The first question that needs to be
answered is whether a valid contract exists between Mr. Smith and ABC Company.
This will determine whether he has a legal right to institute legal action
against the company.
Contracts are legally enforceable
agreements between two or more parties and they comprise of 7 elements that
must be present before such contracts can be found to be valid[1].
Firstly, there needs to be an offer and acceptance[2].
The offer in this case is made by ABC which offers to sell a digital camera to
interested parties at a special price of £500. The offer is accompanied by
conditions such as terms of sale and specification of court of jurisdiction.
These imply that acceptance would have two elements: provision of the mentioned
amount as well as agreeing to the terms of sale specified. The agreement was to
be done by choosing the ‘agree’ button; hence the implication that the
acceptance was non-conditional. Non-conditionality of acceptance is crucial in
the formation of valid contracts as proposal of any alternative terms amounts
to a counter-offer. Offer acceptance by clicking on the ‘I agree’ button is
recognised in article 25.2 of Brussels Regulation (EU1215/2012); hence there
was offer and acceptance[3].
This form of acceptance leaves the offeree with no option but to either agree
or fail to agree. It contains no room for a counter-offer. Under many
negotiated contracts, the offeree could propose alternative terms of the
agreement and this often constitutes a counter offer. In Mr. Smith’s case,
acceptance was outright hence constituted a valid acceptance.
Free consent in contracts implies the
need for both parties to enter into a contract voluntarily with no form of
coercion or enticement[4]. This
provision is designed to protect victims of coercion or fraud from entering
into legally binding contracts. For instance, where a company prospecting for
investors fails to disclose material information about their financial
liabilities hence painting the picture of a financially sound company to push
the stock prices up, the investors would have the right to withdraw from their
obligations citing lack of free consent. Any evidence of someone having entered
into a contract by coercion invalidates such a contract. In this case, Mr.
Smith appears to have entered into the contract voluntarily hence it’s valid.
The intention to create legal obligations is also an important feature of
contracts which differentiates contracts from domestic and gentlemen’s
agreements[5].
It is the intention by both parties to be held to account to ensure that they
play their role under the contract[6].
This can be presumed by reflecting on two elements. Firstly, this is clearly a
commercial contract and commercial contracts are by nature legal contracts.
Secondly, the court of jurisdiction clause is an indicator that a legal
relation exists; including the possibility that disagreements could arise which
warrant the intervention of courts of law.
Valid contracts must also be formed by
parties who have a legal capacity to enter into contracts[7].
ABC is a legal person and therefore has a legal capacity to enter into a legal
contract. Mr. Smith is presumably a natural person of sound mind (unless
otherwise proven) and therefore has the capacity to enter into a binding
contract. This condition has been satisfied. The object of the contract also
needs to be lawful in the sense that a contract must be based on transactions
or obligations that are lawful[8].
Contracts whose object is unlawful such as drug trafficking or other illegal
activities cannot be enforced. An example is the case of Partridge v Crittenden (1968) where the defendant advertised for
the sale of bramble finches; one of the species of birds protected under the
law[9].
Even though the appeal court ruled that an advertisement was not a valid offer
hence finding in favour of the defendant, the sale of such birds would be
illegal and any related contract termed as void. In this case, the contract is
a sale of goods contract which is lawful in both Romania and the UK. The
presence of a consideration is important to the validity of contracts. It is
the material substance that is exchanged within the contract. In most sales
agreements, the consideration is the price of the product which is £500 in this
case.
Before concluding on the position of Mr.
Smith, it is important to critically analyse some of the arguments that could
be advanced negating the existence of a valid contract. The first consideration
was whether the ABC online advert was an offer or an invitation to treat. When
critically reviewed, it may be arguable on whether there has been an offer and
acceptance. This critical view can be advanced by reflecting on certain cases
that sought to distinguish between an offer and an invitation to treat. It can
be argued that advertisements are invitations to treat; not offers. This was
the distinction made in Carlill v
Carbolic Smoke Ball Co [1893] where the defendant had advertised that it
would pay £100 to any person who contracted influenza after using their balls
three times daily for three weeks[10].
After following the usage directions of the company for the three weeks, Mrs.
Carlill contracted flu and sought to claim the reward[11].
The question to be determined was whether the defendant’s advert constituted an
offer making it mandatory for them to meet their obligations once a valid
acceptance was made. The ruling in this case was that the advertisement
constituted an invitation to treat and not an offer. This example can be used
to rationalise whether ABC’s advertisements online constituted an offer or
whether it was an invitation to treat by drawing parallels between the Carlill case and Mr. Smith’s case.
