The purpose of this paper is to describe how different international conventions apply when introducing the Net as a new tool for international transactions. There are basically two jurisdictional issues regarding international transactions over the Net – Jurisdiction to Prescribe and Jurisdiction to Adjudicate. Jurisdiction to Prescribe could also be described as choice of law – what country’s laws should be applied for a particular issue. The Jurisdiction of Courts to Adjudicate deals with the choice of forum – what court has a right to try a case.
The conventions will be analysed with regard to their applicability to transactions carried out on the Internet. The paper will in particular analyse possible loopholes in the conventions, rendering them inapplicable to Internet transactions or causing difficulties when applying the conventions to such transactions.
Finally the paper will deal with different solutions to jurisdictional and choice-of-law problems and suggest a possible solution to the problems.
2. International Conventions
The following are the five most important Europe based international conventions concerning jurisdiction;
- Convention on the Law Applicable to Contractual Obligations (The Rome Convention)
- Convention on Jurisdiction and the Enforcement of Judgements in Civil and Commercial matters (The Lugano Convention)
- Convention on Jurisdiction and the Enforcement of Judgements in Civil and Commercial matters (The Brussels Convention)
- Convention on the Law Applicable to Contracts for the International Sale of Goods (The Hague Convention 1955)
The first three conventions above are EC conventions, primarily applicable to the EC Member States. The Lugano and the Brussels Conventions are almost identical but differ insofar as the Lugano Convention extends the area of applicability to EFTA states and other European states, which have ratified the convention.
The Hague convention from 1986 is drafted by the Hague Conference but have not yet entered into force. The convention internationally applicable is therefore the Hague Convention of 1955. The Nordic Countries and a few more countries are parties to the convention.
3. Jurisdiction to prescribe - The Lugano Convention
According to article 1 of the Lugano convention, the convention applies to civil and commercial matters, except from matters concerning the status or legal capacity of individual persons, herital issues, bankruptcy, social security and arbitration. Thus, for most electronic commerce over the Net, the convention will apply.
The main principle of the convention is that the state where the person - may it be a legal or physical person - is domiciled is entitled to assert jurisdiction over that person. Whether the person in question is domiciled within the member state or not will be decided upon according to the internal law of the state where he is sued.
There are several exceptions from this principle. Below is a summary of the exceptions relevant for international transactions over the Net.
i) Special Fora within the Eu/efta
- In matters relating to a contract – a person may be sued in the courts of the country where the obligation should be performed.
- In matters relating to tort, in the courts for the place where the harmful event occurred.
- As regards a dispute arising out of the operations of a branch, agency or other establishment, in the courts for the place where the branch etc is situated.
There are no specific rules on electronic commerce.
ii) Matters Relating to Pending Procedures and Admiralty
A person may furthermore be sued in a state other than that of his domicile if he is one in a number of defendants or acts as a third party in legal proceedings and in counterclaims arising from the same circumstances as the original claim.
iii) Consumer Matters
A consumer is entitled to bring proceedings towards a supplier of goods or services or a creditor in the state where the consumer himself is domiciled. Furthermore there is a presumption that an entrepreneur is domiciled in that country where it has a branch or agency. The consumer provisions are however not applicable to contracts of transport.
It should be noted that the Lugano convention applies extra-territorially, that is the entrepreneur must not be domiciled in any of the member states in order to be subject to the provisions of the convention.
The consumer provisions cannot be departed from by means of prorogatory agreements, other than such agreements giving the consumer the benefit of bringing proceedings in other courts than those mentioned in the convention. Finally an entrepreneur can only bring proceedings towards a consumer in the country where the consumer is domiciled.
iv) Prorogatory Agreements
With the consumer exception mentioned above iii), the parties to an agreement are entitled to enter into a prorogatory agreement conferring jurisdiction to courts other that those envisaged by the convention. However, the main rule is that such agreement is to be in writing or confirmed in writing. For international trade, the agreement can be in the form "which accords with a usage of which the parties are or ought to have been aware and which in such trade or commerce is widely known to, and regularly observed by, parties to contracts of the type involved".
