Legal Challenges of E-commerce in Private International Law

Introduction

E-commerce is a new and complex area which challenges private international law. It exists in an environment without borders which means that among other things there are jurisdictional challenges that are involved in e-commerce. The specific challenges for private international law in the area of e-commerce are related to the domestic law within whose jurisdiction e-commerce related disputes in specific cases fall; the jurisdiction in which action is to be taken; the test and laws to be followed in such cases; the laws which are to apply; and the courts and authorities of which country are to be approached for enforcement of rights or duties in disputes arising out of e-commerce transactions. Several challenges associated with the use of the internet for commercial transactions of international dimensions. There are no physical borders on the internet, which raises jurisdictional and legal issues.

The structure of the internet is decentralised and global. Consequently, the nature of e-commerce transactions on the internet is also decentralised. When disputes related to e-commerce transactions arise, two important questions in the context of private international law that are raised are related to the applicable law to the dispute as the parties are located in different jurisdictions and the applicable jurisdiction in the event of a dispute. The existing contractual principles related to international contracts have traditionally given importance to the questions related to where real estate is located, customary residence, principal establishment, and place of shipping goods. However, these traditional principles are difficult to apply in the context of e-commerce transactions. Due to the emerging problems with relation to e-commerce disputes in the context of private international law, it is considered that e-commerce is “naturally saddled with issues of jurisdiction, applicable law and enforcement” and that recent trends in this area have not provided adequate resolutions. This essay critically discusses the validity of this statement concerning current legal issues in Private International Law with relation to e-commerce.

Current key legal issues are related to the location of a business, the domicile of the defendant, the law applicable in the absence of choice of law, and the barriers to enforcement of a court judgement in a different country. It may be noted that one of the problems concerning e-commerce disputes in an international context is that the laws of different countries vary significantly. While some countries have adopted e-commerce legislation, the nature of legislation significantly varies from country to country. Countries like the United States and France have consumer protection laws in among others, but many countries do not have such legislation in place. The highly complex nature of e-commerce, which has no physical business or boundaries limited to a nation, make it more difficult to regulate the rights and duties of the consumers. When private law is to be used for the resolving of the disputes between parties to e-commerce contracts, a problem that is pointed out by Gerstenbergwith the modern system of private law is that of balancing of interests of parties intending facilitation of private ordering through voluntary transactions, with those of parties setting mandatory terms intended to protect vulnerable consumers against inherent risks in the system.In the absence of legislative solutions to the problem, courts in different countries assume regulatory and constitutional dimension.

In Europe, the Brussels Regulation Recast is relevant to understand how European law has responded to the issues and problems related to the resolution of e-commerce disputes in Private International Law. The European market is a significant case study for understanding the resolution of e-commerce transactions within private international law because European law is made in the context of the common European market. Therefore, the interest of the

European Union in protecting consumers is also rooted like the common market in Europe, which allows free movement of goods and services in the common market. The internal market is defined in Article 26(2) of the Treaty on the Functioning of EU as “an area without internal frontiers in which the free movement of goods, persons, services and capital is ensured.”As European Union contains a common market, and the internal market is based on the free movement of goods and services, therefore, the concept of consumer protection is significant in the context of the European law.

The Brussels Regulation Recast is to be seen in this context as well. E-commerce transactions involve certain risks for the consumers, and disputes relating to such transactions are challenging to resolve using the traditional contract law principles on jurisdiction and applicable laws. Therefore, specific jurisdictional rules have been drafted to reduce the risk consumers face when they want to sue the seller who is based abroad under the Brussels I Recast Regulation. These rules seek to respond to the specific questions that are raised in private international context. These questions are related to the jurisdictional issues in such cross border transactions where the buyer is situated in one jurisdiction and the seller in the other. Question may also be linked to whether favourable judgments can be executed in one jurisdiction when the judgment is given by a court in another jurisdiction. At times,

e-commerce can involve complex international transactions with many jurisdictions involved. For instance, Landgericht involved an Austrian buyer who purchased a sewing machine on eBay from a German seller by using a pseudonym; the delivery address was in Germany and payment was made from a German account. In yet another case, Bundesgerichtshof, a German sued a Greek lawyer regarding services provided in Greece but the lawyer had listed on the websites of German Embassy in Athens. In such cases, the more convenient position is that the case can be submitted in the jurisdiction of the consumer so that it is easier for him to access the court.

