|
Policy statement
Jurisdiction and
applicable law in electronic commerce
Electronic
Commerce Project (ECP)'s Ad hoc Task Force, 6 June 2001
French
version
Executive
summary
Introduction
Recommendations
Conclusions
Executive
summary
This paper sets out general business views on online transactions and consumer
protection in the context of jurisdiction and applicable law.* It does not address
issues of intellectual property protection, taxation or other aspects of electronic
commerce.
Business is chiefly concerned
about uncertainty and aggressive assertion of jurisdiction and applicable law
in business-to-consumer (B2C) e-commerce, with emphasis on the distinction between
the principles of "country-of-origin" and "country-of-destination".
ICC notes that the Internet
provides significant consumer empowerment through increased competition, evolving
business models and technology. Consistent with this empowerment, business recommends
to governments a systematic approach to resolving online consumer disputes:
and urges them to:
- make reasonable attempts
to utilize a company's internal customer satisfaction mechanisms;
- utilize online alternative
dispute resolution (ADR); and
- if the dispute persists,
resort to legal action.
In addition, ICC urges governments
to 1) avoid expansive jurisdictional claims by applying principles of "country-of-origin"
and party autonomy, 2) allow self-regulation to demonstrate its efficacy, and
3) combat fraud and crime on the Internet.
Introduction
Electronic commerce - business conducted over the Internet and other computer
networks - is growing explosively. The Internet is a global medium that is open
across all frontiers, and once posted, a website is global from the outset.
Likewise, transactions, as well as commercial and promotional material on websites
become global. More frequently and more directly, enterprises of all sizes trade
with and advertise to suppliers and customers (both businesses and consumers)
located abroad.
Inevitably, some of these
dealings result in commercial disputes that must be resolved privately or at
law. In addition, many e-commerce transactions raise questions of compliance
with applicable public laws and sectoral regulations. Governments, judiciaries
and legislatures are just beginning to grapple with the question of whose laws
apply in cyberspace, and the parties themselves all too often exhibit no clear
understanding as to whose rules govern the arrangement and what recourse is
available in the event of a dispute.
Consequently, in many instances,
courts are claiming jurisdiction over and applying their countries' laws to
websites of companies located outside of their geographic boundaries. Such reach
could subject companies to the courts and laws of virtually any country from
which their website can be accessed. These laws may be contradictory. Consequently,
the business community continues to be plagued by uncertainty as to the basic
legal paradigm of consumer shopping on the Internet:
Has the merchant created
a virtual storefront in the buyer's jurisdiction to make a sale, or has the
purchaser virtually traveled to the seller's jurisdiction to make a purchase?
Jurisdictional uncertainty, and uncommonly aggres
sive assertions of jurisdiction,
may result in circumstances such as the following:
- Some enterprises may
limit their markets and product offerings much more than they would if the
resolution of disputes were more predictable. In such circumstances, consumers
may be frustrated because attractive products or services, or more competitive
prices for a given product or service are denied to them simply on the basis
of their residence.
- Some customers may be
wary of "foreign", commercial websites, regardless of its selling
limitations, because they do not feel assured that familiar rules and protections
will apply or that they will have adequate remedies in the event of difficulties.
The inability to enforce
foreign judgments is an additional complication. Current international laws
and treaties do not routinely provide for effective enforcement options for
judgments obtained in a consumer's country of residence against a merchant in
a foreign jurisdiction.(1) Are consumers offered transparent
and effective protection if they have the benefit of their laws and courts,
but are still unable to enforce a judgement against a business located in a
foreign jurisdiction? Consumers would typically incur significant costs to bring
a legal action, without assurance that they could enforce an ultimate judgement
in their favor. These realities were thoroughly demonstrated at the Geneva experts
meeting in September 1999 held by the Hague Conference on Private International
Law.
Business-to-business
vs. business-to-consumer transactions - Why is the distinction important to
this discussion?
In the case of business-to-business (B2B) transactions across borders, there
exist established conventions and solutions, which help guide such transactions.
