, 70. These countries only enforce foreign judgments based on treaty obligations and reciprocity. AS Cutterman and RL Brown, Going Global: A Guide to Building an International Business, (Eagan, MN, West Publishing, 2014) § 12:34; Strong (n 86) 71. Section 4(1) of the 1962 Act, s 4(1) of the 2005 Act, and s 421 of the Restatement. 90 RA Brand, ‘Federal Judicial Center International Litigation Guide’ (2013) 74 University of Pittsburgh Law Review 491, 511–3. 91 Section 5 of the 1962 Act, s 5 of the 2005 Act, and s 421 of the Restatement. Strong (n 86) 72. 92 Section 5(a) of the 2005 Act. 93 Section 5(b) of the 2005 Act. 89

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the Acts, but it may still be recognised as the proper jurisdictional ground. This practice is consistent with the US due process doctrine, where the e-business, by targeting the consumer’s domicile, is deemed to have availed itself to the benefit of this forum and may be subject to the jurisdiction of this country.94 However, if a US consumer is sued in a foreign country pursuant to a choice of court agreement, the US court may equally consider the foreign jurisdiction competent.

ii. Discretionary Refusal Grounds Besides the mandatory refusal grounds, the Acts and the common law also allow the discretionary refusal of recognition and enforcement based on discretionary grounds. These grounds include: the defendant did not receive notice in sufficient time to arrange for his defence, fraud, infringement of public policy, the judgment is irreconcilable with another judgment, breach of a jurisdiction agreement, and the country of origin is a seriously inconvenient forum if jurisdiction is based on service within jurisdiction,95 the circumstances question the integrity of the court of origin in rendering the judgment, and the specific proceedings were incompatible with the requirement of due process.96 In consumer contract judgments, special attention may be paid to the public policy defence, party autonomy defence, forum non conveniens defence and due process defence. It is necessary to know that public policy is used in a very stringent and cautious manner.97 Although consumer protection is a public policy in the US, the difference in law and policy in the country of origin is not enough to trigger the public policy defence, even if the applicable law provides the US consumer with substantially lower standards of protection. According to the explanatory comments, (p)ublic policy is violated only if recognition or enforcement of the foreign-country judgment would tend clearly to injure the public health, the public morals, or the public confidence in the administration of law, or would undermine ‘that sense of security for individual rights, whether of personal liberty or of private property, which any citizen ought to feel’.98

Only in exceptional cases, consumers may rely on the public policy defence. For example, the contract includes clearly unfair terms concluded in an unconscionable manner, or the consumer is forced to enter into an unconscionable agreement under duress, undue influence, and fraudulent misrepresentation. Such activities may undermine morality or public confidence in law.

94

Brand, ‘Federal Judicial’, 517–8. Section 4(b) of the 1962 Act; s 4(c)(1)–(6) of the 2005 Act. 96 Section 4(c)(7)–(8) of the 2005 Act. 97 VI Balan, ‘Recognition and Enforcement of Foreign Judgments in the United States’ (2003) 37 John Marshall Law Review 229, 244–6. 98 Section 4 of the 2005 Act, Comment, para 8; quoting Hunt v BP Exploration Co (Libya) Ltd 492 F Supp 885, 901 (ND Tex, 1980). 95

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US courts may refuse recognition of a foreign judgment if the foreign jurisdiction is taken in breach of a jurisdiction agreement. The party autonomy defence, however, shall be used with caution in consumer contracts. It is clear that the US law provides different treatment to choice of court agreements in consumer contracts from that of EU law. The US will, in principle, enforce the choice of court agreement in a standard form contract between businesses and consumers, unless enforcement is unfair or unconscionable.99 The test for unconscionability is high and the consumer’s failure to read or to be aware of the existence of this agreement is not enough to make the agreement unconscionable.100 As a result, the party autonomy defence as a general principle can also be used in judgments on consumer contracts.101 In the EU, however, choice of court agreements are prima facie ineffective in consumer contracts. The difference means that if a US business enters into a cross-border contract with an EU consumer and the standard contract includes a jurisdiction clause choosing the US court, the consumer may still bring an action in the court of the EU Member State where the consumer has his domicile. The EU court thus will take jurisdiction regardless of the jurisdiction clause. Once the EU court has made the judgment, it may be difficult for the consumer to enforce it in the US. The business is entitled to rely on the party autonomy defence that the EU jurisdiction is taken in breach of the jurisdiction clause. Although this is not a mandatory but discretionary ground, the consumer still faces the potential risk that judgments may not be enforced in the US court. If this is the case, the effect of the EU protective jurisdiction is greatly undermined at the international level. Furthermore, the party autonomy defence also applies to other mandatory dispute resolution agreements, such as compulsory arbitration agreements, which are valid in the US and invalid in the EU.102 An EU consumer certainly will refuse to be bound by the arbitration agreement and will pursue court proceedings in the EU, which will make the EU court take jurisdiction in breach of the arbitration clause and will render its enforcement uncertain in the US. As to the forum non conveniens ground, it only applies if the foreign jurisdiction is based on personal services within the jurisdiction. In traditional commerce, a defendant must be ‘present’ in the forum to be personally served. For legal persons, they may be present if they are registered in this country, have established a place of business within the country, or have an agent within this country.103 In e-commerce, however, the defendant may not be physically present but virtually present in the forum, for example, through using a server located in the country, recruiting an e-agent operated in this country, contracting with a local online platform or search engine, or operating a website targeting this country. The question is whether the server, the e-agent, the e-platform and the website may be

99 100 101 102 103

Carnival Cruise Lines v Shute 499 US 585 (1991). Ch 4, s III. above. Ibid. Art 19 of the Brussels I Recast; Ch 4, s II. above. Ch 10, s IV. below. For example, see English law, Civil Procedure Rules r.6.9, 6.12. Rogerson, Collier’s, 143–6.

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deemed as the place of business or agent present in this country. If the defendant is personally served based on the virtual presence, the defendant may be able to rely on the forum non conveniens defence.104 This ground may also benefit mobile consumers, who travel to the other country to enter into a contract. If they are sued in the foreign court while being present there, they could rely on this defence to reject enforcement of judgments. It does not mean the defence certainly will be successful, as the US court has to consider whether the foreign jurisdiction is indeed inconvenient. Since consumers actively target the foreign country and the contract was concluded there, it is likely that the US court will hold the foreign court convenient and taking jurisdiction is appropriate. Furthermore, this defence may not be used in other jurisdiction grounds. For example, if a US consumer is sued overseas based on a choice of court agreement, the US consumer cannot claim that the court of origin is significantly inconvenient to prevent the enforcement of judgments. The due process defence may overlap with the mandatory refusal ground on procedure irregularity.105 The explanatory comment suggests that the procedure irregularity defence focuses on the irregularity of the whole judicial system of the country of origin while the due process defence focuses on the irregularity of the proceedings of the individual case.106 In consumer disputes, due to the small value of the claim, many defendants may choose not to defend in the foreign court and judgments may be given on default. At the enforcement stage, more scrutiny may be required to examine due process to the judgment debtor in default.107 The enforcement court should consider the reason why the defendant fails to defend. If the defendant could not defend due to a lack of sufficient notice, or the notice is not given in sufficient time to allow defence, due process is infringed. On the other hand, if the defendant is given sufficient notice but decides not to defend, there is no infringement of due process. In general, the default judgment, in the absence of fraud, collusion or irregularity, should not raise different issues in recognition and enforcement.108 The question is what if the defendant cannot defend due to inevitable difficulty, for example, the defendant is not able to finance defending abroad. There is no clear answer and uncertainty exists.

iii. Reciprocity The impact of the reciprocity doctrine in the US is inconsistent.109 It is excluded from the 1962 and 2005 Acts and the Restatement Third, but some states have 104

There is no US case law showing that virtual presence is recognised by the US courts. See above s III.B. 106 Section 4 of the 2005 Act, Comment, para 12. 107 Y Zeynalova, ‘The Law on Recognition and Enforcement of Foreign Judgments’ (2013) 31 Berkeley Journal of International Law 150, 162. 108 Brand (n 90) 524; Balan, ‘Recognition’, 248–9. 109 For more on reciprocity, see SL Stevens, ‘Commanding International Judicial Respect’ (2002) 26 Hastings International and Comparative Law Review 115; V Singal, ‘Preserving Power without Sacrificing Justice’ (2008) 59 Hastings Law Journal 943. 105

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made it a ground for recognition.110 The American Law Institute (ALI) includes the doctrine of reciprocity in its proposal. The enforcement court does not need to consider reciprocity before enforcing a foreign judgment, but the judgment debtor could rely on the lack of reciprocity to persuade the enforcement court not to recognise or enforce a foreign judgment.111 The adoption of reciprocity as either a discretionary or a mandatory ground for refusal creates additional difficulty for the parties involved in cross-border transactions. The parties usually would not consider the existence of reciprocal relationship before concluding a cross-border contract. They may eventually realise that the lack of reciprocity would prevent them from enforcing their rights or obtaining redress.

C. Procedure to Enforce Foreign Judgments There is no consistent approach on the enforcement procedure. The 2005 Act provides certain procedure rules and the 18 states that adopt the 2005 Act will follow the same approach. For other states, neither the 1962 nor the Restatement Third has provided guidance for procedure. Some courts then take a simplified approach and enforce foreign judgments based on ‘registration’ of the judgment, some require the judgment creditor to commence an evidentiary proceeding, and others follow the common law procedure.112 According to the 2005 Act, the applicant should file an action seeking recognition of the foreign judgment,113 which is consistent with the practice in other states adopting the 1962 Act. In general, the US enforces foreign judgments pursuant to three procedures: (1) filing a fullyfledged action; (2) simplified procedure based on registration; (3) common law procedure. The judgment creditor does not need to commence re-litigation in the US, but only needs to file the action by submitting evidence of the foreign judgment. The US court will directly move to consider the legal issues listed above. The process will be simple and streamlined and will take a few weeks or months.114 However, if the judgment debtor raises a defence, the procedure will be prolonged and turn complicated. After the US court gives judgment to recognise the foreign judgment, the original judgment then can be enforced in the US as other local judgments.115 The procedure is clearly undesirable in e-consumer contracts. No matter how quick and how low cost it is, there will be a delay of at least a few weeks and cost for filing the action, which is more expensive than the exequatur procedure.

110 Florida, Idaho, Maine, North Caroline, Ohio and Texas make it a discretionary ground; Georgia and Massachusetts make it mandatory. See Brand (n 90) 507; HD Chaitman, ‘Recognition and Enforcement of Foreign Judgments in the United States’ (2006) 19 International Law Practicum 150, 152. 111 ALI, Foreign Judgments Recognition and Enforcement Act § 7(b); Brand (n 90) 507. 112 Strong (n 86) 76–8. 113 Section 6(a) of the 2005 Act. 114 Zeynalova, ‘The Law’, 158. 115 Cutterman and Brown, Going Global, § 12:34.

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Such costs would form a substantial barrier in cross-border dispute resolution of e-consumer disputes. The registration procedure is used to enforce judgments between sister-states. It aims to balance the interest of the judgment creditor who wants a quick and inexpensive procedure and the judgement debtor against unfair trial. In judgments given by a sister-state, it is presumed that the defendant has already given sufficient opportunity to defend and be heard in the court, and there is no need to re-allow the submission from the defendant.116 The balance is made in favour of speedy enforcement with very limited grounds for refusal. This is based on the mutual trust between sister-states. However, there is much lower trust for the judicial system and proceedings in a foreign country. Applying the same approach to international judgment is questioned and criticised.117 Applying this approach to enforce foreign consumer judgments is a double-edged sword. On one hand, it may lead to efficiency and the end of justice. The reduced cost and the speed for enforcement is crucial for consumer disputes, without which the judgment creditor in small claims will not be able to benefit from the whole litigation proceedings. Justice, therefore, is denied. On the other hand, judgment debtors, even in small claims, require protection from unfair trial. The balance between efficiency and the protection of defendants’ rights is again hard to balance. Furthermore, what if the foreign judgment provides remedies in a foreign currency? The US courts, if they decide to enforce the judgment, will convert the currency into US dollars. However, given the small value of consumer claims, the fluctuation of the exchange rate over time may cause additional loss to the judgment creditor. The 2005 Act provides that the exchange rate at the time of payment shall be used. The Restatement Third, however, uses the exchange rate of the date which could ‘serve the ends of justice’.118 It is uncertain when that day would be.

IV. Conclusion This chapter shows that the enforcement of foreign judgments in e-consumer disputes is another barrier to cross-border consumer litigation. The EU has worked hard to improve cross-border access to redress within the internal market, by providing specific instruments to simplify and speed up the process. This approach is feasible and duly adopted because of the existence of mutual trust and judicial cooperation between the Member States in the EU. A similar approach can hardly be adopted unilaterally by any country, or in the international context. Enforcement in countries in the absence of judicial cooperation would be complicated and difficult. 116 117 118

2005 Act, s 6, Comment, para 1. Ibid. Folsom (n 82) §35:14; Restatement Third, §823.

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Consumer contracts are characterised by small value and simple facts. Regardless of the effort to allow consumers to sue the business in their domicile, the difficulty, effort, time and money spent in enforcing the small value judgment abroad hampers the cross-border access to redress tremendously. Even with the EU instruments to facilitate easy enforcement, the factual effect of these instruments is not optimistic. There are very few reported cases where these instruments are actually used by consumers to enforce judgments abroad. This may be partially caused by the lack of consumer litigation at the beginning. But it is also likely that the enforcement difficulty is one of the reasons that hamper the consumer’s intention to bring the dispute to court. Since litigation and enforcement difficulties are mixed in e-consumer disputes, it is hard to clearly distinguish the reason from the result.

9 Class Action in Cross-Border Consumer Contracts I. Introduction The EU conflict of laws pays attention to improve consumers’ cross-border access to justice by providing consumers the right to commence individual litigation in their home and be protected by the standard not lower than that in their domestic law. This effort, however, does not greatly encourage consumers to take advantage of the protective conflict of laws by pursuing redress in courts. Consumer contracts, especially contracts concluded online, are usually of small value, which makes individual court action unreasonable in terms of cost, complexity and anxiety.1 The reality captures the attention of EU legislators, who eventually realise that an effective dispute resolution scheme should be introduced to assist consumers’ access to justice. This scheme should be designed to suit the special characteristics of consumer transactions. In order to effectively protect consumers’ access to justice, the means to pursue redress must be of low or proportionate cost, convenient, easy to access, speedy and reliable. The recent trend in the EU is to establish such an effective dispute resolution scheme, which includes three-tiered protection: (1) convenient individual court actions, which are marked by the protective conflict of laws and the small claims procedure; (2) collective court actions; (3) outof-court or alternative dispute resolution. Within the three-tiered dispute resolution scheme, the most controversial mechanism, from the EU’s perspective, is the collective court action or collective redress. Collective redress is defined by the European Commission as ‘a procedural mechanism that allows, for reasons of procedural economy and/or efficiency of enforcement, many similar legal claims to be bundled into a single court action.’2 This type of litigation includes three different models. The first is the joint action, in which each individual consumer acts as the claimant and the court combines

1 MG Warren, III, ‘The Prospects for Convergence of Collective Redress Remedies in the European Union’ (2013) 47 International Lawyer 325, 325. 2 European Commission, ‘Towards a European Horizontal Framework for Collective Redress’, COM(2013) 401/2, 4, para 1.2.

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these actions together based on the similarity in fact and law between these claims.3 The second is the sample case, where the court gives decision to one sample case, which will be applied to all the following cases.4 The third is called ‘collective action’ or ‘representative action’ in the EU and ‘class action’ in the US.5 It allows one claimant to bring an action on behalf of a large group of consumers against the same defendant company for damages. This is the most effective but also the most controversial model. This chapter only focuses on analysing the use of the third model in cross-border consumer redress and its interaction with conflict of laws. In this chapter, ‘collective redress’ and ‘class action’ are exchangeable and refer to the third model.

II. Class Action The procedure of class action differs from country to country, but the most common characteristics are the same. There will be one representative claimant who brings proceedings on behalf of a large number of represented consumers. The representative is the only claimant or litigating party, but the represented consumers are putative claimants. They are the beneficiaries or the forbearers of the judgment and they are bound by the res judicata effect of the judgment.6 Consumers usually face difficulty to receive court redress de factor due to the barrier of effectiveness, accessibility and affordability.7 Class action could effectively remove these barriers. Class action is specific procedure and enables redress and remedies granted by law to be effectuated.8

3 The Study Centre for Consumer Law, Katholieke Universiteit Leuven, ‘An Analysis and Evaluation of Alternative Means of Consumer Redress other than Redress through Ordinary Judicial Proceedings’ (‘Leuven Study’) 2007, para 370; DR Hensler, ‘The Globalization of Class Actions’ (2009) 622 Annals of the American Academy of Political and Social Science 7, 8. 4 Leuven Study, para 372; Bank of Credit and Commerce International SA (In Liquidation) v Ali (No 7) [2001] EWCA Civ 1438; Case C-201/05 Test Claimants in the CFC and Dividend Group Litigation v Inland Revenue Commissioners [2008] ECR I-2875; [2008] OJ C209/13. 5 Leuven Study, para 371; SS Gensler, ‘Rule 23’ in Federal Rules of Civil Procedure, Rules and Commentary (Clark Boardman Callaghan, 2014); JC Coffee, ‘Class Wars’ (1995) 95 Columbia Law Review 1343; H Hoffman, ‘Denial of Due Process through Use of the Class Action’ (1946) 25 Texas Law Review 64; JE Starrs, ‘Consumer Class Action—Part I’ (1969) 49 Boston University Law Review 211; Hensler, ‘The Globalization’, 8. 6 N Andrews and C College, The Three Paths of Justice: Court Proceedings, Arbitration, and Mediation in England (London, Springer, 2012) 168; L Trevelyan, ‘Power to the People: Collective Redress for Consumers’ (2009) 63 International Bar News 13, 13. 7 European Commission, ‘Green Paper on Consumer Collective Redress’, COM(2008) 794 final, para 8 and 9. 8 MG Warren, III, ‘The Prospects for Convergence’, 325–6.

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A. Advantages of Class Action The class action is laudable for its time-saving, cost-saving effects.9 In terms of individual consumers, they usually will only sue if the aggregated benefits exceed the cost. This can hardly be achieved in individual litigation but likely in the class action which has the potential to increase the recovery and spread the cost.10 Economic advantages are self-evident and echoed frequently by class action supporters.11 The class action not only saves the cost of individual consumers, but also reduces the public cost in administration of justice—the cost for a single class action is significantly lower than the congregated cost of all the individual claims.12 Furthermore, consolidating all potential claims against the same alleged wrong in one action could efficiently prevent concurrent proceedings and irreconcilable judgments.13 This can reduce difficulty in enforcement and benefit defendants, who need not worry about multiple proceedings and could clean the plate in a single action. The class action can encourage consumers to enforce their rights in courts and access to justice and redress.14 Pursuant to Article 47(1) of the Charter of Fundamental Rights, everyone has the fundamental right to obtain redress effectively to enforce their rights under the Union legislation.15 This right is hampered in practice by various obstacles, both economic and psychological.16 It has been put by Judge Posner: ‘The realistic alternative to a class action is not 17 million individual suits, but zero individual suits, as only a lunatic or a fanatic sues for $30.’17 The class action could also strengthen and improve consumers’ negotiation power,

9 L Trevelya, ‘Power to the People’ 13; European Commission, ‘Towards a European Horizontal Framework’ (n 2) 7, para 2.2.1. 10 L Simard and J Tidmarsh, ‘Foreign Citizens in Transnational Class Actions’ (2011) 97 Cornell Law Review 87, 98; CI Nagy, ‘Comparative Collective Redress from a Law and Economics Perspective’ (2013) 19 Columbia Journal of European Law 469, 476; A Layton, ‘Collective Redress: Policy Objectives and Practical Problems’ in D Fairgrieve and E Lein, Extraterritoriality and Collective Redress (Oxford, Oxford University Press, 2012) 93, 94. 11 JE Starrs, ‘Consumer Class Action—Part II’ (1969) 49 Boston University Law Review 407, 408; JB Weinstein, ‘Revision of Procedure’ (1960) 9 Buffalo Law Review 433, 435. 12 Starrs, ‘Consumer Class Action—Part II’, 418–9; I Buschkin, ‘Viability of Class Action Lawsuits in a Globalized Economy’ (2005) 90 Cornell Law Review 1563, 1564–5; Nagy, ‘Comparative Collective Redress’, 476–7. It has been recognised that multiple separate individual actions ‘would impose a useless and insufferable burden on said courts and would result in an unusual burden on the city and its taxpayers’. City of Miami v Keton 115 So.2d 547, 552 (Fla, 1959), quoted in Starrs (n 11) 419. 13 European Commission, ‘Towards a European Horizontal Framework’ (n 2) 4, para 1.2; European Parliament Resolution of 2 February 2012 on ‘Towards a Coherent European Approach to Collective Redress’ (2011/2089(INI)) (‘European Parliament Resolution’), point 5. 14 Trevelya (n 6) 13; AH Travers and JM Landers, ‘The Consumer Class Action’ (1970) 18 University of Kansas Law Review 811, 815; Buschkin, ‘Viability of Class Action’, 1565; Layton, ‘Collective Redress’, 94. 15 European Commission, ‘Towards a European Horizontal Framework’ (n 2) 7, para 2.2.1. 16 Starrs (n 11) 408–10. 17 Carnegie v Household Int’l, Inc 376 F.3d 656, 661 (7th Cir 2004); cited in C Gibbs, ‘Consumer Class Actions after AT&T v Concepcion’ (2012) University of Illinois Law Review 1345, 1352.

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which could encourage the parties to have a fair negotiation and resolve disputes out of court.18 The class action may have indirect effects on business practices as ‘an effective deterrent to deceptive practices’.19 Although the financial loss of each consumer may be small, the aggregated harm to the society as a whole may be large. Companies engaging in malpractice may obtain unlawful gains in the absence of powerful enforcement methods. The class action serves as a ‘regulatory mechanism’ to protect public interest and deter fraudulent business practice.20 The deterrence effect becomes one of the most important benefits of class action, which plays an even more important role than compensating individual consumers.21 The class action acts as a ‘private attorney general’ to enable a class of individuals to enforce the law against small but widespread harms.22 Placing the deterrence objective in the centre, class action is the most efficient tool to achieve this goal.

B. Disadvantages of Class Action However, the class action is not free from criticism. In the EU, the legislators are extremely cautious to avoid its negative effects, such as abusive litigation and blackmailing settlement.23 Abusive litigation targets companies which are generally law-abiding with the intention to harm their reputation or create unreasonable financial burden.24 This result may lead to ‘blackmail settlement’, where the companies have to settle the case to prevent undue harm and damage,25 even if the claim has no merit.26 The class action may negatively affect business activities and, in particular, cause negative effects on the functioning of small and medium-sized companies.27 The class action may disproportionately benefit class representatives or lawyers, who may have the intention to abuse this mechanism to acquire personal

18 European Commission, ‘Towards a European Horizontal Framework’ (n 2) 4, para 1.2; M Andenas, P Marsden and M Hutchings, Current Competition Law (London, British Institute of International and Comparative Law, 2004) 174. 19 Travers and Landers, ‘The Consumer Class Action’, 815; Weinstein, ‘Revision of Procedure’ 438–9. 20 Buschkin (n 12) 1565–6. 21 Gibbs, ‘Consumer Class Actions’, 1361. 22 Ibid. B Anderson and A Trask, The Class Action Playbook (Oxford, Oxford University Press, 2012) 11; DR Hensler et al, Class Action Dilemmas (Arlington, Rand, 2000) 71. 23 European Commission, ‘Towards a European Horizontal Framework’ (n 2) 3. 24 Ibid, 7, para 2.2.2; JG Koeltl and JS Kieman (eds), The Litigation Manual (American Bar Association, 1999) 649; C Hodges and A Stadler, Resolving Mass Disputes (Cheltenham, Edward Elgar, 2013) 64. 25 European Commission, ‘Towards a European Horizontal Framework’ (n 2) 7, para 2.2.2. 26 Nagy (n 10) 487. 27 European Commission, ‘Towards a European Horizontal Framework’, (n 2) 7, para 2.2.2; I Benohr, EU Consumer Law and Human Rights (Oxford, Oxford University Press, 2013) 194; S Wrbka, European Consumer Access to Justice Revisited (Cambridge, Cambridge University Press, 2014) 116; B Hay and D Rosenberg, ‘“Sweetheart” and “Blackmail” Settlements in Class Actions’ (2000) 75 Notre Dame Law Review 1377.

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benefits.28 Even if US law requires class representatives to give each class member ‘adequate representation’,29 the ambiguity of this term cannot properly hamper the incentive of self-benefit. Class representatives, for example, may enter into settlement for the payment of high attorney fees and pursue a judgment that benefits the representatives most.30 The profit received by representing class actions would encourage litigation contributing to the litigation culture of the society, which can hardly benefit the general public and economy as a whole. From a pure efficiency perspective, the class action could not promote efficiency in small-value consumer claims. The benefit of efficiency of class actions is based on the presumption that without class actions a large number of affected claimants would bring separate individual actions in courts. The cost in class actions would be significantly lower than the accumulated cost of all individual actions. However, in consumer claims, because the damage to each consumer is so small, the absence of class actions may not result in multiple individual claims but rather no litigation at all. The cost for the class action is higher than ‘no action’. This argument, however, is easily defeated in that efficiency at the expense of individual access to justice, non-enforcement of law, and undeterred business misconduct, is not desirable to the society as a whole.31

III. US Class Action in Cross-Border Consumer Claims Class action in the US is said to be the ‘world’s most effective regime’ for consumers’ access to redress.32 Historically, it is not designed with a strict territorial restriction in mind. It is accepted to be an instrument that provides a ‘global’ solution for mass disputes.33 Rule 23 of the Federal Rules of Civil Procedure provides detailed rules for class actions in the Federal Court. Rule 23 is notoriously long and complicated, reflecting the complexity of class actions. It lists the prerequisites and criteria for a court to certify a class action. These criteria are stated in Rule 23(a) and (b). Rule 23, Federal Rules of Civil Procedure (a) Prerequisites. One or more members of a class may sue or be sued as representative parties on behalf of all members only if: (1) the class is so numerous that joinder of all members is impracticable; 28 Simard, Tidmarsh, ‘Foreign Citizens’, 98. Kamilewicz v Bank of Boston, 92 F.3d 506, 508 (7th Cir 1996), described in Simard and Tidmarsh (n 10) fn 33; Nagy (n 10) 488. 29 Rule 23(a)(4). 30 Nagy (n 10) 488. 31 Buschkin (n 12) 1584–8; SM Hill, ‘Small Claimant Class Actions’ (1995) 19 American Journal of Trial Advocacy 147, 150. 32 Trevelyan (n 6) 13 and 14. 33 DL Bassett, ‘U.S. Class Actions Go Global’ (2003) 41 Fordham Law Review 41, 41.

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(2) there are questions of law or fact common to the class; (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class; and (4) the representative parties will fairly and adequately protect the interests of the class. (b) Types of Class Actions. A class action may be maintained if Rule 23(a) is satisfied and if: (1) prosecuting separate actions by or against individual class members would create a risk of: (A) inconsistent or varying adjudications with respect to individual class members that would establish incompatible standards of conduct for the party opposing the class; or (B) adjudications with respect to individual class members that, as a practical matter, would be dispositive of the interests of the other members not parties to the individual adjudications or would substantially impair or impede their ability to protect their interests; (2) the party opposing the class has acted or refused to act on grounds that apply generally to the class, so that final injunctive relief or corresponding declaratory relief is appropriate respecting the class as a whole; or (3) the court finds that the questions of law or fact common to class members predominate over any questions affecting only individual members, and that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy. The matters pertinent to these findings include: (A) the class members’ interests in individually controlling the prosecution or defense of separate actions; (B) the extent and nature of any litigation concerning the controversy already begun by or against class members; (C) the desirability or undesirability of concentrating the litigation of the claims in the particular forum; and (D) the likely difficulties in managing a class action.

Rule 23(a) clearly specifies four prerequisites for class actions, summarised as numerosity, commonality, typicality and adequacy of representation.34 A case that satisfies the four prerequisites should also fall into one of the categories of Rule 23(b): (1) individual actions may cause the risk of incompatible standards for defendants; (2) individual actions would cause impairment of individual interests;35 (3) injunctive or declaratory relief is necessary to treat the affected class as a whole;36 (4) class actions are superior to individual actions for fairly and efficiently adjudicating the controversy.37 Most consumer actions seeking monetary damages fall within the scope of Rule 23(b)(4), which would ‘achieve economies of time, effort, and expense, and promote uniformity of decision as to persons similarly situated, without sacrificing procedural fairness or bringing about other undesirable results.’38 The representative claimant must prove two 34

Gensler, Federal Rules, fnn 26–73 and accompanying text. Rule 23(b)(1). 36 Rule 23(b)(2). 37 Rule 23(b)(3). Gensler (n 5) fnn 74–105 and accompanied text. 38 Fed R Civ P 23, Advisory Committee’s note (1966); Amchem Products, Inc v Windsor 521 US 591, 615 (1997); quoted in Buschkin (n 12) 1572; Gensler (n 5) fn 104. 35

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elements: (1) predominance, ie the alleged wrong must affect the class members in a substantively identical manner; and (2) superiority, ie the class action is superior to other methods to adjudicate the dispute.39 The court will consider principal factors, including manageability, the amount of individual damages,40 the relevant litigation or dispute resolution that is pending, and the interest of individual class members.41 These factors are not difficult to prove in e-consumer disputes. A typical characteristic of e-businesses is to use a standard practice targeting numerous consumers in the mass market and the individual loss is small. Rule 23, however, does not state how to handle foreign class members. The court has to use its discretion and has to conduct the due process exercise before including foreign consumers into the class action. However, the standard to test the due process, the ‘minimum contacts’ test, was established to consider the fairness for defendants.42 In World-Wide Volkswagen, the Court expressly stated that the defendant’s convenience is the ‘primary concern’.43 It is questionable whether the same test is appropriate to test jurisdiction over claimants.44 At least, convenience is not a problem for absent claimants who are taking a passive role in the process.45 As to choice of law in transnational class actions, Rule 23 again remains silent. It is suggested by commentators that the court shall follow the ordinary choice of law rule,46 which may lead to the application of multiple state laws.47 This result challenges efficiency and commonality of class actions. This section focuses on examining the conflict of laws questions arising out of a transnational consumer class action under the US law.

A. Jurisdiction in International Class Action i. Entire Foreign Class Members Sue US Defendants Since the US has adopted probably the most effective class action, foreign representatives, especially those from a country with no similar mechanism, may wish to take advantage of the US system by bringing class action in the US against US defendants on behalf of entire foreign consumers. In In re Union Carbide Corp Gas Plant Disaster at Bhopal,48 for example, the Indian representative entity brought the class action against the US defendant for personal injury and wrongful death of 39 Gensler (n 5) fnn 105–119 and accompanied text; MH Greer, A Practitioner’s Guide to Class Actions (American Bar Association, 2010) 83. 40 Gensler (n 5) fnn 115–9 and accompanied text. 41 Buschkin (n 12) 1573. See in general, Simard and Tidmarsh (n 10) 99–102. 42 World-Wide Volkswagen v Woodson 444 US 286, 292; AR Kemp, ‘The Multistate Consumer Class Action’ (1984) 87 West Virginia Law Review 271, 285. 43 World-Wide Volkswagen (n 42) 292. 44 Kemp, ‘Multistate Consumer’, 275. 45 Ibid, 285. 46 Gensler (n 5) fnn 120–6 and accompanied text. 47 Ibid, fn 125 and accompanied text. 48 In re Union Carbide Corp Gas Plant Disaster at Bhopal 634 F Supp 842, aff ’d, 809 F.2d 195 (CA2 (NY), 1987).

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Indian victims. The entire class represented were foreign, the representative entity was foreign and the alleged wrong and damage occurred in India. Although the US court has jurisdiction against the US defendant, taking jurisdiction was rejected based on the doctrine of forum non conveniens. The Court refused to treat the lack of similar class action instruments in India equal to ‘no remedy’.49 Since the evidence and witnesses were far more easily accessed in India, India had greater interest in this dispute, and the administrative burden would be unfair to US taxpayers.50 Foreign consumers, being the entire class members, cannot enjoy the protection provided by the US class action. It is necessary to note that the availability of class action or aggregate procedure also concerns ‘convenience’ to the claimant and should relate to the private interest in the forum non conveniens consideration.51 In In re Union Carbide Corp, India does not have the US-style class action but it has a different consolidated action that allows similar claims to be decided together. It is uncertain whether a foreign court will be regarded inadequate or incompetent, if the country does not have any special procedure to consolidate mass claims.

ii. ‘Foreign-Cubed’ Class Actions ‘Foreign-cubed’ class actions are brought against a defendant on behalf of class members including both US and non-US claimants.52 Pursuant to the Fourteenth Amendment, the US court must conduct a ‘due process’ exercise before taking personal jurisdiction over a foreign defendant.53 This could be satisfied if the defendant has ‘minimum contacts’ with the forum in question.54 There is no requirement that the claimant should have ‘minimum contact’ with the forum.55 No ‘minimum contact’, however, does not mean the court would not consider due process to represented consumers. Consumers are not formally a party to the action and they do not select the forum.56 Without minimum procedural protection, it is unfair and unjust to bind foreign consumers.57 49

Ibid, 851. Ibid, 852–66. 51 In re Banco Santander Securities-Optimal Litigation, 732 F Supp 2d 1305, 1334 (SD Fla, 2010), aff ’d, 439 Fed Appx 840 (11th Cir 2011). 52 SJ Choi and LJ Silberman, ‘Transnational Litigation and Global Securities Class-Action Lawsuits’ (2009) Wisconsin Law Review 464, 472–5; R Wasserman, ‘Transnational Class Actions and Interjurisdictional Preclusion’ (2011) 86 Notre Dame Law Review 313, 314 and fn 3; Bassett, ‘US Class Actions Go Global’, 42. 53 International Shoe Co v Washington, 326 US 310 (1945); World-Wide Volkswagen v Woodson, 444 US 310 (1945); Burnham v Superior Court of California 110 SCt 2105 (US Cal, 1990); Helicopteros Nacionales de Columbia v Hall 104 SCt 1868 (US Tex, 1984); Rush v Savchuk 100 SCt 571 (US Minn, 1980); Kulko v Superior Court of California 98 SCt 1690 (US Cal, 1978); Donatelli v National Hockey League 893 F.2d 459 (1st Cir (RI) 1990). 54 International Shoe v Washington (n 53) 316; World-Wide Volkswagen (n 42) 292 (1980); Helicopteros Nacionales de Columbia v Hall, 466 US 408, 414 (1984). 55 Keeton v Hustler Magazine, Inc. 465 US 770, 780 (1984); Gray v Amoco Production Co, 1 Kan. App.2d 338 (Kan App, 1977); Hansberry v Lee, 311 US 32 (1940); Calder v Jones, 465 US 783, 788 (1984); Helicopteros Nacionales de Columbia v Hall (n 54), 412; Phillips Petroleum Co v Shutts 472 US 797 (1985). Bassett (n 33) 59. 56 Bassett (n 33) 55–6. 57 Philips Petroleum (n 55) 811–2. Bassett (n 33) 58. 50

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The ‘due process’ would exist for consumers who actively opt in, which shows implied consent to the class action. Such presumption is hard to apply if consumers simply fail to opt out. The Kansas State Court, in Phillips Petroleum v Shutts,58 held that absent class members were not bothered by a class action as much as a defendant by foreign proceedings, because they did not have the burden to hire counsel, submit a claim/defence, appear, or pay any fees. The duty for absent class members is completely passive.59 However, it does not mean there is no minimal procedural protection to consumer class members at all. The minimal procedural protection includes four requisites: adequate notice, opportunity to opt out, opportunity to be heard and adequate representation,60 echoing Rule 23(b)(3).61 Adequate notice requires that the class action notice must be communicated ‘effectively’,62 and given in time to allow foreign consumers the opportunity to opt-out or to be heard.63 Noticing foreign consumers may be difficult, however, given the language and cultural barriers.64 Many foreign consumers may find the legal notice unintelligible, no matter whether it has been translated into the local language. More may be puzzled by the concept by not being familiar with the US class action system, especially where collective litigation is not promoted in their domestic law. Most consumers may simply lay back without appreciating the importance or relevance of the US class action.65 Judges must use their discretion to determine whether notice is adequate. This also causes a challenge. Judges may decide whether a domestic class action notice is adequate relying on experience and local common sense, but may find it difficult to assess the quality of notice overseas.66 The opportunity to opt out also proves unrealistic. The opportunity to opt out closely relates to the quality of notice.67 If foreign consumers understand the notice properly, have knowledge of the consequence of class actions and have convenient means to opt out, such an opportunity is satisfied. On the other hand, the difficulty to opt out is also due to the complete lack of knowledge of the unique and complex form of litigation in the US.68 Foreign consumers may have to consult lawyers to acquire legal opinions as to their options and the pros and cons of each option. Even if they understand the nature of class action and how to opt-out, they 58

Phillips Petroleum (n 55). Ibid, 811; discussed in Bassett (n 33) 58; DL Bassett, ‘Implied “Consent” to Personal Jurisdiction in Transnational Class Litigation’ (2004) Michigan State Law Review 619, 620–4; 60 Philips Petroleum (n 55) 811; Bassett (n 33) 58. 61 Bassett (n 33) 58–9; TJ Monestier, ‘Transnational Class Actions and the Illusory Search for Res Judicata’ (2011) 86 Tulane Law Review 1, 8; R Wasserman, ‘Transnational Class Actions’, 324. 62 AR Miller and D Crump, ‘Jurisdiction and Choice of Law in Multistate Class Actions after Philips Petroleum Co v Shutts’ (1986) 96 Yale Law Journal 1, 22; Bassett (n 33) 64. 63 Buschkin (n 12) 1582. 64 Ibid; Bassett (n 33) 64–6; Bassett, ‘Implied “Consent”’ (n 59) 626–8. 65 Bassett (n 33) 65–6. Informing domestic consumers may also be difficult, see Miller and Crump, ‘Jurisdiction and Choice of Law’, 18. 66 Buschkin (n 12) 1582. 67 Philips Petroleum (n 55) 811–2 (1985); Bassett (n 33) 49, 72–3. 68 Bassett (n 59) 629–30. 59