In Carlill
v Carbolic Smoke Ball Co, the defendant made a blanket advertisement and
since it is not possible to make an offer to the whole world, this was presumed
to be an invitation to treat. In ABC Company’s case, the advertisement is
online; basically making it accessible to millions of internet users. The same
argument in the Carbolic case can be
advanced to ABC where one can argue that it is impossible to make an offer to
the whole world. But the ABC case has a distinction in that there is a
consideration. Carbolic did not require the users of their balls to have
purchased them hence there is no valid consideration. But in ABC’s case, there
was a consideration. This can be interpreted to mean that the offer was a
blanket offer but could be validly accepted by any person who was willing to
send the consideration required[12].
Besides, there was a clear intention to form a binding contract by the actions
of ABC Company. This is evident in them displaying terms and conditions;
including specification of the court of jurisdiction to be resorted to in case
of a dispute. Secondly, the company accepted the money from Mr. Smith. There
was an online payment system in place; implying that the company was ready to
accept the consideration and be bound to deliver as promised. These
distinctions mean that the Carbolic case cannot be used to inspire the finding
that ABC had not made an actual offer. The Mr. Smith-ABC Company scenario has
in place all the elements of a valid contract.
Considering that all the elements of the
contract are present in this case, it can be concluded that a valid contract
exists between Mr. Smith and ABC Company. ABC made an offer to sell a digital
camera to any consumer who performed the following tasks: accepted the terms
and conditions, and paid an amount of £500 to the company. By clicking on the
‘I agree’ button and sending a consideration of the price, Mr. Smith can be
said to put in a valid acceptance of the offer made by the company. Other
elements of a valid contract are also present as explained in the paragraphs
above. The legal position of Mr. Smith is therefore that of a party to a
contract who is aggrieved and legally entitled to remedies as provided for by
law after the second party (ABC) has failed to meet its obligations under the
said contract.
One of the main hurdles to Mr. Smith’s
pursuit of justice would be the absence of the terms and conditions which he
signed against prior to making the £500 payment. The company has pulled down
the document which is no longer available for viewing or scrutiny. If Mr. Smith
had printed a copy of the document beforehand or preserved it by saving it
electronically, his copy would constitute a valid reference document; unless
the defendant could prove that Mr. Smith was referring to a wrong document. But
if no such record was preserved, Mr. Smith would need to start by obtaining
court orders demanding that the company website administrators draw from their
archives and produce the document as it was at the time Mr. Smith was signing
on it. The absence of the terms and conditions is therefore not likely to be a
significant problem as the documents were electronic and recoverable even when
lost.
The court of jurisdiction will be the UK
courts. This is in spite of the contract explicitly providing that the courts
of Romania be the courts of jurisdiction. The choice of UK courts is founded on
the need to protect the weaker party and for purposes of consumer protection.
In the paragraphs below, relevant legal provisions and limitations have been
discussed in detail.
Article 3 of the EU Regulation No. 1215
of 2012 requires member states of the EU to recognise each other’s jurisdiction
in matters related to civil disputes[13].
With this requirement, countries are expected to respect the rulings of courts
from other EU member states even in cases where a substantive interpretation of
the issues at hand would have been different in the given country. The
implication of this rule is that a judgement can be entered in one country and
be enforceable across all EU member states. This gives the parties to a
contract the legal basis for executing international contracts[14].
An international contract is one where the parties come from different
countries and they present the contracting parties with a dilemma on which
jurisdiction to subject themselves to in cases of contractual disputes[15].
When left open, the court of jurisdiction can be determined based on three
criteria: the country where either of the parties is domiciled, the country
where the contract is being executed, and the country where parties to the
contract have mutually agreed as their reference for jurisdiction. The latter
element applies to the contract between Mr. Smith and ABC Company.
The court of jurisdiction can either be
provided explicitly or implicitly. Explicit expression is where it is stated
directly which jurisdiction or courts the parties will use in case of dispute[16].
The parties to the contract can choose the jurisdiction where either is
domiciled or they could select a different country that they are all
comfortable with. The court of jurisdiction is selected for a number of
purposes. Firstly, it introduces some sense of certainty about how the contract
terms will be interpreted and how it will be enforced[17].
This reduces the risk of contractual parties being uncertain on how the
contract is to be implemented or interpreted. The second reason which justifies
explicit choice of jurisdiction is the enforceability of the court rulings.
Even though the EU recognises the rulings of courts in member countries,
enforcement tends to be easiest in the same jurisdiction as the one in which
the ruling was made[18].