4. Choice-of-law - the Rome Convention
As mentioned above, the Rome Convention is a multi-lateral convention agreed between the member states of the EC. The convention governs the choice of law with regard to contractual obligations.
The main principle of the convention is the parties freedom to choose which law shall apply to the agreement entered between them. The parties can choose to apply a certain law to the whole contract or to parts of the contract.
There are several exceptions to this main principle, the main exception being which law shall apply in the absence of any agreement regarding the applicable law.
In the absence of any valid agreement regarding choice of law, the law shall of that country shall apply, which is most closely connected to the agreement. Which country the agreement is most closely connected to will be assessed on the basis of the where the characteristic performance of the agreement shall be effected - presumably the delivery being the characteristic performance.
These provisions do not apply to immovable property or contracts regarding the carriage of goods, the applicable law in the first case being that of the country where the property is situated, and in the second case that of the country where the carrier has his principal place of business.
There are no specific rules relating to electronic commerce.
i) Consumer Matters
Furthermore, consumers are excepted from the main principle. Consumers can enter into agreements regarding the choice-of-law, but cannot be deprived of his mandatory rights granted to him by the legal order of the country of his domicile if:
The conclusion of the contract was preceded by specific invitations addressed to the consumer or by advertising directed towards the consumer; or
The seller or its agent received the order in the country of the consumer
Analysis of the Conventions
From the descriptions above, it is obvious that the conventions could be divided into two parts;
a) rules regarding transactions between business entities
b) rules regarding transactions between a consumer and an entrepreneur
When it comes to agreements concluded between entrepreneurs in the course of carrying out business, the parties do have total freedom to enter any contracts whatsoever regulating the jurisdiction and choice-of-law in cases of conflict. When it comes to Internet transactions this form of granting both parties predictability and legal certainty is to prefer, due to the international character of Internet transactions. However, demand in conventions and national laws for written agreements restricts the practicality of this solution.
When it comes to consumers, however, there is a whole different view on the jurisdictional and choice-of-law issues. In EC law the consumers receive a strong protection with regard to product safety, abusive marketing etc. This protection also extends to the enforcement of consumer rights, granting consumers the benefit of bringing possible legal proceedings in the courts of their home-country and applying the law of that same country. The extra-territorial applicability of these conventions further extends the protection to embrace goods and services sold from outside the EC.
5. The Conventions Applicability in an Internet setting
Internet Trade Between Entrepreneurs
Right to Prescribe
As shown above, the EC conventions on jurisdiction and choice-of-law do not pose major difficulties to trade on the Internet as long as the parties to the transaction are domiciled in the convention states.
Since the conventions base themselves on the physical location of the parties entering an agreement, Internet does not give rise to specific questions. An enlightening analogy is mail order shopping between two entrepreneurs, the jurisdictional and choice-of-law result of which will not differ from trade via the Internet as long as the domicile of the parties is mutually known.
However, a present problem with websites is that they seldom present the legal domicile of the party, which gives rise to an uncertainty when entering an agreement over the Internet since the contracting parties may not know which jurisdiction and choice-of-law they avail themselves to when entering the agreement.
The conclusion of the above reasoning is that the physical domicile of entrepreneurs acting on the Internet will still be the determining factor when it comes to deciding which are the competent courts and which is the applicable law within the EC countries.
The conventions will however result in interpretative difficulties when it comes to establishing for example:
The performance of a contractual obligation
If a server is placed in another Member State and a software is distributed from that server by automatic e-mail-order processing, will that suffice to avail the contracting party to the jurisdiction of that state?
The occurrence of a harmful event causing damage
When transmitting messages or files via the Internet, it could be very difficult to establish where a harmful event has occurred due to the decentralised structure of the Internet where the "packages" take different paths every time.
A branch forms the basis of jurisdiction
Could the mere fact that a server is placed within the boundaries of a member state confer jurisdiction within that state, presuming that the server acts like a "whole-saler" distributing goods and receiving payments?
My view on the problems addressed above is that they merely make up interpretative problems as long as the European Court of Justice has not established any case law with regard to the issues risen.