For example, the sequence of contractual documents is generally standardized,
and courts in most countries have addressed issues of form requirements. Contracting
parties are usually more sophisticated and often incorporate choice of law and
choice of forum clauses in their agreements. There are also well established
arbitration and mediation options to avoid litigation in the courts of one party's
country.
But such customs and practices
are not familiar to transborder contracting between businesses and consumers,
and many of the business practices and traditional ADR techniques are simply
too costly - in terms of legal hire, correspondence, logistics, and the use
of expert third parties - to be utilized by most consumers.
With business-to-consumer
e-commerce "jurisdiction anywhere" is a real possibility. But, for
many online activities, it is very difficult or even impossible to comply with
the laws of every potentially relevant jurisdiction. Once a website is posted,
it is instantly available worldwide to anyone with a computer or other information
appliance and a telecommunications (wired or wireless) or other form of network
connection. Thus, it is virtually impossible to prevent "advertising"
in jurisdictions where such advertising would not be permitted. And although
in most cases states and countries have not imposed sanctions for advertising
where it was not clearly targeted (by language, currency, local distributors,
etc.) to their jurisdiction, a business that accepts orders and deals with customers
from that jurisdiction could nonetheless find itself subject to the whole range
of applicable laws and regulations there.
What consequences are
suffered by business as a result of confused jurisdiction or applicable law
when applied to business-to-consumer online transactions?
From discussions in ICC and articles in the general and trade press, it appears
that many companies today simply are not willing to subject themselves to the
costs of investigation and compliance with a myriad of rules in each country,
or the risk of sanctions, unenforceable contracts, and adverse publicity in
hundreds of countries, states, and provinces. Consequently, as stated above,
companies are limiting the use of their websites in terms of both products and
geography, and they engage in e-commerce, if at all, largely through closed
systems with established partners or sales to residents of the territories where
the companies are already well established.
The negative result of
jurisdictional ambiguity in e-commerce, or of aggressive insistence on compliance
with detailed local rules when dealing across borders with local residents,
is twofold. First, many goods and services are held back entirely from the global
electronic marketplace. Second, other goods and services are offered only in
a limited number of jurisdictions, and consumers in other places are denied
access to competitive products and prices through the online marketplace.
Of particular importance
is the stifling effect that this would have on SMEs and the severe limitations
it would place on emerging entrepreneurial ventures in developing economies.
Clearly the costs and complexities of compliance for these players could preclude
their participation in a digital economy.
Some governments and regional
bodies have adopted application of the "country-of-destination" principle,
which states that the applicable law and court with jurisdiction are those where
the consumer resides in the event of a B2C cross-border dispute. Application
of this principle will severely limit greater consumer choice and more favorable
prices. Compliance with the laws of many different countries would impose tremendous
costs on business and would be prohibitively expensive for SMEs.
The complexity of applying
the "country-of-destination" principle is exacerbated when it is applied
where consumers use "infomediaries" or other interposing technologies
to purchase goods or services that are digitally transmitted, and pay with digital
cash or any other payment mechanism that does not identify the purchaser. In
this situation, a business would never know the law and forum to which it subjects
itself as the "infomediary" prevents a company from knowing the identity
and location of an individual consumer.
Under these circumstances,
companies are most likely to forego cross-border online sales entirely, thereby
reducing significantly the Internet's benefit to consumers.
Recommendations
While the issues of jurisdiction and choice of law will continue to be studied
at national and international levels, ICC believes that there are some principles
and strategies that would help legislatures, regulatory bodies, and courts in
making determinations regarding these complex issues.
It is therefore that ICC
provides the following recommendations on the most appropriate way forward in
dealing with jurisdiction and applicable law issues in online, cross-border
business-to-consumer disputes.
A systematic approach
to resolving consumer disputes:
For B2C e-commerce to reach its full potential, certainty and confidence is
essential for both business and consumers when disputes arise between them on-line.
Therefore, business seeks a predictable and stable framework for resolving these
disputes. Such a framework should allow business to calculate cost, risk, competition,
and prices. It should also guarantee that consumers have an easy and cost effective
means of resolving disputes.