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may have to take an action to actually opt out. The process is troublesome for ordinary consumers. Few actually opt out and simply discard the class action notice. The latter two requirements concern whether foreign consumers’ interests could be sufficiently protected in the US class action. For foreign class members, an opportunity to be heard is more a question of theory than reality. It is practically difficult, if not impossible, for foreign consumers to hire a lawyer to represent them in a US action.69 Adequate presentation is assumed to exist in the absence of conflict and with assurance of vigorous persecution.70 Courts usually will consider class counsels’ experience to assess whether vigorous persecution exists. This would exclude many foreign lawyers from conducting class actions due to the lack of the equivalent system overseas, and it is questionable whether US lawyers may try hard enough to protect non-US consumers’ interests.71

iii. Due Process to the Defendant An important defence against certifying foreign class members is that the class action judgment lacks preclusive or res judicata effects overseas.72 A purely US domestic class action may provide the defendant finality through the Full Faith and Credit Clause,73 which, unfortunately, does not bind foreign courts.74 Given the unique nature of class actions, foreign courts, without a similar instrument in their domestic law and the culture to appreciate the representative nature of class actions, may refuse to recognise the preclusive effect to a US judgment.75 While foreign consumers are certified in US class actions, they may be willing to be bound by a favourable judgment, but they may refuse to be bound by an adverse judgment and bring a second action in their home. The one-way effect of an F-cubed class action brings unfairness and inequality between class members and the defendant.76 It is thus suggested that US courts should not certify foreign consumer claimants if their country does not recognise the preclusive effect of a US class action. However, determining whether US class action judgments may receive preclusive or res judicata effects in foreign countries is not easy. Many countries enforce

69

Bassett (n 33) 67. Rule 23(a)(4); Bassett (n 33) 69. Hansberry v Lee 311 US 32, 42–3 (1940). See also M Kahan, L Silberman, ‘The Inadequate Search for “Adequacy” in Class Actions’ (1998) 73 New York University Law Review 765. 71 Bassett (n 33) 70–1. 72 Monestier, ‘Transnational Class Actions’, 9. 73 US Constitution, Art IV, s 1. 74 Monestier (n 61) 9; RJ Weintraub, ‘How Substantial is Our Need for a Judgments-Recognition Convention and What Should We Bargain Away to Get it?’ (1998) 24 Brooklyn Journal of International Law 167, 167–8; Buschkin (n 12) 1578. 75 Monestier (n 61) 10–3; Buschkin (n 12) 1566, 1578–81. Recognition and enforcement of foreign judgments is a conventional difficulty in international litigation especially in countries without judicial cooperation treaty obligations. Some countries would only enforce foreign judgments under the doctrine of reciprocity. Enforcing foreign class action judgments may face more obstacles. 76 Bersch v Drexel Firestone, Inc 519 F.2d 974 (2d Cir 1975); Simard and Tidmarsh (n 10) 88. 70

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foreign judgments based on pre-designated standards, subject to public policy exception.77 Public policy is an ambiguous concept and varies from country to country. US class actions, especially the opt-out ones, inevitably generate public policy scrutiny.78 Predicting how foreign countries may hold US class actions against public policy is a daunting task. Furthermore, it is only possible to consider the ‘extrinsic grounds’ for enforcement of class action judgments abroad, and difficult, impractical, and inefficient to determine the enforcement of the underlying class action abroad with certainty.79

iv. Economic Justification for F-Cubed Class Actions Excluding non-US class members may undermine the deterrent effect,80 which arises out of economic risks imposed by class actions. The risk is significantly lower to multinational companies that conduct business activities all over the world if all non-US claimants are precluded from the US class action and the larger the size of the foreign claimants is, the lower the deterrent effect would be.81 Firstly, most other countries do not have equivalent instruments to facilitate individuals’ access to justice. Multinational companies may avoid any actions in countries without similar class action mechanisms, or they are sued out of the US but ordered to pay smaller damages than they could under US class actions/settlements. Secondly, excluding foreign class members may reduce the cost of bringing class action.82 However, the marginal cost may be very minimal. The appropriate size for a class action is determined by examining whether the marginal gain exceeds the marginal cost.83 Excluding foreign class members may break the optimal size of the class action and the class members may receive lower compensation than they may otherwise have, which also lead to underdeterrence.84 While the profits generated globally significantly exceed the damages in a US limited class action, the company may continue misconduct.85 Thirdly, the status may be manipulated easily by these companies through establishing a two-tier system to provide differential services and products to US and non-US consumers.86 It may be argued that US class actions funded by the US public should mainly serve the interest of US consumers. However, excluding foreign consumers may lower foreign consumers’ confidence in buying and investing in the US market.87 Companies may even race 77

Public policy defence is accepted in all countries. See Monestier (n 61) 37. Monestier (n 61) 38; Vivendi 242 FRD 76, 100. 79 This is the distinction between ‘extrinsic’ and ‘intrinsic’ grounds for recognition of US class judgments. See Monestier (n 61) 49–53. As to different approaches, see Monestier (n 61) 15–8. 80 Buschkin (n 12) 1588; Simard and Tidmarsh (n 10) 94–5. 81 Simard and Tidmarsh (n 10) 108. 82 Ibid, 106. 83 Ibid, 100. 84 Ibid, 108–9; D Betson and J Tidmarsh, ‘Optimal Class Size, Opt-Out Rights, and “Indivisible” Remedies’ (2011) 79 George Washington Law Review 542, 554–68. 85 Buschkin (n 12) 1589–91; Pfizer, Inc v Gov’t of India 434 US 308, 315 (1978). 86 Buschkin (n 12) 1589. 87 Ibid, 1951–3. 78

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to the bottom by primarily targeting the international market and giving up the US market. None of these are desirable in terms of economy. In terms of finality, the risk of repeated actions may not necessarily be reduced by excluding foreign consumers, or increased by including them. Firstly, the risk of relitigation by foreign consumers may not be bigger than US consumers. Unsatisfied US consumers may also bring repeated actions abroad, or opt into foreign collective actions.88 Secondly, the risk of repeated litigation is low in reality. Individual consumers have no incentive to bring individual actions,89 and most countries do not have effective instruments helping consumers’ access to justice. Thirdly, if foreign consumers intend to commence actions in their home, excluding these consumers cannot prevent concurrent proceedings. The US class action will continue but on a smaller scale. The company is liable to defend in both actions no matter whether these consumers are included in the US action or not.90

B. Choice of Law in US Class Action The court that takes jurisdiction over a class action will not arbitrarily apply domestic law to the substance of the dispute.91 Some courts separate a class into sub-classes and apply different laws to different sub-classes, though in the same legal proceedings.92 This approach leads to the application of different substantive laws and inevitably increases the difficulty, cost and duration of class actions.93 Furthermore, applying various applicable laws to different groups questions the viability and superiority of the class action. A class action over all class members will be allowed only where ‘questions of law of fact common to members of the class’ predominate over individual disputes.94 Two approaches may help address the difficulty. The first is to prove that various governing laws over subclasses create ‘false conflicts’ in that they are substantively the same in content and effect.95 This may be easier in areas where uniform laws

88

Simard and Tidmarsh (n 10) 93. Buschkin (n 12) 1595; Simard and Tidmarsh (n 10)102–5. Simard and Tidmarsh have conducted economic analysis of the incentive to relitigate. Foreign consumers may only bring a repeated action in a foreign court if the amount minus the amount given by the US class action exceeds the cost of relitigation, and have to consider the possibility that a negative judgment is given or the foreign court recognises the class action judgment/settlement. 90 Simard and Tidmarsh (n 10) 90–1. 91 Phillips Petroleum v Shutts, 105 S.Ct. 2965, 2980 (1985). A multistate class action was brought in the defendant’s domicile of Kansas. Ninety nine per cent of the contracts and 97 per cent of the claimants had no connections with Kansas. The Court considered the principle of state interests, significant connections, aggregated centre of gravity and fundamental fairness and concluded that it is arbitrary and unfair to apply Kansas law to all claimants’ claim. Miller and Crump (n 62) 13–4; P Hay, ‘Refining Personal Jurisdiction in the United States’ (1986) 35 ICLQ 32, 57–8 92 Miller and Crump (n 62) 63. 93 Ibid, 64. 94 Rule 23(b)(3). L Silberman, ‘The Role of Choice of Law in National Class Actions’ (2008) 156 University of Pennsylvania Law Review 2001, 2003. 95 Miller and Crump (n 62) 14. 89

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exist, or all relevant states have revised their domestic law according to one uniform model.96 Uniformity, however, is hardly achieved in international consumer contracts, where fundamental diversity in law and policy exists all over the world, making consumer law one of the most difficult areas to establish international cooperation and harmonisation. The other approach is to rely on the choice of law rules of the forum to determine one governing law applying to the class as a whole.97 Most US states have adopted the most significant connection doctrine to determine the governing law. This approach requires the court to consider which country has the most significant connection with the class action. If the majority of the contracts are concluded with residents of one state and the business has targeted that particular state, this state may have the most significant connection with the action. However, subjecting other class members that have no connections with this country to its law cannot be justified in legal theory. There is no state interest to have this law to govern unrelated transactions or to protect foreign consumers. There is no objective connection to make this state a centre for transactions with non-residents. It cannot be justified from the parties’ reasonable expectation. The only justification is that the governing law interests of nonresident minorities are diluted in class action and applying the state law that has the closest connections with the action as a whole is the necessary and only means to facilitate expedient proceedings, to achieve the optimal class size, and to allow minority consumers to benefit from the class action. Furthermore, the class action acts more than simply aggregating individual actions where the substantive right of each individual remains intact. It has more public functions to deter nationwide or international malpractice. Individuals who join the class action should reasonably expect the alteration of their rights to a reasonable level to achieve both the private and public goal.98 In mass consumer disputes, where a business has inserted the same choice of law clause in all standard terms and conditions targeting all intended markets, the applicable law may be easier to determine. Since in the US the choice of law agreement is usually enforceable in consumer contracts, subject to the unconscionability test, the chosen law will be the law governing the class members’ claim.99 If the court holds the standard choice of law clause unconscionable in one consumer contract, it is likely that the same clause will be invalid in all other contracts. Consumers from a foreign country which provides more advanced protective choice

96 For example, in US domestic multistate class action, this approach may be relevantly easily used. The court could identify subclasses and determine which law applies to each subclass respectively. The court then compares these laws and finds if there are no real conflicts between them. See Southern States Police Benevolent Association v First Choice Armor & Equipment 241 FRD 85, 91 (D Mass, 2007). Silberman, ‘The Role’, 2012–3. 97 Silberman (n 94) 2003. 98 HP Southerland, ‘Sovereignty, Value Judgments, and Choice of Law’ (2000) 38 Brandeis Law Journal 451, 455; Silberman (n 94) 2023. 99 Ch 6 above.

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of law rules,100 if they want to take advantage of the protection provided by their own law, may decide not to opt in, or take action to opt out of the US class action. In practice, however, most foreign consumers may not worry too much about the governing law or the conflict of laws protection but prefer to have easy and inexpensive access to justice.

IV. Collective Redress Reform in EU A. EU Collective Redress Movement The EU has already adopted the Union collective injunctive relief to protect consumers under the Directive on Injunctions.101 This is a prohibitive and preventive procedure initiated by qualified authorities or consumer organisations.102 The injunctive relief does not compensate harmed consumers for malpractice, but prohibits the defendant from conducting the alleged wrong in the future. Although there is injunctive relief and public enforcement, which is directed at punishment and the deterrence of wrongs, it is necessary to recognise the importance of private enforcement. Individual consumers who are harmed by the wrong are entitled to have effective access to justice and to obtain compensation for damage. Only the combination of both public and private enforcement could provide the comprehensive and effective protection to consumers in cross-border transactions.103 Compensatory collective redress, however, is not developed in Europe, which is primarily due to the aversion to the litigation culture.104 European countries traditionally favour public enforcement and regulatory control rather than encouraging private enforcement in courts.105 Nevertheless, the concept of allowing private-led consolidated actions in mass claims has been accepted in some EU countries.106 The European Commission in its ‘EU Consumer Policy strategy 2007–2013’ declared that it would consider introducing consumer collective actions for infringement of consumer protection law or EU anti-trust law.107 After a series of 100 Such as consumers from an EU Member State that provides protective conflict of laws, or from Switzerland, which prevents choice of law agreements in consumer contracts. 101 Directive 2009/22/EC on Injunctions for the Protection of Consumers’ Interests [2009] OJ L110/30. 102 Ibid, Art 3. 103 European Commission, ‘Towards a Coherent European Approach’, 10, para 3.1. 104 MG Warren, III (n 1) 328. 105 Ibid; M Gelter, ‘Why do Shareholder Derivative Suits Remain Rare in Europe’ (2012) 37 Brooklyn Journal of International Law 843. 106 Sixteen EU Member States have now adopted collective redress mechanisms of different kinds. Directorate General for Internal Policies, ‘Overview of Existing Collective Redress Schemes in EU Member States’, IP/A/IMCO/NT/2011-16, 5 (July 2011); SI Strong, ‘Cross-Border Collective Redress in the European Union’ (2013) 45 Arizona State Law Journal 233, 235. 107 European Commission, ‘EU Consumer Policy Strategy 2007–2013: Empowering Consumers, Enhancing their Welfare, Effectively Protecting them’, COM(2007) 99 final, 11.

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events,108 consultations109 and systematic studies,110 the European Commission published a Green Paper on 27 November 2008.111 In this Green Paper, the Commission clearly recognised that the objective of promoting the internal consumer market cannot be achieved unless consumers’ confidence in receiving adequate redress is improved.112 It is most difficult for consumers to acquire redress in financial services, telecommunication, transport, package tour and tourism sectors,113 most of which include cross-border elements. The Commission admitted that the mechanisms to facilitate consumers’ access to justice are unsatisfactory and recognised the necessity to adopt collective redress mechanisms at both the national and the transnational levels.114 The Commission thus proposed four potential options to move forward: (1) no new EU actions and relying on existing mechanisms; (2) no new EU legislation but requiring Member States to open up existing collective redress mechanisms for consumers throughout the EU; (3) mix and combination of multiple policy instruments; (4) adopting EU collective redress mechanisms for all Member States.115 The Green Paper received 181 responses.116 The most favoured option was no EU actions and waiting for more evidence and information.117 Comparatively, most respondents rejected the idea of adopting a judicial collective redress mechanism at the EU level.118

108 The Commission brainstorming event in Leuven on 29 June 2007, the Portuguese Presidency conference on collective redress in Lisbon on the 9th and 10th November 2007, the Commission’s workshops on collective redress held on 21 May 2008, 29 May 2008 and 6 May 2008 in Brussels. More information and materials can be found at http://ec.europa.eu/consumers/archive/redress_cons/collective_redress_en.htm, accessed on 28 July 2014. 109 DG SANCO published benchmarks to follow when designing effective and efficient collective redress mechanisms in 2008 and launched a public consultation for comments and opinions on these benchmarks. See ‘Feedback statement on draft consumer collective redress benchmark consultation’, http://ec.europa.eu/consumers/archive/redress_cons/docs/feedback_benchmark_en.pdf, accessed on 28 July 2014. 110 Civil Consulting of the Consumer Policy Evaluation Consortium (CPEC), ‘Study on the Use of Alternative Dispute Resolution in the European Union’, 16 October 2009; TNS Qualitative, ‘Consumer Redress in the European Union: Consumer Experiences, Perceptions and Choices’, 2009; Civic Consulting and Oxford Economics, ‘Evaluation of the Effectiveness and Efficiency of Collective Redress Mechanisms in the European Union’, 2011; Civic Consulting of the Consumer Policy Evaluation Consortium (CPEC), ‘Study Regarding the Problems faced by Consumers in Obtaining Redress for Infringements of Consumer Protection Legislation, and the Economic Consequences of Such Problems’, 26 August 2008; all accessed on 28 July 2014; Leuven Study. All available at http://ec.europa.eu/ consumers/archive/redress_cons/collective_redress_en.htm, accessed on 28 July 2014. 111 European Commission, ‘Green Paper on Consumer Collective Redress’ (n 7). 112 Ibid, para 2. 113 Ibid, para 8. 114 Ibid, para 18. 115 Ibid, para 20–60. 116 Consumer Policy Evaluation Consortium, ‘Assessment of the Economic and Social Impact of the Policy Options to Empower Consumers to Obtain Adequate Redress’, 6 May 2009, http://ec.europa.eu/ consumers/archive/redress_cons/docs/feedback_statement.pdf, 4, accessed on 28 July 2014. 117 Ibid, 8. 118 Ibid.

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Based on the responses, the European Commission published a follow-up consultation paper,119 which did not make a lot of improvement but tidied up the original Green Paper proposals. In 2011, the European Commission published the third consultation paper.120 It adopts a catch-all definition for collective redress, which covers all consolidated or represented actions and alternative dispute resolutions.121 In 2012, the European Parliament published a Resolution, which concluded that ‘a Union scheme of collective redress is needed and desirable’,122 and recommended a proposal to create a horizontal framework in collective redress to provide common principles and uniform access to justice within the Union.123 The Parliament, however, urged the Commission to conduct more work on the impact assessment124 and legal basis for collective redress measures.125 The Parliament then recommended applying the EU private international law to cross-border collective redress, prohibiting punitive damages and contingency fees, adopting the ‘opt-in’ model, regulating standing of representative organisations, and allowing individual consumers instead of representatives to benefit from compensation.126 In 2013, the Commission issued a Communication,127 which disclosed that the Commission focused on answering three questions between 2010 and 2012, ie the weakness and gap of existing instruments, the potential new legal mechanism, and the reconciliation of collective redress with Article 67(1) TFEU.128 The Commission provided four characteristics of any future EU collective redress mechanism: the effectiveness to resolve mass claims and procedural efficiency, legal certainty and fair outcomes, safeguard against abusive litigation, and prevention of economic incentives to bring speculative actions.129 The Communication is accompanied by a Commission Recommendation.130 The Recommendation is non-binding in nature and it provides principles for Member States to implement. The Recommendation aims to urge Member States to adopt collective redress mechanisms of unspecified types in their domestic judicial systems which should also comply with the recommended principles and safeguards.131

119 European Commission, ‘Consultation Paper for Discussion on the Follow-up to the Green Paper on Consumer Collective Redress’ (‘Follow-up Consultation’), 2009, http://ec.europa.eu/consumers/ archive/redress_cons/docs/consultation_paper2009.pdf, accessed on 31 May 2015. 120 European Commission, ‘Towards a Coherent European Approach to Collective Redress’, COM(2010) 135 final. 121 Ibid, para 7. 122 European Parliament Resolution (n 13). 123 Ibid, point 15. 124 Ibid, point 4. 125 Ibid, point 8. 126 Ibid, point 15. 127 European Commission, ‘Towards a European Horizontal Framework’ (n 2). 128 Ibid, 3. 129 Ibid, 9–10. 130 European Commission, ‘Commission Recommendation on Common Principles for Injunctive and Compensatory Collective Redress Mechanisms in the Member States Concerning Violations of Rights Granted under Union Law’ [2013] OJ L201/60 (‘Commission Recommendation’). 131 Ibid, recital 10.

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B. EU Collective Redress Framework—Commission Recommendation The Recommendation is not a binding instrument. It does not provide detailed procedural rules for specific collective redress mechanisms. Instead, it introduces common principles that aim to balance two rights, ie citizens’ fundamental rights to access to justice and businesses’ rights to avoid abusive litigation.132 These principles apply to all types of collective redress, including compensatory and injunctive redress,133 and court and out-of-court relief.134 It is ‘recommended’ that Member States have two years to implement the principles herein in their domestic judicial system.

i. Availability of National Collective Redress Mechanisms The main objective of the Recommendation is to facilitate access to justice and to provide a high level of consumer protection.135 In order to ensure consumers have reasonable means to enforce their rights in a mass harm situation, the Recommendation encourages Member States to adopt ‘fair, equitable, timely and not prohibitively expensive’ collective redress mechanisms in their domestic law.136 Although 16 Member States have been equipped with domestic collective redress mechanisms, and these mechanisms are expected to be open to non-resident Union consumers,137 the protection is not complete and gaps exist if some Member States simply do not have relevant domestic systems. This would make consumers in these countries worse-off and cause inconsistent enforcement and standards throughout the Union. It would also lead to forum shopping. The objective of the internal market can only be achieved if collective redress mechanisms exist in every Member State. Although there will be inevitable differences in terms of specific procedure, cost, time and efficiency, the basic consistency will be achieved by following the recommended common principles.

ii. Common Procedural Principles The Recommendation sets up a number of procedural principles. Firstly, there is clear regulation on the standing of representative entities. In order to prevent representatives from bringing the ‘fishing’ collective action, only three entities may obtain the standing:138 ad hoc certified entities in a case-by-case basis,139 public 132

Ibid, recital 13. Ibid, recital 14. Point 3(a) defines ‘collective redress’ to include ‘a legal mechanism that ensures a possibility to claim cessation of illegal behaviour collectively’, ie injunctive relief, and ‘a legal mechanism that ensures a possibility to claim compensation collectively’, ie compensatory relief. 134 Ibid, recital 13. 135 Ibid, recital 1. 136 Ibid, point 2. 137 Ibid, points 17 and 18; European Commission, ‘Towards a Coherent European Approach’ (n 120), para 18. 138 Recommendation, recital 18; points 4, 6, 7. 139 Ibid, point 6. 133

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authorities,140 and pre-designated entities.141 The pre-designated entity must meet at least three requirements: (1) it is not profit-making; (2) its objective has a direct link with the relevant Union law; (3) it could prove its financial, administrative and expertise capacity.142 Clearly, law firms and other profit-seeking entities are not entitled to bring collective redress unless approved by courts. Secondly, the Recommendation requires Member States to provide at the early stage of the proceedings for verification of the admissibility of the collective redress claims and to discontinue unfounded cases.143 No detailed rules or guidance, however, are provided to national legislators. Collective redress requires the representative entity to disseminate information on the intention to pursue an collective action in order to draw the awareness of the putative claimants and to ensure those affected consumers will opt-in.144 The Recommendation allows the dissemination of information, but requires attention to be paid to balance the conflicting interests between the right of information and the right of protection of the reputation of the defendant.145 Even though a mass action is brought against a defendant, the defendant’s reputation should not be harmed unless the alleged wrong is approved by the court. However, the dissemination of information on its own would inevitably cause damage or doubts at various levels as to the defendant’s performance.146 The de facto effect of advertising may be determined by many conditions, including the method used, the wording and the timing. While the action is potentially cross-border, the dissemination should be international and be able to reach potential consumers in all Member States. How to keep a reasonable balance is a tough question for the court to determine. The cost of collective redress may be high. The principle is the financing scheme must not hamper access to justice and, at the same time, cannot stimulate abusive litigation.147 The Recommendation does not prohibit third-party financing, but regulates it.148 Third-party financing may be necessary for the representation to commence collective redress but non-transparent financing may create incentives for abusive litigation.149 The Recommendation requires the source of funding to be declared to the court and the court has to make sure the third-party has no conflict of interest with the represented consumers or the defendant,150 would not influence the proceedings,151 and would not charge excessive interest.152

140

Ibid, point 7. Ibid, point 4. 142 Ibid, point 4. 143 Ibid, points 8 and 9. 144 European Commission, ‘Towards a European Horizontal Framework’ (n 2), para 3.5. In the optout scheme, proper provision of information is also important to allow affected consumers to opt out. 145 Recommendation, points 10 and 11. 146 European Commission, ‘Towards a European Horizontal Framework’ (n 2), para 3.5. 147 Ibid, para 3.9. 148 Recommendation, points 15 and 16. 149 European Commission, ‘Towards a European Horizontal Framework’ (n 2), para 3.9.1. 150 Recommendation, points 15(a) and 16(b). 151 Ibid, point 16(a). 152 Ibid, point 16(c). 141

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Furthermore, the Commission does not explicitly encourage or prevent public authorities to fund collective redress.153 The Recommendation adopts the ‘losers pay’ principle. The representative entity, if it loses the action, is required to pay the defendant’s legal costs.154

iii. Safeguard Against Abusive Litigation The Recommendation adopts four safeguards to prevent the negative effects of the US-style collective redress. The first is the prohibition of contingency fees.155 Contingency fees could stimulate the incentive to bring collective actions to satisfy the needs of the representative entity instead of harmed consumers. Secondly, it requires controlling the remuneration for lawyers.156 These two mechanisms aim to discourage illegitimate and bad-faith collective redress proceedings for financial incentives. An important safeguard is the adoption of the ‘opt-in’ model.157 The ‘opt-out’ model is more easily abused contrary to the tradition in Europe.158 The consumers are free to decide whether or not to participate or leave the collective action at anytime prior to the delivery of judgments.159 The composition of the claimant group will be provided to the court and defendant to allow the damages to be specified and distributed to putative consumers.160 However, the Recommendation does not strictly prohibit the ‘opt-out’ model. A Member State may still adopt the ‘opt-out’ model if it can be justified by soundness of administration of justice.161 Some Member States, for example, have implemented the ‘opt-out’ model, such as Portugal, Bulgaria, Netherlands and Denmark.162 The UK has adopted an opt-out collective redress scheme for competition claims after the publication of the Recommendation.163 The third safeguard is the prohibition of punitive damages.164 The Commission does not allow overcompensation of victims, which may create incentive for litigation and may contribute to a litigation culture which is incompatible in EU legal tradition and culture.

C. Cross-Border Collective Redress in EU European legislators, in a few preparatory documents, clearly stated the necessity to ensure the cross-border protection to consumers by collective redress 153 154 155 156 157 158 159 160 161 162 163 164

European Commission, ‘Towards a European Horizontal Framework’ (n 2), para 3.9.2. Recommendation, point 13. Ibid, point 30. Ibid, point 29. Ibid, point 21. European Commission, ‘Towards a European Horizontal Framework’ (n 2), para 3.4. Recommendation, points 22 and 23. Ibid, point 24. Ibid, point 21. European Commission, ‘Towards a European Horizontal Framework’ (n 2), para 3.4. Consumer Rights Act 2015 (2015 c 15), Schedule 8. Recommendation, point 31.

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mechanisms.165 Two reasons contribute to this policy. Firstly, the objective of the EU is to establish an internal market, where the free movement and equal protection are guaranteed to all EU citizens. Secondly, the development of e-commerce weakens the borderline between Member States. One purpose of the EU e-commerce policy is to encourage consumers to purchase online regardless of the country of origin of the website operator. This further blurs the distinction between domestic transactions and cross-border transactions. Consumers throughout the EU shall be treated equally and equipped with equal rights to access to justice. Collective redress mechanisms should take account of the two characteristics and provide appropriate protection to cross-border consumers. Cross-border collective redress litigation may raise conflict of laws questions. EU legislators are aware of this effect. As early as 2008, the European Commission proposed in the Green Paper that the European Jurisdiction Regulation and the choice of law Regulations should apply to determine private international law issues in cross-border cases.166 At the same time, the Commission also recognised the potential difficulty by applying the existing private international law rules.167 The current private international law scheme was established prior to the concept of ‘collective redress’ is widely recognised in the EU and, as a result, the scheme is not compatible with collective redress. The application of existing rules in crossborder collective redress may require stretching to some extent.

i. Jurisdiction The Green Paper suggests that the special jurisdiction on cross-border contracts should be applied to representative actions.168 This suggestion, however, raises some doubts.169 The Brussels I Regulation was established before the EU collective redress movement and it does not design its rules to comply with cross-border mass claims.170 The Brussels I Recast was adopted in December 2012. Before that 165 eg, see European Commission, ‘Green Paper on Consumer Collective Redress’ (n 7); European Commission, ‘Follow-up Consultation’ (n 119); European Commission, ‘Towards a Coherent European Approach’ (n 120); European Parliament Resolution (n 13). 166 European Commission, ‘Green Paper on Consumer Collective Redress’ (n 7), paras 58 and 59. 167 European Commission, ‘Follow-up Consultation’ (n 119), paras 26 and 32; European Commission, ‘Towards a Coherent European Approach’ (n 120), para 28. This issue was also raised when the Commission released the Green Paper on the reform of the Brussels I Regulation. See European Commission, ‘Green Paper on the Review of Council Regulation (EC) No 44/2001 on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters’, COM(2009) 175 final, para 8.2 (‘Green Paper on Brussels I Regulation’). 168 European Commission, ‘Green Paper on Consumer Collective Redress’ (n 7), para 58. 169 European Commission, ‘Follow-up Consultation’ (n 119), paras 26 and 32; European Commission, ‘Towards a Coherent European Approach’ (n 120), para 28; European Commission, ‘Green Paper on Brussels I Regulation’ (n 167), para 8.2. 170 Art 6(1) of the Brussels I Regulation (Art 8(1) of the Brussels I Recast) deals with cases where multiple defendants are involved. This type is fundamentally different from the collective redress discussed in this chapter. Although the European legislators incorporated a few actions of collective form in the legislation, they did not take into account the representative class actions. B Hess, ‘A Coherent Approach to European Collective Redress’ in Fairgrieve and Lein, Extraterritoriality and Collective Redress, 107, 112.

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the necessity to establish cross-border collective redress mechanisms has been recognised and discussed extensively in EU. The Brussels I Recast, however, largely maintains the jurisdiction rules in the Brussels I Regulation and neither introduces special jurisdiction rules for mass claims nor amends the existing rules by taking account of potential collective redress mechanisms. The conservative approach may suggest that the EU legislators believe the Brussels jurisdiction rules are compatible with collective redress and any practical difficulties should be addressed by interpretation. It is doubtful whether interpretation alone would be sufficient to meet the special needs of cross-border collective redress. a. Positive Jurisdiction The Brussels I Recast constitutes various jurisdiction rules applying to disputes falling within different categories. Classification plays an important role in the application of the Brussels I Recast. Individual consumer jurisdiction is determined under the protective jurisdiction rules. The first question is whether protective jurisdiction for consumers is relevant in a representative consumer action. Although there is no authority addressing this issue, it is likely that protective jurisdiction is no longer relevant in collective redress. In terms of policy, protective jurisdiction is designed to balance the inequality of litigation power between consumers and businesses.171 In representative action, the representative entity cannot be presumed to have weaker litigation power than businesses, especially small and medium-sized companies. In terms of practice, if the protective jurisdiction rules apply, individual consumers are entitled to sue the defendant in their domicile.172 The represented consumers may have their domiciles in more than one Member State. Applying the protective jurisdiction rule may prevent consumers from different Member States from benefiting in one action, which reduces the efficiency that may be provided by collective redress. Another practical difficulty is that applying protective jurisdiction requires all represented individuals to be classified as consumers, which is a daunting task. The status of a consumer is fact specific. In AMT Futures Ltd v Marzillier, Dr Meier & Dr Guntner Rechtsanwaltsgesellschaft mbH,173 for example, 70 investors sued a financial service company. The Court stated that in order to apply the consumer protective jurisdiction rules, each of these investors’ status should be ascertained. Given the fact that the status of investors is uncertain, the burden of proof will be tremendously high.174

171 Case 150/77 Bertrand v Ott [1978] ECR 1431, para 21; P Schlosser, ‘Report on the Convention on the Accession 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, 117. 172 Art 18(1). 173 AMT Futures Ltd v Marzillier, Dr Meier & Dr Guntner Rechtsanwaltsgesellschaft mbH [2014] EWHC 1085 (Comm), para 59. 174 Ibid, para 58.

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Furthermore, application of protective jurisdiction requires the business to target the Member States where all consumers have their domiciles. While an e-business manages a website accessible in multiple states, whether or not the business has targeted all states should be assessed separately according to various factors. In AMT Futures Ltd, the investment company actively sought clients through a Germany-based investment broker. It got clients from Germany, Austria, Belgium and Switzerland. The judge considered it arguable that the company only targeted Germany.175 Subjecting all consumers in one action is thus impossible. Applying protective jurisdiction in collective redress generates unnecessary complexity and may not serve consumers’ best interests. The protective jurisdiction invalidates exclusive jurisdiction clauses in consumer contracts.176 If the protective jurisdiction rules are irrelevant, the court is obliged to enforce exclusive jurisdiction clauses in individual contracts, unless the clauses are invalid.177 Since most businesses insert exclusive jurisdiction clauses into their standard terms contracts, especially in e-commerce, it is expected that while a representative action is brought to the court, most potential consumers are bound by the jurisdiction clauses to sue the defendant in a chosen country. Usually, a business will use the standard choice of court agreement in contracts with consumers from all Member States, choosing the business’s domicile. The chosen court thus is competent to hear the collective redress representing multistate consumers. It, however, would prevent representative entities from a Member State other than the business’s domicile from bringing a representative action in their home. The added cost for overseas litigation, especially due to the wide variety of national collective redress mechanism, may reduce the incentive to bring collective redress. Furthermore, if a business inserts different choice of court agreements in contracts with consumers from different Member States, it may effectively prevent pan-EU collective actions from being initiated. More seriously, a company may insert a ‘collective redress waiver clause’ in the contract. The Brussels I Recast does not include any provision invalidating such clauses. The only remedy may be the Unfair Terms Directive.178 The Annex of the Directive provides that terms ‘excluding or hindering the consumer’s right to take legal action or exercise any other legal remedy’ are unfair terms.179 A collective redress waiver clause cannot exclude or hinder a consumer’s right to take legal action, because the consumer nevertheless has the right to bring individual litigation. It may hinder the consumer’s right to ‘exercise any other legal remedy’, which should include pursuing remedies in a collective way. The legal effect of a collective redress waiver clause is thus uncertain. 175

Ibid, para 64. The Judge does not provide a decision on this issue, only stating it is an arguable

point. 176

Brussels I Recast, Art 19. Ibid, Art 25. 178 Directive 93/13/EEC of 5 April 1993 on Unfair Terms in Consumer Contracts [1993] OJ L95/29; implemented in the UK by the Unfair Terms in Consumer Contracts Regulations 1999. 179 Ibid, Annex, 1(q). 177

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In the absence of choice of court agreements and collective redress waiver clauses, jurisdiction should be decided by the general or special jurisdiction rules. The general jurisdiction rule allows jurisdiction to be brought in the defendant’s domicile.180 This rule will not cause difficulty in practice. Any representative action, irrespective of the identity of the representative body, the constitution of the consumer claimants, and the location of the individual cause of action, can be brought in the defendant’s domicile. Applying the special jurisdiction rule, on the other hand, is not so straightforward. Article 7(1)(b) provides that the claimant can sue the defendant in the place where goods are delivered or services are provided. In different consumer contracts, goods may be delivered, and services are provided, in different countries. If the representative entity wants to bring an action in the Member State where the disputed contract is performed, the question is whether the action should only cover contracts performed in this particular country or the action can also cover contracts performed in other countries. The answer depends on whether the principle of proximity or the principle of centralisation is adopted. The principle of proximity grants jurisdiction to the Member State that has proximity to the dispute in question. Pursuant to this principle, the court of a Member State only has jurisdiction to decide contracts performed in its territory. This approach is adopted by the Court of Justice in a few early decisions concerning the interpretation of Art 5(1) of the Brussels Convention.181 It has also been adopted in the interpretation of tort jurisdiction in Art 5(3) of the Brussels I Regulation (Art 7(2) of the Brussels I Recast).182 The principle of centralisation allows one Member State to take jurisdiction over all disputes, including related disputes arising in other Member States. This approach has also been adopted by the Court of Justice to interpret the contract jurisdiction in Art 5(1) of the Brussels I Regulation (Art 7(1) of the Brussels I Recast).183 The more recent decision on online tort also adopts the principle of centralisation.184 Although both principles are accepted by the court of justice, it is reasonable to conclude that the trend of the EU is moving from proximity to centralisation. All more recent decisions depart from the principle of proximity and opt for the principle of centralisation.185 180

Art 4. Case C-420/97 Leathertex Divisione Sintetici SpA v Bodetex BVBA [1999] ECR I-6747; Case C-256/00 Besix SA v Wasserreinigungsbau Alfred Kretzschmar GmbH & Co KG (WABAG) [2002] ECR I-1699. 182 Case C-68/93 Shevill v Presse Alliance SA [1995] ECR I-00415. 183 Case C-386/05 Color Drack GmbH v LEXX International Vertriebs GmbH [2007] ECR I-3699; Case C-204/08 Rehder v Air Baltic [2009] ECR I-6073; Case C-19/09 Wood Floor Solutions Andreas Doomberger GmbH v Silva Trade SA [2010] ECR I-2121. 184 Cases C-509/09 and C-161/10 eDate Advertising GmbH v X and Olivier Martinez v MGN Ltd [2011] OJ C370/9. 185 See Color Drack (n 183); Rehder v Air Baltic (n 183); Wood Floor (n 183); Case C-381/08, Car Trim GmbH v KeySafety Systems Srl [2010] ECR I-1255; eDate Advertising (n 184). See also Re Place of Performance of a Passenger Flight (X ZR 76/07) [2009] ILPr 30; Deutsche Bank AG London Branch v Petromena ASA [2013] EWHC 3065 (Comm); EPN (Societe) v Simax Trading (Societe) [2013] ILPr 9; X v KDG Mediatech AG [2013] ILPr 2. 181

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The principle of centralisation provides a number of advantages. It enables all potential claims to be consolidated in the same legal proceedings. A pan-EU collective redress will not be hampered simply by the different domiciles of consumers. It prevents multi-actions, including multiple collective actions, from being brought in more than one Member State over the same cause of action against the same defendant.186 It assists sound administration of justice by avoiding concurrent proceedings and irreconcilable judgments. Finally, it benefits the defendant by enabling, at least in principle, one action to resolve all potential disputes. If the centralisation principle is adopted, the next question is how to determine the Member State where the whole pan-EU class action can be centralised. Could the Color Drack GmbH v LEXX test be equally applied?187 Color Drack suggests that a contract that is performed in more than one country can be centralised in the Member State that is the principal place of performance.188 This test is provided to identify the country to centralise the claim arising out of multi-place performance in a single contract. This place shall have the closest link with the contract.189 In a class action, one needs to identify the country to centralise various claims arising out of multiple contracts and there are no connections between those contracts. Regardless of the difference, both require the court to find one place that has the closest connection with the action which gives rise to all claims. It is suggested that the same test should be applied to determine jurisdiction for collective actions under Article 7(1) of the Brussels I Recast. The Court of Justice states in Color Drack that the principal place shall be determined according to economic criteria.190 Defining and applying economic criteria is not easy. Economic criteria may be determined according to the number of contracts, the number of consumers, or the total contract value located in each Member State. These standards usually coincide and point to the same country. In case it is difficult to figure out the principal place in the collective redress, could the representative entity sue in any place where performance is conducted or represented consumers are domiciled? The Color Drack test allows the claimant to bring one action in any place of delivery of their choice if the principal place of delivery cannot be identified,191 because ‘each of the places of delivery has a sufficiently close link of proximity to the material elements of the dispute’ and ‘a significant link as regards jurisdiction’.192 Applying this same test in collective redress may hamper two objectives of the Regulation. One is the protection to the defendant;193 the other is proximity and certainty.194 Even if the place of delivery 186 The EU jurisdiction regime has the objective to avoid multiplication of jurisdiction grounds. Case C-125/92 Mulox IBC [1993] ECR I-4075, para 11. 187 Color Drack (n 183) para 40. 188 Ibid. 189 Ibid. 190 Ibid. 191 Ibid, para 42. 192 Ibid. 193 Brussels I Recast, recital 15. 194 Ibid, recital 13, 16.