Consequently, when it comes to trade between entrepreneurs the present conventions will suffice when completed with interpretative answers by the European Court of Justice. Still there is an obvious problem that the contracting parties might not know where the counterpart is domiciled.
Similarly to the Lugano Convention, the Rome Convention is well suited for dealing with Internet transactions. Likewise interpretative problems might arise. The Rome Convention might cause the following problems when it shall be decided which law is applicable to the agreement:
The characteristic performance of a contract
The presumption of the Rome Convention is that the characteristic performance of the contract constitutes the closest connection to the country in question. In cases of software sales and deliveries via the Internet, interpretative problems might arise if the servers involved in the transaction are located in different (EU) countries.
According to the last part of article 4 (2) of the convention, the law of that state where the performance is to be effected through a place of business other than the principal place of the business, provided that it is stated in the terms of the contract is to be applied. As the case with the Lugano Convention, it might pose problems to decide whether a server could constitute "another place of business".
6. Consumer Internet Transactions
Furthermore when it comes to consumer Internet transactions within the EU, Internet will not either in this case give rise to any specific questions which could not be solved on the basis of existing conventions.
The disparity between consumer transactions and entrepreneur transactions is the public interest of protecting the consumers from entering agreements, which legal consequences they cannot foresee, would they be assessed under another country's law or would they not be able to enforce if legal proceedings were to be carried out within the jurisdiction of another country.
Consequently the member states have set up an extensive consumer protection when it comes to jurisdictional and choice-of-law questions - the consumers do almost always have the possibility to claim their rights under the law and in the courts of the country where they reside. Admittedly this causes a problem for entrepreneurs marketing goods towards EC customers, since they avail themselves to any national courts or laws of the member states, but this is not either an exclusive Internet problem.
There are of course interpretative problems also when it comes to deciding jurisdictional and choice-of-law questions with regard to consumers carrying out transactions on the Internet, such problems could be;
Advertising and addressed invitations form the basis of jurisdiction
It could be argued that a customer logging in on a website actively requests information, consequently voluntarily availing himself to advertising. Furthermore the push technology could give rise to questions whether websites "pushed" to the consumer form addressed invitations or not.
Where does the above reasoning leave us? It has been shown that the existing conventions - with interpretative problems - suffice as the basis of assessing Internet jurisdiction and choice-of-law due to the simple fact that the conventions merely concern themselves with the physical location of the contracting parties, which is not altered due to the Internet but rather renders Internet shopping similarities to conventional mail-order shopping.
It should however be noticed that the conventions do only apply directly to the EU countries, which have ratified the different conventions. Consequently this leaves the rest of the world outside the jurisdictional and choice-of-law solutions envisaged within the EU. Furthermore there is an obvious problem that the contracting parties in many cases lack knowledge of the physical domicile of the counterpart. Presently a European company can use a com.-domain, which does not give any clue where the company is domiciled.
Furthermore, the EC Conventions strongly protect the consumer and render any prorogatory agreements disadvantaging the consumer invalid. The consequences of the strong consumer protection is that disputes arising between a consumer and an entrepreneur is likely to fall under the jurisdiction of the domicile country of the consumer. Likewise the applicable law will be that of the consumer.
Jurisdiction on the Basis of the Domain Name Registration Country
Solving the jurisdictional problem by using the country of domain name registration would have one great advantage - the customer could tell before entering an agreement which jurisdiction will apply and who is the counterpart of the agreement according to the domain name registry.
However such a solution would cause several problems:
i) Jurisdictional conflicts
Assume that a company has registered its website both under the .com-domain and the .uk-domain, which is a quite usual practice - which jurisdiction shall prevail?
ii) Domain name is not necessary
It is not necessary to have a domain name connected to the IP-number of a certain site - it will suffice to use the IP-number as an address - meaning that domain name registration country as the basis of jurisdiction will lose its importance.
Jurisdiction on the Basis of the IP-number
To avoid the problem high-lighted above it might be a good solution to use the IP-number as the basis of jurisdiction - meaning that the country under which the IP-number is registered will assert jurisdiction.
However, also that solution is connected with problems - two different websites could use the same IP-number.