To achieve both of these objectives, ICC proposes a three-step process to the
resolution of B2C disputes resulting from online transactions:
- When a consumer complaint
arises, parties should first make reasonable attempts to utilize a company's
internal mechanism, such as its customer satisfaction service;
- If the complaint remains
unresolved, parties should utilize an online alternative dispute resolution
-- a cost-effective solution that can bridge both geographic and cultural
barriers; and
- If the complaint still
remains unresolved, the parties can resort to legal action.
ICC believes that the greatest
majority of consumer complaints will be resolved either by a company's internal
customer service or similar mechanism, or ADR. However, this does not preclude
the need for a predictable legal framework in which to address the few disputes
that persist. The remainder of this paper will set forth international business'
views on how choice of law and forum decisions should be resolved in those instances.
Avoid expansive jurisdictional
claims
Governments should take care to avoid creating unpredictable grounds for asserting
jurisdiction over e-commerce activities. Several examples of expansive jurisdictional
claims are:
- Article 4(1) of the
EU Data Protection Directive has been interpreted as requiring foreign website
operators who automatically collect information over their websites, but who
are not established for business in Europe, to comply routinely with the data
privacy rules of each EU country and appoint legal representatives in those
countries. This is likely to prove unworkable and unenforceable, and it is
inconsistent with jurisdictional doctrines in national law and in private
international law.
- The recently amended
EU Brussels Convention in effect subjects any dispute relating to an online
contract with a consumer to the jurisdiction of the courts of the consumer's
place of domicile.
- Certain proposals to
amend the EU Rome Convention would apply the laws of the consumer's residence
to an online transaction with a consumer.
- The Hague Conference
on Private International Law's draft Convention on Jurisdiction and the Enforcement
of Foreign Judgements in Civil and Commercial Matters currently adopts the
country-of-destination approach to jurisdiction, with very limited exceptions,
over sellers who conclude contracts with consumers, thereby subjecting companies
to the jurisdiction of the courts of all countries from which its website
may be accessed.
These examples threaten
to create an inflex
ible rule of reference to the jurisdiction or laws of the
consumer's residence, regardless of choice or effective alternatives. ICC encourages
the relevant governments and administrations to reconsider the policies of the
existing or proposed rules set forth in the preceding examples consistent with
these recommendations. To that effect, ICC urges the adoption of the following
fundamental principles in order to avoid expansive jurisdictional claims.
1. Party autonomy
A primary goal of commercial law is to develop legal certainty for transacting
parties. ICC supports freedom of contract as a general principle that should
drive decisions regarding choice of law and forum. As the basis for all commercial
law, contracts embody private agreements between parties, formalizing their
intent to be bound by the terms of the contract as if these were the law between
them.
For reasons of compelling
public policy, however, in the context of B2C disputes, governments typically
place limits or conditions on private agreements in heavily regulated sectors,
such as banking and investments. Courts and regulators may also override the
terms of private agreements that appear to result from fraud or deceptive practices.
ICC encourages governments to keep these limits on the applicability of party
autonomy to a minimum. However, where a compelling and well-defined public policy
objective dictates such a limitation, ICC urges governments to indicate the
circumstances in which they intend to apply local regulations to cross-border
e-commerce, and to work toward a common approach to defining fraudulent practices
in B2C transactions.
ICC believes that it is
business's responsibility to provide rules of best practice that will enable
contracting parties to make the right choices as to applicable law and competent
forum in the domain of legal B2B and B2C transactions. In this context, "transactions"
must be understood to encompass transactions conducted between or among legal
persons. Regardless of size and other factors, legal persons - as opposed to
natural persons - should be subject to the same rules in the same circumstances.
This is particularly important in online transactions, where the parties may
not know each other and cannot practicably make distinctions as to applicable
law based on the size and character of the legal entity with which they are
dealing.
2. "Country-of-origin"
Application of the "country-of-origin" principle is a preferable and
most workable solution. However, ICC recognizes that there is a subset of consumer
transactions in heavily regulated industries where, due to compelling public
policy reasons, regulations have been developed to provide that specific redress
and information be made available to the consumer in his or her country of residence.
As a commitment to consumer protection and empowerment is shared by business
and governments, application of the "country-of-origin" principle
should not be read to undermine such regulations. Nevertheless, ICC encourages
governments to reassess such regulations so as to identify their utility in
a global marketplace.