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has the link with the contract, it only has proximity with the delivery in that particular country. It is hard to justify how close the link is to the rest of delivery in other countries, and other deliveries, accumulated together, would not outweigh the selected delivery in the contract as a whole. The question the EU legislators should consider is the policy concerning jurisdiction in cross-border collective redress and to balance the competing interest between consumer protection on one hand and the business promotion on the other, taking account of the specific feature of collective redress. Collective redress has changed the power balance between the parties. The representative entity needs certain standing, including its financial status, before being able to commence a collective action. On the other hand, collective redress, from the procedural perspective, brings challenges to the defendant’s litigation power and puts the defendant in a less powerful situation. It is reasonable to argue that if pan-EU collective redress is available, the defendant needs certain procedural protection. The traditional maxim actor sequitur forum rei should be kept as the basic jurisdiction ground which can only be departed from in exceptional circumstances with sufficient reason. The exception can be justified by sufficient, significant linking factors with another country, which is reasonably expectable to the defendant. In order to properly protect the defendant in a cross-border collective action, it is also necessary to limit the potentially competent jurisdictions and to reduce the possibility for the claimant to select among a few alternative jurisdictions. It is suggested that allowing the representative entity to bring the collective action in any Member State where represented consumers or any contracts are located is inappropriate. Furthermore, although the Commission’s Recommendation adopts the ‘opt-in’ model as the general principle, it does not strictly exclude a Member State from using an ‘opt-out’ model.195 With an opt-out model, where represented consumers are unidentified, it is difficult to assess which Member State is the principal place in the action, and which Member State is eventually relevant. It is thus suggested that if an exceptional jurisdiction ground is introduced to depart from the defendant’s domicile, it should be the Member State where the representative entity is established or domiciled. This country usually should have proximity with the dispute because a representative entity would rarely commence a collective redress which is completely foreign. In practice, the representative entity usually comes from the country that is most affected by the malpractice and the collective redress, which is the country where most represented consumers are domiciled. However, this suggestion cannot be a natural interpretation of Art 7(1) of the Brussels I Recast. Adopting this interpretation asks for a new provision to be introduced in the Brussels I Recast, which would not happen at least before 2022.196 195

Recommendation, point 21. Art 79, Brussels I Recast. The Commission shall present a report by 11 January 2022 on the application of the Brussels I Recast. For an earlier article analysing conflict of laws in EU consumer collective redress, see, in general, ZS Tang, ‘Consumer Collective Redress in European Private International Law’ (2011) 7 Journal of Private International Law 101. 196

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b. Negative Jurisdiction Besides positive jurisdiction, there is also negative jurisdiction requiring or enabling a Member State to decline jurisdiction. Under the Brussels I Recast, Member States shall have no competence to issue anti-suit injunctions preventing another Member State from taking jurisdiction,197 or to decline jurisdiction granted by the Regulation by reason of inconvenience and injustice.198 However, the Regulation explicitly adopts the doctrine of lis pendens which allows the court of a Member State to decline jurisdiction in the case of concurrent proceedings.199 Any court should stay proceedings in favour of the court first seised in the same cause of action between the same parties;200 any court may stay proceedings in favour of the court first seised in related actions.201 Special lis pendens problems may arise in collective redress. Firstly, would the same cause of action between the same parties exist in collective redress? Presuming a consumer opted in the collective action in country A, and he also brings an individual action in country B, would the court in country B be obliged to stay jurisdiction under Art 29(1)? The question is whether the collective action shall be treated as a whole, single action between the representative entity, or split into a number of individual actions between each represented consumer and the defendant.202 Some commentators treat opt-in collective actions as multitude claimants filing parallel claims together, but represented by one representative.203 This, however, is rejected by others concentrating on the fact that only one representative is the party commencing the proceedings.204 Secondly, related actions may occur more frequently in collective redress. In an opt-in model, if one representative redress is commenced in country A representing a number of consumers, nothing can prevent another representative entity from commencing the second action in country B representing a different group of consumers. Consumers domiciled in different Member States are free to opt in either representative action, as far as the composition of represented claimants in each action is exclusive. The Brussels I Recast sets the test that two actions are related if ‘they are so closely connected that it is expedient to hear and determine them together to avoid the risk of irreconcilable judgments resulting from separate

197 Case C-159/02 Turner v Grovit [2004] ECR I-3565; Case C-185/07 Allianz SpA v West Tankers Inc [2009] ECR I-663. 198 Case C-281/02 Owusu v Jackson [2005] ECR I-1383; Nussberger v Phillips (No 4) [2006] 1 WLR 2598; Pacific International Sports Clubs Ltd v Soccer Marketing International Ltd [2009] EWHC 1839 (Ch); Lucasfilm Ltd v Ainsworth [2011] 3 WLR 487; High Tech International Ag v Deripaska [2007] EWHC 3276 (QB). 199 Arts 29 and 30. 200 Art 29(1). 201 Art 30(1). 202 Case C-406/92 The Tatry [1994] ECR I-5439. 203 Hess, ‘A Coherent Approach’ (n 170) 115. 204 JN Stefanelli, ‘Parallel Litigation and Cross-Border Collective Actions Under The Brussels I Framework’ in Fairgrieve and Lein (n 10) 143, 150.

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proceedings’.205 If two representative actions are concerning the same malpractice of the same defendant, it is expedient to hear them together and the separate proceedings in two courts may cause irreconcilable judgments, both of which may be required to be enforced in the defendant’s domicile. If in practice irreconcilable judgments do exist, the court of the enforcing Member State may have to decline recognising and enforcing the judgment which is irreconcilable with an earlier judgment that has been enforced. It harms the proper functioning of the internal market and the sound administration of judgment in the Union to grant EU consumers different remedies. As a result, if separate representative proceedings exist concurrently, it is recommended that there will be procedural mechanisms for the first seised court of a Member State to consolidate related representative actions before the second seised court to stay and decline jurisdiction.206 More complicated lis pendens problems would exist in an opt-out model, where the represented consumers are identified in each representative action. It is thus presumed that any opt-out representative action may include all concerned consumers unless the consumers explicitly opt out. In this circumstance, if one opt-out representative action is brought to the court of a Member State, it effectively prevents all the subsequent proceedings, individually or collectively, on the same alleged wrong against the same defendant. Any later proceedings should be declined, unless the claimant proves that he has opted out of the first representative action. In this circumstance, the second seised court has the discretion to decline jurisdiction pursuant to the application of the other party and to allow the first seised court to consolidate both actions. However, if an individual consumer decides to opt out and to bring individual proceedings, this is the right to access to justice and it is completely under the consumer’s freedom of disposal. The second seised court should not decline jurisdiction under these circumstances pursuant to Art 30(2) of the Brussels I Recast,207 and should take jurisdiction.

ii. Choice of Law Cross-border collective redress, where represented consumers have their habitual residence in more than one Member State, also generates difficulties in choice of law. The Commission also suggests that the protective choice of law rules in the Rome I Regulation should equally apply to determine the governing law in collective proceedings.208 The Rome I Regulation, again, does not have specific rule to deal with mass claims. The choice of law rules therein are designed to meet the requirement of individual litigation. They are not compatible with collective redress. 205

Art 30(3). Art 30(2). For more criticism and discussion, see Strong, ‘Cross-Border Collective Redress’, 254–62; M Danvoi, ‘The Brussels I Regulation: Cross-Border Collective Redress Proceedings and Judgments’ (2010) 6 Journal of Private International Law 382–3. 208 European Commission, ‘Green Paper on Consumer Collective Redress’ (n 7) para 59. 206 207

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Consumers in individual litigation are entitled to benefit from the protective choice of law rules.209 Consumers who are targeted by foreign companies in their habitual residence are protected by the level not lower than mandatory rules of their habitual residence.210 In other words, unless the contract has chosen the law with the highest protection standard in all the Member States of potential consumers, Art 6 of the Rome I Regulation may lead to the application of different national laws to different contracts between the defendant and individual represented consumers.211 This is incompatible with collective redress, where the action will only be efficient where the court can apply the same law and standard to all contracts concerned. If the protective choice of law does not apply, for example, the dispute concerns investors buying securities212 or other financial products falling in Art 6(4)(d) and (e),213 the general choice of law in the Rome I Regulation shall apply. Art 3(1) of the Rome I Regulation allows the parties to choose the governing law to the contract. If the company has systematically included a choice of law clause into all its standard-form contracts, the court can simply apply the chosen law. If there is no chosen law, the governing law will be determined according to Art 4(1)(h) of the Rome I Regulation. For a multilateral system bringing together multiple third-party buying and selling interests in financial instruments within the Markets in Financial Instruments Directive (‘MiFiD’),214 the law of that financial market should systematically apply.215 One simple law will apply to the mass action. Difficulty will arise again if different laws are chosen for different contracts, which leads to the application of multiple applicable law to sub-groups in on action. The general conclusion is that the current choice of law rules in Rome I do not work well in collective redress.216 Even worse than jurisdiction, it is almost impossible to make the choice of law rule work simply by providing innovative interpretation. The fact that the existing choice of law rules make the individual cause of action governed by different law fundamentally hampers collective redress from being pursued. In terms of choice of law, it is necessary to introduce new rules designed for collective redress actions into the current system. The EU legislators have provided a few proposals. All of them require the introduction of special choice of law rules for collective redress.217 The purpose is to 209

Art 6 of the Rome I Regulation. For more discussion, see Ch 5 above. Art 6. 211 European Commission, ‘Green Paper on Consumer Collective Redress’ (n 7) para 59. 212 Art 6(4)(c) of the Rome I Regulation. 213 Art 6(4)(d) and (e) of the Rome I Regulation. 214 Directive 2004/39/EC on markets in financial instruments amending Council Directives 85/611/ EEC and 93/6/EEC and Directive 2000/12/EC and repealing Council Directive 93/22/EEC [2004] OJ L145/1. 215 Art 4(1)(h) of the Rome I Regulation. See also XE Kramer, ‘Securities Collective Action and Private International Law Issues in Dutch WCAM Settlements’ (2014) 27 Pacific McGeorge Global Business and Development Law Journal 235, s V.B. 216 The same conclusion is also drawn by other commentators. See, eg, Kramer, ‘Securities Collective Action’ (n 215) s V.A. 217 See European Commission, ‘Green Paper on Consumer Collective Redress’ (n 7), para 59; European Parliament Resolution (n 13), point 26. 210

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systematically apply the law of one Member State to the collective redress. The question is which country’s law should be designated. There are three potential options. The first option is to apply systematically the national law of the defendant’s habitual residence.218 The second option is to apply the law of the Member State that is most affected by the collective redress.219 This usually will be the state where most consumers have their habitual residence.220 The third option is to apply the law of the Member State where the representative entity is located.221 All three options lead to the application of one law, which has close connections to the collective redress. It is a policy-related question as to which one to select. Option one is more pro-defendant. The law of the defendant’s habitual residence should provide certainty to the defendant and should have connections with all underlying disputes in question. However, it is hard to argue this law has the most significant connection to the action as a whole, thus being the most appropriate law to apply. Option two requires the application of the law of the country that is most affected by the collective redress. The question is how to determine which country is most affected by the collective redress. From the procedural perspective, the country where the collective redress action is heard may be most affected by the action. This country, however, may not have the most significant connection with the collective action.222 Option three equally can hardly be justified. Although the representative entity is usually registered in the country where most consumers have their domicile, there is no law to prevent the representative entity established in a less affected country to bring the action. It is suggested that the law can simply establish that the law governing a crossborder collective redress should be the law of the country with the most significant connections with the action as a whole. This country should be the country where most represented consumers have their domicile or habitual residence. However, if this place cannot be identified, it is suggested that the law of the defendant should apply as an alternative.

iii. Recognition and Enforcement of Judgments The Brussels I Recast requires automatic recognition and enforcement of judgments between Member States.223 Judgments are widely defined to include judgments in collective redress, the form and legal consequences of which may be unknown in the requested state, but the effectiveness of which are recognised and authorised in the Member State of origin.224 218

European Commission, ‘Green Paper on Consumer Collective Redress’ (n 7), para 59. Ibid, para 59. 220 European Parliament Resolution (n 13), point 26. 221 European Commission, ‘Green Paper on Consumer Collective Redress’ (n 7), para 59. 222 It depends on the jurisdiction rules. See s C. i. above. 223 Art 36(1). 224 P Jenard, ‘Report on the Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters’ [1979] OJ C59/1, 42 and 43; U Magnus and P Mankowski (eds), Brussels I Regulation, 2nd edn (Munich, Sellier Europa Law Publishers, 2007) 548–9. Both are cited in D Fairgrieve, ‘The Impact of the Brussels I Enforcement and Recognition Rules on Collective Actions’ in Fairgrieve and Lein (n 10) para 10.05. 219

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a. Abolishing Exequatur In the Brussels I Regulation, there is exequatur procedure for a court to enforce judgments made by a Member State. A judgment shall be enforced in another Member State upon the application of the interested party, and being declared enforceable or being registered for enforcement.225 Abolishing exequatur to save time and cost, because the application to declare enforceability and to register for enforcement is rarely refused.226 In 2010, the Commission published the first Brussels I Recast proposal.227 It echoed the necessity to abolish exequatur, but proposed retaining the procedure for collective redress.228 The main reason is the great diversity between national collective redress mechanisms.229 The Commission, however, stated that upon the harmonisation of collective redress rules or principles in the Union, the suppression of exequatur can be extended to collective redress judgments.230 However, before the publication of the EU initiative on collective redress in 2013, the Recast Regulation was finalised and adopted in 2012, which abolished exequatur in all matters falling within the scope of the Regulation. There is no longer an exemption for collective redress.231 It is questionable why the decision was finally made even without the EU harmonisation of rules in collective redress. The Commission’s original concern on the diversity that is likely to cause more potential refusal was not resolved at least in 2012. Although the Commission later published the harmonised ‘principle’ on collective redress,232 this initiative is far from satisfactory in harmonising the real practical diversity between Member States. Firstly, it is recommended and non-binding in nature. Secondly, it only sets up very general principles, leaving great flexibility and discretion to each Member State to determine detailed rules. With the Recommendation entering into force, it is still expected that Member States have various collective redress schemes, with diversity in the standing of the representative body, victims covered, financing and reimbursement schemes, damages, and the opt-in or opt-out model. It is hard to conclude that mutual trust on collective redress judgments exists or is improved between Member States.233

225

Art 38 of the Brussels I Regulation. Green Paper on Brussels I Regulation, 2. European Commission, ‘Proposal for a Regulation on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters’, COM(2010) 748 final (‘Recast Proposal 2010’). 228 European Commission, ‘Recast Proposal 2010’, 7, ‘Exequatur is equally retained for judgments in proceedings brought by a group of claimants, a representative entity or a body acting in the public interest and which concern the compensation of harm caused by unlawful business practices to a multitude of claimants (“collective redress”)’. 229 Ibid. 230 Ibid. 231 Brussels I Recast, Ch III. 232 Recommendation. See s B. above. 233 Kramer (n 215) s IV.B. 226 227

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b. Safeguard The possibility for the brave step to completely remove exequatur is the provision of safeguard and the confidence that the safeguard is enough to protect the public interest of Member States.234 Art 45 of the Recast Regulation provides four grounds for refusal of recognition, including public policy defence, natural justice/ procedural irregularity defence, irreconcilable judgment defence, protective and exclusive jurisdiction defence.235 The first refusal ground is the most important and controversial one. The court of a Member State is entitled to refuse recognising a collective redress judgment given by the court of another Member State if it is ‘manifestly contrary to public policy (ordre public)’ of the forum.236 Although the word ‘manifestly’ means that this ground should be used exceptionally,237 but due to the sensitive feature of collective redress, the public policy defence may be used more frequently. Although public policy defence will not be used simply due to the difference between the law of the Member State where recognition is sought and the law of the Member State where the judgment is given, the diversity in national collective redress rules may very well touch the core of fundamental interest of a nation and general public. For example, some Member States adopt the opt-out scheme, which is not recommended by the European Commission in its collective redress initiative and may not be recognised in the national law of the recognition Member State.238 One interesting issue is whether the opt-out scheme infringes Art 6(1) of the European Convention on Human Rights (ECHR) which states that everyone is entitled to a fair hearing in civil actions,239 and Art 47 of the Charter of Fundamental Rights of the European Union under which everyone whose legal rights are violated has the right to an effective remedy and is entitled to a fair and public hearing.240 The nature of the collective redress is to bind the represented claimant by the collective judgment and deprive him of his right to individual action. This should be acceptable if the individual has made the informed decision to opt into the collective action and to give up his individual right to sue. Although the individual has lost the opportunity to be heard in the court, the procedure is fair and justifiable due to the genuine consent, the legitimacy of the goal and the proportionality.241 As it has been provided by the Charter, the individual right to sue is not absolute and 234 XE Kramer, ‘Cross-Border Enforcement and the Brussels I-bis Regulation’ (2013) 60 Netherlands International Law Review 343, 356; Kramer (n 215), s IV.B. 235 Art 45(1). 236 Art 45(1)(a). 237 C-394/07 Gambazzi v Daimler Chrysler [2009] ECR I-2536; Kramer (n 215) s IV.B.3. 238 Such as Denmark, Norway, Portugal and the Netherlands. Directorate General for Internal Policies, 38. See discussion in Kramer (n 215) s IV.B.3; M Danov, ‘The Brussels I Regulation: CrossBorder Collective Redress Proceedings and Judgments’ (2010) 6 Journal of Private International Law 359, 388–91; D Fairgrieve, ‘The Impact of the Brussels I Enforcement and Recognition Rules on Collective Actions’ in Fairgrieve and Lein (n 10) 171, 178–86. 239 Art 6(1). 240 Art 47. 241 Kramer (n 215) s IV.B.3.

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can be balanced by limitations that ‘are necessary and genuinely meet objectives of general interest recognised by the Union or the need to protect the rights and freedoms of others’.242 The situation becomes far more controversial if the individual in an opt-out scheme fails to opt out. Although an opt-out scheme is not completely banned and each Member State has the leeway to justify it pursuant to the Commission’s collective redress initiative,243 this justification may not satisfy the Member State where the recognition and enforcement is sought. Procedural rights, such as individual participatory rights, may exist as constitutional rights in national law.244 For example, the French court might hold the opt-out representative action unconstitutional because it deprives the claimant’s right to determine whether, when and where to sue.245 Failing to opt out may be unconscious because the victim does not notice or understand the opt-out mechanism.246 The possibility is that judgments based on the opt-out scheme may be held contrary to the public policy of the country where recognition is sought.247 In particular, if one of the represented consumers did not opt out of the collective action but later wants to bring individual action in a country with the opt-in scheme, the court may refuse to recognise the judgment in the opt-out collective action.248 The public policy defence may also be raised if the collective redress is financed by the contingency fee. Contingency fees may stimulate incentives to litigation which may benefit the representative entity instead of compensating represented consumers. Contingency fees are explicitly criticised by the European Commission.249 Member States wishing to make exception are allowed to make justification taking account of the necessity for proper protection and access to justice for individual consumers,250 but the justification may not be accepted by the recognition court. Furthermore, punitive damages are strictly prohibited by the Commission’s Collective Redress Recommendation without exemptions.251 Judgments awarding punitive damages are clearly unrecognisable by being contrary to the EU public policy.

242

Art 52(1) of the Charter. Commission Recommendation (n 130), Art 21: ‘Any exception to this principle, by law or by court order, should be duly justified by reasons of sound administration of justice.’ 244 Strong (n 106) 244–5. 245 Ibid, 245–6 and fn 64, citing In re Vivendi Universal, SA Sec Litig, No 02 Civ 5571 (RJH)(HBP), 2009 WL 855799, 3 (SDNY, 2009). 246 Strong (n 106) 246. 247 Kramer (n 215) s IV.B.3. 248 Strong (n 106) 246–7. 249 European Parliament Resolution, point 15; Recommendation, point 30. 250 Collective Redress Recommendation, Art 30: ‘The Member States that exceptionally allow for contingency fees should provide for appropriate national regulation of those fees in collective redress cases, taking into account in particular the right to full compensation of the members of the claimant party.’ 251 Ibid, Art 31: ‘The compensation awarded to natural or legal persons harmed in a mass harm situation should not exceed the compensation that would have been awarded, if the claim had been pursued by means of individual actions. In particular, punitive damages, leading to overcompensation in favour of the claimant party of the damage suffered, should be prohibited.’ 243

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The second refusal ground is procedural irregularity, in particular, if ‘the judgment was given in default of appearance’ or if the defendant is not properly served.252 In collective redress, the problem probably is the represented claimant who argues procedural irregularity, ie the represented claimant is not properly informed or has no chance to opt out from an opt-out scheme. In the Dutch settlement scheme, the Court treated the represented interested parties as ‘defendants’ when deciding to make the settlement binding on them.253 These ‘defendants’ may argue they were not properly served and the decision was given in default of appearance. Especially when the scheme is opt-out, the domicile of the interested party may be unknown and the unidentified represented victims may not be served in the normal way. The Dutch Court will be satisfied if the group as a whole is served properly.254 For unidentified interested parties, sufficient efforts to advertise in mass media such as newspaper, TV, websites, etc should be considered enough to meet the requirement in the Service Regulation.255 A collective redress judgment may not be recognised if it is irreconcilable with a judgment given between the same parties in the recognition court,256 or it is irreconcilable with an earlier judgment involving the same cause of action between the same parties that could be recognised in the court addressed.257 The problem is that if one of the represented claimants (A) and the representative entity (B) cannot be considered as the ‘same parties’, the court may not reject recognition of a judgement between A and the defendant (C) even if the court has ruled or recognised the court from another Member State on the same cause of action between B and C.258 This may result in the enforcement of judgments that are irreconcilable as a matter of fact to individual parties and may cause uncertainty to the defendant.259 The potential solution is to rely on the lis pendens rule, by either interpreting ‘the same parties’ as including the representative entity and the represented consumer (adopting the splitting approach), or using Article 30 to stay the second ‘related’ action.260 Finally, recognition may be refused if the court of origin has taken jurisdiction in breach of protective jurisdiction rules for individual consumer contracts.261 This refusal ground is irrelevant in collective redress, because the protective jurisdiction shall not apply in the first place.262

252 253 254 255 256 257 258 259 260 261 262

Brussels I Recast, Art 45(1)(b). More discussion, see Ch 10, s V.B. below. Kramer (n 215) s IV.B.3. Ibid. Art 45(1)(c). Art 45(1)(d). Strong (n 106) 265. Ibid. Ibid, 265–6. Art 45(1)(e). See s C.i.a. above.

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The Brussels regime is not completely compatible with collective redress.263 Difficulties mainly exist for opt-out collective actions. Although the European Parliament has suggested the ban of the opt-out scheme in the EU and the European Commission has recommended the opt-in model as a general principle, it does not completely exclude the opt-out model from being adopted in domestic legislation.

V. Conclusion The class action/collective redress is promising in providing effective protection to consumers in cross-border contracts. The protection may be direct by allowing the consumer class member to recover compensation and damages, or indirect through its deterrence effect. From the policy perspective, the deterrence effect may be of more importance. From the consumer’s perspective, most would acquire the chance to effectuate their legal rights through the class action and exercise the right to access to justice. However, more needs to be done to address conflict of laws in the cross-border class action. Uncertainty exists in both the US and EU as to how to adopt the class action in a cross-border case. Especially in the EU, the conflict of laws needs to be updated to make the class action a truly effective mechanism to address mass consumer claims in the internal market. Effective collective redress needs cross-border effects, being able to represent and benefit all consumers in all states, which could provide the most efficient result and prevent the defendant from potential concurrent and repeated proceedings on related claims. However, in order to provide such an effect, judicial cooperation should be in place to avoid concurrent collective redress proceedings, to consolidate related collective redress into one action, and to recognise the res judicata effect of the foreign class action judgment. Given the controversy of collective redress and great diversity in different national law, establishing satisfactory cooperation is difficult. On one hand, it is necessary to provide inclusivity and finality. On the other hand, it is important to provide judicial safeguards to protect absent consumers, to protect consumers’ free will if they do not want to be involved and bound by the collective proceedings, and to provide them the freedom to commence individual actions or separate collective proceedings. As a result, while the value of collective redress is recognised as the potentially effective and efficient dispute resolution mechanism for mass consumer claims, more attention should be paid to the challenge imposed by the extraterritorial effect of this mechanism. More research and legislative work needs to be done to provide an appropriate collective redress framework not only at the domestic but also at the international level. 263 Kramer (n 215) s IV.B; B Hess, ‘Cross-Border Litigation and the Regulation Brussels I’, IPRax 2010, 115; Strong (n 106) 263–70.

10 Alternative Dispute Resolution in Cross-Border Consumer Contracts I. Introduction Given the small value, mass influence, and conflicts of interest in consumer disputes, there is almost consensus that the most appropriate way to resolve consumer disputes is out-of-court alternative dispute resolution (ADR). ADR is defined broadly to cover all dispute resolution methods out of court. It generally includes negotiation, conciliation, mediation, arbitration and their collective forms. Compared to traditional dispute resolution methods, ADR in cross-border consumer redress is not widely used or proves successful. It is partially due to the lack of legislative attention in the past, and partially due to its novelty. However, both are changing and more and more countries provide support to develop ADR to resolve consumer disputes. This chapter analyses the adoption of mediation, arbitration and collective ADR in resolving consumer disputes and relevant private international law issues in applying ADR in cross-border cases.

II. Development of Consumer ADR in EU The European legislators have paid attention to ADR in consumer redress ever since 1984. The Commission published a memorandum which clearly addresses the conciliation and arbitration as consumer redress mechanisms.1 This topic has been studied by both the Council and the Parliament. In 1993, the Commission provided proposals to resolve cross-border consumer disputes.2 It was followed

1 European Commission, ‘Consumer Redress: Commission Memorandum to the Council Transmitted on 4 January 1985’, 12 December 1984, COM(84) 629, http://aei.pitt.edu/1597/1/1597.pdf, accessed on 5 November 2014. This Memorandum was transmitted to the Council in 1985, followed by the ‘Supplementary Communication from the Commission on Consumer Redress’, COM(87) 210 final, http://aei.pitt.edu/1596/1/consumer_redress_COM_87_210.pdf, accessed on 5 November 2014. 2 European Commission, ‘Access of Consumers to Justice and the Settlement of Consumer Disputes in the Single Market’ COM(93) 576 final of 1993.

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by an action plan,3 and resulted in two Commission Recommendations on ADR in consumer disputes published in 1998 and 2001 respectively.4 The 1998 Recommendation set out the principle of independence, transparency, effectiveness, legality, liberty, and representation.5 In 2000, the Community published the Resolution on a network for the out-of-court settlement of consumer disputes (EEJ-net).6 This Resolution provided an effective and convenient channel for consumers to launch their claim in the national body of their home to resolve disputes arising out of another Member State. The 2001 Recommendation encourages the dispute resolution entities to convince parties to reach consent by incorporating the principles of impartiality, transparency, effectiveness and fairness.7 A number of commissioned studies were done on consumer ADR afterwards.8 In order to improve cross-border mediation practice, the EU legislators adopted the Mediation Directive in 2008, specifically targeting cross-border mediation. It provides Member States the flexible regulatory framework to harmonise the minimum standard of domestic mediation law of each Member State. According to the Mediation Directive, every Member State shall ensure the quality of mediation by encouraging mediators or mediation institutes to develop codes of conduct and monitoring mechanism, and encouraging continuous training for mediators. Further, the Mediation Directive pays attention to the enforcement of mediation settlement. Article 6(1) provides that Member States should make it possible for the mediation settlement to be made enforceable upon parties’ request, unless the settlement is contrary to the law of the requesting state. Enforcement usually is done by the court judgment or by an authentic instrument. The Mediation Directive further reassured the protection of confidentiality in mediation and no negative effects on limitation and prescription periods for litigation or arbitration. In 2008, the Mediation Directive was published which provides a framework for cross-border mediation process in EU Member States.9 It has been implemented in all Member States except Denmark.10 3 European Commission, ‘Action Plan on “Consumer Access to Justice and the Settlement of Consumer Disputes in the Single Market”’, COM(1996) 13 final. 4 Commission Recommendation 98/257/EC of 1998 on the Principles Applicable to the Bodies Responsible for Out-of-Court Settlement of Consumer Disputes [1998] OJ L115/31 (‘1998 Recommendation’); Commission Recommendation C(2001) 1016 of 2001 on the Principles for Outof-Court Bodies Involved in the Consensual Resolution of Consumer Disputes [2001] OJ L109/56 (‘2001 Recommendation’). 5 Ibid, para 2. 6 Council Resolution of 25 May 2000 on a Network at Community Level of National Bodies Responsible for the Out-of-court Settlement of Consumer Disputes (EEJ-net), s(2000) 405. 7 2001 Recommendation, s II. 8 Such as the Study Centre for Consumer Law-Centre for European Economic Law, Katholieke Universiteit Leuven, ‘An Analysis and Evaluation of Alternative Means of Consumer Redress other than Redress through Ordinary Judicial Proceedings’, 17 January 2007 (‘Leuven Report’); Civic Consulting of the Consumer Policy Evaluation Consortium (CPEC), ‘Study on the use of Alternative Dispute Resolution in the European Union’ (CPEC Study), 16 October 2009. 9 Directive 2008/52/EC of 21 May 2008 on certain aspects of mediation in civil and commercial matters (Mediation Directive) [2008] OJ L 136/3. 10 All Member States except Denmark should implement the Directive into their domestic mediation law by 21 May 2011. Art 21. For more introduction, see M Hanks, ‘Perspectives on Mandatory

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Regardless of these efforts, ADR has not been satisfactorily developed in the EU. The awareness and knowledge of the mechanism is low and the quality of various ADR mechanisms across Member States varies. The diverse quality levels of ADR in different Member States may discourage cross-border transactions, as both parties may be reluctant to enter into cross-border transactions without confidence on the reliability of dispute resolution mechanisms that may be used where disputes have arisen. The diverse development of ADR also affects the competitiveness of businesses, where businesses in countries without cheap and fast ADR are prejudiced. In 2010 and 2011, the European Parliament prioritised the ‘simple, affordable, expedient and accessible system of redress’ for the development of internal market.11 In 2013, the new legislation on consumer ADR and online dispute resolution (ODR) was published.12 The new rules should be implemented in Member States by July 2015.13 It is too early to have any empirical evidence on the success of the new rules and their impact in the internal market.

III. Mediation in Cross-Border Consumer Contracts A. Cross-Border Consumer Mediation: Challenges and Responses Cross-border disputes are defined as contractual disputes ‘arising from a sales or services contract where, at the time the consumer orders the goods or services, the consumer is resident in a Member State other than the Member State in which the trader is established.’14 The first complaint regarding the use of ADR in cross-border cases is the lack of transparency. Acquiring information on another country’s ADR scheme is particularly difficult and expensive.15 The second obstacle is the use of foreign language in foreign mediation. The third question is which country’s ADR organisation may be used. Consumers usually have more

Mediation’ (2012) 35 University of New South Wales Law Journal 929, 933ff. The UK implemented the Directive by the Cross-Border Mediation (EU Directive) Regulations 2011 which came into force from 20 May 2011. 11 European Parliament, ‘Resolutions of 25 October 2011 on Alternative Dispute Resolution in Civil, Commercial and Family Matters’; European Parliament, ‘Resolution of 20 May 2010 on Delivering a Single Market to Consumers and Citizens’; Directive 2013/11/EU on Alternative Dispute Resolution for Consumer Disputes and Amending Regulation (EC) No 2006/2004 and Directive 2009/22/EC (Directive on Consumer ADR), [2013] OJ L165/63 recital 8. 12 Directive on Consumer ADR; Regulation (EU) No 524/2013 on online dispute resolution for consumer disputes and amending Regulation (EC) No 2006/2004 and Directive 2009/22/EC (Regulation on Consumer ODR). 13 For more on the EU development of ADR and ODR, see http://ec.europa.eu/consumers/archive/ redress_cons/adr_useful_links_en.htm, accessed on 9 January 2015. 14 Directive on Consumer ADR, Art 4(1)(f). 15 CEPC Study, 133.

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confidence and easy access to their local ADR organisations. Using another country’s ADR would increase uncertainty, inconvenience and expense. Finally, the existence of fragmentation of ADR rules and practices in different Member States may cause further concerns.16 International mediation encounters ‘an increased variety … of social-economic and cultural environments and expectations that increase the risk of bias and make dialogue and consensual solution-finding through the mediator often more problematic.’17 As a result, both parties would wish to opt for ADR schemes in their own countries, and do not accept ADR in another country. Without both parties’ cooperation and opting for one ADR scheme, ADR cannot work successfully. The transparency problem is handled by introducing the European Consumer Centres Network (ECC-Network). The ECC-Network aims to provide assistance for consumers to use ADR for cross-border claims. The ECC-Network consists of 29 centres in every Member State of the EU, Ireland and Norway. Where a consumer has disputes with a business located in another Member State, the consumer could access the ECC in his home country, which will contact the ECC in the business’ domicile. Two ECCs will work together to provide the consumer information about the appropriate ADR scheme that he may use, the available ADR institutes, advantages and disadvantages of ADR, and consumers’ rights. ECCs will also provide help and services for translation into different languages. Finally, the ECCs could help facilitate cross-border ADR by registering consumers’ claims in a foreign ADR.18 The Directive on Consumer ADR also provides that Member States should ensure that consumers acquire access to the ADR entity in another Member State.19 Furthermore, the Directive on Consumer ADR aims to provide uniform standards for mediation practices throughout the Member States. The uniform standards and code of practice may reduce the parties’ concern on different mediation practices, potential bias and due process in international mediation.20 All these efforts, however, cannot remove all difficulty faced by consumers in cross-border mediation. ECC could only help consumers improve their lack of knowledge/information. It could not help consumers gain easy access to ADR in another country. A survey done in 2009 revealed that although ECCs have done a good job in collaborating with each other and referring consumer complains, consumers still rarely participate in cross-border ADR.21 In order to address this problem, the Directive on Consumer ADR requires Member States to ensure the effectiveness and accessibility of ADR in cross-border disputes. Article 8(a) of the Directive provides that Member States should ensure that the ADR procedure is 16

Ibid, 112. G Carduce, ‘The Importance of Legal Context and Other Considerations in Assessing the Suitability of Negotiation, Mediation, Arbitration and Litigation in Resolving Effective Domestic and International Disputes’ (2012) 86 St John’s Law Review 511, 523. 18 CEPC Study, 15. 19 Directive on Consumer ADR, Art 14(1). 20 The uniform standard is also provided in the Mediation Directive. For more discussion, see WA Herbert et al, ‘International Commercial Mediation’ (2011) 45 International Law 111, 112–8. 21 CEPC Study, 110–1. 17

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‘available and easily accessible online and offline to both parties irrespective of where they are’.22 Online mediation is probably the only means to resolve the difficulty of access to foreign ADR institutions.23 Furthermore, even if the harmonised standard is established for mediation in all EU Member States, the nature of mediation determines that variety of practice, potential misunderstanding, difficulty in communication and bias may continue to exist in international mediation due to different cultural, economic and business practice background in different Member States. Such difference originates from culture and human nature, which cannot be affected by the operation of law. In international mediation, due to the above mentioned difficulties, consumers in cross-border disputes are more likely to select their domestic ADR institution. However, this may cause the low compliance of businesses.24 Businesses may not participate in the mediation process,25 and they may not wish to recognise the authority and competence of the foreign ADR institution.26 Since mediators cannot make decisions and the settlement requires both parties’ consent, lack of cooperation by any party would make mediation unworkable in practice.

B. Conflict of Laws in Cross-Border Consumer Mediation Conflict of laws issues are rarely discussed in international mediation. Mediation is a private dispute resolution method based on consent. The settlement completely depends on the parties’ free consent without a neutral third party to impose a decision. There is no strict jurisdiction and choice of law questions. However, it does not mean conflict of laws issues do not exist. Firstly, mediation may have the effect of preventing the parties accessing the court, at least for a short period of time. The validity and impact of the mediation agreement on courts and other dispute resolution proceedings should be considered. Secondly, although mediation does not apply the substantive law of any country, choice of law issues will arise in deciding the validity of mediation agreements, mediation process, mediator agreements, mediator’s obligations, and enforcement of mediation settlement agreements. Thirdly, if one of the parties refuses to voluntarily enforce the mediation settlement, how could the settlement be recognised and enforced through the court of another Member State?27 22

For online mediation, see Ch 11 below. See Ch 11 below. CEPC Study, 112. 25 Ibid. 26 Ibid, fn 100. 27 Conflict of laws in mediation is discussed in N Alexander, ‘Harmonisation and Diversity in Private International Law of Mediation’ in KJ Hopt and F Steffek (eds), Mediation Principles and Regulation in Comparative Perspective (Oxford, Oxford University Press, 2012) 131; AJ Belohlavek, Rome Convention-Rome I Regulation (Huntington, NY, Juris Publishing Inc, 2011) 366–72; P de los Mozos, ‘The Law Applicable to International Mediation Contracts’ (2011) 1 InDret 1, electronic copy available at http://ssrn.com/abstract=1762680, accessed on 9 January 2015; JP Rosenberg, ‘Keeping the Lid on Confidentiality: Mediation Privilege and Conflict of Laws’ (1994) 10 Ohio State Journal 157 on dispute resolution. 23 24

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i. Validity and Enforceability of Mediation Agreements The parties should enter into a mediation agreement before one can commence mediation. In commercial practice, a business may include a mediation agreement as a standard term in the contract with mass consumers. The question is whether this agreement should be valid and binding on consumers. Choice of law rules are relevant in deciding the effectiveness of mediation agreements. However, it is unclear how to decide the governing law of a mediation agreement. Two potential approaches exist. Firstly, mediation agreements may be treated as one type of dispute resolution agreements and can be analogues with jurisdiction and arbitration agreements. The Rome I Regulation has excluded jurisdiction and arbitration agreements from its scope but nothing has been said on other dispute resolution agreements.28 It is thus likely that the validity of mediation agreements shall be determined pursuant to the law of the Rome I Regulation.29 The different treatment to mediation agreements may be justified in that uniform validity rules or choice of law rules are provided in other instruments governing jurisdiction and arbitration agreements, but no harmonised rules are provided for mediation.30 The second approach is to treat mediation agreements as substantive terms, subject to the putative proper law of the contract.31 In Sulamerica Cia Nacional de Seguros SA v Enesa Engelharia SA, for example, an insurance contract includes both a mediation agreement and an arbitration agreement. The English court applies the parties’ chosen law to govern the insurance contract and mediation clause but the lex arbitri to the arbitration clause.32 These two different approaches may be in terms of the legal theory and classification, both lead to the application of the Rome I Regulation to decide the applicable law to a mediation agreement. The mediation agreement is concluded between a consumer and a business. Therefore, pursuant to the Rome I Regulation, as far as the business has targeted the consumer’s domicile, the protective choice of law is applicable. The law of the consumer’s habitual residence applies in the absence of parties’ choice of law agreement, and any chosen law cannot deprive the consumer of the protection provided by the mandatory rules of this country.33 If the law of the consumer’s habitual residence provides more restrictive requirements to validate mediation agreements, this law should apply. A mediation agreement included in an online contract for the mass international market may be valid in some states but invalid in others.