The Brussels I Recast contains certain jurisdiction rules. The Brussels I Recast is applicable where cross border transactions of the nature of consumer contracts take place. Article 17(1) of the Brussels I Recast defines consumer contract as “a contract concluded by a person, the consumer, for a purpose which can be regarded as being outside his trade or profession.” The Brussels I Recast applies only to consumer contracts. The provisions do not apply to those contracts which are not for consumer purposes; moreover, the definition of consumer under the Brussels I Recast is also restrictive. The term consumer applies to natural persons only. Non-natural persons do not come within the scope of the Brussels Regulation. The other problem with the Regulation is that the interpretation and application of the requirement in Art. 17 (c) is problematic. The lack of clarity is particularly concerning the formulation of consumer contract where a professional directs its commercial activity towards the country of the consumer's domicile. Moreover, there is a restrictive interpretation of contracts where the

consumer may have bought the goods for business. For instance, in Gruber v Bay Wa, the European Court of Justice ruled that an individual purchasing building materials for his roof were excluded from the scope of protection that is offered to consumers as weaker parties to contracts because a part of his building was used for business. The problem with decisions like this one is that it is too restrictive and goes against the purpose of the Brussels I Recast, which seeks to give protection to the individual buyer. In this case, the buyer was not buying the goods for business purposes but part of the building was being used for business purposes. Simply on that basis, he was not allowed to seek redress under the Brussels I Recast.

The third problem with the Brussels I Recast is that the jurisdictional scheme provided in Section 4 is exhaustive. This means that the jurisdiction scheme does not respond to the different situations that may arise in e-commerce transactions in the international context. If a consumer who is domiciled in one country wishes to sue the professional seller and the producer of the good, located in different Member States in the same proceeding, he will not be able to rely on Article 8(1) of the Brussels I Recast to sue both before the courts of his domicile. It may be reiterated that one of the objectives of the Brussels I Recast is to provide a protective scheme to the consumer who is considered to be the weaker party in such transactions. It is also an accepted fact that companies sometimes resort to ring-fencing, that is the adoption of methods to confine market to prevent the application of jurisdiction or domestic law of the country which is outside the market plan but the practices of the business may not be as per the ring-fencing objectives. For example, a business may put out a statement on its website that jurisdiction is limited to a specific market while it is also concluding contracts with consumers domiciled in the territory that is outside its intended market. In Pammer, the European Parliament has observed that in considering whether a business has directed its activities to a consumer domiciled in a specific location, the court should have regard to all the circumstances of the case including whether the business has applied any ring-fencing techniques. However, there is as yet no clarity on whether ring-fencing can be considered or not. There is an argument against the use of ring-fencing that it may be abused by the business to limit the scope of jurisdiction while targeting consumers outside that jurisdiction. Therefore, I do not agree with the European Parliament’s observations in Pammer because there is a likelihood of the consumer being made vulnerable by allowing the business to ring-fence.

Where the producer of the product and the professional seller are located in two different countries, then the consumer will not be able to rely on his status as a consumer in the specific situation; rather the provisions of the Brussels I Recast will require the consumer to sue before the court of the Member State of the domicile of the producer as per the provisions of Article 4 or before the courts having jurisdiction over the place where the harmful acts occurred as per the provisions of Article 7(2) as per SmithGlaxoKline ruling by the Court of Justice.As the consumers and the producer may not have a contractual relationship and the professional seller would have this contractual relationship with the consumer, the protections for consumers in e-commerce cases do not get triggered under Articles 17-19 of the Brussels I Recast. The approach applied in SmithGlaxoKline is restrictive and it puts the consumer in a position of disadvantage.

