Jurisdiction Over Consumer Contracts: the Impact of the ?Brussels I? Regulation on B2C E-Commerce

28 April 2003

Peter Van de Velde & Caroline Heeren













Introduction


On March 1, 2002 the Council Regulation (EC) No 44/2001 of December 22, 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (the “Brussels I Regulation”) entered into force.

This Regulation replaces the 1968 Brussels Convention on jurisdiction and enforcement of judgements in civil and commercial matters (the “EEX–Treaty”) and applies to all Member States except Denmark.

For more than a year now, three jurisdiction regimes have applied within Europe:

  • the Brussels I Regulation, governing jurisdiction between all EEX Contracting States except Denmark;
  • the EEX-Treaty, governing jurisdiction between Denmark and the other EEX Contracting States;
  • the Lugano Convention (of 1988), very similar to the EEX-Treaty, governing jurisdiction between the EEX Contracting States and the EFTA Countries (and also Poland).

As the EEX-Treaty, the Brussels I Regulation sets out the rules for determining which national court of the E.U. Member States will have jurisdiction over disputes related to commercial contracts and facilitates the recognition and the enforcement of judgments between Member States. This new Regulation, however, also has an impact on e-commerce related issues as it extends the protection of online consumers.

Principles of General and Special Jurisdiction


General Rules


Both the EEX-Treaty and the Brussels I Regulation lay down the general principle that contracting parties have the freedom of choice regarding jurisdiction and thus may expressly agree which court is to have jurisdiction over their contractual disputes. If there is no express agreement regarding jurisdiction between the parties, the general jurisdiction rule is that defendants domiciled in a Member State, whatever their nationality, will be sued in their own courts (Article 2 of both EEX and Brussels I).

Special Jurisdiction


Article 5 of both EEX and Brussels I sets out the rules relating to special jurisdiction.

In cases relating to tort, the courts of the place where the harmful event occurred or may occur will have jurisdiction (cf. Article 5,3 Brussels I). In cases arising from the breach of a contractual obligation, defendants may be sued before the courts of the place where the contractual obligation in question was to be performed (cf. Article 5,1 EEX).

But how to determine “the place of performance of the obligation” if such performance is taking place online? The new Article 5,1 of the Brussels I Regulation offers some clarification by specifying that, unless otherwise agreed, the place of performance of the obligation shall be:


“in the case of the sale of goods, the place in a Member State where, under the contract, the goods were delivered or should have been delivered;

in the case of the provision of services, the place in a Member State where, under the contract, the services were provided or should have been provided”.


In other words, the place of performance of the contract will thus be the place where the online purchaser downloads the relevant purchase information and not the place where this information was initially loaded or sent from.

In relation to tort, Brussels I brings no further specification regarding the determination of “the place where the harmful event occurred”. The only innovation brought by the Brussels I Regulation in relation to jurisdiction in matters of tort is the addition of the words “or may occur”. Consequently, legal action may now also be brought in the place where the harmful event may occur (Article 5,3 Brussels I). The place where the harmful event occurred is generally considered as the place where the damage occurred or the place of the event giving rise to the damage.

In a cyberspace context, the jurisdiction provisions in relation to tort are particularly relevant in matters of defamation, copyright infringement and unfair competition. In relation to tort, the ubiquity of the Internet continues to give rise to an animated debate in both case law and doctrine. Although supported by many authors and judges the theory that in cases of tort, delict or quasi-delict via the Internet, the place where the damage occurred should be the place where the Internet site was displayed by the claimant, is far from being generally accepted.

Prorogation of Jurisdiction


The basic rule of both EEX and Brussels I is that the parties to a contract are free to agree on which courts will have jurisdiction to settle disputes in relation to the contract. Such jurisdiction shall be deemed exclusive “unless the parties have agreed otherwise” (cf. Article 23,1 Brussels I).

Jurisdiction clauses must be “in writing or evidenced in writing” (cf. Article 17 EEX), but the Brussels I Regulation now expressly extends the definition of “in writing” to “any communication by electronic means which provides a durable record of the agreement” (cf. Article 23,2 Brussels I).

Practically, this means that in relation to the use of online Terms and Conditions containing a jurisdiction clause, the acceptance of such Terms and Conditions will require confirmation by e-mail, provided that this information remains available afterwards on the purchaser’s hard-disk. However, the mere appearance of such Terms and Conditions on the purchaser’s screen (or a print-out) will probably not be considered as sufficient evidence of acceptance of the jurisdiction clause.