28

Art 1(2)(e) of the Rome I Regulation. The Court agreed to apply the chosen law to govern the mediation agreement. 30 See Art 25 Brussels I Recast; Art II, NYC. EU Directives on mediation only provide minimum standards but not full harmonisation. 31 Belohlavek, Rome Convention (n 27) 366. 32 Sulamerica Cia Nacional de Seguros SA v Enesa Engelharia SA [2013] 1 WLR 102. J HaydnWilliams, ‘Sulamerica: The Problem of the Proper Law of an Arbitration Agreement’ (2012) 78 Arbitration 387. 33 Art 6 of the Rome I Regulation. Ch 5 above. 29

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Furthermore, a mediation agreement is also subject to the scrutiny of the Unfair Terms Directive.34 Would a mediation agreement have the effect of excluding or hindering the consumer’s right to take legal action or exercise any other legal remedy?35 If there is a mediation agreement included in a contract, does it impose an obligation for the parties to make mediation a precondition for all other types of dispute resolution, including court proceedings? In Sulamerica Cia Nacional de Seguros SA v Enesa Engelharia SA, the Court of Appeal found that the mediation agreement neither set out a defined mediation process nor referred the procedure of a specific mediation provider. It also did not expressly impose obligations to make mediation a precondition of other dispute resolution methods.36 It suggests that if a mediation agreement is vague and does not define the parties’ rights and obligations clearly, it may be interpreted as a mere invitation for mediation. If a mediation clause is very clearly drafted, imposing on the parties the obligation to mediate before access to other types of dispute resolution, this mediation agreement may be construed as a compulsory precondition for court proceedings.37 Does this mediation agreement ‘hinder’ the consumer’s right to take legal action, making it an unfair term?38 It is likely that such an agreement will not be interpreted as ‘unfair’. Firstly, mediation may or may not be successful and there is no reason to force mediation. If the consumer is forced to go through mediation, the consumer can easily break down the process by refusing to reach any agreement. Secondly, mediation is a preferred dispute resolution method for small consumer claims, while litigation is not. There is strong policy to encourage parties to mediation as a pre-trial process for litigation. It is hard to argue mediation as a prerequisite has hindered the consumer’s access to justice. There may be delay but the delay will not be significant and costly. Furthermore, the limitation or prescription will be frozen during the mediation process.39 Finally, mediation agreements usually are not contrary to the concept of good faith, and do not cause significant imbalance in the parties’ rights and obligations.40 However, some businesses may alter the mediation agreements by requiring that consumers should not seek redress in courts should mediation fail. Such agreements will be invalid.41 Therefore, mediation agreements may have impact in conflicting court proceedings. If a party commences litigation without trying mediation first, the court should stay jurisdiction and direct the party to mediation.

34 Council Directive 93/13/EEC of 5 April 1993 on Unfair Terms in Consumer Contracts [1993] OJ L95/29. Leuven Report, 121. 35 Unfair Terms Directive, Annex 1(q). 36 Sulamerica Cia Nacional de Seguros (n 32), para 36. 37 Leuven Report, 122. The compulsory effect is recognised in some English cases, eg Shirayama Shokusan v Danovo Ltd (No 1) [2003] EWHC 3306 (Ch); Cable & Wireless plc v IBM United Kingdom Ltd [2002] EWHC 2059 (Comm); Holloway v Chancery Mead Ltd [2008] 1 All ER (Comm) 653. 38 Unfair Terms Directive, Annex 1(q). 39 Mediation Directive, Art 8(2); Directive on Consumer ADR, Art 12. 40 Unfair Terms Directive, Art 3(1). 41 Leuven Report, 121.

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ii. Various Applicable Law Since mediation is assisted negotiation, the settlement is not imposed on either party and the parties reach agreement with the help of a mediator, there won’t usually be many choice of law problems.42 However, choice of law issues still arise. Firstly, one may need to know the law governing the mediation procedure.43 Mediation procedure law differs from country to country. Usually, when the parties have chosen a mediation entity, they have chosen the mediation procedure rules adopted by the entity governed by the national law of the country where the entity is located. Secondly, what law applies to the mediator’s role? In order to simplify the issue, parties need to clarify what is expected from mediators.44 In cases where gaps exist or the parties are silent on this issue, options should be made between the law of the mediator, the law of the conflicting parties, the law of the mediation entity, and the law governing the mediation process. The Rome I Regulation applies to decide the applicable law to the agreement between the parties and the mediator to decide rights and obligations of the parties and the mediator in the mediation process.45 The first question that should be resolved is whether the mediator agreement is a consumer contract. The mediator is there to provide professional services, which should be considered within the mediator’s trade or profession. The conflicting parties in this process are outside their trade or profession and they are receiving professional mediation services. The mediator agreement may be classified as a consumer contract.46 However, the consumers in this agreement include two parties who have their habitual residences in different Member States. It is thus impossible to apply the law of the consumer’s habitual residence to govern the mediator agreement. It is thus suggested that the parties should agree on the law governing the mediator agreement. The conflicting parties, especially the consumer, may fail to consider the applicable law governing the mediator agreement at all. It is the duty of the mediator or the mediation entity to draft very clear rules including choice of law rules to govern a mediator agreement. This cannot completely resolve the difficulty. Under the Rome I Regulation, the chosen law cannot deprive consumers of the protection provided by the mandatory rules of their home. In order to have an enforceable mediation settlement, the mediator must comply with the highest standard among the governing law

42 G Carducci, ‘The Importance of Legal Context and Other Considerations in Assessing the Suitability of Negotiation, Mediation, Arbitration and Litigation in Resolving Effective Domestic and International Disputes’ (2014) 86 St John’s Law Review 511, 523; M Philippe, ‘Now Where Do We Stand With Online Dispute Resolution (ODR)’ (2010) 6 International Business Law Journal 563, 571. 43 It has been advised by the Chartered Institute of Arbitrators (CIArb) to include a provision specifying the law governing the mediation. CIArb, Practice Guidelines 4, 1, www.ciarb.org/docs/defaultsource/practice-guidelines-protocols-and-rules/4-guidelines-on-mediation-rules.pdf?sfvrsn=2, accessed on 22 March 2015. 44 Carducci, ‘The Importance of Legal Context’ (n 42) 523. 45 Alexander, ‘Harmonisation’ (n 27) 170. 46 de los Mozos, ‘The Law’ (n 27) 9–10.

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and the law of both conflicting parties. For example, conflicts may exist in law governing privacy and confidentiality.47 If the mediator or mediation institute of the consumer’s domicile is chosen, its failure to comply with the privacy law or other procedural requirement in the business’s home state may make the settlement unenforceable.48 Conflict of laws, as a result, cannot remove all obstacles of international mediation. It is, thus, crucial to have consistent mediation standards applicable to cross-border mediation.49

iii. Enforceability of Settlement Settlement between the parties in mediation is a contract. Enforcing the settlement agreement abroad is equal to the enforcement of a contract in another country, which, again, generates jurisdiction and choice of law questions.50 The Brussels I Recast and the Rome I Regulation are relevant.51 The problem is whether the settlement agreement can be classified as a consumer contract to generate protective conflict of laws in the European conflicts instruments. It is likely that the settlement should fall out of the protective scheme. Firstly, consumer contracts are defined where one party concluded the contract outside his trade or profession, while another concluded the contract within his trade or profession.52 In a settlement agreement, the parties contract to resolve existing disputes arising out of their transactions, the purpose of the settlement agreement is outside both parties’ trade or profession. Secondly, consumers are defined as the end user of a contract, while in a settlement agreement there is no one party to supply where another is to consume. Thirdly, the purpose of protective rules is designed to protect consumers who are generally weaker in terms of bargaining power, litigation power, knowledge and information. When the parties enter into a settlement agreement, the inequality of power between the parties is largely eliminated and adjusted by the mediator. As a result, a mediation agreement should be treated as an ordinary contract, instead of a consumer contract. As a result, jurisdiction should be decided according to Article 7(1) of the Brussels I Recast. This contract is classified as neither a sales contract nor a services contract and the country which is the place of performance of the obligation in question should have jurisdiction. Where the settlement requires the business to replace the goods, supply new parts, repair, or provide additional services, the country where the obligation should be performed, ie the place of delivery or the place where services should be provided, has jurisdiction.53 If the settlement 47 MA Kucinski, ‘The Pitfalls and Possibilities of Using Technology in Mediating Cross-Border Child Custody Cases’ (2010) Journal of Dispute Resolution 297, 308. 48 Ibid. 49 Ibid. 50 Carducci (n 42) 538. 51 Alexander (n 27) 169–70. 52 See Art 17(1) of the Brussels I Recast; Art 6(1) of the Rome I Regulation. Ch 2, s II. above. 53 Art 7(1) of the Brussels I Recast. P Rogerson, Collier’s Conflict of Laws, 4th edn (Cambridge, Cambridge University Press, 2013) 79–81.

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requires the business to pay consumer damages or reimburse the consumer, the place of performance will be determined by the law applicable to the settlement agreement, which causes further uncertainty.54 When the court makes a decision on the enforceability of the mediation settlement, it shall apply the law governing the settlement.55 This law may be agreed by the parties,56 or the law designated according to Article 4 of the Rome I Regulation. This contract is not one of the eight special contracts limited in Article 4(1). If a settlement imposes the duty to one party, this party will be the characteristic performance, and the law of his habitual residence should apply.57 If a settlement agreement imposes duties to both parties and it is hard to identify one party whose performance is characteristic to the contract, or if the other country has the manifestly closer connection than the habitual residence of the characteristic performer,58 the governing law should be determined according to the closest connection principle.59 The court should consider the parties’ habitual residence, the place of mediation, the obligations and the place of performance, and the original transactions to determine the centre of gravity of the contract. It, again, is complicated. Furthermore, the judgment to enforce mediation settlement again faces the question of enforcement. If the consumer sues in his domicile and the court orders payment by the business, the consumer needs to apply for enforcement in the enforcement authority in the business’s domicile.60 Fortunately, the cross-border enforceability of a mediation settlement can be largely improved if the settlement is approved by the relevant authority, which provides the settlement a credential as a judgment, a decision, or an authentic instrument.61 Once the enforceability is confirmed through a judgment or an authentic instrument, cross-border enforcement can be easily done pursuant to the EEO or the Brussels I Recast.62 In England, for example, the court can make a mediation settlement enforcement order which entitles the wronged party to immediately apply for enforcement on default.63

IV. Arbitration in Cross-Border Consumer Contracts In arbitration, an independent third party, namely the arbitrator, makes the decision and the arbitral award is binding on both parties. Compared to mediation, 54 55 56 57 58 59 60 61 62 63

Rogerson, Collier’s 82–6. Case C-12/76 Tessili v Dunlop AG [1976] ECR 1473. Carducci (n 42) 538. Rome I Regulation, Art 3(1). Ibid, Art 4(2). Ibid, Art 4(3). Ibid, Art 4(3) and (4). See discussion above Ch 8. Mediation Directive, Art 6(2); Carducci (n 42) 539. Regulation on EEO, Arts 24 and 25; Brussels I Recast, Arts 33–6. Ch 8 above. Civil Procedure Rule 78.24.

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arbitration receives the weaker support as being an appropriate and recommendable alternative dispute resolution method for consumer disputes. Although arbitration is widely accepted as a popular dispute resolution method in international commerce, given the benefit of neutrality, flexibility, confidentially and easy enforcement of awards worldwide,64 its adoption in consumer disputes is questioned on the possible high costs,65 the likely decisions made without considering the weaker party protection, and the danger of depriving consumers of their rights of access to courts.66

A. Consumer Arbitration in US There is no international consensus as to whether arbitration should be allowed in consumer dispute resolution. In the US, arbitration agreements in consumer contracts are generally valid and binding.67 Such agreements, however, are subject to the conscionability test, and are more and more frequently invalidated in contracts of adhesion.68 An arbitration agreement must be both substantively and procedurally unconscionable in order to be denied enforceability. Substantive conscionability requires the court to consider the content and purpose of a term, whether it is commercially reasonable.69 If an arbitration agreement deprives the parties’ right to courts but clearly informs the parties of this result, it is not substantively unconscionable.70 A term will be substantively unconscionable when the clause is overly harsh or one-sided to oppress the consumer,71 the clause unfairly surprises the consumer,72 there is an overall imbalance in the parties’ rights and obligations, eg the obligation to arbitration does not apply equally to both parties,73 the clause

64 A Redfern and M Hunter, Law and Practice of International Commercial Arbitration, 4th edn (London, Sweet & Maxwell, 2004) 22–4; G Born, International Arbitration and Forum Selection Agreements (London, Kluwer, 1999) 8. 65 Redfern and Hunter, Law and Practice (n 64) 24. 66 DM Bates, ‘Consumer’s Dream or Pandora’s Box’ (2004) 27 Fordham International Law Journal 823, 827; DS Schwartz, ‘Enforcing Small Print to Protect Big Business’ (1997) Wisconsin Law Review 33, 37. 67 J Delisle and E Trujillo, ‘Consumer Protection in Transnational Contexts’ (2010) 58 AJCL Supp 135, 157. 68 Delisle and Trujillo, ‘Consumer Protection’ (n 67) 157. 69 Hedeen v Autos Direct Online Inc 2014 WL 4748386, 7 (Ohio App 8 Dist, 2014); New Hope Community Church v Patriot Energy Partners LLC 6 N.E.3d 70, 76 (Ohio App 7 Dist, 2013); State ex rel Ocwen Loan Servicing v Webster 232 WVa 341 (W Va, 2013) 358; 70 New Hope Community Church (n 69) 77. 71 Due%25nas v Life Care Centers of America, Inc, 336 P.3d 763 (Ariz App Div 1, 2014) para 14; Flores v Transamerica HomeFirst, Inc 93 Cal App 4th 846, 113 Cal Rptr 2d 376 (Cal App 1 Dist, 2001). 72 Surprise may be based on the location of the clause, eg it is located on the reverse side of a doublesided contract and is not brought to the attention of the consumer, see Sanchez v Valencia Holding Co LLC 135 Cal Rptr 3d 19 (Cal App 2 Dist, 2011); Newton v American Debt Services, Inc 854 F Supp 2d 712 (ND Cal, 2012) 724; Bruni v Didion 160 Cal App 4th 1272, 1291, 73 Cal Rptr 3d 395 (2008), or it is included in fine print and not conspicuous to the consumer, see Davis v Global Client Solutions, LLC, Not Reported in F Supp 2d, 2011 WL 4738547 (WD Ky, 2011). 73 New Hope Community Church (n 69) 77; Due%25nas (n 71) para 14;

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grants the business a unilateral right to choose arbitrators,74 the rules governing arbitration and required fees are not disclosed before concluding the agreement,75 the clause limits the statutory remedies consumers could receive,76 or there is a significant cost-price disparity.77 More needs to be said on cost-price disparity. Simply high cost will not necessarily justify substantive conscionability, but the cost must be ‘prohibitively expensive’.78 In a few cases, US courts recognised that consumers may suffer difficulty in arbitration costs and refuse to enforce arbitration agreements in consumer disputes for the reason of excessive cost which may ‘deny a potential litigant the opportunity to vindicate his or her rights’.79 The consumer, however, has the burden to prove that the cost for arbitration is indeed prohibitive.80 The court will consider the likely arbitration cost with reasonable certainty, which is estimated by using ‘a reasonable, good faith effort’.81 In Brooks v Prestige Financial Services,82 the company successfully proved that the arbitration cost was much less than what the consumer feared under the American Arbitration Association (AAA) schedule, which hampered the consumer’s argument on substantive conscionability. The consumer should prove he could not afford the arbitration cost, evidenced by his income or assets.83 The court will also consider whether there is a possibility for waiver or reduction of costs.84 If the arbitration agreement or the arbitration rule selected in the agreement allows waiver, reduction or deferral of fees based on financial difficulty, the arbitration agreement is not substantively unconscionable.85 Related to cost-price disparity, a number of factors that may increase the cost for consumers may make the arbitration agreement substantive unconscionable. One is the loser pay agreement. In Newton v American Debt Services, Inc,86 the Federal court found an arbitration agreement substantively unconscionable which limited the company’s liability to pay compensation to consumers and allowed the company to recover attorney fees from consumers without finding consumers 74

Newton v American Debt Services (n 72) 723. New Hope Community Church (n 69) 77. 76 Newton v American Debt Services (n 72) 724; Armendariz v Found Psychcare Servs, Inc 24 Cal 4th 83, 103 (2000); Graham Oil Co v ARCO Prods Co 43 F.3d 1244, 1248 (9th Cir 1994). 77 Due%25nas (n 71) para 14; Clark v Renaissance West, LLC 232 Ariz 510, 512 (Ariz App Div 1, 2013); New Hope Community Church (n 69) 77; 78 Clark (n 77) 513. 79 Brooks v Prestige Financial Services, Inc 827 F Supp 2d 509, 514 (D Md, 2011); Clark (n 77) 512; Camacho v Holiday Homes, Inc, 167 F Supp 2d 892, 897 (WD Va, 2001); Due%25nas (n 71); Bates, ‘Consumer’s Dream’ (n 66) 835. 80 Clark (n 77) 513; Harrington v Household International, Inc, Civil Action No 02 C 8257 (SY) (ND Ill, 2004), 252; Green Tree Financial Corp-Alabama v Randolph 531 US 79, 92 (2000). 81 Green Tree Financial (n 80) 91–2; Harrington (n 80) 252; Clark (n 77) 513; Phillips v Assocs Home Equity Services, Inc 179 F Supp 2d 840, 847 (ND Ill, 2002). 82 Brooks v Prestige Financial Services (n 79). 83 Clark (n 77) 513. 84 Ibid, 512; 85 Ibid, 513; Jones v Gen Motors Corp 640 F Sup 2d 1124, 1134 (D Ariz, 2009). 86 Newton v American Debt Services (n 72). 75

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acting in bad faith.87 The other is the venue selection. If the arbitration agreement has chosen the venue which is located at a distance from the consumer’s home, it may increase the consumer’s cost for arbitration and make the cost excessively or prohibitively expensive.88 Procedural unconscionability involves the lack of authentic consent by the parties, where the relative bargaining power of the parties should be considered.89 It does not mean a clause is procedurally unconscionable once the contract is a standard form contract and inequality of bargaining power exists. Instead, consideration should be given to whether the disputed term is brought to the weaker party’s attention and explained so clearly that the weaker party could properly understand its meaning, importance and any consequences if it is accepted.90 If an arbitration agreement is clearly drafted and constitutes plain language,91 highlighted and placed conspicuously for the consumer to view before signing,92 providing the consumer with alternative options, ie the consumer could enter into the agreement without consenting to the arbitration clause,93 this clause is procedurally conscionable. On the other hand, if an arbitration clause was included in the standard terms and conditions, printed in the reverse side of a document, incorporated in the actual contract by unclear reference, not highlighted or signed by consumers, the clause might be procedurally unconscionable.94 In e-commerce, a browse-wrap arbitration agreement may be held procedurally unconscionable against consumers.95 Finally, an arbitration agreement cannot violate the public policy of the state. In Hedeen v Autos Direct Online, for example, the arbitration agreement provides the loser-pay provision where the loser will pay the other party reasonable attorney fees. Pursuant to the Ohio Consumer Sales Practices Act, consumers shall not pay traders’ attorney fees if bringing proceedings in good faith. The loser pays principle is against Ohio public policy as it infringes the statutory protection to consumers and may preclude consumers from bringing actions.96 There is also a question concerning whether mandatory arbitration agreements which compel consumers 87 Ibid, 723. See also Gandee v LDL Freedom Enterprises 176 Wash 2d 598 (Wash, 2013); Zuver v Airtouch Communications 153 Wash 2d 293 (Wash, 2004); Adler v Fred Lind Manor 153 Wash 2d 331 (Wash, 2004). 88 Gandee v LDL (n 87) 604–5. Many arbitration centres adjusted their consumer arbitration fee schemes to reflect the judgments. Bates (n 66) 835–38. There may be a fee waiver scheme, or fee-shift from consumers to businesses. AAA Administrative Fees Waiver/Deferral/Hardship Provisions (July 1, 2003); NAF Consumer Rules, R.5(H); JAMS Consumer Rules, s 17; Bates (n 66) 837–8. 89 McCaskey v Sanford-Brown College 2012 WL 1142880, 5 (Ohio App 8 Dist, 2012); Hedeen v Autos Direct Online (n 69); New Hope Community Church (n 69) 80; Ball v Ohio State Home Services 168 Ohio App 3d 622; State ex rel (n 69) 357–8. 90 Hedeen v Autos Direct Online (n 69) 6–7; State ex rel (n 69) 357–8. 91 State ex rel (n 69) 357. 92 Ibid. Brooks v Prestige Financial Services (n 79) 514 (an arbitration clause that was included on the second page, and used bold and capitalised lettering, was not procedurally conscionable). 93 State ex rel (n 69) 357. 94 Newton v American Debt Services (n 72). 95 Nguyen v Barnes & Noble Inc, 9th Cir, 18 August 2014. 96 Hedeen v Autos Direct Online (n 69) 10–11.

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to conduct individual arbitration and waive class-action are against public policy. In AT&T Mobility v Concepcion,97 the Supreme Court held that class-action waivers in consumer contracts are not unconscionable, giving great enforceability to arbitration agreements. Although in a previous judgment in Discover Bank v Superior Court,98 the California Supreme Court focused on the protection of consumers in a contract of adhesion, recognising the fact that most consumer disputes give small damages and redress may only be reasonable in collective actions, it held class-action waivers unconscionable, this decision was abrogated for being contrary to the purpose of the Federal Arbitration Act.99 Consumer arbitration in the US is prima facie permitted, subject to conscionability scrutiny. It is necessary to note that conscionability is not a high standard but a basic requirement for a contract to be valid. It applies to both commercial contracts and contracts with inequality of bargaining power, or adhesion contracts. Many requirements in conscionability test are rather technical and easily achieved by sophisticated businesses. US companies could easily draft a valid arbitration agreement binding on consumers. The level of protection provided to consumers is low and insufficient.

B. Consumer Arbitration in EU Compared to the US, the EU imposes more restrictions to consumer arbitration. These restrictions can be classified into three types, ie restricting validity and enforceability of arbitration agreements, restricting the applicable law and substantive awards, and restricting recognition and enforcement of awards.

i. Arbitration Agreement In the EU the right of access to courts is a fundamental human right and should not be contracted out by contracts in the absence of consumers’ free will.100 This fundamental right is echoed in both 1998 and 2001 Recommendations, which provides that the use of arbitration procedure ‘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’.101 It does not mean consumer arbitration is completely banned, but application of such a dispute resolution method is largely restricted. In particular, even if a consumer, after sufficient notice and full awareness of the nature and effect

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AT&T Mobility v Concepcion 131 SCt 1740 (2011). Discover Bank v Superior Court 36 Cal 4th 148 (Cal, 2005). 99 Concepcion (n 97) 1747. For more discussion, see infra s V. 100 ECHR, Art 6; Directive on Consumer ADR, Arts 11 and 12. C Hodges and N Creutzfeldt, ‘Implementing the EU Consumer ADR Directive’, www.fljs.org/sites/www.fljs.org/files/publications/ Hodges-Creutzfeldt_0.pdf, accessed on 23 November 2014) 7. Bates (n 66) 835; Leuven Report, 120–1. 101 2001 Recommendation, recital 14; 1998 Recommendation, Art VI. 98

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of a binding and compulsory arbitration agreement, or even after receiving independent legal advice, genuinely agrees to submit disputes exclusively to arbitration before disputes materialise, the freedom of choice is hampered by the Recommendations.102 The Recommendations, though they have no normative force, have impact on national practice in consumer arbitration.103 It is necessary to note that the requirements in the Recommendations are more restrictive than those in the later legislation. Furthermore, the Unfair Terms in Consumer Contracts Directive provides that contract terms which have not been individually negotiated, which are contrary to the principle of good faith, and which cause a significant imbalance in the parties’ rights and obligations to the detriment of the consumer, are unfair and unenforceable.104 An example provided in Annex 1 is a term that has the effect of ‘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’.105 This compulsory arbitration agreement ‘may be’ unfair, that means discretion still needs to be made to determine whether an arbitration agreement meets the test for ‘unfairness’ in Article 3 of the Directive. An arbitration agreement is not unfair if (1) it is individually negotiated, or (2) it is non-compulsory against consumers, ie the consumer could decide whether to opt for arbitration or other types of dispute resolution, including litigation. In all other circumstances, one needs to consider whether the agreement is contrary to the principle of good faith and whether it has caused a significant imbalance in the parties’ rights and obligations. Factors that may be considered and make an arbitration clause unfair are the location of the arbitral tribunal, the cost-price disparity for the consumer to travel for arbitration,106 the arbitration fees payable by consumers comparing the size of the claim,107 whether the arbitration clause has the limited scope and the consumer has to take separate proceedings for the whole claim,108 or whether the consumer’s attention has been drawn to the existence, onerous nature and consequence of the arbitration clause,109 and whether the consumer received independent and competent legal advice.110 Furthermore, an unfair term is only voidable by the weaker party, if a consumer chooses to bring arbitration under an ‘unfair term’, this will be allowed.111 102 M Piers, ‘Consumer Arbitration in the EU’ (2011) 2 Journal of International Dispute Settlement 209, 215–6. 103 Ibid, 216. 104 Council Directive 93/13/EEC of 5 April 1993 on Unfair Terms in Consumer Contracts [1993] OJ L95/29, Art 3(1). 105 Annex 1(q). 106 Case C-40/08 Asturcom Telecomunicaciones SL v Rodriguez Nogueira [2009] ECR I-9579. 107 Mylcrist Builders Ltd v Buck [2009] 2 All ER (Comm) 259. 108 Zealander v Lading Homes Ltd (2000) 2 TCLR 724. 109 Picardi (t/a Picardi Architects) v Cuniberti [2002] EWHC 2923 (TCC); J Spurling Ltd v Bradshaw [1956] 1 WLR 461, 466; K Mechantaf, ‘Arbitration Balancing Protection and Autonomy in Consumer Arbitration’ (2012) 78 Arbitration 232, 238. 110 Mechantaf, ‘Arbitration Balancing’ (n 109) 238. 111 An unfair term will not be binding on the weaker party, but can be relied on by the weaker party. Unfair Terms in Consumer Contracts Directive, Art 3.

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Since the Unfair Terms Directive imposes the minimum harmonised standard in the EU, each Member State is free to adopt higher levels of protection to consumers. In the UK, for example, the Arbitration Act 1996 provides that a compulsory arbitration agreement is automatically unfair in consumer contracts if the claim for a pecuniary remedy does not exceed £5,000.112 Only for claims exceeding £5,000, the unfair term test will be applied. Both Finland and Sweden domestic law invalidates pre-dispute arbitration agreements in consumer contracts without exception given to the ‘good faith’ test.113 In 2013, the requirements are further refined in the Directive on Consumer ADR, which applies also to arbitration.114 The Directive on Consumer ADR provides that an ADR agreement concluded before the dispute has materialised should not have the effect of binding the consumer if it deprives the consumer of his right of access to court.115 The Directive on Consumer ADR validates two types of arbitration agreements as against consumers: (1) arbitration agreements concluded after disputes materialise;116 (2) non-compulsory arbitration agreements concluded before disputes materialise.117 The Directive on Consumer ADR does not adopt the ‘individual negotiation’ test, and replaces this test with the ‘dispute-materialisation’ test. The purpose of both tests is to ascertain consumers give genuine consent to compulsory arbitration agreements and not to be deprived of their rights to courts by allowing companies to abuse the process. It is presumed that after a dispute materialises, the consumer would predict his rights and obligations and would not easily enter into a compulsory dispute resolution agreement or give up rights of access to courts without genuine consent. The ‘individual negotiation’ test requires evidence to prove negotiation has taken place which may be difficult and costly. Compared to the ‘individual negotiation’ test, the ‘dispute-materialisation’ test is more straightforward and easy to apply.118 The question, however, is whether the ‘dispute-materialisation’ test is too arbitrary. It is rare, but still possible, for consumers to negotiate contracts individually before a dispute has arisen. This may happen in the purchase of very expensive and luxury goods or services, where consumers may receive independent legal advice before concluding contracts. Invalidating arbitration agreements in this circumstance would be unreasonable. Secondly, it is also possible that after dispute materialises consumers enter into arbitration agreements without being properly 112 Arbitration Act 1996, s 91; the figure is provided in the Unfair Arbitration Agreements (Specified Amount) Order 1999, SI 2167. Bates (n 66) 842. 113 Leuven Report, 120. 114 Hodges and Creutzfeldt, ‘Implementing the EU Consumer ADR Directive’ (n 100); the Consumer Council, ‘Implementing the Alternative Dispute Resolution Directive and Online Dispute Resolution Regulation’, www.consumercouncil.org.uk/filestore/documents/Consultation_ Response_-_ADR_Directive.pdf, accessed on 23 November 2014, para 1.2. 115 Directive on Consumer ADR, Art 10 and recital 43. 116 Ibid, Art 10(1). 117 Ibid, Art 10(2). 118 As to when disputes have arisen, see Ch 4, s II.

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informed of, and understand, the meaning and legal consequences. For example, after disputes have arisen, the business sends the consumer a settlement agreement with standard terms and conditions to sign which includes an arbitration agreement. The consumer may sign without fully understanding what arbitration is and may be reluctant to seek legal advice due to the cost and inconvenience. It is suggested that the ‘dispute-materialisation’ test should be supplemented by an exemption clause based on the proof of genuine consent of the parties.

ii. Substantive Rights The second restriction to consumer arbitration is on the applicable law and the substantive award. In the EU, consumers’ substantive rights are protected by the mandatory rules of their home.119 In arbitration, party autonomy is respected and if the parties have included a choice of law agreement in their contract, this agreement usually will be enforced without much limitation.120 Furthermore, arbitrators have great liberty to decide the governing law to a dispute, may apply the choice of law rules of any related countries, may apply the general principle of choice of law rules, or may not apply choice of law rules at all.121 Finally, arbitrators may apply mandatory rules and public policy on much narrower grounds than national courts.122 Since arbitral awards may bind consumers, consumers may be worse off if arbitrators have taken such a liberal approach to determine the merit of the dispute and the award may not necessarily give specific consideration to protect consumers. In order to protect consumers not only in procedure, but also in substance, the Directive on Consumer ADR requires the application of the protective choice of law rules in cross-border consumer arbitration.123 Arbitrators may depart from national choice of law rules and be free to decide the choice of law rules to a dispute. No matter how the governing law is determined, the solution imposed by the arbitrator should not deprive the consumer of the protection afforded to him by the mandatory rules of the Member State in which the consumer is habitually resident.124

119

Art 6 of the Rome I Regulation. For more details, see above Ch 5. In general, N Blackaby et al, Redfern and Hunter on International Arbitration, 5th edn (Oxford, Oxford University Press, 2009) Ch 3; UNCITRAL, Model Law on International Commercial Arbitration (amended 2006), Art 28(1). 121 UNCITRAL Model Law, Art 28(2); Redfern and Hunter, para 3.213–3.225; J Poudret and S Besson, Comparative Law of International Arbitration, 2nd edn (London, Sweet and Maxwell, 2007) 687; L Craig, ‘The Arbitrator’s Mission and the Application of Law in International Commercial Arbitration’ (2010) 21 American Review of International Arbitration 243; P Mayer, ‘Reflections on the International Arbitrator’s Duty to Apply the Law’ (2001) 22 Arbitration International 235. 122 KM Curtin, ‘Redefining Public Policy in International Arbitration of Mandatory National Laws’ (1997) 64 Defense Counsel Journal 271; F Junita, ‘Public Policy Exception in International Commercial Arbitration’ (2012) 5 Contemporary Asia Arbitration Journal 45; ICC Case No 7047 of 1994; Wena Hotels Ltd v The Arab Republic of Egypt Case No ARB/98/4 (ICSID), Award (8 December 2000). 123 Art 11(1)(c) and recital 44. 124 Recital 44. 120

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iii. Enforcement of Arbitration Awards The third limitation is on the enforcement of arbitral awards. The Directive on Consumer ADR and both 1998 and 2001 Recommendations suggest that an award may only bind the consumer if he was informed in advance of the binding nature and specifically accepted this.125 Otherwise, the awards may only bind the business party, subject to the exception of national law.126 It is, however, not clear which country’s national law may be relevant. The choice shall be made between the law of the country where the arbitral tribunal is seated, and the law of the country where the trader has its habitual residence. It is necessary to note that a non-binding arbitral award questions the true value of arbitration. Arbitration is favoured by business parties for its efficiency and finality. If an arbitral award is not binding or partially binding, this dispute resolution method is no longer efficient and cannot provide a final solution. The cost, prolonged time and inconvenience involved are undesirable for transactions. It is thus suggested that the requirement aims to impose a duty on the business to fully and sufficiently inform consumers of their rights and consequences of arbitration and to receive the consumer’s express acceptance before conducting an arbitration process. Besides, the enforcement court will also take into account of the fairness between the parties before enforcing a consumer arbitral award. In Mostaza Claro v Centro Movil Milenium SL,127 the consumer failed to challenge the fairness of the arbitration agreement in arbitration, which is excusable either because the consumer might lack knowledge of his rights or is deterred by the cost of travel, and the enforcement court should review whether the arbitration agreement is fair at the enforcement stage. In Asturcom Telecomunicaciones SL v Rodriguez Nogueira,128 the business initiated an arbitration procedure pursuant to an arbitration agreement in the contract.129 The consumer did not participate in arbitration at all, nor did he try to annul the award within the two-month limitation period under the national law. When the business brought an action to enforce the award, the Court of Justice emphasised the purpose of the Unfair Terms Directive to re-establish equality and balance between the parties and requires the enforcement court to take its own motion to decide the fairness of an arbitration agreement before enforcing the arbitral awards in consumer contracts.130 Furthermore, the tackle of unfair terms in the Unfair Terms Directive has the equal status of public policy.131 An award in breach of the Unfair Terms Directive will be rejected enforcement.132 125 1998 Recommendation, Art VI; 2001 Recommendation, recital 14; Directive on Consumer ADR, Art 10(2) and recital 43. 126 Recital 43 of the Directive provides that specific acceptance by the trader should not be required unless national laws provide otherwise. 127 Case C-168/05 Mostaza Claro v Centro Movil Milenium SL [2006] ECR I-10421. 128 Asturcom Telecomunicaciones (n 106). 129 Ibid, para 30–2. 130 Ibid. 131 Unfair Contract Terms Directive, Art 3. Asturcom Telecomunicaciones (n 106) para 50–2. 132 For more on these two cases, see Piers, ‘Consumer Arbitration’ (n 102) 209–30.

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C. Economic Analysis of Arbitration in Consumer Contracts The US and EU treat consumer arbitration differently. From the policy ground, the US relies more on private enforcement of rights and regulation, while the EU focuses more on the government controlling market and commercial activities.133 This leads to a question: is consumer arbitration an efficient and appropriate dispute resolution method in consumer contracts? The US pro-arbitration in consumer contracts is said to be indebted from the economic analysis of law and the subsequent privatisation trend.134 Arbitration supporters argue that consumer arbitration would reduce the price paid for goods and services and the cost of dispute resolution.135 In terms of prices, arbitration agreements could lead to certainty, which could enable a business to reduce the total cost of a transaction. In terms of dispute resolution costs, arbitration is praised for the potential to be fast, low cost, and convenient, has the possibility to avoid complicated conflict of laws questions and could benefit from world-wide circulation of arbitral awards.136 The key element of mandatory arbitration is to forfeit the party’s right of access to courts in exchange for more efficient, inexpensive and professional dispute resolution in arbitration. The traditional economic analysis may justify this result by comparing the deterrence value to the claimant and the savings in litigation costs and concluding the latter largely exceeds the former.137 This analysis, however, is based on the presumption that the claimant must seek redress either in arbitration or in litigation. This justification can hardly apply to consumer contracts. Although the litigation cost is high, arbitration cost is not low versus the claim value. Despite the arbitration fee charged by the arbitration institution, the parties have to pay arbitrator’s fees, venue hiring, and lawyer’s fees. Only when all these costs, added together, are much lower than the claim value, arbitration is a reasonable option. For the majority of consumers, arbitration is not an economic alternative to courts. This is more so in e-commerce where the value of transactions is generally low. The US economic justification for arbitration cannot work in consumer contracts. The EU policy on protection of fundamental rights of access to justice versus arbitration does not work either. The restriction of arbitration agreements and the additional protection will only be necessary if the

133 In the EU, Member States rely more on government bodies, such as the Ombudsman, to handle consumer claims or impose penalties against malpractice. See Bates (n 66) 843–4. 134 Mechantaf (n 109) 236. 135 SJ Ware, ‘Paying the Price of Progress: Judicial Regulation of Consumer Arbitration Agreements’ (2001) Journal of Dispute Resolution 89, 93–9; B Wardhaugh, ‘Unveiling Fairness for the Consumer’ (2014) 26 Loyola Consumer Law Review 426, 442. 136 LJ Gibbons, ‘Creating a Market for Justice’ (2002) 23 Northwestern Journal of International Law and Business 1, 4–5. 137 KN Hylton, ‘Agreements to Waive or to Arbitrate Legal Claims’ (2000) 8 Supreme Court Economic Review 209, 223–5; C Gibbs, ‘Consumer Class Actions after AT&T v Concepcion’ (2012) University of Illinois Law Review 1345, 1358–9.