ICC and the international
business community wish to assure consumers and government representatives that
where choice, self regulation and country of origin are espoused as the preferable
or only workable solution, it is with the conviction that mechanisms proposed
must be trustworthy, user-friendly and able to provide effective redress to
the consumer. Effective consumer protection cannot be achieved by applying traditional
consumer prot
ection concepts. Interactive technology, and in particular the
Internet, provides a unique opportunity for creating solutions that are effective
and that preserve the flexibility that underpins many of the emerging e-business
models. ICC and the business community are committed to engage in an open dialogue
with consumers and governments on how these goals can be attained.
Coordinated and flexible
market-based solutions may provide all players with a general set of practices
that allow participation in the networked economy while providing reasonable
assurances that such participation is not at the expense of appropriate disclosure
to and fair treatment of the consumer.
Allow self-regulation
to demonstrate its efficacy
Given the complexity of the issues of jurisdiction and applicable law, thorough
conceptual review is essential before governments make definitive pronouncements.
Premature conclusions that do not address practical realities and the unique
circumstances of electronic commerce could create significant obstacles to the
continued growth of electronic commerce, and would therefore disadvantage business
as well as consumers.
The online medium is particularly
conducive to increased consumer empowerment. We believe that increased competition
will result in a global "race to the top" as companies develop their
online brands in order to ensure consumer confidence. The inherent empowering
qualities of the Internet are enhancing the very significant incentive that
business has to provide and implement technologies and practices that offer
consumers choice through informed decision-making. Informed consumers are good
customers. A rule of thumb in the Internet industry is that it costs five times
as much to recruit a new customer as to maintain an existing one.
Simultaneously, the private
sector should be given adequate time to assess the market and to develop self-regulatory
initiatives, including dispute resolution mechanisms, to resolve these problems.
Such initiatives are flourishing as was highlighted at the joint ICC, OECD,
and Hague Conference on Private International Law conference on B2C ADR held
at The Hague in December 2000. These initiatives are taking into consideration
the demands of the market and the unique circumstances of electronic commerce.
With this notion in mind, and recognizing the need to ensure a minimum level
of effectiveness of ADR providers, ICC is currently undertaking devising a mechanism
to facilitate effective global online B2C ADR.
Consumer policies for the
online medium have been and continue to be developed and implemented by both
business and governments. Self-regulatory solutions provide the flexibility
to respond to the dynamic nature of the online environment. Any policies must
accommodate and promote this highly dynamic environment, which is a significant
engine of economic growth and social development.
Combat fraud and crime
on the Internet
Lastly, ICC would like to express business's continued support and encouragement
for enforcement of criminal law against fraudulent and otherwise illegal behavior
on the Internet. Business is investing significant resources to assist law enforcement
in reducing cybercrime, because it is in the interest of business as well as
the consumer to make cyberspace a safe place to shop.
Although non-legitimate
businesses on the Internet cannot be effectively "regulated" by self-regulation
as such, and will try to evade gover
nment regulation, increased consumer empowerment
based on easy recognition of brands and trustmarks and the increased availability
and use of filtering and rating technologies - coupled with international cooperation
within law enforcement and effective cooperation with the private sector - offer
practical means of protecting consumers against fraud and crime on the Internet.
Conclusion
ICC believes that while problems surrounding jurisdiction and applicable
law will continue to be studied at national and international levels, the above
principles and strategies will assist legislatures, regulatory bodies, and courts
to make sound determinations regarding these complex issues.
To that end, coordinated
and flexible market-based solutions may provide all online merchants with a
general set of practices that allow participation in the networked economy at
all levels while providing reasonable assurances that such participation is
not at the expense of appropriate disclosure to and fair treatment of the consumer.
Document ECP/AH1-100
Final
6 June 2001
FOOTNOTE
* ICC defines "applicable law" in
the context of this paper as any rule of law e.g. national or international
law, regulation, ordinance, etc., that could be applied by any national
or arbitral tribunal in the event of a dispute arising between a business
and a consumer who interact online.
| 