Jurisdiction on the Basis of the Physical Location of the Server
A third solution could be to use the physical location of the server as the basis of jurisdiction. That solution would not be void due to technical alterations or domain name policy alterations. However, using the physical location as the basis of jurisdiction would mean that one would create incentives to place the server in a country which legislation is favourable to the owner of the server - a "cyberhaven".
Furthermore, the technical development might cause problems to that solution as well. There are already existing security server systems based on the RAID (Redundant Array of Independent Disks) system - in short the server uses multiple drivers which could replace for example a broken driver - the information quickly moving to the other drivers. Imagine several computers connected in a sort of "RAID"-system - the information will be kept on four different servers in four different countries at one time - which country's jurisdiction would prevail?
Jurisdiction on the Basis of International Conventions
As shown above the European way of solving the jurisdictional problem by means of multi-lateral conventions does in most parts solve the problem. However such conventions would also need to be more specific with regard to Internet transactions in order to avoid the interpretative problems presented above. Of course it would be legally possible to draft such conventions. Considering the low number of countries that have ratified the already existing conventions concerning the law applicable to contracts - the Hague Conventions of 1955 and 1986 it does however seem as there are several political obstacles to such a solution.
Self-regulatory measures have been a popular way of solving legal problems with regard to the Internet (such as Internet content). It might also be a possible way of solving the jurisdictional problem:
Assume that International consensus could be reached concerning an international domain name administrative authority. An international domain name authority would solve several of the intra-national intellectual property disputes arising from the use of .com domain names.
Furthermore such an authority could act as a supervisory authority with regard to jurisdiction. I hereby imagine the following solution:
The authority issues a new top-level domain name called for example .trade. In order to be entitled to use the .trade domain name companies registering .trade-domains must agree to follow the jurisdictional guidelines set up by the domain name authority by means of prorogatory agreements.
The prorogatory agreements could for example designate the sellers or the buyer’s country as the country of jurisdiction - or perhaps the ultimate solution - designate the jurisdiction to an arbitrary court set up by the authority. However the question of which law to apply to the dispute still has to be solved. It could be a solution to use the UN Convention on the International Sale of Goods from 1980, which has been ratified by more than 40 countries.
In case the registered companies do not fulfil their duties according to the agreement entered by the company and the domain registration authority, the company will lose its right to use the .trade domain name.
The domain name authority would furthermore perform controls that the registered .trade domain owner is a registered company in the country of registration - thereby avoiding the present problem that anyone could register with InterNic without providing the correct address or name of the company registering a .com-domain.
This solution would be completed by a "click-wrap" agreement whereby the presumptive customer agrees to avail himself to the jurisdiction designated by the domain registration authority and thereby entering the prorogatory agreement.
The existing domains would continue to exist side by side with the .trade-domain - the important difference being that the .com domains do not ensure the customer the same legal protection as the .trade-domain since there is the present jurisdictional ambiguity of where and under which law a possible dispute would be solved.
A great advantage resulting from the use of arbitration is that the judgements from the arbitrary Court are executable in many countries according to the New York Convention, which would not be the case if one relied on other existing conventions.
However, there are remaining problems. As shown above, the European Conventions protect the consumer by assuring a privileged forum and the right to settle dispute under the consumers national law. In many European countries there are also national legal provisions protecting the consumer in the same manner. Concluding, a prorogatory agreement will never have the sufficient binding effect on customers as to assure the solution drawn up above.
9. General Conclusions
The conclusions of this paper is that the only way of solving jurisdictional problems arising from international Internet trade is to enter an international convention regulating the choice-of-law and the jurisdiction.
Such a solution has however proven to be difficult with reference to the Hague conventions, which only have been ratified by a hand full of countries. In any way all kinds of solutions to the jurisdictional problem has to e technique-neutral meaning that it will not be built upon the existing technical structures, since these are quite likely to be outdated when the legislation entries into force.
Solving the jurisdictional problems by self-regulatory measures could be a solution, however limited to entrepreneurs since consumers cannot according to the internal law of many countries enter into prorogatory agreements. Even such a solution would demand international co-operation, however not to the extent necessary for drafting and enacting an international convention.
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