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weaker party would, in reality, bring court action, which is hampered by arbitration agreements. Because consumers do not wish to bring action in either courts or arbitration, there is no reason to favour litigation over arbitration, or vice versa. If businesses, instead of consumers, act as the claimant, the situation may be different. When consumers act as the claimant, the dispute usually concerns nondelivery or dissatisfactory quality of goods or services, which give rise to small compensation claims. When businesses act as the claimant, the dispute usually concerns unpaid price, debt collection costs, interests for default or even penalty. The value could be significantly higher. Furthermore, many businesses have in-house councils and they are associated with an arbitration institution.138 The overall cost for bringing individual arbitration is reduced. Businesses may rely on arbitration against consumers and deprive consumers of their rights to have disputes resolved in courts. Consumers may question the fairness of the arbitration institution in which the business is a member, and of the arbitrator who is appointed by the business or the institution.139 If the agreement or the arbitral tribunal permits the loser-pay scheme, asking consumers to pay for business costs, consumers are left in a more vulnerable situation. The arbitration cost may be lower than litigation. However, to consumers, the cost could be higher due to the above reasons. While businesses do have economic reasons to bring consumer arbitration, the law should be there to protect consumers. Additional warning is required to ensure that consumers are aware of the nature, adverse effect and legal consequences of arbitration agreements before giving genuine consent to it. Otherwise, there should be rules providing consumers with cost protection no lower than that in courts. Furthermore, compulsory arbitration agreements have the effect to exempt not only individual access to courts, but also collective redress.140 This effect has been criticised widely from an economic perspective. It prevents the cost sharing among consumers, increases the financial burden of individual consumers, may lead to cost-compensation disparity, and increases the dispute resolution cost for the whole society.141 The greatest harm is the loss of deterrence value of class redress.142 This value is completely eliminated by compulsory arbitration. Individual small claims may not be financially strong enough to urge a business to change its behaviour and the confidential arbitration process also reduces the deterrence power of publicity.143 Businesses insert compulsory arbitration agreements in individual consumer contracts not because they pursue the ‘efficiency’

138

Gibbons, ‘Market for Justice’ (n 136) 5. Ibid. 140 Concepcion (n 97); Chavarria v Ralphs Grocery Co 733 F.3d 916 (9th Cir 2013) Cf Sutherland v Ernst & Young LLP 12-304-CV, 2013 WL 4033844 (2d Cir 9 August 2013); Richards v Ernst & Young, LLP 11-17530, 2013 WL 4437601 (9th Cir 21 August 2013). 141 M Gilles, ‘Killing Them With Kindness’ (2012) 88 Notre Dame Law Review 825, 830. 142 Gibbs, ‘Consumer Class Actions’ (n 137), 1361. 143 Ibid, 1362; DR Hensler, ‘Revisiting the Monster’ (2001) 11 Duke Journal of Comparative & International Law 179, 201–2. 139

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of arbitration versus litigation, but because of the genuine incentive to avoid the deterrence effect of collective redress.144 Such criticism is louder in the US than in the EU, where very effective collective redress mechanisms are lacking. It is suggested that restriction on consumer arbitration is necessary to protect consumers and the level of restriction imposed by the EU law is not fundamentally inappropriate. On the other hand, the US law should be updated to increase the threshold to enforce an arbitration agreement against consumers. Simply relying on the conscionability test is insufficient and may cause imbalanced rights and obligations between the parties.

V. Collective ADR in Cross-Border Consumer Contracts A. Collective ADR Collective ADR was proposed by the Directorate-General for Health and Consumers (DG SANCO) in its Green Paper on Consumer Collective Redress,145 which suggests collective ADR combined with a judicial collective redress, and out of court collective ADR.146 In the follow-up Consultation Paper, the European Commission clearly proposed the option to introduce collective ADR.147 However, neither provides details on the collective ADR process. Nevertheless, not all Member States favour collective ADR. For example, Germany, although it supports ADR, rejected its collective form as an appropriate consumer dispute resolution method.148 Collective ADR includes collective settlement, collective mediation and collective arbitration. Collective ADR is rare in EU Member States, but it does exist. For example, the Paris Mediation and Arbitration Centre allow collective mediation between businesses and consumer organisations, representing consumer class members.149 Netherlands has a well-developed and relatively more frequently used collective settlement scheme.150 In Germany, the German Institution of 144

Gibbs (n 137) 1367. European Commission, Green Paper on Consumer Collective Redress, COM(2008) 794. 146 Ibid, para 42. 147 European Commission, ‘Consultation Paper for Discussion on the Follow-up to the Green Paper on Consumer Collective Redress’, http://ec.europa.eu/consumers/archive/redress_cons/docs/ consultation_paper2009.pdf, accessed on 31 May 2015. 148 RJ Gaudet, ‘Hard Teeth, Dentures or Gums: The European Commission’s Opinions for Consumer Protection’ (2009) 20 International Company and Commercial Law Review 347, 355. 149 Note, ‘ADR and Collective Redress’, BIICL, www.collectiveredress.org/collective-redress/ alternative-adr, accessed on 2 December 2014. 150 Wet collectieve afwikkeling van massaschades (WCAM, Dutch Act on Collective Settlements, Law of 23 June 2005, Stb 340), revised in WCAM II (Act of 26 June 2013), Staatsblad 2013, 255, entered into force 1 July 2013, Staatsblad 2013, 256. 145

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Arbitration allows collective arbitration for company law disputes in the DIS Supplementary Rules.151 Consumer collective arbitration is allowed in Spain.152 Collective settlement and mediation may face difficulties as follows. Firstly, how could the representative acquire the authorisation from all consumers? It inevitably faces the opt-in versus opt-out question. Secondly, how would it be guaranteed that the representative could act in the best interest of all consumers? Would consumers have the confidence to give consent for the representative to settle disputes for them? If an opt-out model is adopted, what safeguards will be there to protect consumers? Thirdly, what if some consumers refuse to be bound by the settlement and decide to commence separate legal actions either individually or collectively? How could the collective settlement acquire finality? Fourthly, what would be the territorial scope, ie how could foreign consumers be involved?

B. Collective Settlement: A Dutch Example i. Dutch Collective Settlement in the WCAM Take the Dutch collective settlement scheme under the Dutch Act on Collective Settlements (WCAM) for example. It is a court-approved collective settlement scheme.153 It allows an association to settle disputes with the defendant out of court on behalf of all interested group members. The representative and the defendant then make a joint application for the Amsterdam Court of Appeal to declare the settlement binding on all interested members who have not opted out.154 The WCAM settlement adopts an opt-out scheme unique to the EU. Interested members will be notified twice: once when the applicants make the joint application to the court under the WCAM, and once after the court approves the settlement. The interested members should take positive action to either file objection or opt-out. Otherwise they will be bound by the settlement and lose the right to pursue separate litigation.155 Such a scheme is proved more efficient in finalising mass disputes and may have a better success rate as businesses are more interested in settling for the ‘global peace’.156 A number of rules are introduced to protect the interested parties. Firstly, only organisations or associations being sufficiently representative of the interest of the class members are entitled to be

151 DIS Supplementary Rules for Corporate Law Disputes (‘DIS Supplementary Rules’), effective 15 September 2009. See, in general, SI Strong, ‘Collective Arbitration under the DIS Supplementary Rules for Corporate Law Disputes’ (2011) 29 ASA Bulletin 1, 145. 152 Spanish Royal Decree 231/2008l. 153 Collective Settlements Act 2005; I Tzankova and H van Lith, ‘Class Actions and Class Settlements Going Global: the Netherlands’ in D Fairgrieve and E Lein, Extraterritoriality and Collective Redress (Oxford, Oxford University Press, 2012) 68. 154 Tzankova and Lith, ‘Class Actions’ (n 153) 71; B Krans, ‘The Dutch Class Action (Financial Settlement) Act in an International Context’ (2012) 31 CJQ 141, 142–43. 155 Tzankova and Lith (n 153) 72. 156 SI Strong, ‘From Class to Collective’ (2010) 26 Arbitration International 493, 506.

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the representative.157 Secondly, the class counsel fees are subject to court review to prevent abuse.158 The Dutch collective settlement is not territorially limited in the Netherlands but has international reach.159 The international effect is granted for two reasons: firstly, the settlement is declared binding based on the principle of contractual freedom. There is no justification that the freedom to settle cannot have extraterritorial effects. Secondly, the Dutch scheme may be the only effective means to help international, especially EU consumers, who cannot benefit from the US class action.160 In Shell161 and Coverium,162 the Amsterdam Court of Appeal was not reluctant to approve the binding effect of the collective settlement over both domestic and foreign consumers.

ii. Jurisdiction Challenges to the Extraterritorial Effect of the WCAM Scheme The international reach of the WCAM procedure would inevitably encounter private international law problems. First of all, would the Dutch court have jurisdiction to approve the settlement binding on foreign consumers?163 The Dutch courts apply the extraterritorial jurisdiction rules to take jurisdiction by treating the applicants, ie the representative association and the company allegedly conducting malpractice, as ‘claimants’, and class members as ‘defendants’. The defendants could be classified as Dutch class members, non-Dutch EU class members, and third state class members. Jurisdiction is taken over Dutch class members pursuant to Article 4 of the Brussels I Recast. As to non-Dutch EU class members, jurisdiction is taken under Article 8(1) of the Brussels I Recast, which provides that the court of a Member State could assert jurisdiction over a non-domiciliary EU defendant, if he is the co-defendant of a Dutch resident and the claims against them ‘are so closely connected that it is expedient to hear and determine them together to avoid the risk of irreconcilable judgments resulting from separate proceedings’. This interpretation is controversial. Firstly, it classifies the absent class members as ‘defendants’ in this procedure, failing to recognise the fundamental difference between the WCAM procedure and adversarial litigation process. Secondly, it holds that the cause of action against each individual class member is closely connected. However, pursuant to the decision by the Court of 157

Tzankova and Lith (n 153) 71–2. Ibid, 73. 159 Although this scheme was not designed for international disputes, but the Dutch courts have provided it innovative interpretation to cover f-curbed cases. Tzankova and Lith (n 153) 77; Krans, ‘Dutch Class Action’ (n 154) 145. 160 These consumers may not be certified in US class actions due to the due process test. See Ch 11 above. Tzankova and Lith (n 153) 78, 81–3. 161 Shell, Court of Appeal Amsterdam, 29 May 2009, NJ 506. 162 Coverium, Amsterdam Court of Appeal, 17 January 2012, LJN: BV 1026. 163 In Converium, 97% of interested absent class members were non-residents. The class settlement would be ineffective if it could not bind foreign class members. See Tzankova and Lith (n 153) 83. 158

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Justice, these claims are based on the same law, and identical but unrelated facts.164 Separate proceedings may lead to different decisions, but hardly irreconcilable judgments.165 These should not be treated as the closely related causes of action under Article 8(1) of the Brussels I Recast.166 Another jurisdiction ground to take jurisdiction over non-Dutch EU residents is Article 7(1) of the Recast Regulation. It provides that the place of performance of the obligation in question will have jurisdiction and, according to the Amsterdam Court of Appeal, the Netherlands will be the place of performance where the agreed compensation in the settlement should be paid.167 The question is that the settlement is an agreement between the representative and the business, instead of the business and the undomiciled class members. The settlement is not binding on the absent class members unless it is declared so. Before the declaration, there are no ‘matters relating to a contract’ including absent class members, which challenges the relevance of Article 7(1).168 It may be argued that ‘matters relating to a contract’ is interpreted broadly to cover the dispute on whether a contract exists.169 The process to declare a settlement agreement exists between the business and all represented class members is such a process and Article 7(1) shall be applicable. This interpretation probably can be justified in that the WCAM process also aims to explore whether there is obligation freely assumed between the represented class members and the business. Only such consent is constructive consent and inferred by law. As to non-EU class members, jurisdiction is taken under the Dutch national law, which grants Dutch courts jurisdiction over all interested class members if any applicants or any class members have their domicile in the Netherlands.170 Furthermore, the Dutch courts may not approve the settlement against foreign class members in the lack of procedural justice.171 Firstly, sufficient notice should be given to all interested class members. Foreign members with known addresses may be served notice by letters pursuant to the EU Services Regulation172 and the Hague Service Convention.173 For class members with unknown addresses, notification could be done via newspapers or websites.174 Consideration should be 164 Case C-539/03 Roche Nederland BV v Primus [2006] ECR 6535; Estate in Bankruptcy of the International Credit Insurance v Pohjola [2003] ILPr 3 Swedish Supreme Court; ZS Tang, ‘Multiple Defendants in the European Jurisdiction Regulation’ (2009) 34 European Law Review 80, 88–90. 165 Roche Nederland BV v Primus (n 164) per AG Leger para 71–106; Tang, ‘Multiple Defendants’ (n 164) 90–2. 166 See, in general, Tang (n 164). 167 Tzankova and Lith (n 153) 84. 168 Ibid, 84–5. 169 Case C-38/81 Effer v Kantner [1982] ECR 825; Rogerson (n 53) 78–9. 170 Tzankova and Lith (n 153) 86; Krans (n 154) 146. 171 Krans (n 154) 147. 172 Council Regulation (EC) No 1393/2007 on the service in the Member States of judicial and extrajudicial documents in civil or commercial matters [2000] OJ L160/37. 173 Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters. 174 Krans (n 154) 148.

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given to the number of newspapers and websites used and the circulation, access and territorial reach of these media to decide whether notification is sufficient. Extraterritorial notification inevitably would encounter significant cost.175 Secondly, the representative associations or foundations must be sufficiently representative of the interests of class members, including international class members. Dutch courts, with the intention to grant the extraterritorial effects to the collective settlement, ruled that the representative does not need to be sufficiently representative of all class members, and the requirement is satisfied if it could represent the interest of a ‘sufficiently large proportion’ of class members.176 However, if a Dutch consumer association could only represent the interests of Dutch consumers, this could effectively rule out foreign class members from being bound by the settlement, unless the consumer association in each state where potential class members reside becomes the joint representative.

iii. Recognition and Enforcement in Foreign Countries Once the WCAM declaration is made, the settlement is binding on all class members, including foreign class members. However, if foreign class members ignore the declaration and pursue separate actions or dispute resolution mechanisms, the intended finality of the WCAM scheme is in jeopardy, unless the declaration could be enforced in the foreign courts. Whether the WCAM settlement may be enforced in non-EU Member States depends on the national law of each country. Decisions may vary significantly given the lack of harmonised rules and standards in recognising and enforcing foreign rulings or judgments. Some countries would not enforce foreign judgments without treaty obligations or reciprocal evidence.177 Other countries may take a more flexible approach by providing standards and criteria to recognise foreign judgments.178 If such a flexible method is adopted, the WCAM settlement may have a better chance of being recognised if the recognition country also has the similar opt-out class settlement or class action scheme.179 In the EU, since the WCAM declaration is a ‘court settlement’ within the Brussels I Recast,180 its recognition and enforcement in other Member States are protected by the Recast Regulation. Article 59 referring to Article 58 of the Recast Regulation provides that a court settlement should be automatically enforceable in other Member States without any declaration of enforceability being required. The only exception is the ‘public policy’ defence in that enforcement may be 175

Tzankova and Lith (n 153) 84. Krans (n 154) 148–9. 177 Such as China, Egypt and Saudi Arabia. See Ch 8 and n 82 therein. 178 Such as the US and UK. See Ch 8 above. Rogerson (n 53) 236–60. 179 For example, the Amsterdam court recognised US class settlement in Royal Ahold NV Securities & ERISA Litigation, Re Unreported June 23, 2010 (RB (NL)). It is reasonable to predict that the US courts may in principle enforce the Dutch WCAM declaration. 180 Art 2(b) defines court settlement as ‘a settlement which has been approved by a court of a Member State or concluded before a court of a Member State in the course of proceedings’. 176

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refused if it is ‘manifestly contrary to public policy (ordre public)’ of the enforcement state.181 It is likely that the opt-out mechanism used in the Netherlands may be considered contrary to public policy by some Member States, especially those states refusing to adopt the same approach.182 The opt-out mechanism has been widely criticised in the EU for placing consumers, especially foreign consumers, in jeopardy. However, it is recommended that other Member States should not be too ready to hold the WCAM procedure ‘manifestly contrary to public policy’ and should consider whether the notification is sufficient and whether consumers are properly represented.

C. Class Arbitration: A US Example i. Class Arbitration Procedure It has been claimed that arbitration is inconsistent with the collective form due to its complete laissez-faire nature.183 Although class arbitration is called the ‘uniquely American’ device’,184 it is relatively new and US courts have frequently cast doubt on it.185 It has a 25-year history in the US186 and was finally approved by the Supreme Court in the 2003 decision in Green Tree Financial Co v Bazzle.187 However, the effect of class arbitration is later restricted again by the Supreme Court in Stolt-Nielsen v AnimalFeeds Int’l Corp and AT&T Mobility v Concepcion.188 Although class arbitration is not infrequently used in practice, its nature and status are unclear. The US Supreme Court does not clearly set up procedural rules to conduct class arbitration. Legislation is also silent on this issue. Some state courts hold the view that due process is required in class arbitration to protect the interest of absent class members.189 Based on this policy, state courts introduced court-led class arbitration. Courts reserve the discretion to determine whether class arbitration is appropriate for the given disputes, to determine class certification, to assess 181

Arts 58 and 59. Tzankova and Lith (n 153) 87. 183 N Troum, ‘The Problem with Class Arbitration’ (2013) 38 Vermont Law Review 419, 419. 184 SI Strong, ‘Resolving Mass Legal Disputes through Class Arbitration’ (2012) 37 North Carolina Journal of International Law and Commercial Regulation 921, 934; G Born and C Salas, ‘The United States Supreme Court and Class Arbitration’ (2012) Journal of Dispute Resolution 21, 21 (describing class arbitration as ‘almost entirely American’). 185 Both Concepcion (n 97) 1750–1 and Stolt-Nielsen v AnimalFeeds Int’l Corp 559 US 662, 687 (2010) distinguished class arbitration from ordinary arbitration. See Troum, ‘The Problem’ (n 183) 419–20; Strong, ‘Resolving Mass’ (n 184) 938ff. 186 Keating v Superior Court 645 P.2d 1192, 1215 (Cal, 1982), rev’d in part, 465 US 11(1984); Bazzle v Green Tree 569 SE2d 349 (SC, 2002). SI Strong, ‘Enforcing Class Arbitration in the International Sphere’ (2008) 30 University of Pennsylvania Journal of International Law 1, 29. 187 Green Tree Financial Co v Bazzle 123 SCt 2402 (2003). 188 Stolt-Nielsen (n 185). See eg MA Weston, ‘The Death of Class Arbitration after Concepcion?’ (2012) 60 University of Kansas Law Review 767, 774–6. 189 Keating v Superior Court (n 186) 1215; Bazzle v Green Tree (n 186). See CJ Buckner, ‘Due Process in Class Arbitration’ (2006) 58 Florida Law Review 185, 187; KD Knutson, ‘The Necessity of an “Opt-In” Approach to Class Arbitration’ (2008) 1 William Mitchell Journal of Law and Practice 1. 182

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proper safeguards and the existence of due process, and to review the competence of representative, discovery, and settlement.190 Courts are heavily involved in the arbitration procedure and it fundamentally changes the private and autonomous nature of traditional arbitration. The court-led class arbitration may not be the true arbitration anymore. The close engagement of the court has also deprived arbitration of its traditional advantages, such as speed, flexibility, low cost, autonomy and confidentiality.191 This model is questioned by the Supreme Court’s decision in Green Tree, which grants arbitrators the competence to decide whether class arbitration is an appropriate option.192 Arbitration providers also introduce their own rules and the arbitrator-led class arbitration. The class arbitration procedures provided in the AAA Supplementary Rules and the JAMS Procedures have followed the similar procedure in Rule 23 of the Federal Rules of Civil Procedure.193 When commencing class arbitration, the arbitrator must first of all find a valid arbitration agreement. Once being satisfied that the parties give consent to submit disputes to arbitration, arbitrators move on to consider whether arbitration may take the class-wide form. If arbitration agreements indeed allow class-wide arbitration, arbitrators move on to consider class certification applying the similar standard and requirements as provided in Rule 23.194 Both self-regulation procedure rules permit courts to review the arbitrators’ decision of class member certification. However, courts’ intervention is largely reduced compared to the court-led class arbitration.195 Commentators question the due process of arbitrator-led class arbitration.196 Following Rule 23 in arbitration inevitably causes problems given the different features between litigation and arbitration.197 Including absent class members in class arbitration would only be justifiable if all of them have concluded a class arbitration agreement with the defendant. Otherwise, the process deprives the absent class members of their contractual rights and fundamentally overturns the consensual nature of arbitration. There would not be a problem if the agreement specifically opts for class arbitration.198 Since the same version of standard form contract is used for all consumers, once a clause opts for ‘class arbitration’, all consumers concluding contracts with the same business would be subject to the same class arbitration clause and deemed to give consent to ‘class arbitration’.

190

Buckner, ‘Due Process’ (n 189) 227ff. More discussion, see ibid, 231ff. 192 Ibid, 276–7. 193 AAA, Supplementary Rules for Class Arbitration, American Arbitration Association (8 October 2003); JAMS Class Action Procedures, effective 1 May 2009. For Rule 23, see Ch 11 above. See Buckner (n 189) 188–9; DS Clancy and MMK Stein, ‘An Uninvited Guest’ (2007) 63 Business Lawyer 55, 55. 194 AAA Rules, r 4; JAMS, r 3. 195 AAA Rules, r 1; JAMS, r 2, 3. Buckner (n 189) 243–7. 196 Buckner (n 189), in general; E Bilich, ‘Consumer Arbitration: A Class Action Panacea’ (2006) 7 Class Action Litigation Rep (BNA) 768, 770; Clancy and Stein, ‘Uninvited Guest’ (n 193) 71ff. StoltNielsen (n 185) 686. 197 Knutson, ‘“Opt-In” Approach’, Ch II and III. 198 Stolt-Nielsen (n 185). 191

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Problems arise where the arbitration agreement does not expressly provide for ‘class’ arbitration. In Stolt-Nielsen v Animal Feeds, the Supreme Court held that one may not rely on the policy preference to presume an arbitration clause permits class arbitration without consent.199 Class arbitration is significantly different from individual arbitration in terms of parties’ rights and obligations and should be treated differently.200 The absence of clear language to submit disputes to ‘class arbitration’ will prevent class arbitration from being commenced. Furthermore, in AT&T Mobility LLC v Concepcion,201 the Supreme Court ruled that class-arbitration waiver clauses in consumer contracts are not unconscionable. The Supreme Court also expressed a sceptical view against class arbitration, considering it does not fall in the arbitration favour policy of the Federal Arbitration Act (FAA), the interpretation should be reserved to the court not arbitrators, and the class arbitral awards may not be binding on the absent class members.202 It is likely that after Stolt-Nielsen and Concepcion, class arbitration would be used on a small scale. Companies could insert bilateral arbitration agreements or class-action waiver agreements. As far as these clauses pass the conscionability test, they could effectively block consumer class arbitration.

ii. International Class Arbitration Although class arbitration is mostly used domestically, it is remarked as ‘particularly well-suited to address international disputes’.203 In particular, it may be more superior than class actions due to the internationalisation or denationalisation nature of arbitration, which may smooth the jurisdiction difficulty a court may face in transnational class litigation. Cross border dispute resolution will usually face the problem of excessive cost and expenses for physically participating in overseas process of at least one party. Transnational class arbitration would remove this difficulty due to the fact that the majority of overseas class members do not need to actively participate in the proceedings. Another advantage in international application is the free movement of arbitral awards under the New York Convention (NYC).204 However, commentators are over optimistic in using class arbitration in the international context. First of all, international class arbitration imposes a great burden to certify overseas class members. It is similar to certification of foreign members in class litigation.205 Secondly, the validity of arbitration agreements may be questioned in foreign courts.

199

Ibid, 682–6. Ibid, 685. Strong (n 184) 946–8. 201 Concepcion (n 97). 202 Concepcion (n 97) 1750–2. 203 Strong (n 184) 942. 204 Ibid, 942–3. However, the same author also recognises the challenges of enforcing class arbitration awards. See Strong, ‘Enforcing Class Arbitration’ and discussion below. 205 See Ch 9, s III. above. 200

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Most importantly, the enforcement of class arbitral awards is in doubt.206 Pursuant to the NYC, the enforcement of arbitral awards may be refused on seven grounds, a number of which may be relevant in class arbitration. Firstly, arbitral awards may not be enforced if the arbitration agreement is invalid.207 The NYC does not provide a uniform law on the validity of class arbitration clauses and each country would have autonomy to determine whether class arbitration agreements are enforceable or subject to public policy.208 The NYC provides uniform choice of law: if the parties have chosen the governing law to the arbitration agreement, the chosen law should apply; in the absence of choice, the law of the seat should apply.209 This rule may provide further leeway to companies, ie if a company wishes to prevent class arbitration, it may insert a choice of law clause, choosing the law of the country which does not recognise class arbitration to govern the arbitration clause. This choice may prevent class arbitration from being commenced. Otherwise, it will prevent the arbitral awards from being enforced at a later stage. Secondly, enforcement may be refused in the procedural irregularity of arbitration proceedings.210 This ground ensures the due process of arbitration proceedings, in particular, to make sure parties have received proper notice and been given opportunities to present their case.211 In class arbitration, absent class members will receive sufficient notice informing them of the proceedings and the procedure to opt out. The problem is whether the notice is ‘proper’ under the NYC. This issue usually will be considered pursuant to the procedural law of the seat.212 If this is the case, proper notice would likely be found, because the arbitration institutions usually will adopt institutional procedural rules consistent with the requirement of the local law.213 The problem is that enforcing states may wish to apply their own standard to determine whether the notice is proper, especially in those countries where there is strong policy either to support or to oppose class actions. Enforcing class arbitration awards against absent class members may be an issue concerning the public policy of the forum.214 Thirdly, if the subject matter is inarbitrable in the place of enforcement, enforcement may be denied.215 This is particularly relevant in consumer disputes, which

206 C Chinn, ‘The US Model for International Class Action Arbitration’ (2009) 75 Arbitration 400, 409. 207 NYC, Art V(1)(a). 208 Factum of the LCIA in Dell Computer Corp v Union des Consommateurs Supreme Court of Canada, No 31067 (14 September 2006), para 29, quoted in C Chinn, ‘The US Model’ (n 206) 408. 209 NYC, Art V(1)(a). 210 Ibid, Art V(1)(b). 211 Ibid. 212 Strong (n 186) 59. 213 For example, AAA and JAMS rules follow r 23 of the Civil Procedure Act. 214 Strong (n 186) 59–60. For detailed discussion on public policy, see below. 215 NYC, Art V(2)(a).

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are not capable of settlement by compulsory arbitration in the EU.216 This would make it difficult to bring class arbitration against an EU company understanding that the arbitral awards are unlikely to be enforced. It also prevents the inclusion of EU class members in international class arbitration in the US, bearing in mind that the arbitral awards would not have finality against EU consumers. Fourthly, enforcement may be refused if it is contrary to the public policy of the enforcement state.217 Enforcing class arbitral awards in countries holding a general policy against the opt-out class action model would inevitably face public policy defence. Although commentators suggest enforcing arbitral awards is different from court judgment in that arbitration favours ‘flexibility, informality, and innovation’ and a court should not refuse enforcing an arbitral award rendered by an innovative form of arbitration,218 the nature of arbitration would be irrelevant if the ‘innovative form’ challenges natural justice and public policy. In terms of public policy defence in arbitration, two points are noted. Firstly, only ‘international public policy’ may be relied on to override the finality of arbitration. Secondly, public policy includes both procedural public policy and substantive public policy.219 In class arbitration, procedural public policy may be more relevant, which means the policy to ensure the parties’ procedural rights to receive sufficient notice, representation, opportunities to opt-in or opt-out, and impartial decision making. The enforcing court may not consider whether the class arbitration procedure is proper under the law of the seat. It may not consider the standard of the local law either. Instead, the enforcing court must consider whether the class arbitration procedure is contrary to the procedural justice standard accepted in the wide international community. As a result, the public policy defence should be used rarely and on exceptional grounds. Although the public policy defence is frequently raised but rarely successful in practice,220 this may not be true in class arbitration. Although the US has its own due process requirements to protect absent class members in class arbitration, the nature of this unique mechanism has been frequently questioned abroad. Countries refusing to adopt the same approach cast their major concern on the proper protection of individual rights of access to justice.221 The constructive consent of absent class members fundamentally challenges the legitimacy of the representation. Overseas notice is proved both difficult and inefficient. Furthermore, there is also concern as to whether non-US class members are sufficiently presented by the representative and counsel, who are US residents and may present US class members’ interest better.

216

See s IV. B. above. Art 10 of the Directive on Consumer ADR. NYC, Art V(2)(b). 218 Strong (n 186) 64. 219 Ibid, 67–72. 220 M Taherzadeh, ‘International Arbitration and Enforcement in US Federal Courts’ (2000) 22 Houston Journal of International Law 371, 379. 221 Strong (n 186) 73–4. 217

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VI. Conclusion In theory, ADR would be more suitable to resolve consumer disputes. However, the reality is not very optimistic. Firstly, various problems arise in making ADR work effectively in cross-border consumer dispute resolution. Questions arise as to the choice and the location of ADR entities, the confidence and trust in the out-of-court dispute resolution method, the proper protection of rights, the inconvenience and cost, and the potential difficulty to enforce settlements or decision abroad. In order to develop ADR to its full potential, these issues should be properly addressed. Some difficulties may not be removed in traditional ADR and need the assistance of electronic communication technology, which converts ADR to ODR in order to escape the traditional inconvenience associated with crossborder dispute resolution. Secondly, there are various ADR mechanisms. Although consensus generally has been reached on the appropriateness of mediation in consumer dispute resolution, there is no consensus on other ADR mechanisms, like arbitration and collective ADR. Mediation is amicable and flexible, but it may not be effective in reaching a final settlement. Finality can be achieved in arbitration, which, however, may impose the risk of depriving consumers of their access to courts. More research needs to be done before consumer disputes can be fully entrusted to arbitration. At this stage, imposing restriction is necessary, though too much restriction would mean arbitration will rarely be used in resolving consumer disputes in practice. Thirdly, collective ADR imposes very controversial questions. On one hand, it could consolidate mass disputes in one procedure and resolve all disputes with no unbearable costs. On the other hand, due to the great impact of collective ADR, it could not work appropriately without close court supervision or intervention. The collective settlement or award may not be enforceable against absent consumer class members without courts’ authorisation. The involvement of the court may prolong the proceedings and generate cost, complexity and delay. The complexity and important effect of the collective ADR also means it could not be conducted without the involvement of competent legal professionals. The real life effect of the collective ADR is still unclear.

11 Online Dispute Resolution in E-Consumer Contracts I. Introduction Electronic commerce is welcome for efficiency. It is fast, convenient, internationally accessible, and inexpensive. Comparatively, all traditional face-to-face dispute resolution methods, ie litigation, alternative dispute resolution (ADR) or collective action cannot match the speed and efficiency of e-commerce. The future development of e-commerce calls for an equally efficient and globalised dispute resolution method. Online dispute resolution (ODR), as a result, appears as the natural answer to e-commerce. It is defined as the ‘dispute resolution outside the courts, based on information and communications technology and in particular, based on the power of computers to efficiently process enormous amounts of data, store and organise such data and communicate it across the internet on a global basis and with speed’.1 The basic concept is to transfer all traditional dispute resolution methods online. It is believed that ODR could provide ‘simple, efficient, fact and low-cost’ dispute resolution, which is particularly suitable for cross-border e-consumer transactions.2 The concept of ODR was introduced in the legal field in the 1990s.3 Soon afterwards, the great potential of ODR caught the attention of various businesses, legal practitioners, researchers and domestic/international organisations. Various innovative forms of ODR are established and widely used by companies. Important international organisations that have carried out work on ODR including 1 J Hornle, ‘Encouraging Online Alternative Dispute Resolution (ADR) in the EU and Beyond’ (2013) 38 European Law Review 187, 188. See also UNCITRAL Draft Procedural Rules on ODR, Art 2(1), A/CN9/WGIII/WP117, UNCITRAL Working Group III (Online Dispute Resolution) Note by the Secretariat, 31 August 2012; JP Cortes Dieguez, ‘A European Legal Perspective on Consumer ODR’ (2009) 15 Computer and Technology Law Review 90, 90–1. 2 Regulation (EU) No 524/2013 on Online Dispute Resolution for Consumer Disputes and Amending Regulation (EC) No 2006/2004 and Directive 2009/22/EC (Regulation on Consumer ODR) [2013] OJ L165/1, recital 2. See also L Del Duca, C Rule and Z Loebl, ‘Facilitating Expansion of Cross-Border E-Commerce’ (2012) 1 Penn State Journal of Law & International Affairs 59, 63. 3 JC Betancourt and E Zlatanska, ‘Online Dispute Resolution (ODR): What Is It, and Is It the Way Forward?’ (2013) 79 Arbitration 256, 256.

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the Hague Conference on Private International Law, the OECD, the UNCITRAL and the EU.4 The EU has always held the interest in ODR and accepted the policy to facilitate and develop ODR in e-commerce and consumer contracts. The supportive view on ODR is consistently expressed in various EU legislative works, including the E-Commerce Directive,5 Mediation Directive,6 and the Directive on Consumer ADR.7 The EU eventually adopted the Regulation on Consumer ODR in 2013, establishing the first framework for the EU harmonised principles on Consumer ODR.8 The UNCITRAL also organised a Working Group to consider the future international framework on ODR.9

II. ODR and Consumer Protection ODR is an ‘online extension of ADR’.10 The common concern on ADR applies equally to ODR. The most frequently raised concern includes consumers’ consent and the trust of the ODR quality and impartiality. First of all, do consumers genuinely agree to submit their disputes to ODR, especially the specific ODR method or institution designated by the e-business?11 It is not new that ‘consumers ignore information presented in a passive manner, even if the clause removes consumers’ right to have their day in court’.12 Even if consumers have no economic incentive to pursue individual actions in the absence of an ODR agreement, the law should not be there to deprive consumers of their rights to access to courts. Secondly, consumers may be happy to choose ODR as the most appropriate choice, but consumers may not wish to opt for the ODR institution or method designated by the business. There needs to be standards to ensure the quality and impartiality of ODR providers.13 4

Betancourt and Zlatanska, ‘ODR’, 257. Directive 2000/31/EC on certain legal aspects of information society services, in particular electronic commerce, in the Internal Market (E-Commerce Directive) [2000] OJ L178/1. 6 Directive 2008/52/EC on certain aspects of mediation in civil and commercial matters (Mediation Directive) [2008] OJ L136/3. 7 Directive 2013/11/EU on alternative dispute resolution for consumer disputes and amending Regulation (EC) No 2006/2004 and Directive 2009/22/EC (Directive on Consumer ADR) [2013] OJ L165/63. 8 Regulation on Consumer ODR. 9 See UN, ‘Report of the United Nations Commission on International Trade Law’, Forty-third session, 21 June–9 July 2010, Ch VII; for the Working Group III Report, see www.uncitral.org/uncitral/ commission/working_groups/3Online_Dispute_Resolution.html, accessed on 13 December 2014. For discussion, see RA Brand, ‘Party Autonomy and Access to Justice in the UNCITRAL Online Dispute Resolution Project’ (2012) 10 Loyola University of Chicago International Law Review 11. 10 MM Albornoz and NG Martin, ‘Feasibility Analysis of Online Dispute Resolution in Developing Countries’ (2012) 44 University of Miami Inter-American Law Review 39, 43. 11 AH Raymond, ‘Creating and Protecting an Informed Consumer in Cross-Border Online Dispute Resolution’ (2014) 19 Harvard Negotiation Law Review 129, 131–2. 12 This conclusion is not based on hypothetical academic thought, but supported by empirical evidence. See Raymond, ‘Creating and Protecting’, 133. 13 Such standards are provided by the EU Regulation on Consumer ODR. See discussions below. 5

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Compared to ADR, ODR also creates new challenges. Firstly, doubt always exists on the reliance of technology and security.14 Through ODR, personal information and confidential information will be digitalised and transferred online. It may be accessed by unauthorised third parties, or be released maliciously or negligently by one of the parties. Data protection and security is one of the issues that the European legislators have paid great attention to in the Regulation on Consumer ODR.15 Secondly, ODR lacks human contact or human intervention.16 Human contact and influence is important in resolving disputes out of court. Successful negotiation requires the parties to persuade each other through non-verbal means, including body language and eye contact, which are not available in ODR. The excellent personal skills of a mediator would dramatically increase the parties’ confidence and trust and play an incredible role in successful mediation, which is not present in the text-based ODR. Thirdly, the success of ODR requires the parties to be treated equally. Equal treatment involves the equal access to technology. From this perspective, businesses may have an advantage. Although e-consumers learn how to use the internet to enter into transactions and to conduct communication, they may not have enough knowledge, software or hardware to conduct complicated online activities. If an ODR requires the use of the most recent technology and software, consumers may be deprived of the opportunity to resolve their dispute through ODR. It is suggested that an ODR provider should ensure that the ODR infrastructure does not rely on expensive, new, and unique software or hardware. If special software is required, the ODR provider should provide free download services for consumers. Fourthly, there may be psychological problems affecting the proper use of ODR. Traditionally, the internet and online communication are labelled with informality and lack of seriousness.17 Consumers may have the impression that ODR is informal and unreliable. The image of the internet is changing with the development of the broad adoption of the internet in many traditionally serious sectors, such as banking and financial services and even court filing systems. However, the public still lacks the general confidence to have the entire dispute resolution procedure conducted online. Fifthly, traditional settlement or decisions for dispute resolution are recognised ‘in writing’ signed by the parties. ODR questions the formality of digital settlements and decisions delivered online. For example, it is questionable whether e-arbitral awards meet the requirement of the New York Convention as being ‘authenticated original’ awards. Sixthly, would ODR balance the inequality of power between consumers or businesses? It is necessary to notice that most ODR providers and e-businesses have agreements. The websites of e-businesses incorporates the webpages of ODR providers contracted to provide long-running dispute resolution services, or they

14 UJ Orji, ‘Technology Mediated Dispute Resolution’ (2012) 18 Computer and Telecommunications Law Review 124, 128. 15 Regulation on Consumer ODR, Arts 5(1), 6(2) and 13. 16 Orji, ‘Technology Mediated’, 127–8. 17 Ibid, 129.

