ICC request for re-evaluation of the European Commission's draft proposal for a Council Regulation on the law applicable to non-contractual obligations ('Rome II')

"In order to allow the unhampered development of electronic commerce, the legal framework must be clear and simple, predictable and consistent with the rules applicable at international level so that it does not adversely affect the competitiveness of European industry or impede innovation in that sector."

EC Directive 2000/31/EC - "E-Commerce Directive", recital (60).

A number of stakeholders and experts, including those on ICC's Commission on E-Business, IT and Telecoms, have criticized the European Commission's draft proposal for a Council Regulation on the law applicable to non-contractual obligations (known as "Rome II"), urging that the draft Regulation be re-examined and better explained.

The principal criticisms include the Regulation's treatment of claims involving defamation, advertising, intellectual property rights, and product liability. Generally speaking, the draft Regulation promotes the principle of the application of the law where damage occurs.

ICC respectfully asks national governments to urge the European Commission to re-examine the draft Regulation. ICC believes that the European Commission should clarify the specific objectives in a detailed written document, and conduct a further public hearing before the draft is proposed to the European Council.

The criticisms just referred to have been developed in a number of well-articulated position papers that have been submitted to the European Commission.

However, ICC believes that one issue, the harmful impact the draft Regulation would have on the provisions of the E-Commerce Directive, has not yet been sufficiently articulated. The E-Commerce Directive addresses a number of issues such as electronic contracting, web advertising, and the potential liability of technical intermediaries (such as telecommunication companies, web hosting companies and Internet access providers) involved in the implementation of the Internet. As the Rome II Regulation could serve as an international precedent, it is important to businesses and consumers worldwide that its provisions promote the development of electronic commerce.

This paper focuses on ICC's concerns regarding the E-Commerce Directive. The document summarizes the procedural background, analyzes the relationship between Rome II and the E-Commerce directive, and provides key recommendations to the European Commission. A list of Internet links to relevant documents is presented at the end of this document.

Procedural background of the draft Regulation

On 3 May 2002, the European Commission launched a consultation on the draft Regulation, which was issued without an explanatory Green Paper. A number of the 80 written contributions submitted by various stakeholders, including ICC, expressed concern that the draft Regulation would undermine the provisions of the E-Commerce Directive.

On 7 January 2002, the European Commission held a public hearing regarding the draft Regulation. During that hearing, the European Commission representatives indicated that a number of articles, including in particular those regarding defamation and intellectual property, needed to be re-examined in depth. Unfortunately, the European Commission did not allocate sufficient time to discuss the impact of the draft proposal on the E-Commerce Directive.

The European Commission indicated that it intended to complete a revised draft for submission to the European Council by the end of June 2003. ICC is concerned that the draft Regulation may advance to the Council before businesses are able to learn of the revised proposals and give their input on the likely effects of the draft Regulation.

Harm to the E-Commerce Directive

The E-Commerce Directive

The E-Commerce Directive, adopted on 8 June 2000, establishes basic principles designed to promote e-commerce activity in the European Union. Under the Directive, service providers are subject, in the coordinated field , to the supervision of the country in which they are physically established, irrespective of where their web sites or servers may be (applying the so-called "country of origin" principle). Notably, the directive provides an exemption from liability for technical intermediaries who play a passive role as "mere conduits" of information. Likewise, it limits the liability of service providers in respect of data hosting. While the Directive addresses what the law in the Member States must be, it does not specifically dictate which law will apply in a multi-jurisdictional dispute. (Within the EC, the law applicable to e-commerce matters becomes unimportant as the laws of the Member States are harmonized in accordance with the E-Commerce Directive.)