The fourth disadvantage of the regime under the Brussels I Recast is that under Article 45 which concerns the recognition and enforcement of judgments, professional seller or provider of services may contest the enforcement of the judgment on the grounds of conflict between the judgment and public policy in his own country. Then another procedure for the resolution of the dispute would have to be adopted as there is a risk of the judgment being challenged on

the grounds of public policy. It may be noted that public policy is also used in the question of enforceability of arbitral awards, and the idea of public policy is not so alien to the

enforcement of international judgments or awards. However, the inclusion of public policy also brings in lack of uniformity in how consumer related cases are decided by the courts, in the same way as it happens in arbitral awards enforcements. In the UK, public policy has been used to not enforce arbitral awards like in the case of Soleimany v Soleimany, where the Court of Appeal ruled against the enforcement of the arbitral award. In this case, the arbitral award related to a case which involved one party smuggling carpets out of Iran. Enforcement of the award would have meant that something that was illegal in Iran would be implemented. The court held that the award would be unenforceable in the UK on the based on conflict with public policy. The same position was taken by the court in Westacre Investment Inc V Jugoimport-SPDR Holding Co Ltd. The arbitral award in the Westacre case related to the payment of outstanding fees owed possibly for bribing Kuwaiti officials. The tribunal rejected the contention of a possible payment of a bribe but, the court in the UK held that the possibility of the bribe makes the award unenforceable on the ground of public policy.

Similar stance can be taken by the courts with relation to enforcement of judgments given by courts in the other Member States under the Brussels I Recast. When considered that the purpose of the Brussels I Recast was to provide a set of rules that can facilitate and ease access to justice to consumers in e-commerce transactions by offering the jurisdiction of court within his own country so that automatic enforcement of the judgments fall within the scope of own country, it may be argued that the protection offered is not complete and that there are loopholes in this system.

In the United States, there are different Federal and State laws that regulate e-commerce, but there is a lack of uniformity in the law for that reason. In Europe on the other hand, the laws are uniform because of the implementation of the Brussels I Recast. In the United States, proposed legislation in the form of the Uniform Computer Information Transactions Act (UCITA) is in the offing. While this will resolve uniformity and certainty issues of e-commerce laws in the United States, there is some controversy in this legislation as it is said to potentially weaken consumer protections.

The Brussels I Recast Regulation needs to be reconsidered especially in the context of the problems that are already noted in the essay. There are two recommendations that can be provided. First, there should be more clarity about ringfencing. It should be avoided but if it is adopted, then clear rules need to be adopted in the Brussels I Recast arrangement to avoid any disadvantages for the consumers. Second, there should be less technical and rigid reading of the provisions. For example, over a rigid reading of consumer and commercial contracts must be avoided. The decision in Gruber v Bay Wa is unfair to the consumer. Such decisions are resultant of a technically oriented reading of the Brussels I Recast.

Conclusion

The discussion on the law and authorities indicates that at this time there are some serious issues relating to the protection of consumers in e-commerce transactions in Europe. The Brussels I Recast clarifies many issues but leaves others in dark. For the UK, the matter may become more complicated after Brexit because the Brussels I Recast will not apply to the UK. However, consumers from the UK will require protection in e-commerce transactions from across the border.

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Cases

Armin Maletic and Marianne Maletic v. lastminute.com GmbH and TUI Österreich GmbH, ECLI:EU:C:2013:735.

Bundesgerichtshof (III ZR 71/08).

Hypotecnibankaa.s. v. Udo Mike Lindner [2011] ECR I-11543

Johann Gruber v Bay Wa AG [2005] ECR I-00439.

Landgericht (Feldkirch) (2R18/08Z).

Peter Pammer v Reederei Karl Schlüter GmbH & Co. KG (C-585/08).

SmithGlaxoKline v. Pierre Rouard [2008] ECR I-3965.

Soleimany v Soleimany (1998) 3 WLR 811.

Westacre Investment Inc V Jugoimport-SPDR Holding Co Ltd (1999) 3 ALL ER.

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