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provide a link to these associated ODR providers. Dispute resolution services are free to consumers and the ODR providers receive their fees from e-businesses. There is no doubt that some consumers would question the fairness and impartiality of these ODR services. It is also necessary to recognise the irreplaceable benefits of ODR. It is widely recognised that ODR is specifically designed to resolve online disputes between consumers and businesses and it is a dispute resolution mechanism that is most appropriate to suit the specific characteristics of e-commerce. Firstly, it eliminates the associated costs of physical dispute resolution, including travelling, communications, venue hiring, and accommodation. It also reduces the direct management costs of dispute resolution because ODR is managed by online platforms, facilitated by software which is relatively cheap to maintain and operate.18 Simple ODR services, such as ‘Moneyback Guarantee’ and the dispute resolution centre services of eBay, chargeback services of PayPal, and dispute resolution services of Amazon, are free for consumers. More complicated services will charge minimal and proportionate fees. For example, ‘ecourt’ is a UK ODR provider, which provides online arbitration and mediation services. The arbitration service is charged according to the amount of words needed for presenting the case, costing £25 per 250 words, which can be significantly lower than offline arbitration services for small and simple claims.19 It is compatible with the low value characteristics of e-consumer disputes. However, the low cost may not always be the case. The same ODR provider ‘ecourt’ charges £450 for a minimum two-hour mediation session, or £850 for a four-hour session.20 The service charge may not be necessarily cheaper than offline mediation, except for the elimination of cost for travel and accommodation. Furthermore, the average online consumer contract value is in the range of US$60,21 which makes even the £25 charge expensive. Secondly, ODR usually is flexible and convenient to use. ODR providers usually provide consumers with multiple methods to resolve disputes and consumers are free to choose either to directly communicate with the business through emails, through online communication channels, or through ODR platforms. ODR platforms are usually designed in an easily accessible way and the method of dispute resolution is clearly described for laymen to understand and follow.22 Thirdly, ODR is quicker than traditional dispute resolution methods. It is quicker to communicate and complain through the internet, and to refer the dispute to the ODR provider. Transaction history and communication messages between the parties are easily copied and provided to multiple parties. ODR providers usually establish a clear and strict timeframe for the parties to communicate and to resolve disputes.

18

Ibid, 126. www.ecourt.co.uk/online-quote.php, accessed on 29 December 2014. www.ecourt.co.uk/howitworks.php, accessed on 29 December 2014. 21 UNCITRAL, ‘Report of Working Group III (WGIII) (Online Dispute Resolution) on the Work of its Thirtieth Session’ (Vienna, 20–24 October 2014), A/CN.9/827, para 25. 22 Orji (n 14) 127. 19 20

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The success of ODR largely depends on the parties’ incentive to use it. If ODR operators charge large fees, no parties would choose ODR in practice. If the fees are lower than litigation, it is not sufficient to guarantee a wide use, as ODR may still cost more than the value of the claim. If the fees are lower than the claim value, one needs to consider whether the gap deserves the time and effort and also the possibility of loss. Consumers usually have an incentive to use ODR if it is free of charge. In order for ODR to be free for consumers, it must be financed by businesses. The question is why businesses are willing to finance ODR. On the one hand, incorporating an ODR platform into the company’s website and becoming a corporate member leads to additional cost. On the other hand, if without free ODR consumers would not be likely to bring actions or seek ADR against businesses, refusing to opt for any ODR may also reduce or even eliminate future claims. The incentive for businesses to finance ODR probably is a marketing strategy. Some ODR platforms are multi-functional, not only acting to resolve disputes, but also providing online ranking and satisfaction rates. Online consumers are more willing to follow peer consumers’ advice when deciding which businesses to trade with. Good online reputation would work as a very effective marketing instrument. Furthermore, if a business is engaged in an ODR scheme, it may improve consumers’ trust and confidence to make a purchase.23

III. Online Alternative Dispute Resolution A. Online Negotiation and Mediation (Assisted Negotiation) ODR includes e-negotiation, e-mediation and e-arbitration. It can be a typical one mechanism, an altered form of one mechanism, or a hybrid scheme combining more than one mechanism. In general, ODR is very flexible and dynamic, and it may be subject to various alterations and combinations.24 Using the internet to conduct negotiation has been adopted widely. Most e-consumers have tried online negotiation without even realising it. When feeling unsatisfied about the product or service they have received, they will contact the foreign business either by email or by filling in an online complaint form. The key to traditional e-negotiation is that it is neither face-to-face nor simultaneous. These characteristics have cast doubt on the effectiveness of e-negotiation. In face-to-face negotiation, settlement is not only induced by the technical offer and acceptance, but trust, persuasion, empathy and rapport, which are likely to be built on face-to-face communication. As a result, some researchers find distance

23 P Cortes and FE De la Rosa, ‘Building a Global Redress System for Low-Value Cross-Border Disputes’ (2013) 62 ICLQ 407, 421–3. 24 Raymond (n 11) 134.

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negotiation ineffective, which could ‘lead to misunderstandings, sinister attributions, and ultimately, negotiation impasse’.25 Some companies may employ simultaneous electronic communication software such as MSN, Skype or video conference to allow customer services staff to chat with consumers online. It imitates traditional negotiation in that the parties conduct simultaneous communication, receive responses and feedback instantly, may hear the other party’s voice and tone, and may be able to see the other party’s facial expressions. This type of negotiation may overcome some of the above mentioned barriers but the standard of mutual trust and personal influence that may be established may still be lower than face-to-face negotiation. Furthermore, most companies will not conduct simultaneous electronic negotiation to assist consumers, which requires higher inputs and more trained staff. Simultaneous electronic negotiation may also prove inefficient because the average time spent dealing with each consumer’s complaint will be significantly longer. Furthermore, consumers are unprofessional and they are not able to use sophisticated persuasion techniques in negotiation. Grievant consumers usually equalise negotiation as complaining and, during the process, they are likely to talk about irrelevant issues, releasing their grievance and making unreasonable demands. Many e-traders would provide reasonable redress to consumers, if they find the complaint legitimate. The key to assisting consumers to conduct distance negotiation is not to allow the parties to see each other, but to help consumers structure their complaint in a more effective manner. ODR providers may assist e-negotiation in two ways. Firstly, ODR providers may provide a standard complaint form to facilitate negotiation. The complaint will answer a number of questions by checking boxes of a series of questions and the software will direct the complaint to the next tracks. The consumer will be required to provide further information at a relevantly later stage within the category of ‘track’ where the claim falls. An example of this type of negotiation is the eBay Dispute Resolution Centre. After the consumer enters the system, he is asked, in the ‘I bought an item’ category, to click either ‘I haven’t received it yet’ or ‘I received an item that does not match the seller’s description.’26 After clicking the relevant choice, the consumer will be directed to the next step where he will be asked to select the item which he has complained about. After making the relevant choice, the Dispute Resolution Centre will send the request to the seller.27 This form will filter unnecessary and irrelevant information, identify the nature of the dispute, and provide important and sufficient information to the other party.28 The weakness of this negotiation model is rigidity. Filling in forms sometimes

25 Betancourt and Zlatanska (n 3), 260, quoting J Nadler, ‘Rapport in Legal Negotiation’ (2004) 9 Harvard Negotiation Law Review 223. 26 http://res.ebay.co.uk/ws/eBayISAPI.dll?ResolutionCenter, accessed on 15 December 2014. 27 LF Del Duca, C Rule and K Rimpfel, ‘Ebay’s De Facto Low Value High Volume Resolution Process’ (2014) 6 Yearbook on Arbitration and Mediation 204, 207–8. 28 Cortes and De la Rosa, ‘Building a Global’, 415.

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hinders communication.29 A standard form will only include most common disputes. If a consumer’s complaint is beyond the options listed in the form, negotiation cannot be effectively assisted.30 Consumers with less ordinary complaints may be prejudiced in that more effort and time will be wasted in finding another way to negotiate. A new e-negotiation model is computer automated blind-bidding negotiation. It is used where the parties do not dispute on liability but need to agree on the value of remedies. The parties will blindly submit various offers and counter offers and the computer will provide the mid-point once the difference between the offer and counter-offer in one round is reduced to a certain level or percentage.31 The main provider of the blind-bidding service is CyberSettle and the automated e-negotiation service is, in general, successful.32 However, criticisms may arise, as to whether experienced users, especially lawyers in companies, may abuse this system to gain their best advantage over the first-time user, who usually will be the consumer.33 Secondly, the blind-bidding system will only be appropriate for quantum only disputes. This may not be the case in most consumer disputes. The value of consumer products is usually low. The dispute, thus, usually is not on the exact figure of compensation, which normally will be the refund of the purchase price, but on whether the business should offer compensation or refund at all. Both mechanisms include the intervention of software to some extent and some commentators may wish to class them as online mediation.34 A broad definition of online mediation covers all dispute resolution assisted by neutral third parties, either a human or software, conducted online. This broad definition will include the above mentioned negotiation through and assisted by ODR platform, and mediation managed by a human mediator through the online case management, information transfer and distance communication process.35 If a human mediator is involved, the online mediation process simply transfers the traditional mediation process online, through emails, video conferences, and instance messaging.36 For example, the E-Commerce Mediation Committee of Korea provides comprehensive mediation services for parties. The parties could submit an application

29

Ibid, 415. The eBay Dispute Resolution Centre will only resolve consumers’ complaint on non-arrival of goods and wrong description. Consumers with other complaints cannot have them resolved via the Resolution Centre. 31 P Cortes, ‘Online Dispute Resolution Services: A Selected Number of Case Studies’ (2014) 20 Computer and Technology Law Review 172, 173; T Wallis, ‘ADR, Mediation and How and Why it Will be Embraced by Personal Injury Practitioners and Insurers’ (2014) 3 Journal of Personal Injury Law 164, 172; Orji (n 14) 124–5; M Altenkirch, ‘A Fast Online Dispute Resolution Program to Resolve Small Manufacturer-Supplier Disputes’ (2012) 67 Dispute Resolution Journal 48, 50–1. 32 www.cybersettle.com, accessed on 12 December 2014; Cortes, ‘Online Dispute Resolution’, 173. 33 Cortes (n 31) 173. 34 AJ Fernandez and ME Masson, ‘Online Mediations’ (2014) 81 Defense Counsel Journal 395. 35 P Cortes, ‘Can I Afford Not to Mediate’ (2008) 35 Rutgers Computer and Technology Law Journal 1, 4. 36 Betancourt and Zlatanska (n 3) 261; Fernandez and Masson, ‘Online Mediations’, 397. 30

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to the Committee either through the Committee’s Korean language homepage, by fax, email or post. The parties will select one of the four options provided, ie traditional face-to-face mediation, written mediation, cyber-based mediation conducted through online chat or video conference system connected to the Electronic Commerce Mediation Committee, or phone-based mediation.37 Written mediation can certainly be done without requiring parties’ presence and the settlement could be agreed at a distance through the internet. The cyber-based mediation simply adopts the telecommunication technology to allow the parties and mediator to conduct mediation at a distance. It possesses all the advantages and disadvantages of transferring offline dispute resolution online. It is quick, convenient and inexpensive, but it may lack proper rapport, communication and trust. The same data protection and system security issues are equally present.

B. Online Arbitration Online arbitration digitalises the whole arbitration process allowing the parties and the arbitrator to conduct the normal arbitration procedure online. Compared to negotiation and mediation, arbitration is a more formal process producing a binding award. Compared to offline arbitration, online arbitration is faster, cheaper and more convenient. The pre-dispute compulsory arbitration agreement in consumer contracts may be held as ‘unfair terms’ in Article 3(1) of the Unfair Terms Directive,38 but the online arbitration agreement may escape the legal restriction, because online arbitration is equally accessible to both parties.39 Online arbitration may be questioned on the appropriateness to conduct a formal process online and the enforceability of arbitral awards.40 Arbitration usually includes fact finding which involves the admission of evidence. Online arbitration may require delivering evidence at a distance. If the evidence is an object, admitting evidence may prove difficult and time-consuming. Further, examination of witnesses must be conducted online too. The quality of online witness examination may be questioned. However, these problems may not exist in simple disputes involving only document evidence, which can be produced online. It is appropriate that many e-consumer disputes, where the contracts are concluded and may be performed online, as a result, are resolved by online arbitration.41 The cost-saving effect of online arbitration has also been doubted. Online arbitration may only reduce the travel expenses, but the parties have to pay other costs, 37

www.ecmc.or.kr/eng/, accessed on 22 December 2014. Directive 93/13/EEC on unfair terms in consumer contracts [1993] OJ L95/29. For more discussion, see Ch 10, s IV.B. above. 39 G Kaufmann-Kohler and T Schultz, Online Dispute Resolution Challenges for Contemporary Justice (The Netherlands, Kluwer, 2004) 177. 40 Some commentators may also question the validity of online arbitration agreements, which is considered a different question concerning online contracts, not online arbitration itself and will not be discussed here. Betancourt and Zlatanska (n 3) 263. 41 Ibid. 38

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such as the cost to the arbitration institution/provider, arbitrators, lawyers, etc. In arbitration the greatest expense comes from arbitrators’ and lawyers’ fees.42 This argument, however, may be valid in commercial arbitration, but not consumer arbitration. Many consumer disputes involve small values, and countries permitting consumer arbitration usually impose legal requirements to make arbitration costs proportionate to the value of the claim. Furthermore, consumer disputes usually are simple in fact and may be handled by consumers without the need to recruit a legal representative. They are disputes with ‘simple fact patterns and small claims’,43 which are suitable for online arbitration. Furthermore, converting arbitration online for the purpose of speed and low cost determines that online arbitration ‘is no longer the truth-seeking process that it is for commercial, investment or interstate disputes … but a process to avoid crass disrespect of the contract or basic legal obligations in a consumer transaction.’44 It is widely accepted that online arbitration must adopt the ‘internet way of thinking’ to be straightforward, simplified and streamlined.45 As a result, due process of online arbitration may be put in question. This may affect the enforcement of online arbitral awards. Firstly, awards may not be enforced under the New York Convention if the opposing party was not given proper notice of the arbitration proceedings, or was unable to present his case.46 In consumer online arbitration, the consumer may be the party that is not properly informed of the arbitration procedure. Consumers may enter into online arbitration because of the arbitration clause in their contracts, which may or may not specify the detailed procedure of online arbitration. Consumers may be directed to the ODR provider’s website to check details of the arbitration procedure. However, they may not be able to understand the process or the legal consequences fully. Because consumers rarely consult legal professionals before conducting online dispute resolution, consumers may argue later that they were not informed of the process properly. In addition, questions also arise if one of the parties claims that he could not fully present his case because he could not provide physical evidence or witnesses in online arbitration. Secondly, arbitral awards may not be enforced if the composition of the arbitral authority or the arbitral procedure was not in accordance with the law of the place of arbitration.47 This, again, may happen in online arbitration. Deciding the ‘seat’ is important because it determines some procedure rules governing arbitration, the potential involvement of some national courts and the nationality of arbitral awards for the purpose of enforcement.48 In online arbitration, the concept of the 42

Ibid. Ibid. 44 T Schultz, ‘Internet Disputes, Fairness in Arbitration and Transnationalism’ (2011) 19 International Journal of Law and Information Technology 156, 156–7, cited in Cortes and De la Rosa (n 23) 410. 45 UNCITRAL, ‘Report of WGIII’, para 45. 46 Art V(1)(b) of the New York Convention. 47 Art V(1)(d) of the New York Convention. 48 TJ Lanier, ‘Where on Earth does Cyber-Arbitration Occur’ (2000) 7 ILSA Journal of International and Comparative Law 1, 2–3. 43

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‘seat’ or location of the arbitral tribunal is further blurred. The parties may agree on the seat of arbitration in order to submit to the legal requirements or rules of that country without the need to travel or actually base arbitration in that country.49 If the parties wish the arbitral awards to be enforced, they have the freedom to designate the ‘seat’, the law of which would uphold validity of online arbitration. However, in many cases, parties may only agree that they will submit disputes to an ODR provider without specifying the ‘seat’. Three methods are proposed to determine the seat of arbitration: one is to allocate arbitration in the place of the computer server that holds the platform of the virtual arbitration; one is to allocate the seat to the domicile of the ODR provider; the other is to allow the tribunal to determine the seat with discretion.50 Thirdly, recognition and enforcement may be refused if the award is contrary to the public policy.51 Public policy includes procedural public policy and substantive public policy. While online arbitration may raise no new issues concerning substantive public policy, it probably would challenge procedural public policy. Online arbitration usually makes it difficult, if not impossible, to have a proper oral hearing. If the procedural law applying to arbitration requires oral hearing and parties fail to agree otherwise, the lack of oral hearing may infringe public policy.52 Furthermore, if the online arbitration platform requires the use of a device or software that is not available to the consumer, the lack of equal treatment may have infringed public policy.53 The production and certification of e-evidence and e-discovery may also challenge procedural public policy.54 Fourthly, the party that applies for enforcement shall provide the ‘duly authenticated original award or a duly certified copy thereof ’.55 The question is whether an arbitral award rendered online and signed electronically is a ‘duly authenticated original’ award. It has been suggested that a safe way to move forward is to receive both parties’ permission and agreement to produce an online arbitral award signed electronically and to send a hard copy afterwards as ‘a duly certified copy’.56 The UNCITRAL Working Group III on ODR has considered whether online consumer arbitration is compatible with the New York Convention at all. Two issues are considered: (1) the high cost of enforcement procedure may not be compatible with the low-value arbitral awards; (2) the big diversity on arbitrability

49 F Davidson, ‘Some Thoughts on the Draft Arbitration (Scotland) Bill’ (2009) 1 Journal of Business Law 44, 50. 50 Lanier, ‘Where on Earth’, 6; UNCITRAL Arbitration Rules, Art 12; ICC Arbitration Rules, Art 14(1); N de Witt, ‘Online International Arbitration’ (2001) 12 American Review of International Arbitration 441, 451. 51 Art V(2)(b) of the New York Convention. 52 N Horn, ‘Arbitration and Electronic Communications: Public Policy’ (2009) 12 International Arbitration Law Review 107, 109. 53 Ibid, 110. 54 Ibid, 112. 55 Art IV(1)(a) of the New York Convention. 56 M Phillippe, ‘Where is Everyone Going with Online Dispute Resolution (ODR)?’ (2002) 13 International Business Law Journal 167, 177; Horn, ‘Arbitration’, 112.

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of consumer disputes in different jurisdictions may make people question the automatic enforcement system of the New York Convention and hamper consumer confidence in e-commerce.57 On the other hand, enforceability and binding awards may benefit consumers more than non-binding settlement.58 However, the Working Group III does not have the competence to decide the legal issue and interpretation of the New York Convention, and this discussion probably cannot legitimately go further.

C. Innovative ODR-Resolution Plus Enforcement It is also important to note that the purpose of ODR is to resolve online disputes online and to provide convenient and low-cost resolution to match the convenient, low-cost and efficient e-consumer market. If the settlement or decision made in ODR cannot be enforced, and if it is necessary to pursue court enforcement, the main purpose of ODR is undermined.59 An innovative ODR is a hybrid mechanism with duel purposes to resolve disputes on one hand and to enforce settlement/decision on the other. Chargeback is a typical example. Many countries offer legal protection to credit card users by requiring the credit card issuer to be liable for the malpractice of companies, if the consumer uses the card to make the purchase.60 Traders that accept credit card payment will have agreement with the credit card supplier to allow chargeback on the grounds of defective quality, non-delivery of goods, goods not as described, etc.61 If consumers raise the complaint to the card issuer, for example, for the non-delivery of goods, and if the trader could not prove that goods are delivered, the card issuer will reverse the purchase money from the businesses’ account to the consumer. The same chargeback mechanism applies to both offline and online transactions. Chargeback is free for consumers and traders shall pay a fee for this service.62 Many ODR providers incorporate chargeback mechanisms in their system. Once settlement is agreed or a decision is made, the ODR provider could automatically refund consumers the money, making the ODR scheme self-contained and effective.63 The full self-contained ODR services are provided by, for example, PayPal, eBay, Amazon and Modria.64 Using eBay as an example, eBay provides the Money Back Guarantee with the assistance of PayPal. Only consumers paid 57

UNCITRAL, ‘Report of WGIII’, para 41. Ibid, para 51. 59 Dieguez, ‘European Legal Perspective’, 94. 60 Credit card holders are protected more broadly, while some countries, such as the UK, do not provide the same protection to debit card holders. See UK Consumer Credit Card Act 1974, s 75. Dieguez (n 1) 95–6. 61 Hornle, ‘Encouraging Online’, 193–4. 62 Cortes and De la Rosa (n 23) 422; Del Duca, Rule and Loebl, ‘Facilitating Expansion’, 70–2. 63 AH Raymond and SJ Shackelford, ‘Technology, Ethics, and Access to Justice’ (2014) 35 Michigan Journal of International Law 485, 503. 64 Dieguez (n 1) 96; for Mondria, see Raymond and Shackelford, ‘Technology, Ethics’, 503–4. 58

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through PayPal can benefit from the eBay Money Back Guarantee. If the consumer did not receive the item ordered or the item does not match the seller’s description, he could contact the seller through the eBay Resolution Centre.65 After the consumer opens the case, the seller should respond within eight days. If the problem is not resolved within eight days, the consumer could log into the Resolution Centre to escalate the case to customer support. eBay will review the information and respond within 48 hours, either to chargeback the consumer via PayPal, or help return the goods associated with the same chargeback process.66 The process is streamlined, easy to follow, and low-cost. Every step, from initiating a claim to assisted negotiation, to resolution, and to enforcement, is taken by the ODR provider, the eBay Resolution Centre. It has properly resolved the enforcement problem and saved the overall cost for consumer redress. It is suggested that a selfcontained ODR system with chargeback services should be used more widely by ODR providers.

D. Trustworthy e-Businesses and ODR Providers: Trustmark Scheme Some consumers may not feel confident in resolving disputes through ODR providers. This is partly because the ODR provider is chosen by the business and incorporated in the e-business’s website, which makes the consumer doubt the ODR provider’s impartiality and fairness. The other reason is that consumers do not know much about ODR or ODR providers and concern the quality of decision making. The principle of consumer ADR/ODR should be to keep disputes private and away from direct state control, which may increase the cost and cause unnecessary inconvenience. As a result, government or courts should not directly review or scrutinise ODR services for individual cases. One way to ascertain if the ODR services meet certain criteria or standards is to use the ‘trustmarks’ system.67 For example, the Better Business Bureau (BBB) in the US aims to advance market trust between businesses and consumers by setting up high business standards. Businesses meeting such standards can receive the BBB Accreditation and display the BBB seal/trustmark on their webpages.68 BBB will investigate the ODR process and services before awarding the trustmark and will continuously monitor

65

http://resolutioncentre.ebay.co.uk/, accessed on 20 December 2014. The full procedure is described by eBay here: http://pages.ebay.co.uk/ebay-money-backguarantee/how-to-help.html, accessed on 21 December 2014. Del Duca, Rule and Rimpfel, ‘Ebay’s De Facto’, 206–10. 67 LJ Gibbons, ‘Creating Market for Justice’ (2002) 23 Northwestern Journal of International Law and Business 1, 30; AJ Schmitz, ‘Organic Online Dispute Resolution’ (2013) 32 Banking and Finance Services Policy Report 1, 4. 68 Schmitz, ‘Organic Online’, 8. See Better Business Bureaus Online, www.bbb.org/council/about/ vision-mission-and-values/, accessed on 20 December 2014. 66

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accredited businesses for continuing compliance with BBB standards.69 ODR providers can seek the accreditation of BBB which improves market trust and reliability. The BBB seals can also appear on the webpages of e-businesses that are officially associated with accredited ODR providers. Another reputable trustmarks provider is TRUSTe, which ensures best practices of e-businesses to safely collect and use data and to protect consumer privacy.70

E. Online Rating System—Self-Help Alternative? If consumers do not want to choose any of the above dispute resolution methods, most unhappy consumers will choose to provide feedback online. The online feedback system provides publicity and transparency in online transactions. E-consumers are empowered because they could effectively share their views with other potential consumers. In order to maintain a good reputation, which directly affects the future business and profits earning, e-traders usually need to take feedback seriously and this urges e-traders to perform well and to treat consumers fairly.71 Online feedback is essential to help potential consumers make their decisions.72 Consumers would find review and rating of general ordinary consumers trustworthy and more reliable than e-traders’ description and expert comments/reviews.73 The online feedback system makes it essential that consumers’ complaints will be handled quickly and fairly to consumers’ satisfaction. This gives incentives to e-traders to negotiate with consumers with good faith, to refer disputes to trustworthy ODR providers, and to enforce settlement voluntarily. However, one condition for the online feedback system to work properly is that the reviews shown online should be authentic and genuine. According to researchers, the online feedback system may be manipulated by businesses pretending to be consumers and posting deceiving reviews, or by hiring fake reviewers.74 It may dilute the importance and reliability of the online feedback system. E-traders, online review platforms, or online marketplaces with feedback systems need to adopt more viable policy and technology to prevent fabricated reviews.75

69

Schmitz (n 67) 8. www.truste.com/about-TRUSTe/, accessed on 20 December 2014. 71 KA Dohse, ‘Fabricating Feedback’ (2013) University of Illinois Journal of Law, Technology and Policy 363, 368–70. 72 Ibid, 366. About 64% of e-consumers will consider consumer reviews before making a purchase. See ibid, 367. 73 Ibid, 367. 74 Ibid, 372–5; LM Ponte, ‘Mad Man Posing as Ordinary Consumers: The Essential Role of SelfRegulation and Industry Ethics on Decreasing Deceptive Online Consumer Ratings and Reviews’ (2013) 12 John Marshall Review of Intellectual Property Law 462. 75 Various approaches have been adopted by e-companies. See, in general, Dohse, ‘Fabricating’, 388–91. 70

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F. E-Court and European Small Claims Procedure Adopting the internet in litigation procedure is not new either. It is much more ambitious to propose a complete e-court. However, e-courts are possible, especially for some small claims. The idea is that the offline small claim procedure can be completely transferred to an online platform and conducted at a distance through the internet. Given the fact that written procedure can be converted online, such as e-arbitration, if a court procedure is sufficiently simple and in writing, the procedure in principle can be converted online. From this perspective, building an e-court to conduct small claim procedures is not substantially different from an e-arbitral tribunal. In the UK, the claimant could opt for ‘money claim online’ which is an online equivalent service for small claims for a fixed sum under £100,000 and against no more than two defendants. The court fee varies from £25 for claims up to £300, to £60 for values between £500.01 and £1000, and £815 for values between £50,000.01 and £100,000. The same procedure can also be conducted offline, and the claimant is required to download a claim form, fill in and physically lodge in the court. The cost is higher in the offline method though (see Table 2). However, this service only applies if the defendant has his domicile within the UK. If a UK consumer wants to sue an EU business, he could not rely on the UK small claim court but initiate a court claim under the European small claim procedure.

Table 2: UK Small Claim Court Fee76 Claim amount

Sending form to court centre

Using Money Claim Online

Up to £300

£35

£25

£300.01 to £500

£50

£35

£500.01 to £1,000

£70

£60

£1,000.01 to £1,500

£80

£70

£1,500.01 to £3,000

£115

£105

£3,000.01 to £5,000

£205

£185

£5,000.01 to £15,000

£455

£410

£15,000.01 to £50,000

£610

£550

£50,000.01 to £100,000

£910

£815

76

www.gov.uk/make-court-claim-for-money/court-fees, accessed on 29 December 2014.

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The European Small Claims Procedure enters into force from 1 January 2009 in all EU Member States except Denmark.77 It provides written procedure for small claims, which concerns values below EUR 2000. The claimant fills in a standard claim form, which is simple, straightforward and easily understandable by laymen.78 The claimant then lodges the claim form with a competent court. If the court accepts the case, the court will send the claim, supporting documents and an equally simple answer form to the defendant within 14 days, who is given 30 days to respond. The court will forward the defendant’s answer and supporting documents to the claimant within 14 days, and will give judgment or ask for further information in 30 days.79 The court will use the ‘simplest and least costly’ method to take evidence.80 The small claim procedure is clearly more complicated and time-consuming than ADR, especially ODR. However, it is much more convenient, simplified and faster than ordinary litigation procedure. The small claim procedure is designed with special purposes to provide easy access to justice for cross-border disputes,81 and in a way compatible with online dispute resolution. This is a written procedure unless parties explicitly request a hearing, which may be accepted or refused by the court.82 The small claim procedure not only allows, but also encourages, evidence including oral hearings to be taken through video conference or other modern communication technology.83 A few barriers continue to exist. Firstly, forms and supporting documents should be provided in the official language of the Member State addressed or which the addressee understands.84 There will be a translation cost. If the competent court is located in another country, the claimant may have to acquire the claim form in another language before he is able to commence the procedure, which causes a practical obstacle. The claimant should accept the practical assistance including technical information on accessing and filing the claim form. Unless the claim form in foreign language is readily accessible in the claimant’s home state, or the website to obtain the foreign language form is displayed in a language that the claimant can understand, accessing and filing the claim form is not as easy as imagined.85 Secondly, the losing party will bear the cost of the other party, including the other party’s cost for legal professionals and translation services. The fear of loss may

77 Regulation (EC) No 861/2007 of the European Parliament and of the Council of 11 July 2007 establishing a European Small Claims Procedure (‘Small Claim Regulation’ hereafter) [2007] OJ L199/1. See Ch 8 above. 78 Small Claim Regulation, Annex 1. 79 Ibid, Arts 4 and 5. 80 Ibid, recital 20. 81 Ibid, Art 3; recitals 1 and 3. 82 Ibid, recital 13. 83 Ibid, Arts 8 and 9; recital 20. 84 Ibid, Art 6; recital 19. 85 Of course, consumers are usually entitled to sue in their home state, but the difficulty may affect small e-companies.

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also deter consumers from using this procedure.86 Thirdly, although the procedure allows evidence to be provided online, it requires documents to be served through the post with proof of receipt. Only when this service is impossible, other service methods are allowed, including electronic service of documents where the service is attested by an automatic confirmation of delivery, provided the addressee has expressly accepted this method in advance.87 Given the fact that e-businesses are required to disclose their address to consumers, and most consumers are required to provide their contact/delivery/billing address before entering into the contract, postal services are required, which incur cost and delay. The EU small claim procedure could be converted online, except the necessity to update the services requirement. However, the EU is not in a position to require Member States to establish e-courts. Without the support of e-courts, the procedure may not provide sufficient convenience and speedy services for the parties. Furthermore, the purpose of the small claim procedure is to reduce cost which is supported largely by waiving legal professional fees. However, cross-border claims inevitably include difficult issues, such as jurisdiction and applicable law, which cannot be answered easily by laymen. As a result, professional consultation is necessary. It is suggested that to provide more convenient justice services for consumers and businesses alike, a centralised e-court may be a choice. The EU authority could establish an e-court. Claim forms in the official languages of all Member States are available to download. The claimant can then lodge the filled form online and documents are served online. Judgments can be delivered and served online. The EU e-court should also provide the judgments to the court of each Member State upon the judgment creditor’s request for enforcement.

IV. Substantive Rights in ODR What law is applicable to decide the parties’ rights and obligations if the parties resolve their disputes online? Where ODR is used, parties or the mediator may rarely consider the governing law issue. They may enter into settlement without considering the ‘law’ at all. 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 of international commercial associations providing harmonised codes of practice for their members. In e-consumer commerce, the most common practice is for the site-certificate institution to adopt

86

Small Claim Regulation, recital 29. Small Claim Regulation, Art 13; Regulation (EC) No 805/2004 Creating a European Enforcement Order for Uncontested Claims [2004] OJ 143/15, Art 14(1)(f). 87

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uniform codes of practice to protect consumers dealing with companies registered under its site-certificate scheme.88 The code of practice in the site-certificate scheme provides harmonised substantive rules. These rules have no legal effects, but are important in the out-of-court dispute resolution, and will greatly reduce the importance of the choice of law rules. 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 sitecertification 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.89 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 will 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 that the practice of trustmark organisations nowadays is of an inappropriate quality, which represents a risk to e-consumers who rely on trustmarks.90 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

88

Such as eTrust. See s III.D. above. Hague Conference on Private International Law, Geneva Round Table on Electronic Commerce and Private International Law (September 1999), www.hcch.net/upload/wop/press01e.html, accessed on 4 June 2006. 90 See P Balboni, ‘Model for an Adequate Liability System for Trustmark Organizations’ (2006) 1 Privacy, and Security Issues in Information Technology 97, 97. 89

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on e-businesses to get their funding, which prevent them from being completely independent.91 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, the system cannot work unless consumers are provided with relevant information, in a clear and unambiguous way, before concluding the contract, which makes the consumer aware of 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. The content of the code of practice, in particular, 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.92 The business also needs to provide the consumer with information about the institution that issued the site certificate. 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 based on the trust that the contractual parties can establish.93 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 present 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.

91

For more details, see Balboni, ‘Model’, 97–9. 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. 93 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. 92

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It should also be consistent everywhere on the website and at any time during the communication.94 As a result, the company that is the member of a site certificate scheme has to provide its customers with 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 ODR 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.

V. EU Regulation on Consumer ODR The EU Regulation on Consumer ODR was adopted to reflect the EU policy to ensure a high level of consumer protection by reducing barriers caused by fragmentation and uneven quality of national dispute resolution systems and improving consumer confidence in the digitalised internal market.95 The Regulation should be used in combination with the Directive on Consumer ARD. They are ‘two interlinked and complementary legislative instruments’.96 As it has been described by the Directive on Consumer ADR, the Regulation on Consumer ODR provides for the establishment of an ODR platform which offers consumers and traders a single point of entry for the out-of-court resolution of online disputes, through ADR entities, which are linked to the platform and offer ADR through quality ADR procedures. The availability of quality ADR entities across the Union is thus a precondition for the proper functioning of the ODR platform.97

94

ie, it cannot be altered just after the consumer places his order. Art 36 of the Charter of Fundamental Rights of the European Union; Regulation on Consumer ODR, recital 2–8. 96 Directive on Consumer ADR, recital 12; Regulation on Consumer ODR, recital 9. 97 Directive on Consumer ADR, recital 12. 95

EU Regulation on Consumer ODR

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As a result, the Regulation on Consumer ODR does not provide specific standards and principles for ODR. The same Union principles and standards established in the Directive on Consumer ADR, including independence, impartiality, transparency, effectiveness, speed and fairness, should be equal requirements for both online and offline out-of-court dispute resolution.98 The main purpose of the Regulation on Consumer ODR is to design an EU-wide ODR platform. The ODR platform should be an interactive website equipped with the following functions: (1) it offers a single entry point for the parties;99 (2) it allows the parties to fill in an e-complaint form available in any chosen official language and to attach documents;100 (3) it could transmit the relevant documents to the chosen ADR;101 (4) it offers an optional and free electronic case management tool for ADR providers to use;102 (5) it provides automatic and human-managed translation services;103 (6) it enables secured interchange of data104 and provides protection to privacy in terms of data processing;105 (7) it enables users to provide online feedback on the functioning of the ODR platform and the ADR providers used;106 (8) each Member State will have an ODR contact point to form an EU network facilitating the proper functioning of the ODR platform.107 In order to improve consumer awareness, e-businesses, including individual traders and e-market places, have the same duty to provide on their website a link to the ODR platform.108 The Regulation on Consumer ODR does not cover e-negotiation between the parties, though recital 17 states that Member States should encourage consumers to negotiate with traders ‘by any appropriate means’ before initiating ODR proceedings.109 This has been criticised by commentators, who believe direct negotiation without the intervention of any third party should be incorporated into the ODR platform.110 It is presumed that when disputes have arisen, consumers usually will contact businesses directly on their own motive. Negotiation will be conducted without instruction. The problem is that self-managed negotiation may have a lower success rate than it should have. The complaint, especially if it is made by a consumer, may be unprofessional and emotional. The complaint may not be accurate and miss the point, which makes it more difficult for the other party to 98

Regulation on Consumer ODR, Art 1. Ibid, Art 5(2); recital 18. 100 Ibid, Arts 5(4)(a), 8; recital 18. 101 Ibid, Art 5(4)(c) and recital 18. 102 Ibid, Art 5(2) and recital 18. 103 Ibid, recital 19. 104 Ibid, recital 20. 105 Ibid, Arts 12–4; recital 27–8. 106 Ibid, Art 5(4)(g). 107 Ibid, Art 7. 108 Ibid, recital 30. 109 Ibid, recital 17: ‘Before submitting their complaint to an ADR entity through the ODR platform, consumers should be encouraged by Member States to contact the trader by any appropriate means, with the aim of resolving the dispute amicably.’ 110 Hornle (n 1) 201; P Cortes, ‘Improving the EU’s Proposals for Extra-judicial Consumer Redress’ (2013) 23 Computers and Law 26, 27–8. 99

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provide a proper response. The lack of understanding of his legal rights may cause the complainant to expect more from the potential remedy than he may receive, which will prevent settlement. Furthermore, the Regulation provides compulsory duties to e-traders to make consumers aware of the ODR platform. One unwanted consequence is the consumer may be so ready to initiate the ODR procedure without considering negotiation first. The ODR platform is not an independent dispute resolution entity. It does not resolve disputes between the parties, but facilitates distance ADR via telecommunication technology. It enables consumers and businesses residing in different Member States to contact each other and to access dispute resolution entities located at a distance. It includes competent ADR entities into its scheme and provides consumers and businesses with the engine to search and select. It also refers the disputes and transfers data and documents to relevant ADR entities. The ODR platform is an advanced and online version of the ECC-net.111 The difference is that the ODR platform is supposed to function in a more effective way.112 The ODR platform will be operational in January 2016. It is hard to accurately predict whether it would be successful and widely used to improve the functioning of e-consumer transactions in the internal market without relevant data. The Directive on Consumer ADR and Regulation on Consumer ODR have important limitations. They only apply to out-of-court dispute resolution between EU consumers and EU traders.113 The ODR platform will not help EU consumers dealing with non-EU traders or vice versa. The question is whether this model is appropriate for an international framework.

VI. Creating a Global ODR Scheme Globalisation is one of the key advantages of e-commerce. Building a global ODR scheme to match the trading requirement of e-commerce is necessary and crucial for the full development of the potential of e-commerce. This scheme would ensure that the same standards and criteria apply to all ODR providers. Consumers and businesses participating in e-commerce could expect the same protection and services are provided to resolve their disputes irrespective of their domicile, place of business, place of performance, and the location of the server. A global ODR scheme will be delocalised or internationalised in nature. Building a global ODR scheme is not easy. Firstly, the global ODR scheme requires the technology and infrastructure of ODR in all countries in the world to develop at the same level, allowing the equal footing of consumers and businesses 111 See J Hill, Cross-Border Consumer Contracts (Oxford, Oxford University Press, 2008) para 10.15–10.29. 112 Hornle (n 1) 200. 113 Regulation on Consumer ODR, recital 10–11.