The Directorate for the Internal Market summarized the international private law aspects of the E-Commerce Directive as follows:

"The Directive clarifies that the Internal Market principle of mutual recognition of national laws and the principle of the country of origin [i.e. the laws of the country of the service provider] must be applied to Information Society services. This will ensure that such services provided from another Member State are not restricted. The Directive does not deal with the application of the Brussels Convention on jurisdiction, recognition and enforcement of judgements in civil and commercial matters. The Directive does not interfere with the Rome Convention as regards the law applicable to contractual obligations in consumer contracts or with the freedom of the parties to choose the law applicable to their contract."

http://europa.eu.int/comm/internal_market/en/ecommerce/2k-442.htm

Many of the recitals of the E-Commerce Directive, set out in an annex to this paper, serve to explain why the country of origin policy is particularly important to the development of e-commerce.

The draft Rome II Regulation

In contrast, the draft Rome II Regulation specifically addresses the law applicable to non-contractual obligations and would therefore cover, for example, the law applicable to claims by third parties against Internet companies relating to defamation, advertising, and, potentially, copyright infringement . Broadly speaking, and subject to exceptions, the draft Regulation calls for the application of the law where the third party is harmed, which could be the law of a country outside of the European Union. This is contrary to the spirit, if not the letter, of the E-Commerce Directive.

The heart of the tension between the draft Rome II Regulation and the E-Commerce Directive is found in Article 23 of the draft Regulation:

Article 23 - Relationship with other provisions of Community law

1. This Regulation shall not prejudice the application of provisions which are or will be contained in the Treaties establishing the European Communities or in acts of the institutions of the European Communities which:
   • in relation to particular matters, lay down choice of law rules relating to non-contractual obligations; or
   • lay down rules which apply, irrespective of the national law governing the non-contractual obligation in question by virtue of this Regulation; or
   • prevent application of a provision or provisions of the law of the forum or of the law designated by this Regulation.
2. This regulation shall not prejudice the application of Community instruments which, in relation to particular matters and in areas coordinated by such instruments, subject services to the laws of the Member State where the service-provider is established and, in the area coordinated, allow restrictions on freedom to provide services originating in another Member State only in limited circumstances.

[Emphasis added.]

Article 23 (1) does not appear to apply to the E-Commerce Directive as that Directive does not, strictly speaking, 'lay down' choice of law rules. Article 23 (2) does appear to apply to the Directive (being an instrument that subjects services to the laws of the Member State). However, the fact that the E-Commerce Directive will not be 'prejudiced' by the Regulation would appear to do nothing to prevent the application of a foreign law to a claim by a foreign third party against a European Internet business, since the E-Commerce Directive does not specifically address applicable law.

Without the Regulation, claims within the coordinated field reviewed by the national European courts today would be treated as follows.

• For claims involving European parties, a European national court could either apply its national law, or elect to apply the laws of the other European parties; the resulting liability should be the same since the national laws of all EC states are based (or should shortly be based) on the E-Commerce Directive.
• For claims involving non-European parties, a European national court would be free to decide to apply its national laws on the basis of the policies contained in the E-Commerce Directive protecting e-commerce service providers. With the Regulation, the same court would in many cases be required to apply a non-EC law.

With the Regulation, if adopted in its present form, a European national could would probably deal with the question of applicable law under the Rome II Regulation (which could easily lead to the application of the law of a non-European country, even absent an establishment in that country) without ever reaching the legal issues addressed in the E-Commerce Directive. The only limits to the application of foreign law would result fro m the public policy under the Member States' national laws, and the provisions of the E-Commerce Directive may not rise to this standard.

Recommendation

The European Commission undoubtedly intends that the E-Commerce Directive should continue to deliver its benefits to the Information Society. One way to achieve this result is to amend the draft Regulation to conform strictly to the provisions of the E-Commerce Directive. The draft Regulation must explicitly set out the law applicable to Internet business in the same terms as in the E-Commerce Directive's recitals. In more precise terms, (i) the law applicable to technical intermediaries involved in e-commerce be those of the jurisdiction where the intermediaries are habitually resident, have their principal place of business or, if more closely connected to the claimed damage, where they pursue their business activity through a fixed establishment for an indefinite period and (ii) the place of establishment of a company providing services via an Internet website is not the place at which the technology supporting its services is located or the place where such services are accessible, but the place where it pursues its economic activity.