It is to be noted that jurisdiction clauses are in principle prohibited in consumer contracts, save under the conditions set out in Article 17 of the Brussels I Regulation (see below).

Consumer Contracts


Both the EEX-Treaty and the Brussels I Regulation contain special rules applicable to consumer contracts (cf. “Section 4: Jurisdiction over consumer contracts”).

These rules are designed to provide additional protection to the consumer (being considered as the weakest party in the contractual relationship). A “consumer” is defined as a person concluding a contract for a purpose “which can be regarded as being outside his trade or profession”. This definition, of course, also applies to online consumers buying CDs or booking hotels, etc. via the Internet. However, consumers booking a flight via the Internet are not concerned by the special regime set out in Section 4 of EEX and Brussels I. Article 15,3 Brussels I expressly stipulates that

“this Section shall not apply to a contract of transport, other than a contract which, for an inclusive price, provides for a combination of travel and accommodation”.

Consumers entering into a contract with a travel agent selling a package including both the price of the airline ticket and the price of the hotel accommodation thus fall under the scope of the protection offered by Section 4.

Jurisdiction over Consumer Contracts


Jurisdiction related to consumer contracts is governed by Article 14 of the EEX-Treaty or Article 16 of the Brussels I Regulation. As a general rule, consumers may bring proceedings against their contracting party either in the courts of the Member State in which that party is domiciled, or in the courts of the place where the consumer himself is domiciled. Consumers thus have a choice of forum, while proceedings against consumers may only be brought in the courts of the Member State in which the consumer is domiciled.

Consumers can only depart from this protective rule (and thus confer jurisdiction on other courts than the courts of their domicile) by entering into an agreement after the dispute has arisen or by entering into an agreement allowing the consumer to bring proceedings in courts other than the courts indicated in Section 4 of EEX or Brussels I or by entering into an agreement if both the consumer and the other party to the contract are at the time of conclusion of their contract domiciled or habitually resident in the same Member State and agree to confer jurisdiction on the courts of that State, provided that such an agreement is not contrary to the law of that State (cf. Article 17 Brussels I).

Impact of Brussels I on B2C E-Commerce


Definition of Consumer Contracts


By broadening the definition of “consumer contracts” used in the EEX-Treaty, the Brussels I Regulation particularly affects jurisdiction over contracts with online consumers.

The EEX-Treaty defines “consumer contracts” as contracts for the supply of goods or services where the conclusion of the contract in the State of the consumer’s domicile was preceded by a “specific invitation” addressed to him or by “advertising”, or where the consumer “took the necessary steps” in that State for the conclusion of the contract (Article 13 EEX). Are also qualified as “consumer contracts”: contracts for the sale of goods on instalment credit terms and contracts for loans repayable by instalments or for any other form of credit made to finance the sale of goods. In all these cases, consumers can bring disputes before their home jurisdiction.

However, according to Article 15 §1 (c) of the Brussels I Regulation, this protective jurisdictional rule will apply if 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 the Member State” and the contract falls within the scope of such activities”.


The Brussels I Regulation is thus including into the definition of “consumer contracts” all contracts where a company pursues commercial or professional activities in the Member State of the consumer’s domicile or, by any means, directs activities to that Member State. The EEX-condition of a “specific invitation addressed to the consumer” is thus replaced by the condition of an “activity directed to the Member State of the consumer”.

“Directing Activities”


This new definition of consumer contracts particularly impacts online trade. How should the concept of “directing activities” be interpreted in case of websites offering goods and services to consumers? What if a consumer located in one Member State buys goods or services via the Internet from a company located in another Member State? When will the online trader be regarded as having directed his activities to the Member State of the consumer?

The European Commission and the Council released a Statement on Article 15 of the Brussels I Regulation in relation to distance marketing via the Internet. The Commission and the Council stress that


“the 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”.


The Statement further holds that the language and the currency that are used on the website do not constitute a relevant factor.

Under the EEX-Treaty, the simple fact of operating a website accessible to the public in another Member State is not to be considered as a “specific invitation” or an advertisement aimed at the consumers in that other Member State. This would in principle only be the case if the website is paying specific attention to the consumers of that other Member State (e.g., by using the language or currency of that State, by referring consumers to an address or hotline in that State, etc.). However, under the rule of Brussels I, the mere fact that goods or services are offered online and can be purchased via electronic means accessible in the consumers’ home State will be sufficient to trigger the jurisdiction of the courts of that State if the consumers decide to purchase.