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in various countries. Secondly, global ODR needs to provide multi-language services covering different communication needs. Thirdly, one or several ‘trustmark’ providers should have authority to supervise and investigate ODR providers in different countries to guarantee quality. Fourthly, the same enforcement methods should be adopted to allow ODR providers to enforce the settlement or decision, or to allow enforcement through courts. There are also various ways to establish a global ODR scheme. The first one is to establish one or a few global ODR platforms which provide international services and which can be accessed anywhere in the world. This approach is not appropriate due to the centralisation of ODR services and management. While the central authority may keep control of the ODR services, it may also be bureaucratic and hamper competition. Furthermore, there is no consensus on what the central authority should be. The second one is to create an ODR network, which links ODR providers in different countries and could provide e-commerce participants with the one-stop-shop for all reliable providers. The EU Regulation on Consumer ODR has taken this approach, which focuses on improving cooperation between different countries.114 This approach may not be proper at the international level for it demands the cooperation of different sovereign states which may be easier in the EU but difficult internationally. The third one is to establish harmonised criteria and standards for authenticated ODR services. This approach is adopted by a number of important international organisations including ICC,115 OECD,116 GBDe117 and UNCITRAL. The most recent, and probably the most important, development is the UNCITRAL framework. The UNCITRAL Working Group III (WGIII) is currently in the process of establishing a model law adopting the third approach mentioned above. It may be chosen by the parties, implemented into the national law regulating ODR, or by existing ODR providers. The UNCITRAL formed the Working Group to provide international harmonised rules on global ODR. The Working Group has drafted the procedure rules, with a two-track system. Track I applies to ODR resulting in binding arbitration, and Track II applies to non-binding dispute resolution, including negotiation and arbitration. Different attitudes are predictable between the US and EU to consumer arbitration.118 Although the WGIII emphasises the importance of 114

Cortes (n 31) 178. International Chamber of Commerce, ‘ICC Guidelines on Using Information Technology in Arbitration’, 2004. 116 OECD, ‘OECD Guidelines for Consumer Protection in the Context of Electronic Commerce’, 1999; OECD Recommendation on Consumer Dispute Resolution and Redress, 2007. 117 Global Business Dialogue on e-Society, ‘Guidelines for the Provision of Dispute Resolution Services for Ecommerce’, November 2003. For more, see UNCITRAL, Online Dispute Resolution for Cross-Border Electronic Commerce Transactions, A/CN.9/WG.III/WP.105, Vienna, 13–17 December 2010, para 12–15. 118 Highlights of the 30th session of UNCITRAL Working Group III on ODR, 30 October 2014, http://ijeomaononogbu.net/2014/10/30/highlights-of-the-30th-session-of-uncitral-working-groupiii-on-odr/, accessed on 29 December 2014. 115

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arbitration in developing countries where access to court justice is in doubt, it does not intend to decide the major policy differences concerning arbitration. It is left completely to each country.119 This gap, unfortunately, may cause uncertainty in future practice, especially where the parties are domiciled in countries with different domestic mandatory rules and policy concerning consumer arbitration. Comparatively, more support and consensus exists for Track II.120 It is widely agreed that the rules should be simplified and easily understandable.121 Besides the Procedure Rules, the WGIII also works on guidance to establish the best practice for ODR providers, platforms, administrators, or neutrals. The draft guidance was published in 2014.122 The guidance includes codes covering various areas of practice, including fair process and independence of ODR providers and neutrals, modification of the rules and display of the UN logo to demonstrate the compliance with the UNCITRAL Rules, transparency and disclosure, confidentiality, transfer of information, data security and archiving, detail in relating to administrating disputes under the Rules, residual authority, compliance or private enforcement, technical issues, legal issues arising in the context of administering a dispute resolution, language and fees.123 One specific feature of the UNCITRAL Rules deserves some attention. The UNCITRAL Rules are designed for ‘all’ transactions without distinction between business-to-business and business-to-consumer transactions. It is justified by the ambiguity of online transactions, where the identity of the other party is hardly known.124 A lot of small and medium-sized companies, which cannot afford their own websites, use the third party’s platform to sell products, and the same quality, description, prices, terms and conditions are provided to all purchasers, regardless of whether they are consumers or businesses. The UNCITRAL Rules aim to provide the same standard of ODR procedure to all online transactions, and consider it unnecessary to provide separate rules for consumer disputes. It is questionable when the model procedural rules may be finalised and how it could be successful in practice. The UNCITRAL Rules may provide the general principles that are broadly accepted by most domestic legislators and ODR providers, but harmonisation of detailed procedure rules may prove difficult. Furthermore, UNCITRAL Rules could not affect domestic mandatory rules. Although ODR is generally self-regulated, domestic mandatory rules and procedural requirements may be inevitable, such as the enforceability and validity of dispute resolution agreements, confidentiality, due process arguments, request for judicial review, and enforcement of settlements. Thirdly, UNCITRAL model law does not have direct binding effects and enforceability. It is subject to modification 119

UNCITRAL, ‘Report of WGIII’, para 20–1. Ibid, para 23–4. 121 Ibid, para 25. 122 UNCITRAL, ‘Online Dispute Resolution for Cross-Border Electronic Commerce Transactions: Draft Guidelines’, A/CN.9/WG.III/WP.128, New York, 24–28 March 2014. 123 See, in general, ibid. 124 Cortes and De la Rosa (n 23) 412. 120

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of both ODR providers and national legislators. The eventual results may not be a true harmonisation. Even if these modifications are based on the model law, they may vary in considerably important issues, such as ODR agreement, evidence, time-frame, qualification, and enforceability. It is also doubtful whether UNCITRAL could act as a supervision authority to review ODR providers’ performance continuously for the display of the UN logo on their websites. This is a burden but without it the trustworthiness of the logo is put in doubt. Commentators also argue that some UNCITRAL Rules may be incompatible with the EU framework. For example, since the UNCITRAL Rules do not distinguish consumer transactions from business transactions, the rules are largely based on party autonomy. In the EU framework, most of the procedural rules are consumer biased. For example, in the UNCITRAL Rules, the same language of the transaction will be used in ODR, in the absence of which, the parties may make agreement or the neutral party is entitled to make the choice.125

VII. Conclusion 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 online feedback system, software assisted negotiation, chargeback and the site-certificate system. ODR has not brought substantive challenges in law, though it may bring some technical or security difficulties in practice. Wellestablished ODR could substantially improve consumer redress in cross-border contracts and remove the barriers and costs associated with the traditional, physical dispute resolution scheme. With the assistance of ODR, consumers have easy access to redress without unduly increasing business risk and costs. The success of ODR partially relies on the self-regulation of ODR providers, and partially depends on the appropriate legislative control and regulation. Given the private and flexible nature of ODR, it is suggested that state control should be limited and should only touch the most fundamental issues, such as security, data and privacy protection, protection of consumers against unfair terms, due process and natural justice, confidentiality and enforcement of settlement. Finally, a global ODR system is ideal and helpful, but it is hard to establish an effective and feasible system. It needs the collaboration and support of many sovereign states not only for accepting the final rules, but also for implementing the rules in their domestic systems and trust other states to have done the same. At the current stage, a successful ODR system may exist more realistically at the EU level, instead of internationally.

125

See A/CN.9/WG.III/WP.112/Add.1, paras 20–5.

12 Effective and Efficient Dispute Resolution for E-Consumer Contracts and Conflict of Laws I. Protective Conflict of Laws in Consumer Contracts 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 neutral model applies ordinary rules to consumer contracts and relies on discretion to protect consumers. It can be more predictable for businesses, but insufficient consideration is given to consumers’ need for protection. The discretion-based approach adopted in the English common law and the US is insufficient to provide fairness and justice to protect consumers and to provide certainty to e-commerce participants.1 The protective conflict of laws provided by the EU instruments reflects the EU policy to protect consumers in cross-border consumer contracts. It is the most advanced model and provides the highest level of protection possible for consumers. The protective model is relatively new in private international law.2 Most countries in the world have not yet adopted this model in their domestic law. However, the international tendency shows a gradual reform of the domestic laws of some countries with the traditional neutral model.3 Although these countries have not yet adopted the full protective conflicts model, they have borrowed protective elements from the EU to soften the rigid and valuefree conflicts rules through modest legislative reform or judicial discretion. 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 1

See discussion in Chs 3, 4 and 6. See the history of protective conflict of laws, Ch 1, II. See, for example, the Civil Code of Quebec, ss 3117, 3149 and 3168(5); Uniform Commercial Code of the US, s 1-301(e); Australian Consumer Law, s 67; Application of Law for Foreign-Related Civil Relationships of the People’s Republic of China(2010), Art 42. See also the Unfair (Procedural and Substantive) Terms in Contract Bill of India, proposed by the Law Commission of India in 2006, s 11. 2 3

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policy requires sufficient rules to ensure protection of the weaker party. More and more countries would consider it necessary to reform the current neutral model in order to take the consumer’s interest into consideration. However, the protective conflict of laws faces four challenges, namely the e-commerce challenge, the globalisation challenge, the efficiency challenge and the enforcement challenge.

A. E-Commerce Challenge The protective conflict of laws is not one-sided in protecting consumers. It also has the purpose of providing certainty and reducing commercial risk. In other words, its purpose is not solely consumer protection but also to balance the conflict of interests. The balance is provided by the ‘targeting’ test, which requires the business to target the consumer’s domicile or habitual residence before the protective conflict of laws is applicable.4 The first challenge brought by e-commerce is the ‘targeting’ test. The international nature of e-commerce may make ‘targeting’ hard to assess. An over broad interpretation may damage businesses’ reasonable expectation and create undue commercial risk; too high a threshold may not be able to properly protect consumers. However, this difficulty is technical rather than fundamental. It has already proved that there are various means for a business to reduce its risk and to ring-fence its market.5 When applying this rule in practice, the court realises the difficulty is more theoretical than pragmatic.6 Another argument is e-commerce has changed the power of both parties. Compared to consumers in traditional commerce, e-consumers are usually younger, richer, better educated, and computer literate. The internet further empowers consumers by enabling e-consumers to easily compare various suppliers in order to shop around to find the best bargain. The internet provides consumers with better access to information to find out their rights or to receive advice from peers or professionals. E-consumers can also voice their dissatisfaction online.7 4

Art 17(1) of the Brussels I Recast and Art 6(1) of the Rome I Regulation. See Ch 2, II.C. Ch 2, II.C.ii. The Heidelberg Report states that: ‘after a few hesitations in the case law, Art 15 and 16 JR (“the Judgment Regulation”) are generally applied and interpreted in a reasonable manner by the courts.’ (Explanation added.) B Hess, T Pfeiffer and P Schlosser, ‘Report on the Application of Regulation Brussels I in the Member States’, Study JLS/C4/2005/03, para 341. In Joined Case C-585/08 and C-144/09 Pammer v Reederei Karl Schluter GmbH and Hotel Alpenhof v Heller [2010] OJ C55/4, the CJEU adopted a flexible approach combining all relevant factors including characteristics of the website to decide whether an e-business ‘targeted’ the consumer’s domicile. This interpretation does not encounter as much difficulty as predicted by scholars. 7 SU Kucuk, ‘Consumer Exit, Voice, and “Power” on the Internet’ (2008) 15 Journal of Research for Consumers 1; RP Bagozzi and UM Dholakia, ‘International Social Action in Virtual Communities’ (2002) 16 Journal of Interactive Marketing 2; SU Kucuk and K Sandeep, ‘An Analysis of Consumer Power on the Internet’ (2007) 27 Technovation 47; B Rezabakhsh, D Bornemann, U Hansen and U Schrader, ‘Consumer Power: A Comparison of the Old Economy and the Internet Economy’ (2006) 29 Journal of Consumer Policy 3; G Howells, ‘The Potential and Limits of Consumer Empowerment by Information’ (2005) 32 Journal of Law and Society 349. See the online feedback system discussed in Ch 11, s III.E. above. 5 6

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Comparatively, the low cost of e-commerce encourages small and medium-sized enterprises to gain access to the international market. Compared to traditional businesses engaging in transnational transactions, many e-businesses are smaller and financially weaker. An individual can register a business account and open an e-shop in eBay or Amazon and sell products to consumers domiciled in other jurisdictions. These small businesses may not have obviously stronger litigation and bargaining power than consumers. Is it still necessary to protect e-consumers in contrast with small e-businesses? The answer should be affirmative. Firstly, the protective conflict of laws aims to adjust not only inequality of litigation power, which largely relates to the financial power, but also inequality of bargaining power. Irrespective of consumer empowerment, the inequality of bargaining power continues to exist between consumers and businesses in e-commerce. The inequality of bargaining power is primarily caused by the asymmetric information between the parties,8 which is unchanged in e-commerce. E-consumers are empowered to compare products and prices, to learn their legal rights, to search for information, and to seek advice, but it does not change the fact that most e-consumer contracts are standard-form contracts not subject to individual negotiation and most e-consumers will not read the terms before entering into contracts. E-contracts continue to be drafted unilaterally by the business, and e-consumers continue to be in a take-it-or-leave-it position. It is even more unrealistic to suggest e-consumers might understand and compare conflict of laws clauses in e-contracts before entering into transactions.9 The empowerment to consumers largely appears after disputes have arisen, when e-consumers could use the internet to look for solutions and to publish feedback. It rarely exists before the conclusion of contracts. Finally, even if many e-businesses are small and financially weak, e-commerce is also used by large, multilateral companies. Differential treatments based on the financial power and classification of businesses is unrealistic and impractical. The last argument is that e-commerce has the potential to allow easy access to the international market with low costs, but this potential is hampered by the protective conflict of laws, which requires the business to ring-fence its market to avoid high compliance costs and therefore prevents e-commerce from being developed to its full potential.10 This allegation is true and the conflict between consumer protection and free trade is irreconcilable.11 However, it does not mean protective 8 SI Becher, ‘Asymmetric Information in Consumer Contracts’ (2008) 45 American Business Law Journal 723; S Lauermann, ‘Asymmetric Information in Bilateral Trade and in Markets’ (2012) 147 Journal of Economic Theory 1969. 9 W Barnes, ‘Consumer Assent to Standard Form Contracts and the Voting Analogy’ (2010) 112 West Virginia Law Review 839; DD Barnhizer, ‘Propertization Metaphors for Bargaining Power and Control of the Self in the Information Age’ (2006) 54 Cleveland State Law Review 69. 10 A Haines, ‘Why Is It So Difficult To Construct an International Legal Framework for E-Commerce?’ (2002) 3 European Business Organization Law Review 157, 153–5, 171–3; C Chen, ‘United States and European Union Approaches to Internet Jurisdiction and Their Impact on E-Commerce’ (2004) 25 University of Pennsylvania Journal of International Economic Law 423, 443. 11 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 (OECD, 1986) 177; J Nehf, ‘Borderless Trade and the Consumer Interest:

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conflict of laws should be abandoned. In the absence of a super-national virtual court and international harmonisation of substantive law, protection of consumers is a legitimate reason to regulate e-commerce. Furthermore, 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.12 Legislators should pay attention to the removal of barriers to e-commerce within the framework of consumer protection. This has already been attempted by EU lawmakers, by providing the ‘targeting’ test to improve predictability,13 by encouraging alternative dispute resolution (ADR) and online dispute resolution (ODR),14 and by increasing harmonisation of substantive law with EU uniform minimum protection standards15 and the proposed Common European Sales Law.16

B. Globalisation Challenge The EU protective conflict of laws aims to provide protection to consumers in cross-border transactions. The purpose may be served within the internal market, where all Member States are bound by the EU instruments. When EU consumers trade outside of the Union, the protective conflict of laws, unfortunately, cannot work properly to protect these consumers. The EU law cannot prevent the consumer from being sued in a third country, cannot prevent the court of a third country from enforcing the standard jurisdiction and choice of law agreement, and cannot prevent the national law that provides the lower standard of protection

Protecting the Consumer in the Age of E-Commerce’ (1999) 38 Columbia Journal of 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. 12 EA O’Hara, ‘Choice of Law for Internet Transactions: The Uneasy Case for Online Consumer Protection’ (2005) 153 University of Pennsylvania Law Review 1883. 13 For more discussion on targeting, see Ch 2, s II.C. 14 Directive 2008/52/EC of 21 May 2008 on certain aspects of mediation in civil and commercial matters, [2008] OJ L136/3; Directive 2013/11/EU on Alternative Dispute Resolution for Consumer Disputes and Amending Regulation (EC) No 2006/2004 and Directive 2009/22/EC (Directive on Consumer ADR) [2013] OJ L165/63; Regulation (EU) No 524/2013 on online dispute resolution for consumer disputes and amending Regulation (EC) No 2006/2004 and Directive 2009/22/EC (Regulation on Consumer ODR) [2013] OJ L165/1. 15 Directive 2011/83/EU on consumer rights, amending Council Directive 93/13/EEC and Directive 1999/44/EC of the European Parliament and of the Council and repealing Council Directive 85/577/ EEC and Directive 97/7/EC of the European Parliament and of the Council [2011] OJ L304/64; Directive 1999/44/EC on certain aspects of the sale of consumer goods and associated guarantees [1999] OJ L171/16; Directive 93/13/EEC on unfair terms in consumer contracts (Unfair Terms Directive) [1993] OJ L95/29. 16 Proposal for a Regulation on the European Parliament and of the Council on a Common European Sales Law (CESL), COM(2011) 0635 final, 2011/0284(COD).

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from being applied. Furthermore, the EU protective conflict of laws does not aim to protect third country consumers. If a business sued a third country consumer in one of the Member States, jurisdiction may be taken under national law, even if the business has targeted the third country. If a third country consumer sues the EU business in the consumer’s home forum, jurisdiction may be allowed under the national law of the court, but the business can escape from the EU protective choice of law.17 The likely result is unfortunate. The territorial limitation of the EU protective conflict of laws artificially fragments the international market into the EU internal market and the external market, and distinguishes transactions into internal transactions and cross-EU transactions. It works well if EU businesses only carry out commercial activities within the internal market and deal with EU consumers, and EU consumers only purchase goods and services from EU suppliers. This ideal world does not exist. More importantly, the artificial delimitation provides EU consumers with a higher standard of protection than non-EU consumers. It may encourage a race-to-the-bottom. Some businesses may adopt different strategies and standards for EU consumers and non-EU consumers. Others may only target their domestic market and/or international market outside of the EU. The delimitation also creates an unfair competitive market for EU and nonEU businesses. The former is subject to the protective conflict of laws while the latter is only partially subject to the protective rules.18 Non-EU businesses would observe fewer barriers and obligations when exploring benefits in the EU internal market, which, unfortunately, are unavailable to EU businesses. Arguably, EU consumers may feel more confident to buy from EU suppliers due to the higher standard of protection. However, e-consumers may not always examine the identity and domicile of an e-supplier, especially where the transaction provides download of intangible property or online access to database or electronic information. The differential treatment of internal and external transactions is unrealistic in e-commerce marked by globalisation. The Brussels I Recast has already removed some of the territorial limitation by extending the protective jurisdiction rules to non-EU defendants.19 But the Brussels I Recast cannot bind the third country, or cannot apply if the third country consumer is the defendant.20 Diversity exists in national conflict of laws in different countries. Many non-EU countries do not have relevant protection in place. The protective conflict of laws adopted in EU Member States again cannot provide adequate protection for consumers in international transactions.

17

For more discussion, see Ch 2, III.C. A non-EU business is subject to the protective conflict of laws when it targets the EU market and is sued in the court of a Member State where the consumer has his domicile (Art 18(1) of the Brussels I Recast). If the non-EU business sues an EU consumer in the business’s home state, both EU protective jurisdiction and choice of law rules do not apply. 19 Compare Art 16(1) of the Brussels I Regulation and Art 18(1) of the Brussels I Recast. 20 Art 4 and Art 18 of the Brussels I Recast. 18

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The only answer is international harmonisation. Only when similar rules are adopted internationally, can the purpose of protection be effectively achieved. International harmonisation in consumer contract of laws, however, is difficult, if not impossible. The difficulty is evidenced by the partially failed judgment project of the Hague Conference in Private International Law.21 Even when the final Convention on Choice of Court Agreements is adopted, consumer contracts are excluded from its scope.22 A slow, but more realistic, approach is to lobby for domestic conflict of laws reform and modernisation in individual countries, or to encourage innovative consumer-oriented interpretation to existing conflicts rules to be provided by judges in common law countries.

C. Efficiency Challenge The protective conflict of laws may be challenged by the classic economic argument that it increases commercial risk and reduces efficiency. The challenge is primarily used to attack the restriction to party autonomy in consumer contracts. This issue has been discussed in the previous chapters, which demonstrate some fundamental fallacies of the efficiency argument.23 Party autonomy brings efficiency to commercial transactions, but it is doubted in consumer contracts. The efficiency argument in consumer contracts basically relies on three justifications: one, the business is in the best position to assess the risk and decide the most efficient allocation of risk; two, the reduced risk and transaction cost could benefit consumers in the form of a lowered price;24 three, unfair practice will be regulated by the market force.25 All are subject to criticism. Firstly, the most efficient allocation of risk usually is achieved by fair bargain between the parties with equal bargaining power. This cannot be achieved in consumer contracts, where consumers lack relevant knowledge and competence and individual negotiation is impossible and uneconomic. The concept of standardform contracts thus allows the more sophisticated party to allocate the risk. The business is in a better position than the consumer to assess the risk, but it does not mean all businesses will draft a standard form contract reflecting the most efficient allocation of risk. The utmost aim of businesses is to maximise profits. The lack

21 For more introduction to the Hague judgment project and its history, see, in general, AT 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 American Journal of Comparative Law 191; L Silberman, ‘Comparative Jurisdiction in the International Context’ (2002) 52 DePaul Law Review 319, 320–7. 22 Art 2(1) of the Hague Choice of Court Convention. 23 Ch 4, s IV. and Ch 6, s VI. 24 RG Bone, ‘Party Rulemaking’ (2012) 90 Texas Law Review 1329, 1364; RA Hillman and JJ Rachlinski, ‘Standard-Form Contracting in the Electronic Age’ (2002) 77 New York University Law Review 429, 439. 25 Bone, ‘Party Rulemaking’, 1364; D Gilo and A Porat, ‘Viewing Unconscionability through a Market Lens’ (2010) 52 William & Mary Law Review 133, 139.

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of regulation would lead to the most inefficient result by allocating all risks on the side of consumers. Secondly, a business may reduce its commercial risk and transaction costs through a standard jurisdiction and choice of law agreement. However, it does not mean the benefit definitely will be transferred to the consumer. A business may simply insert a conflicts clause to reduce transaction costs while enjoying all the additional profits earned. Or the business only reduces a small portion of the profits from the price. In a perfectly competitive market, other contesters may adopt a more consumer-friendly conflicts clause, or adopt the same standard terms with a reduced price to defeat the greedy businesses in competition.26 The real market, however, is far from being perfect. Most consumers will not shop around contract terms. Some economists argue that businesses could not distinguish vigilant consumers from others, and the potential existence of a few vigilant consumers may force businesses to provide the same efficient terms to all.27 However, the most vigilant consumers may not pay much attention to the conflicts clause in a standard term contract. Even if they do, they could not connect the different conflicts clauses with the price. Such comparison is only possible if all other factors affecting the price are identical, including the cost for manufacturing, distribution, storage, packaging, customer services, etc. The conflicts clause is only one small factor that may affect the price minimally. The conflicts clause rarely creates incentives for competition.28 The market force and competition usually works to prevent bad faith exploitation and abuse of power. It would not protect consumers against common business practice. As a result, the efficiency claim is insufficient in deregulating party autonomy in e-consumer contracts. As to how party autonomy can be regulated, two approaches are available. One is regulating bargain and another is regulating enforceability.29 The efficiency claim favours the former. It focuses more on balancing the asymmetric information at the time of contracting, by requiring the business to meet obligations to inform the consumer of the existence, content and legal consequence of a conflicts clause.30 However, it is contrary to the nature of e-commerce by requiring a business to provide one-to-one notification of conflicts clauses. Conflicts clauses are included in standard general terms. Furthermore, the law could not impose obligations demanding consumers to read, understand and consult legal professionals before entering into the contract. Even if the conflicts clause is brought to the consumer’s attention in the most effective 26

Bone (n 24) 1365. Hillman and Rachlinski, ‘Standard-Form’, 442; GL Priest, ‘A Theory of the Consumer Product Warranty’ (1981) 90 Yale Law Journal 1297, 1347. 28 Bone (n 24) 1366. 29 As described as ‘Regulating Information’ and ‘Regulating Transactions’ in Giesela Ruhl, ‘Consumer Protection in Choice of Law’ (2011) 44 Cornell International Law Journal 570, 578–82. 30 The regulating asymmetric information approach is adopted in the US by requiring the business to effectively communicate jurisdiction clauses to consumers and by imposing the conscionability test to determine the validity of a conflicts clause. However, the US standard for notification is not high and insufficient to protect consumers. See Ch 4, s III; Ch 6, s V. 27

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way, the actual reading and understanding may only occur in a very small proportion of consumers. Finally, conflicts clauses are important when disputes arise, but most consumers will not appreciate their importance at the time of contracting, when they pay most attention to other terms, like price, quality, description of products, delivery and return policy. Correcting asymmetric information, as a result, is meant to fail when handling conflicts clauses in e-consumer contracts. Regulating enforcement of conflicts agreements in consumer contracts, as a result, is a more appropriate approach. Economic analysis justifies the necessity of protective conflict of laws in consumer contracts. However, the law is not there to impose unbearable and unnecessary difficulty and risk for businesses. Efficiency in consumer contracts requires ‘balance’ between the parties. The objective of the law is to balance the parties’ bargaining power, litigation power, acquisition of information and allocation of risk. On the one hand, the enforceability of jurisdiction and choice of law agreements should be regulated to adjust the inequality of bargaining and litigation power. On the other hand, businesses should also be protected from uncertainty and disproportionate risk. It could be done by enabling businesses to reasonably predict the potential commercial risk and to adopt manageable means to reduce risk. The common approach is to designate certain ‘conditions’ to generate the protective conflict of laws. These ‘conditions’ should be clear and based on the businesses’ reasonable expectation. The EU ‘targeting’ test may be the answer, providing its application in practice, especially in e-commerce, is clarified and unambiguous.

D. Enforcement Challenge The final challenge to the protective conflict of laws is its effectiveness in practice. After half a century of enforcement of protective conflict of laws, only a handful of cases were brought to the court.31 Obviously, this is because the protective conflict of laws has improved the transaction experiences of both parties and reduces disputes. On the contrary, many consumers complain that they have suffered unsatisfactory services but prefer not to bring the dispute to the court.32 Protective conflict of laws, as a result, is not widely used in practice, not because of the inner flaw of the model, but because litigation, either domestically or internationally, is not a reasonable choice for consumer contracts, given the relevant small value of the claim. Because of the characteristics of consumer contract claims, in

31 For more observation, see J Hill, Cross-Border Consumer Contracts (Oxford, Oxford University Press, 2008) 130–2. 32 According to a survey done by the Eurobarometer in 2013, 43% of responding consumers disagreed that it is easy to settle disputes in court and 21% did not know whether it is easy to settle disputes in court. For consumers who suffered problems in domestic transactions, only 2% were willing to bring the dispute to court. No data is given for international disputes, but it is estimated that it will not be higher than domestic ones. Flash Eurobarometer No 358, Consumer Attitudes towards CrossBorder Trade and Consumer Protection’, 2013, 72, 101. Also see Table 1 in Ch 4, s IV.B. above.

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those countries where the protective model has been adopted, statistics show 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. The enforcement challenge is the real challenge, which calls for answers other than the consumer conflict of laws that aims to enhance consumers’ power in individual litigation.33 However, it is too early 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 disputes. However, it should always be there and available to the parties. The existence of a protective model could protect a small group of consumers who are willing to take disputes to court, could provide consumers with a last resort if disputes cannot be resolved through all other dispute resolution methods, could guarantee that access to justice in cross-border transactions is not more difficult than domestic transactions that encourages the parties to participate in crossborder e-commerce, and could urge the business to pay attention to its customer policy and to provide a higher standard of services to consumers. Some big companies that intend to target international markets may 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 might be treated in a better way in conflicts issues than consumers in countries with no protection given. For example, the Coca-Cola website stores hosted in Latin American countries provide different jurisdiction and choice of law clauses to consumers resident in different countries and areas.34 For residents in the US, Canada, Russia, or Ukraine, Fulton County, Georgia, US has exclusive jurisdiction, and the laws of the State of Georgia, US 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 of Asia other than India, the Australian law applies and the Australian courts have exclusive jurisdiction; for residents of a country in Latin America, using the sites is subject to the law of Mexico and the Mexican courts have exclusive jurisdiction; 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. Comparatively, favourable treatment has been given to the European consumers.

33

For more discussion, see s II. below. For example, see the Argentine site www.coca-cola.com.ar/es/terminus-y-condiciones/, Article 16 Legislacion y jurisdiccion; Brazil site www.coca-cola.com.bz/en/terms-of-use/, Art 16 Law and Jurisdiction; accessed on 31 May 2015. The coca-cola websites in European countries, however, provide that for residents of an EU country, the law applicable will be the law of Belgium and Belgium courts have exclusive jurisdiction, subject to mandatory rules and exclusive jurisdiction rules of the country of residence. It takes into account of the EU protective conflict of laws but shows misunderstanding of protective jurisdiction. See, eg coca-cola UK, www.happiness.coca-cola.com/uk/en/legal/terms-ofuse#link16, accessed on 31 May 2015. 34

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II. Efficient Dispute Resolution in E-Consumer Contracts A. A Multi-Tiered Dispute Resolution System Since enforcement is a real challenge to the efficiency of cross-border consumer litigation, one needs to look beyond protective conflict of laws to find the answer to consumers’ cross-border access to redress. Cross-border e-consumer contracts have the following special characteristics. The loss is usually small.35 The parties usually have their domicile or habitual residence in different countries. The disputes are usually simple and typical. Businesses’ claims are usually for nonpayment. Consumers’ claims are usually for non-delivery, delay, and quality or description problems. Similar disputes may occur to many consumers located in various states. These characteristics determine the requirements for efficient and effective dispute resolution. Dispute resolution should be low cost to match the small value of the claim. It must be speedy to match the speed of transaction provided by e-commerce. It must be easy to access to match the convenience of e-commerce. It must be suitable for distance disputes. Furthermore, it should earn the parties’ trust through its quality and authorisation. The quality can be ensured through high standards or codes of practice, including impartiality, transparency and competency. The dispute resolution entity may acquire authorisation from a sovereign power or from a trustworthy, long-standing and reputable organisation. It should either acquire direct power from a state or it is scrutinised and supported by courts. The resolution should lead to voluntary or compulsory enforcement. The main purpose of dispute resolution is to boost the confidence of both businesses and consumers in participating in cross-border transactions, and to develop a global, borderless e-market. In special circumstances, dispute resolution may also have deterrence functioning to address mass market harms and to deter business malpractice. It is thus suggested that one single mechanism is not sufficient to serve all purposes. Effective and efficient dispute resolution in e-consumer contracts, thus, should be a multi-tiered system, including various types of dispute resolution mechanisms. The first tier should be private negotiation, both online and offline. In e-commerce, online negotiation should be encouraged and the effectiveness should be improved by providing a standard and easy to fill out online 35 According to a Survey in 2010, 21% of EU consumers had encountered a problem in the past 12 months. 33% stated the problem did not incur any financial loss, 14% stated the loss was between €1–€20, 9% estimated the loss was between €21–€50, 9% between €51–€100, 8% between €101–€200, 8% between €201–€500, 4% between €501–€1000, 2% between €1001–€2500, 1% between €2501–€5000 and 1% more than €5000. TNS Opinion & Social, ‘Special Eurobarometer No 342, Consumer Empowerment’, 2010, 37–8.

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complaint form; by imposing a reasonable time limit to provide consumers with a response; by connecting negotiation with the online feedback system; and by providing further dispute resolution options when negotiation fails. The innovative technology-supported online negotiation instruments, such as blind-bid and automatic enforcement by chargeback, should be reasonably incorporated. In the EU, around 80 per cent of consumers who encountered problems would be willing to complain first,36 and around half received a satisfactory result.37 The second tier is private dispute resolution involving a third party entity, such as reconciliation, mediation and arbitration. It also involves online and offline forms. In e-commerce, online mediation and arbitration is encouraged and should be supported by a chargeback service and a feedback scheme to encourage the parties to cooperate and to enforce the settlement voluntarily. The business is encouraged to enrol in a dispute resolution scheme of a trustworthy and reputable dispute resolution provider and to bear the cost of dispute resolution. In 2012, 44 per cent of consumers in the EU agreed that it was easy to resolve disputes through the ADR entity.38 Legislation control and regulation should be there to ensure the quality of ADR. There must be mandatory rules imposing conditions before making any ADR process compulsory, as a pre-condition to litigation, or the result binding on the consumer. Special attention should be paid to arbitration. It is likely that arbitration may be favoured more by businesses rather than consumers.39 The law should be there to provide restrictive requirements to validate an arbitration agreement, to regulate and monitor the arbitration process, and to provide consumers with effective channels in order to complain about the arbitration process or apply for review. Restrictive requirements may reduce the use of arbitration in practice, which is reasonable as far as there are alternative mechanisms to provide effective dispute resolution and consumers are properly protective against abuse of power. The third tier is individual court litigation. Individual consumers’ access to justice is a fundamental right that should be warranted in all circumstances. The court proceedings should be supported by protective conflict of laws,40 simplified procedure for small claims, and simplified procedure for cross-border enforcement. It is also suggested that the court proceedings for small e-consumer claims

36 77% in 2010 (Special Eurobarometer No 342), 80% in 2011 (TNS Political & Social, ‘Flash Eurobarometer No 332: Consumers’ Attitudes towards Cross-Border Trade and Consumer Protection’, 2012), 84% in 2012 (TNS Political & Social, ‘Flash Eurobarometer No 358: Consumer Attitude towards Cross-Border Trade and Consumer Protection’, 2013). 37 44% in 2010 (Special Eurobarometer No 342, 43); 52% in 2011 (Gllup Organization, ‘Flash Eurobarometer No 299: Consumer Attitudes towards Cross-Border Trade and Consumer Protection’, 2011, 43–4); 58% in 2012 (Flash Eurobarometer No 332, 87); 59% satisfaction by complaining to the manufacturer and 66% by complaining to the retailer (Flash Eurobarometer No 358, 75). 38 Flash Eurobarometer No 358, 101. The figure is increased compared to 42% (2006), 39% (2008), 38% (2009), but reduced compared to 48% (2010) and 52% (2011). 39 See Ch 10, s IV.C. above. 40 See s I. above.

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should be, at least partially, available online to allow cross-border access without the need to travel to another country. The fourth tier is collective redress, including collective negotiation, class mediation, class arbitration and class litigation. Collective redress will be used in exceptional circumstances where mass small-value consumer disputes exist in different Member States. It is to the benefit of the EU society to initiate collective redress to deter malpractice and to provide compensation to individual consumers. Again, special requirements should be imposed to protect the right of absent consumer class members, to prevent abusive processes, and to improve extraterritorial effects and international inclusiveness and finality of collective redress mechanisms.

B. Party Autonomy in the Multi-Tiered Dispute Resolution Scheme The multi-tiered dispute resolution system includes various dispute resolution mechanisms. How to decide which dispute resolution mechanism to use? Two methods should be present: one is party autonomy and the other is state regulation. Applying party autonomy in e-consumer contracts inevitably faces policy and efficiency challenges. In terms of policy, consumers are generally ‘weak’ and cannot bargain with businesses to make a genuine choice. Businesses, therefore, may abuse their bargaining power to the disadvantage of consumers. From an efficiency perspective, information asymmetries, bounded rationality, and market failure question the efficiency of party autonomy in consumer contracts.41 As discussed above, party autonomy can be regulated by correcting asymmetric information.42 By correcting asymmetric information, the business should fulfil its duty of notification to provide sufficient information for consumers before any choice can be binding.43 The strength of this approach is to achieve certainty and reduce commercial risk. However, this approach alone is destined to fail because simple notification cannot guarantee genuine consent from consumers. Besides the common concern on whether the consumer will read at all, consumers normally do not have knowledge of various dispute resolution mechanisms and how they work and will not bother to find out before entering into contracts. The state regulation, thus, comes into play. The legislator should impose conditions for the enforcement of any agreement choosing a dispute resolution 41 T Ackermann, ‘Competition Law and Consumer Law’ in K Purnhagen and P Rott (eds), Varieties of European Economic Law and Regulation (Heidelberg/New York/Dordrecht/London, Springer, 2014) 439–46. 42 Ruhl, ‘Consumer Protection in Choice of Law’; Becher, ‘Asymmetric Information’, 723; S Wrbka, European Consumer Access to Justice Revisited (Cambridge, Cambridge University Press, 2015) 282; H Collins (ed), The Forthcoming EC Directive on Unfair Commercial Practices (The Netherlands, Kluwer, 2004) 287; R Brownsword, ‘Regulating Transactions’ in G Howells and R Schulze (eds), Modernising and Harmonising Consumer Contract Law (Munic, Sellier European Law Publishers, 2009) 87. 43 This approach is adopted in the EU Unfair Terms Directive, the Directive on Consumer ADR, CESL, and US unconscionability test.

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mechanism other than litigation. Firstly, the ex post choice should be enforceable, given sufficient information is provided by the business.44 Secondly, the ex ante choice is allowed only if it is an indicator of an alternative option or invitation, rather than a precondition to litigation, or depriving consumers of their opportunities of access to court.45 The requirement may differ for different types of dispute resolution mechanisms, taking into account the characteristics of the mechanism, the effect of the choice on both parties, the importance of the rights excluded by the agreement, and the efficiency provided by the choice.

C. Cross-Border Enforcement Cross-border enforcement exists in all types of dispute resolution mechanisms, albeit it is individual negotiation settlement, mediation settlement, a privately imposed award, a court judgment, or a collective settlement or judgment. The dispute resolution scheme can only be effective if the settlement or decision could be enforced and could preclude future actions in the same dispute. Recognising the res judicata effect of a settlement or decision made in a foreign procedure is a traditional difficulty in private international law. In the past, a lot has been said on cross-border enforcement of judgments and arbitral awards. Successful international frameworks exist on the recognition and enforcement of arbitral awards, but not judgments.46 The problem with arbitral awards is that not all countries recognise arbitration as a valid dispute resolution mechanism for consumer contracts,47 and more concern exists on arbitration conducted electronically and at a distance.48 There is no international instrument facilitating recognition and enforcement of foreign judgments in consumer contracts, though judicial cooperation is very successful at the EU level.49 As to recognition and enforcement of mediation settlement agreements, the traditional approach is to enforce them as independent contracts.50 The new approach allows such agreements to be recorded in the court orders or authentic instruments, and enforce them as other judgments.51 The normal barrier in the enforcement of judgments exists. Furthermore, the procedure and cost of enforcement should be noted. Even if there is a framework facilitating cross-border recognition and enforcement of foreign settlements, judgments or awards, efficient dispute resolution cannot exist

44

Brussels I Regulation, Art 19(1). Ch 4, s II. above. This approach is adopted in the Directive on Consumer ADR, Art 10; Unfair Terms Directive, Art 3 and Annex 1(g). 46 New York Convention. Ch 8 above. 47 Directive on Consumer ADR, Art 10; Unfair Terms Directive, Annex 1(q). Ch 10 above. 48 Ch 11 above. 49 Ch 8 above. 50 Ch 11 above. 51 Ibid. 45

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Effective and Efficient Dispute Resolution

if the enforcement procedure is too complicated and the cost too high. The complicated procedure and cost is unjustifiable in e-consumer contracts.52 It is recommended that a modern dispute resolution scheme should also include effective enforcement measures. They could be formal measures supported by courts or authorities. They could also involve informal measures, including measures to encourage voluntary enforcement of settlement through an online feedback and ranking scheme or other means of publicity, and measures to assist enforcement directly by collaborating with the payment system through chargeback. Various enforcement measures should be provided to suit the special characteristics of the dispute resolution mechanism. For example, where online negotiation or mediation is used, enforcement can rely on the online feedback system, where negative feedback may affect the business’s future competition in the market. While the settlement is simply refund or reimbursement, enforcement can be assisted by the online payment system, and the dispute resolution entity could authorise a ‘chargeback’. While enforcement is more complicated, the assistance of the other country’s court or enforcement authority is required. However, the procedure should be straightforward, simplified and speedy.53

III. International Cooperation In e-commerce, characterised by internationalisation, the cross-border effect of each dispute resolution mechanism is important. Dispute resolution will be useless, if other countries do not recognise the validity of the mediation or arbitration procedure, other courts refuse to enforce mediation settlement, arbitral awards or judgments, and the courts of other countries take jurisdiction irrespective of a different dispute resolution agreement, or the consumer defendant is protected by the protective conflict of laws in his domicile. International cooperation in dispute resolution is important to make any dispute resolution scheme truly efficient and effective. Cooperation may exist in providing a harmonised scheme for dispute resolution. Examples include the UNCITRAL Draft Model on ODR,54 the EU ADR Directive and the EU ODR Regulation.55 It can even be a centralised system, where besides court proceedings, one international unit exists to provide ADR services to all players in the world. Cooperation may also simply be mutual recognition of procedure and decision (settlement, awards, and judgments).