Useful links

(valid as of 28 February 2003)

• Commission announcement of public consultation, including the draft proposal for a Council Regulation;
• Summary of written contributions on Rome II;
• ICC's submission on Rome II;
• 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 ('Directive on electronic commerce').

Annex

For reference, the following are selected provisions of the E-Commerce Directive that concern the issues raised above:

Recitals

• (5) The development of information society services within the Community is hampered by a number of legal obstacles to the proper functioning of the internal market which make less attractive the exercise of the freedom of establishment and the freedom to provide services; these obstacles arise from divergences in legislation and from the legal uncertainty as to which national rules apply to such services; in the absence of coordination and adjustment of legislation in the relevant areas, obstacles might be justified in the light of the case-law of the Court of Justice of the European Communities; legal uncertainty exists with regard to the extent to which Member States may control services originating from another Member State.
• (6) In the light of Community objectives, of Articles 43 and 49 of the Treaty and of secondary Community law, these obstacles should be eliminated by coordinating certain national laws and by clarifying certain legal concepts at Community level to the extent necessary for the proper functioning of the internal market;
• (19) The place at which a service provider is established should be determined in conformity with the case-law of the Court of Justice according to which the concept of establishment involves the actual pursuit of an economic activity through a fixed establishment for an indefinite period; this requirement is also fulfilled where a company is constituted for a given period; the place of establishment of a company providing services via an Internet website is not the place at which the techno logy supporting its website is located or the place at which its website is accessible but the place where it pursues its economic activity; in cases where a provider has several places of establishment it is important to determine from which place of establishment the service concerned is provided; in cases where it is difficult to determine from which of several places of establishment a given service is provided, this is the place where the provider has the centre of his activities relating to this particular service.
• (22) Information society services should be supervised at the source of the activity, in order to ensure an effective protection of public interest objectives; to that end, it is necessary to ensure that the competent authority provides such protection not only for the citizens of its own country but for all Community citizens; in order to improve mutual trust between Member States, it is essential to state clearly this responsibility on the part of the Member State where the services originate; moreover, in order to effectively guarantee freedom to provide services and legal certainty for suppliers and recipients of services, such information society services should in principle be subject to the law of the Member State in which the service provider is established.
• (23) This Directive neither aims to establish additional rules on private international law relating to conflicts of law nor does it deal with the jurisdiction of Courts; provisions of the applicable law designated by rules of private international law must not restrict the freedom to provide information society services as established in this Directive.
• (55) This Directive does not affect the law applicable to contractual obligations relating to consumer contracts; accordingly, this Directive cannot have the result of depriving the consumer of the protection afforded to him by the mandatory rules relating to contractual obligations of the law of the Member State in which he has his habitual residence.
• (57) The Court of Justice has consistently held that a Member State retains the right to take measures against a service provider that is established in another Member State but directs all or most of his activity to the territory of the first Member State if the choice of establishment was made with a view to evading the legislation that would have applied to the provider had he been established on the territory of the first Member State.
• (58) This Directive should not apply to services supplied by service providers established in a third country; in view of the global dimension of electronic commerce, it is, however, appropriate to ensure that the Community rules are consistent with international rules; this Directive is without prejudice to the results of discussions within international organizations (amongst others WTO, OECD, UNCITRAL) on legal issues.
• (59) Despite the global nature of electronic communications, coordination of national regulatory measures at European Union level is necessary in order to avoid fragmentation of the internal market, and for the establishment of an appropriate European regulatory framework; such coordination should also contribute to the establishment of a common and strong negotiating position in international forums.
• (60) In order to allow the unhampered development of electronic commerce, the legal framework must be clear and simple, predictable and consistent with the rules applicable at international level so that it does not adversely affect the competitiveness of European industry or impede innovation in that sector.
• (61) If the market is actually to operate by electronic means in the context of globalization, the European Union and the major non-European areas need to consult each other with a view to making laws and procedures compatible.
• (62) Cooperation with third countries should be strengthened in the area of electronic commerce, in particular with applicant countries, the developing countries and the European Union's other trading partners.