In other words: when a consumer located in one Member State accesses a website of a company located in another Member State and accepts the offer made on the website to buy goods or services, the company will be considered to have directed its activities to the Member State of the consumer, notwithstanding the fact that (possibly) the website was only targeting the consumers of the company’s own (or another) Member State. The rule of Article 15 Brussels I shall then automatically apply and the company operating the website will face the risk of being sued before the consumer’s home jurisdiction, irrespective of any jurisdiction agreement or jurisdiction clause in its Terms and Conditions.

The distinction between active and passive websites will thus become increasingly important. An active Internet site is a website allowing the online conclusion of a contract. Passive websites in principle only advertise the operator’s goods and services without enabling consumers to purchase such goods or services via the Internet. It seems clear that active websites will fall within the scope of the rule of Article 15 Brussels I. But what if consumers decide to order goods or services after having noticed the advertisements on such goods and services on a passive website operated by a company that is not directing its activities towards the consumer’s home State? Will such consumers equally be allowed to benefit from the protection offered by Article 15 Brussels I? And which criteria will be used to distinguish active from passive websites (e.g., what will be the status of banners)?

Debating on Brussels I, the European Parliament opined that


“the commercialisation of goods or services via an electronic mean accessible in a Member State constitutes an activity directed to this Member State if the commercial site is an active site, i.e., if the operator intentionally directs his activity, in a substantial way, to this Member State”.


The addition of the word “intentionally” however does not bring more clarity to the issue. When will an operator be intentionally directing his activity towards a Member State?

The most efficient way for operators to avoid being sued in whatever Member State their website is accessible in, will most probably be the display on the website of a notice or disclaimer clearly indicating the target market(s) of the operator’s online activities (and/or a notice indicating that orders placed by consumers in other Member State will be refused). This also implies the use of technology on the website to intercept those consumers who ignore the notice or disclaimer (e.g., an icon obliging the website user to select his country before he can place an order). Of course, the sale of digitised products such as software will be more difficult to restrict.

In any case, the courts including the European Court of Justice will be called upon to define notions such as “directing activities” and “active and passive websites”. Also, the European Commission is to report on the application of Article 15 before March 1, 2007.

It is to be expected that the European Court of Justice will interpret the concept of “directing activities” in a broad sense (cf. the already broad, purpose-based, interpretation of the EEX-Treaty by the Court in favour of consumer protection). Companies offering goods and services via the Internet will then face immediate jurisdiction in all Member States of the European Union. To that respect, the Brussels I Regulation is not really making a contribution to the legal certainty in the area of B2C e-commerce.

Does Brussels I Conflict with the E-Commerce Directive?


It has been suggested that Brussels I may conflict with the E-Commerce Directive (No 2000/31/EC) of June 8, 2000, where this Directive seems to provide that the rules applicable to online services should be those where the online trader or Internet service provider (ISP) carries out its activities rather than where the consumer is located (cf. Article 3 of the Directive).

However, the Directive only provides a framework for Member States to regulate the activity of their ISP’s. Brussels I provides rules for private international law for individuals (consumers). It is for that reason that the Directive explicitly states in its recital 23 that


“it neither aims to establish additional rules on private international law relating to conflicts of law, nor does it deal with the jurisdiction of Courts”.


Conclusion


In their statement on Article 15 of Brussels I, the Council and the Commission emphasise that they are aware that the development of e-commerce in the information society will facilitate the economic growth of undertakings and that the development of new distance marketing techniques based on the use of the Internet will depend on the mutual confidence between undertakings and consumers.

Nevertheless, Article 15 of Brussels I is offering a very extensive protection to online consumers in a way that has raised a lot of concern in the minds of European e-commerce suppliers. The new Regulation is thought to discourage European undertakings in offering goods and services electronically.

Consumer groups however are convinced that, by securing the protection of consumers using the Internet, the new Regulation will help in building consumer confidence in B2C e-commerce.

However, it should be noted that, notwithstanding the extensive protection offered by Article 15 Brussels I, (successful) consumers will still have to seek enforcement of the judgments, obtained from their home courts, in the Member State of the operator if the website operator is domiciled abroad. This, of course, is not always easy. It is however to be expected that alternative dispute resolution will become increasingly important in relation to disputes arising out of online consumer contracts.

Finally, one other important question remains: once it has been established that a particular court has jurisdiction over an online contract, what will then be the applicable law governing the contract? However, this debate deserves a separate article!

Written by Peter Van de Velde and Caroline Heeren in our Brussels office. First published in April 2003 edition of WILR.