52

Ch 8 above. Such as excluding exequatur, Ch 8 above. 54 UNCITRAL, ‘Online Dispute Resolution for Cross-Border Electronic Commerce Transactions: Draft Guidelines’, A/CN.9/WG.III/WP.128. See Ch 11, s VI. above. 55 See Ch 10, ss II. and III., and Ch 11, s V. above. 53

International Cooperation

371

In theory, the centralisation approach may provide the highest efficiency, certainty and harmonisation. For example, a private, super-state, and international dispute resolution centre is established which provides all dispute resolution services. Whenever a dispute arises, the parties, irrespective of their domicile, nationality, or habitual residence, will by agreement submit the dispute to this centre. The parties can select which mechanism to use. The centre, due to its international nature, could provide multi-linguistic services. There is no barrier in terms of language, currency or other country specific characters. All services can be conducted online, which removes the difficulty of commuting. The centre should receive support from all countries participating in the scheme. That means settlement reached or decisions imposed by the centre will be easily recognised and enforced. The centre could adopt an internationally recognised harmonised rule to resolve the conflict arising out of different domestic laws. Such a super-national centre, however, may only exist in theory. In practice, countries are reluctant to participate in such a scheme. The international reach and multi-functioning of the centre also increases management difficulty. Finally, synthesising dispute resolution in one centre reduces flexibility and parties’ options. If the centre is not managed well and loses parties’ trust, the dispute resolution scheme is bound to fail. On the other side of the spectrum, simple judicial cooperation and assistance may require the smallest variation of the existing dispute resolution system. However, no country would unconditionally recognise another country’s dispute resolution entity, procedure, or decision. Since all entities act according to different standards and laws, the extent of cooperation and mutual trust is largely limited. The intermediate approach proposes harmonised rules combining cooperation. Although it is impossible to achieve full harmonisation at the international level, the UNCITRAL approach to establish a model law may work. This approach is slow with gaps and loopholes but is the most reasonable one to receive consensus from many countries. While harmonisation exists, judicial cooperation may prove less difficult. At the current stage, international harmonisation generally adopts the latter two approaches. Which approach to choose depends on the characteristics of each dispute resolution mechanism. Some mechanisms are controversial, such as collective redress and consumer arbitration. Compromise and consensus can hardly be achieved either in model law. The judicial cooperation in these mechanisms may be left for the individual state to decide, either by modernising domestic law or by bilateral international cooperation treaties. Some mechanisms have received wide support and it is easier to reach consensus in basic principles and criteria, such as mediation. International model law may be established to provide harmonised guidance for each individual country. Considering the tendency of many countries in reforming their conflict of laws incorporating protective elements, the model law may even be used to harmonise conflict of laws in consumer contracts, providing an enlightened protective conflict of laws scheme.56 56

See the discussion in s I. above.

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Effective and Efficient Dispute Resolution

IV. Conclusion This book proposes a multi-tiered dispute resolution scheme, including four tiers of dispute resolution mechanisms: negotiation, private dispute resolution involving a neutral third party, court action and collective redress. This scheme should be supported by international harmonisation and judicial cooperation to some extent in order to improve its effectiveness at the international level. Although this scheme includes multiple dispute resolution mechanisms, not all mechanisms are recognised and permitted in all states to resolve consumer disputes. It is not necessary or possible to provide a uniform international framework on the scheme in general. Each state is free to select the dispute resolution mechanisms to form the four-tiered system in their domestic law. In this scheme, private international law continues to work to facilitate crossborder dispute resolution. Economic analysis suggests that the most efficient way is to allocate the risk and learning cost to the part of the business. Therefore, the protective conflict of laws should be adopted in this scheme, which protects consumers as the weaker party in cross-border contracts. The protective conflict of laws should regulate party autonomy both by regulating bargaining and regulating the consequence of autonomy. Judicial cooperation and convenient procedure should be there to speed up and simplify cross-border enforcement of settlement and judgments. The multi-tiered dispute resolution scheme could provide multiple choices for the parties to resolve their disputes in practice. Parties could start from the easier approach, negotiation, to the most formal and complicated method, such as litigation and even collective redress. Once the dynamic scheme is established, most consumer disputes could be resolved in an effective and efficient manner. Within this scheme, cross-border consumer dispute resolution is not a no-way-out situation, but has many ways out.

INDEX

access to justice: choice of court clauses and, 130, 141 class actions, 143, 267, 269, 275 efficiency and, 269 EU consumer protection, 19–20, 146–8 EU principle, 265, 279, 280, 281, 312, 317 forum non conveniens and, 109–11, 114–15 multi-tiered system, 366–8 PIL new trends, 19–22 protective model, 365 small claims procedure, 344 Accession Convention (1978), 6 actor sequitur forum rei, 10, 66, 80–1, 289 advertising, 61–2, 184 see also targeting test after-sales services, 186 agencies: Brussels I Recast and, 69–75 appearance of permanency, 70–1 degree of autonomy, 73 geographical operational limits, 73–4 human intervention needed, 74–5 parent body control, 71–2 English common law jurisdiction, 101–2, 112 forum non conveniens and, 112 alternative dispute resolution: arbitration see arbitration collective ADR see collective ADR EU see alternative dispute resolution (EU) issues, 21 meaning, 299 mediation see mediation multi-tiered dispute resolution, 367 online see online dispute resolution alternative dispute resolution (EU): Consultation Paper (2010), 280 consumer arbitration, 312–18 development, 20, 299–301 EEJ-NET, 20, 300 mediation, 301–8 Amazon, 13, 29, 340 American Arbitration Association (AAA), 310, 325 anti-suit injunctions, 116, 117–19, 120 arbitration: clauses: choice of law, 168–70 collective arbitration Europe, 319–20

United States, 324–8 collective redress and, 318–19 costs, 309, 317 e-arbitration, 337–40 costs, 337–8 enforcement, 338–40 public policy and, 339 unfair terms, 337 economic analysis, 317–19 European Union agreements, 312–15 choice of law, 315 compulsory arbitration, 328 dispute materialisation test, 314–15 enforcement of awards, 316 party autonomy, 315 survey, 312–18 unfair agreements, 313–14, 316 fairness, 318 mandatory arbitration, 257, 313–14, 317–19 suitability, 308–9, 367 US arbitration compulsory agreements, 257 conscionability, 309–11 costs, 310 pro-arbitration stance, 317 public policy and, 311–12 survey, 309–12 unilateral clauses, 119 US class arbitration, 324–8 due process, 325, 328 enforcement of settlements, 327–8 international disputes, 326–8 procedure, 324–6 public policy, 328 waiver clauses, 326 asymmetric information: bargaining power and, 359 jurisdiction clauses and, 128 neutral model and, 216 party autonomy and, 368 protective model and, 363, 364 Athens Convention (1974), 221 auctions, 92–3 Australia: Coca-Cola, 365 Austria: definition of consumer contracts, 30 EEO and, 244

374

Index

bargaining power: asymmetric information, 359 Brussels I Recast and jurisdiction clauses, 122, 130–1, 144 defendants’ jurisdiction, 10 e-commerce companies, 359 exclusion of choice approach and, 182 jurisdiction clauses and, 121–2 EU, 122, 130–1, 144 United States, 145 misleading advertising, 62 party autonomy and, 9, 10, 122, 368 Rome I Regulation, 154 US choice of law clauses and, 203 Berne Convention (COTIF, 1980), 221 Better Business Bureau, 341–2 blind-bidding negotiation, 336–7, 367 branches: appearance of permanency, 70–1 Brussels I Recast jurisdiction, 69–75 degree of autonomy, 73 geographical operational limits, 73–4 human intervention needed, 74–5 parent body control, 71–2 Brazil, 8 British Airways, 229–30 browse-wraps contracts, 138, 139–40, 204–5, 311 Brussels Convention (1968), 6, 7, 65 Brussels I Recast jurisdiction: agencies, 69–75 anti-suit injunctions and, 117 branches, 69–75 collective court actions, 284–6 enforcement of judgments, 293–4 lis pendens, 290, 291 negative jurisdiction, 290–1 positive jurisdiction, 285–9 related actions, 290–1 consumer contracts: definition buyers’ personal situation, 34 definition of consumer, 28–9 future trade, 30–1 investment contracts, 32–3 legal persons, 34–5 one party a consumer, 28–35 other party’s perspective, 33–4 other party’s status, 29–30 partially within trade, 31–2 second-hand sales, 29 sellers acting outside trade, 35 consumer credit digital products, 36–41 instalments, 41–2 contracts: meaning, 59–63 counterclaims, 66 court settlements: definition, 323 directing commercial activities in consumers’ domicile

accessibility, 47–8 activity test, 50–2 country-specific indicia, 49–50 e-mail and website trading combined, 58–9 e-mail trading, 55–8 hybrid approach, 55, 59 issue, 46–59 profitability, 48–9 ring-fencing, 52–5 website trading, 47–55 distance selling, 65–6 domicile: concept, 67–8 Dutch collective ADR and, 321, 323 e-establishments, 69–75 EEO and, 243–4 enforcement of foreign judgments, 243–4, 246–52 abolition of exequatur, 246–8, 252, 294 ADR settlements, 307–8 infringement of protective jurisdiction, 249–50, 297 irreconcilable judgments, 297 procedural comparisons, 253 procedural irregularity, 297 procedure, 252 public policy refusal, 251, 295–6 refusal grounds, 249–51, 295–8 EOP and, 244 ESCP and, 246 exclusions, 28 immovable property and, 231 jurisdiction clauses see jurisdiction clauses (Brussels I Recast) lis pendens, 290, 291 objective, 242 onlline consumer contracts and, 27–79 package travels and, 218 party autonomy, 122 prima facie ineffective principle, 134–5 protective jurisdiction, 7, 27–66 Article 17, 27–66 Article 18, 66–7 branches and agencies, 69–75 business activity framework, 63–5 consumer contracts, 27–35 consumer credit, 35–42 consumer protection principle, 66 general consumer contracts, 43–59 globalisation challenge, 360–2 infringement, 249–50, 297 multiple defendants, 75–8 place of performance, 322 pursuing commercial activities in consumers’ domicile business intentions, 45, 46 issues, 43–6 multiple states, 45–6 physical presence, 44–5

Index related actions, 290–1 requirement of writing and, 123–7 rule-based approach, 27 services contracts, 238 special contracts, 217 targeting, 97, 360 third country businesses, 68–9 transport contracts and, 221–2, 223, 224, 225–8 US approach and, 96–7 Brussels I Regulation (2002): collective court actions and, 284 distance selling, 65 multiple defendants, 77–8 passenger contracts, 225–6 scope, 7, 62 third country businesses, 68 business associations, 162, 345–6 Canada: Coca-Cola, 365 chargeback, 340–1, 367 China, 8, 124 choice of law: agreements see choice of law clauses CESL, 191–7 comparative approaches, 178–216 efficient models, 215–16 English forum non conveniens and, 108 European Union see choice of law (EU) exclusion of choice approach arguments against, 182–3 arguments for, 178–82 fairness, 180–1 inefficiency, 215 practicality, 181–2 simplicity, 179–80 minimum protection approach comprehensiveness, 186–7 concerns, 186–90 electronic compatibility, 189 EU context, 183–6 European Union and, 183–90 promptness, 187–8 sufficiency, 187 territorial limitation, 189–90 neutral law approach, 197–215, 216 online dispute resolution, 346, 348 preferential law approach, 178, 179 compliance costs, 215–16 Rome I Regulation see choice of law (EU) substantive law harmonisation, 191–7 United States see choice of law (US) choice of law (EU): agreements see choice of law clauses (EU) alternative dispute resolution, 306–7, 308 arbitration, 315 carriage contracts, 228–31 CESL and, 192–4

375

collective redress actions, 291–3 connection principle, 153 consumer contracts, 154–6 consumers’ habitual residence, 160–2 financial services, 236–7 history, 154–60 mandatory rules and public policy, 153 mediation agreements, 304 party autonomy, 153 preferential law approach, 178, 179, 183 compliance costs, 215–16 protective principle, 153–4 criticism, 162 default law, 160–2, 190 globalisation challenge, 360–2 Rome Convention, 154–6 Rome I Regulation, 160–2 race to the bottom, 161 Rome I Regulation, 160–77 services contracts, 238–9 special contracts, 217–18 survey, 153–77 timeshares, 235–6 transport contracts, 221–2 choice of law (US): agreements see choice of law clauses (US) assessment, 213–15 class actions, 276–8 location of subject matter, 200–1 most significant connection test, 198–201, 277 neutral law approach, 197–215, 216 personal connecting factors, 201 place of contracting/negotiation, 199–200 place of performance, 200 uncertainty, 214 Uniform Commercial Code, 214 choice of law clauses: European Union see choice of law clauses (EU) online dispute resolution, 348 United States see choice of law clauses (US) choice of law clauses (EU): assessment, 176–7 carriage contracts, 228–30 commercial costs, 175 double protection, 174–5 e-consumer contracts and, 162–76 implied choice, 165–71 country-specific indicia, 170 jurisdiction/arbitration clauses, 168–70 legal doctrines and, 167 previous dealings, 167 standard forms, 166, 171 terminology and, 167 mandatory rules and, 171–6 unfair contract terms, 173, 174 validity, 162–5 classification issues, 165

376 formal validity, 163–4 substantive validity, 164–5 choice of law clauses (US): conscionability, 202–6, 216, 277 enforceability, 201–2, 277 neutral approach, 201–13 public policy restrictions, 208–13 competing interests, 211–13 uncertainty, 214 violations, 209–11 reasonableness of choice, 206–8 CISG: definition of sale of goods, 36 CIV, 221 class actions: abusive litigation, 268 advantages, 267–8 blackmailing settlements, 268 disadvantages, 268–9 EU see collective court actions (EU) indirect effects, 268 procedure, 266 survey, 266–78 United States see class actions (US) class actions (US): adequate notice, 273 Bhopal, 271–2 choice of court clauses and, 141–3 choice of law, 276–8 conditions, 269–71 disadvantages, 269 due process, 272–5 foreign members v US defendants, 271–2 foreign-cubed actions, 272–6 jurisdiction, 271–6 opting out, 273–4, 278 public policy and, 208–9, 211, 212 survey, 269–78 types, 270 click-wrap contracts, 138–9, 140, 205 Coca-Cola, 365 collective ADR: EU Green Paper, 319 Netherlands, 319, 320–4 US class arbitration, 324–8 collective court actions (EU) see also collective ADR arbitration agreements and, 318–19 Commission Recommendation, 280, 281–3 abusive litigation, 283 available national collective redress mechanisms, 281 ban on contingency fees, 283, 296 ban on punitive damages, 280, 283, 296 common procedural principles, 281–3 funding, 282–3 opt-in model, 282, 283, 289 standing, 281–2 Consultation Paper (2009), 280

Index Consultation Paper (2010), 280 contingency fees, 283, 296 cross-border reform, 283–98 centralisation, 287–9 enforcement of judgments, 293–8 exclusive jurisdiction, 286 general jurisdiction, 287 jurisdiction, 284–91 lis pendens, 290, 291 negative jurisdiction, 290–1 proximity, 287, 289 related actions, 290–1 special jurisdiction, 287 waiver clauses, 286 development, 21, 278–80 enforcement of judgments, 293–8 abolition of exequatur, 294 breach of protective jurisdictions, 297 fair hearing, 295–6 irreconcilable judgments, 297 procedural irregularity, 297 public policy, 295–6 refusal grounds, 295–8 Green Paper (2008), 279, 284 injunctions, 278 internal market and, 284 meaning, 265–6 models, 265–6 survey, 278–98 collective redress: ADR see collective ADR class actions see class actions EU see collective court actions (EU) multi-tier system and, 368 comity, 117, 118, 251, 254 Common European Sales Law (CESL): choice of law and, 191–7 conclusion of contract, 133 effectiveness, 195–7 gaps, 192, 195 global effects, 194–5 objective, 191 optionality, 192, 195 proposal, 191 Rome I Regulation and, 192–4 scope, 192 conflict of laws see private international law connections approach: choice of law, 153 consumer contracts and PIL, 9–10 e-commerce and, 12–14 forum non conveniens, 106, 107–8 habitual residence, 10 location of e-commerce activities, 14–15 US choice of law, 198–201, 277 consumer contracts and PIL: choice of law see choice of law classes of contracts, 217

Index connections approach, 9–10 defendants’ jurisdiction, 10 enforcement see enforcement of foreign judgments forum non conveniens see forum non conveniens history, 4–8 issues, 8–12 jurisdiction see jurisdiction mandatory rules and public policy, 11–12 models, 217, 357 neutral model, 197–215, 216, 357 overview, 4–12 protective model see protective model special contracts, 217 consumer credit, 35–42, 184 consumers: definition, 28–9 contract: e-commerce see e-commerce freedom of contract see party autonomy offer and acceptance, 100–1 cooperation, 370–1 COTIF (Berne Convention, 1980), 221 counterclaims: Brussels I Recast, 66 country-specific indicia: choice of law and, 170 jurisdiction and, 49–50 credit cards, 17, 128, 200, 340 credit: consumer credit, 25–42, 184 culpa in contrahendo, 60, 61 data protection, 332, 337 Denmark: 2008 Directive and, 300 EEO and, 243 EOP and, 244 ESCP and, 344 EU accession, 6 Hague Choice of Court Convention and, 136, 254 Rome I Regulation and, 7 digital products: Brussels I Recast and, 37–41, 41–2 credit sales, 41–2 English common law jurisdiction, 102–4 whether goods, 37–41, 174 discretion-based jurisdiction: English common law, 97–112 forum non conveniens see forum non conveniens jurisdiction clauses, 151–2 model, 27, 357 online consumer contracts, 80–120 uniform rules, 217 United States, 80–97, 119–20, 143–4 distance selling, 65–6, 184 domain names, 13, 49, 56–7, 59, 90, 96, 170 doorstep selling, 184

377

e-arbitration, 337–40 e-commerce: anonymous market, 12 certainty, 135 consumer v commercial contracts, 13 decentralised system, 12 formation of contracts, 16 identification of sellers, 13–14 payment, 17 professionals v amateurs, 13 size of companies, 359 e-commerce and PIL: Brussels I Recast see Brussels I Recast jurisdiction commercial contracts and, 13 discretion-based approach see discretionbased jurisdiction efficient dispute resolution, 366–70 enforcement issue, 369–70 formation of contracts, 16 identification and connections approach, 12–14 international cooperation, 370–1 issues, 18–19 jurisdiction see jurisdiction; jurisdiction clauses location of activities, 14–15, 17 multi-tiered system, 366–70, 372 overview, 12–18 party autonomy see party autonomy protective model and, 357–65 rule-based approach see Brussels I Recast jurisdiction status of servers, 12, 14–15 targeting, 18–19, 97, 358, 360, 365 e-courts, 343 e-establishments: appearance of permanency, 70–1 Brussels I Recast jurisdiction, 69–75 degree of autonomy, 73 geographical operational limits, 73–4 human intervention needed, 74–5 parent body control, 71–2 e-mediation, 334–7 e-negotiation, 334–7 eBay, 13, 29, 92–3, 333, 335, 340–1 ECC-net, 302, 350 ecourt, 333 EEJ-NET, 20, 300 efficiency: choice of law and consumer contracts, 215–16 class actions, 267–8, 269 e-consumer disputes, 366–70 EU enforcement of foreign judgments, 250 jurisdiction clauses and efficient allocation of risk, 150–1 multi-tiered system, 366–8 party autonomy and, 362–4, 368

378

Index

prima facie ineffective principle and, 135 protective model and, 362–4 standard forms, 183 electronic commerce see e-commerce email trading: Brussels I Recast and, 55–9 domicile of consumers, 55–9 English common law jurisdiction and, 103–4 responding to consumers’ invitation, 57–8 Rome Convention and, 155 unsolicited email, 55–7, 185 website trading combined, 58–9 enforcement of foreign judgments: Dutch collective ADR, 323–4 e-arbitration, 338–40 e-consumer disputes, 369–70 EU see enforcement of foreign judgments (EU) protective model and, 364–5 US see enforcement of foreign judgments (US) enforcement of foreign judgments (EU): arbitration awards, 316 Brussels I Recast, 243–4, 246–52 abolition of exequatur, 246–8, 252 infringement of protective jurisdiction, 249–50, 297 irreconcilable judgments, 297 mediation settlements, 307–8 procedural comparisons, 253 procedural irregularity, 297 procedure, 252 public policy refusal, 251, 295–6 refusal grounds, 249–51, 295–8 collective redress, 293–8 European Enforcement Order (EEO), 243–4, 247, 253 European Order for Payment (EOP), 244–5, 247, 253 European Small Claims Procedure (ESCP), 19, 245–6, 247, 253 success, 369 survey, 242–53 enforcement of foreign judgments (US): breach of jurisdiction agreements and, 256, 257 class arbitration, 327–8 comity, 254 costs, 259–60 currency, 260 discretion, 256–8 due process and, 255, 258 forum non conveniens, 256, 257–8 lack of jurisdiction, 255–6 mandatory refusal grounds, 255–6 principles, 254 procedure, 259–60 public policy refusal, 256

reciprocity, 258–9 refusal grounds, 255–9 registration, 259, 260 survey, 253–60 Uniform Foreign Money-Judgments Recognition Acts, 254 English common law jurisdiction: agents within jurisdiction, 101–2 anti-suit injunctions, 117 breach within jurisdiction, 102–4 choice of law, 197 contracts made within jurisdiction, 98–101 discretion-based model, 97–112, 119–20 forum non conveniens, 105–12, 113–14 grounds, 98–105 jurisdiction agreements, 104–5 European Charter of Fundamental rights: fair hearing, 295–6 European Consumer Centres Network (ECC-net), 302, 350 European Convention on Human Rights: fair hearing, 111, 295 European Enforcement Order (EEO), 243–4, 247, 253 European Order for Payment (EOP), 244–5, 247, 253 European Small Claims Procedure (ESCP), 19, 245–6, 247, 253, 344–45 European Union: 1978 accessions, 6 access to justice, 19–20, 146–8, 265, 279, 280, 281, 312, 317 ADR see alternative dispute resolution (EU) after-sales services and, 186 choice of forum see Brussels I Recast jurisdiction choice of law see choice of law (EU) collective redress see collective court actions (EU) Consumer Policy Strategy 2007–13, 278 consumer protection harmonisation, 183–6 cooperation, 370 definition of goods, 36–7, 39 e-commerce and identification, 14 financial services, 33, 185, 236–8, 279, 292 foreign judgments see enforcement of foreign judgments (EU) Hague Choice of Court Convention and, 254 injunctions, 278 jurisdiction see Brussels I Recast jurisdiction; jurisdiction clauses (Brussels I Recast) marketing practices and, 186 ODR see online dispute resolution PIL model, 7–8 PIL origins, 6–7 service of documents abroad, 322 small claims, 19, 245–6, 247, 253 transport contracts see transport contracts

Index exclusive jurisdiction: Brussels I Recast, 122, 169, 286 clauses, 121, 286 immovable property, 28 exequatur: Brussels I Recast and, 246–8, 252, 294 fair hearing: collective redress, 295–6 forum non conveniens and, 111 US class actions, 272–5 US enforcement of foreign judgments and, 255 US jurisdiction clauses and, 141 Financial Markets Law Committee, 182 financial services (EU), 33, 185, 236–8, 279, 292 forum non conveniens: assessment, 120 consumer contracts and, 11 discretionary approach, 105, 112–13 English law, 105–12, 113–14 applicable law, 108 appropriate forum, 106–8 assessment, 111–12 factual connections, 107–8 justice test, 109–11, 112 personal connections, 106 online consumer contracts and, 112–19 United States, 114–16, 141–2, 256, 257–8 France: Paris Mediation and Arbitration Centre, 319 Germany: collective arbitration, 319–20 Global Business Dialogue on e-Society (GBDe), 351 globalisation: protective model and, 360–2 goods: digital products, 36–41, 78, 174 Rome Convention and, 155 Greece: timeshares, 233 guarantees, 184 Hague Choice of Court Convention (2005), 124, 136, 254, 362 Hague Conference on Private International Law, 29, 79, 121, 254, 331, 346, 362 Hague Convention on Private International Law (1980), 8, 29, 79, 121 Hague Convention on the Law Applicable to Contracts for the International Sale of Goods (1986), 33, 36 Hague Draft Convention on law applicable to certain Consumer Sales (1980), 165 Hague Service Convention, 322 health: consumer protection and, 35 human rights: consumer protection and, 35 immovable property and EU PIL: contracts relating to rights in rem, 28, 231–2

379

lex situs, 232 short-term tenancies, 232–3 timeshares, 233–6 India: consolidated actions, 272 informations service providers, 185 injunctions: EU Directive, 278 insurance: contracts, 28, 228 litigation insurance, 150–1 Inter-American Specialized Conferences On Private International Law, 8 International Chamber of Commerce (ICC), 351 international cooperation, 370–1 internet service providers (ISPs), 12, 72, 208 investment contracts, 32–3 Ireland: EU accession, 6 Italy: timeshares, 233 jurisdiction: agreements see jurisdiction clauses Brussels I Recast see Brussels I Recast jurisdiction clauses see jurisdiction clauses consumer contracts and, 10 discretionary models see discretion-based jurisdiction Dutch collective ADR, 321–3 European Union see Brussels I Recast jurisdiction financial services, 236 forum non conveniens see forum non conveniens immovable property, 231–6 models, 27 rule-based model, 27, 151–2, 217 transport contracts, 223–8 jurisdiction (US): actor sequitur forum rei, 80–1 agreements see jurisdiction clauses (US) anti-suit injunctions, 117–19 Brussels I Recast and, 96–7 class actions, 271–6 defendants’ activities and, 54 discretion-based jurisdiction, 80–97, 119–20 consumer protection and, 143–4 e-commerce personal jurisdiction, 80–97 forum non conveniens, 114–16 consumer protection, 114, 115–16 jurisdiction clauses, 141–2 general jurisdiction advertising and, 84 server contacts, 84–5 substantial contacts, 81–5 transaction contacts, 83–4 website contacts, 82–3 Hague Choice of Court Convention and, 136 minimum contacts, 81

380

Index

non-resident defendants, 80–1 purposeful availment, 85–97 specific jurisdiction due process, 90, 93, 95 effects test, 94–5 internet advertising, 86, 88 meaning, 81, 85 overview, 85–95 sliding scale, 87–92 subjective availment test, 92–4 sustained contacts, 86–7 jurisdiction clauses: asymmetric information, 149 bargaining power and, 121–2 business risk and certainty, 145–8 choice of law and, 168–70 consumer risk and cost, 148–50, 152 e-consumer contracts, 121–52 economic analysis, 144–52 efficient allocation of risk, 150–1 EU see jurisdiction clauses (Brussels I Recast) exclusive clauses, 121, 286 non-exclusive clauses, 121 practice, 121 rule-based v discretionary approach, 151–2 US see jurisdiction clauses (US) jurisdiction clauses (Brussels I Recast): assessment, 151–2 asymmetric clauses, 133–4 asymmetric information, 128 broadening consumers’ options, 133–4 certainty, 135 common domicile/habitual residence, 134 common trade usage, 128 consent, 122 consumer protection, 144, 152 efficiency, 135 enforceability, 122, 131–6, 257 exclusive clauses, 286 exclusive jurisdiction, 122, 169, 286 formal validity, 123–8, 135 non-exclusive clauses, 134 online consumer contracts, 122–36 post-dispute clauses, 131–3 prima facie ineffective, 134–5 regular use, 127–8 requirement of writing, 123–7 substantive validity, 128–31 territorial limitation, 135–6 unfair contract terms, 129–31, 135 validity, 122–31 jurisdiction clauses (US): absurd forum, 143 applicable law, 137 breach of foreign agreements, 256, 257 browse-wraps contracts, 139–40 Carnival Cruise Line, 145 click-wrap contracts, 138–9

consent, 137–8 constructive knowledge, 140 consumer protection and, 143–4, 144–5 duress, 140 e-consumer contracts and, 136–44 economic justification, 148 enforceability, 140–4 fair trial, 141 foreign clauses, 119 fraud, 140 intention of parties, 137 misrepresentation, 140 public policy and, 142–3 separability of contracts, 140 serious inconvenience, 141–2 unconscionability, 257 unequal bargaining power, 145 validity, 137–40 justice see access to justice Kessedjian, C, 346 Korea, 8, 336–7 language: choice of law and, 170 forum non conveniens and, 110 jurisdiction and, 49 leases, 232–3 legal persons: as consumers, 34–5 lis pendens, 290, 291 mandatory rules: choice of law and, 153, 171–6 EU consumer arbitration and, 315 exclusion of choice approach and, 179–80 non-member parties and, 251 public policy and, 11–12 Rome Convention, 157 transport contracts and, 221 US enforcement of foreign judgments, 255–6 mediation (EU): 2008 Directive, 300 agreements choice of law, 304, 306–7 unfair terms, 305 validity, 304–5 choice of law, 304, 306–7, 308 cross-border contracts conflict of laws, 303–8 issues, 301–3 survey, 301–8 e-negotiation, 334–7 enforcement of settlements, 307–8 Mexico, 136, 254, 365 Modria, 340 Montreal Convention (1999), 221, 223–5 MSN, 335 multiple defendants: EU PIL, 75–8

Index negotiorum gestio, 60, 61 Netherlands: collective ADR, 319, 320–4 enforcement in foreign countries, 323–4 international disputes, 321 jurisdiction, 321–3 opt-out system, 320 public policy and, 323–4 EEO and, 244 New York Arbitration Convention (1958), 326, 327, 332, 338, 339–40 OECD, 331, 351 online consumer contracts see e-commerce online dispute resolution: ADR and, 331–2 assisted negotiation, 334–7 asymmetric power, 332–3 benefits, 333–4 blind-bidding negotiation, 336–7, 367 chargeback, 340–1, 367 choice of law, 346, 348 consent, 331 consumer protection and, 331–4 costs, 333, 334 data protection, 332, 337 definition, 330 development, 21, 330–1 e-arbitration, 337–40 costs, 337–8 due process, 338 enforcement, 338–40 public policy and, 339 unfair terms, 337 e-consumer contracts and, 330–53 e-courts, 343 e-mediation, 334–7 encouraging, 366–7 equal treatment, 332 ESCP and, 344–45 EU development, 20, 331 EU regulation, 348–50, 351 feedback system, 342 global scheme, 350–3 issues, 331–3 online ADR, 334–45 resolution plus enforcement, 340–1 site certification, 346–8 speed, 333 substantive rights, 345–8 trust, 331, 332 trustmark schemes, 341–2 UNCITRAL model, 351–3, 370 Øren, J, 46 package switching, 99 package travel, 28, 76, 184, 218–21, 279 Paris Mediation and Arbitration Centre, 319

381

party autonomy: asymmetric information, 368 bargaining power and, 9, 10, 122, 368 Brussels I Recast, 122 economic liberalism, 3 efficiency, 362–4, 368 EU choice of law, 153, 162–76 EU consumer arbitration, 315 jurisdiction agreements English law, 105 United States, 256, 257 online consumer contracts and PIL, 18, 362, 368–9 Rome Convention, 157, 158 Rome I Regulation and, 182 unlimited autonomy, 206 PayPal, 333, 340–1 Portugal: timeshares, 233 private international law: access to justice: new trends, 19–22 choice of law see choice of law consumer contracts and see consumer contracts and PIL enforcement see enforcement of foreign judgments (EU); enforcement of foreign judgments (US) jurisdiction see jurisdiction; jurisdiction clauses neutrality, 3 prize draws, 61–2, 63 protective model: Brussels I Recast see Brussels I Recast jurisdiction consumer contracts, 357–65 e-commerce challenge, 358–60 economic analysis, 362–4 efficiency challenge, 362–4 enforcement challenge, 364–5 globalisation challenge, 360–2 litigation route, 367–8 targeting test, 18–19, 97, 358, 360, 365 public policy: choice of law and, 153 consumer protection, 118 Dutch collective ADR settlements and, 323–4 e-arbitration and, 339 EU enforcement of foreign judgments and, 251 collective redress, 295–6 overriding mandatory rules and, 11–12 US anti-suit injunctions and, 118, 119 US arbitration and, 311–12 US choice of law clauses and, 208–13, 214 US class arbitration and, 328 US enforcement of foreign judgments and, 256 US jurisdiction clauses and, 142–3 Puerto Rico: jurisdiction clauses, 142 punitive damages, 280, 283, 296

382 Quebec: PIL, 8 recognition and enforcement of judgments see enforcement of foreign judgments res judicata, 266, 274, 298, 369 rights in rem, 28, 160, 231–2, 233, 234, 235 ring-fencing, 52–5 Rome Convention (1980): activity test, 50 cornerstone, 7 definition of consumer contracts, 30 exceptions, 154–5 mobile consumers, 156 outdatedness, 155–6 party autonomy, 157, 158 protective choice of law, 154–6 revising, 157–60, 177 scope, 7 Rome I Regulation (2008): ADR agreements and, 304, 306 assessment, 176–7 carriage contracts, 228–31 CESL and, 192–4 choice of law clauses carriage contracts, 228–30 implied choice, 165–71 mandatory rules and, 171–6 survey, 162–76 validity, 162–5 collective redress, 291–3 connections approach, 10 default law, 160–2, 190 definition of consumer contracts, 29 financial services, 33, 236 Green Paper, 157, 158, 179, 186 immovable property and, 231 investment services, 33 origins, 7, 157–60 package travels and, 218 party autonomy principle, 182 preferential law approach, 183 protective principle, 7, 154 default law, 160–2, 190 quasi-contracts and, 60 services contracts, 238–9 timeshares, 235–6 transport contracts and, 221–2 Rome II Regulation (2007), 60 rule-based models: Brussels I Recast (2015), 27 classes of contracts, 217 connecting factors, 217 consumer contracts and, 27 jurisdiction clauses, 151–2 Russia: Coca-Cola, 365 sale of goods: digital products, 36–41, 78

Index EU definition, 36–7, 78 Rome Convention, 154–6 Schlosser, P, 221 second-hand sales, 13, 29 servers: Brussels I Recast and, 72, 74 English common law jurisdiction and, 103 human intervention, 74 meaning, 14–15 status, 12, 15–16 US general jurisdiction and, 84–5 services contracts: digital services and digital products, 37–41 EU services, 238–41 financial services see financial services offline, 239 online, 239–41 Rome Convention, 154–6 site certification, 346–8 Skype, 99, 335 small print, 125, 137, 205 social policy: PIL and, 5 software see digital products South Africa: Coca-Cola, 365 Spain, 233, 320 standard form contracts: arbitration agreements, 315, 325 carriage contracts, 227, 229 CESL, 196 choice of law clauses, 145–6, 150, 166, 171, 229, 286, 292 e-consumer contracts, 359 efficiency, 183, 362–3 international companies, 365 jurisdictions clauses, 134, 137, 227, 257, 286 mediation agreements, 304 Montreal Convention, 224 unequal power, 9, 35, 311 US choice of law clauses, 203, 257, 277 Sweden: arbitration agreements, 314 Switzerland, 29, 179 targeting test, 18–19, 97, 358, 360, 365 telecommunications: EU redress, 279 timeshares, 184, 233–6 tourism: EU redress, 279 trademarks, 90 transport contracts and EU: choice of law, 221–3, 228–31 escape clause, 231 limited choice approach, 228–30 no choice clauses, 230 international agreements, 221 jurisdiction, 28, 221–3, 223–8 Brussels I Recast, 225–8 Montreal Convention, 221, 223–5 no protective jurisdiction, 28, 154 package travel see package travel

Index redress, 279 survey, 221–31 TRUSTe, 342 trustmark system, 341–2, 346–8, 351 Turkey: PIL model, 8 Ukraine: Coca-Cola, 365 UN Convention on the International Sale of Goods, 36 UNCITRAL, 107, 331, 339–40, 351–3, 370, 371 unfair contract terms: choice of law clauses (EU) and, 173, 174 collective redress waiver clauses, 286 compulsory arbitration, 337 EU arbitration agreements, 313–14, 316 EU law, 184 jurisdiction clauses: Brussels I Recast, 129–31, 135 mediation agreements, 305 United Kingdom: arbitration agreements, 314 English common law see English common law jurisdiction EU accession, 6 money claim online, 343 Rome I Regulation and, 159 small claim courts, 343 United States: arbitration see arbitration choice of law see choice of law (US)

383

class actions see class actions (US) Coca-Cola, 365 comity, 117, 118, 254 consumer protection forum non conveniens, 114, 115–16 public policy, 118 digital products as goods, 38, 39 due process, 81, 90, 93, 95, 96, 255, 258, 272–5 e-commerce scholarship, 17 EU Model, 8 federalism, 197 foreign judgments see enforcement of foreign judgments (US) Hague Choice of Court Convention and, 254 jurisdiction see jurisdiction (US) mandatory dispute resolution agreements, 257 PIL scholarship, 5 Uniform Computer Information Transactions Act (UCITA), 38, 207–8 Uniform Electronic Transactions Act (UETA), 199 unjust enrichment, 60, 61 vexatious proceedings, 11, 116, 117, 130 Vienna Convention (1980), 36 Windows Messenger, 99 writing requirement: jurisdiction clauses, 123–7, 137