For instance, a ruling by a court in England is likely to be easier to enforce
within the UK than in Germany. This is due to the difficulties arising from
cross-border challenges in recognition and enforcement of laws originating
outside a given country. Even when not expressly stated, the country of jurisdiction
could be implied by the terms of the contract.
Where not explicitly stated, the choice
of court of jurisdiction could vary where two criteria could be used[19].
The first criteria would be the choice of country of domicile for either party.
Since ABC is based in Romania and Mr Smith based in the UK, the choice would be
between the UK and the Romanian courts. The area of execution of a contract
could also determine choice of the law to be applied. For instance, if a UK organisation
partnered with an American organisation to execute some business operations in
China, the choice of court of jurisdiction would be UK, USA or China with the
latter being relevant by virtue of being the location of execution of the
contract[20].
Given the flexibility and uncertainty surrounding these jurisdictions in terms
of procedures and laws applicable, it becomes prudent for the contracting
parties to include court of jurisdiction clauses[21].
The other aspect of the court of jurisdiction clause is that by may not be
exclusive.
Where the clause is exclusive, the
parties to a contract are bound to resolve any disputes in the specified
jurisdiction[22].
But where the choice is not exclusive, the parties could opt to use a different
jurisdiction in spite of it not being the one stated in the contract. This lack
of exclusiveness in the provision tends to create disputes on whether either
party to a contract should insist on the stated jurisdiction or allow to the
proceedings to be carried out in the alternative jurisdiction[23].
Cases where such conflicts arise would therefore often start with a protracted
dispute on the jurisdiction of the court before the substantive dispute can be
heard and determined. These provisions can, however, be set aside where there
is evidence that upholding them amounts to failure to provide the required
levels of consumer protection.
Articles 15-21 of Brussels 1 Regulation
specify various circumstances under which the law can be used to protect the
consumer as the weaker party in a given contract[24].
The regulations aim at voiding contract terms or conditions whose implication
is to deny the consumer the right to legal redress. In this case, the consumer
having to file for redress in a Romanian court all the way from the UK would
translate into the costs being unrealistically high. The amount spent was £500
and having to file a case in a Romanian court is likely to lead to Mr Smith
incurring more. This contract can therefore be said to have been designed in a
manner to get aggrieved consumers to forfeit their right to legal redress in
case of a conflict. The jurisdiction clause could also be set aside based on an
interpretation of article 17 of Brussels 1 Regulation which focuses on the
choice provided to the weaker party[25].
If the terms are not individually negotiated, the weaker party is seen to have
been subjected to contract terms that best suit the other party to the
contract. In the case of Mr Smith, he only clicked ‘I agree’
On the whole contract; meaning he had little
choice over choice of court of jurisdiction. For reasons explained in the
paragraph above, Mr Smith would be entitled to lodge his claim in a UK court.
However, ABC Company would have the right to seek a ruling on the jurisdiction
of the UK court before proceedings can commence.
Under normal circumstances, courts are
expected to implement their domestic laws. In this case, the UK courts will be
expected to rule based on the UK laws applicable to the contact and nature of
conflict. However, there are circumstances under which the court may be
compelled to use other laws other than its domestic laws in litigating a
matter.
It is important to be explicit on which
laws are to be used to resolve disputes in an international contract[26].
This is due to the question of conflict of laws. Depending on the explicit
legal provisions or the legal culture of a given country, a party to a contract
could be at an advantage or a disadvantage depending on the circumstances of a
case[27].
Parties to a contract will often select the jurisdiction that provides it with
the most favourable outcomes in case of a dispute; and this is what the
disadvantaged party may use to dispute the validity of the court of
jurisdiction clause in such contracts[28].
An example of conflict of laws can be drawn from France and Romania where the
Romanian law allows only for 7 days within which a party can revoke a contract
before they are bound to their contractual obligation as opposed to the French
law where one has 10days[29].
A party who exercises this right on day 9 would therefore want the matter to be
litigated in France while the aggrieved party would want to apply the Romanian
law.
Recognising the potential conflict of
these scenarios, the EU has sought to create a set of common laws that can be
applied by member states starting with the 1980 EU Regulations known as Rome I[30].
A subsequent revision was in 2008 in regulation 593/2008 which came into effect
in the EU in December 2009[31].
One of the provisions is the freedom of choice on which law is to be applied in
resolving any disputes arising from an international contract[32].
The parties to the contract can therefore make a choice and this choice must be
respected unless there is a valid cause for a given court to void the choice
made. In this contract, the intention appears that ABC Company intended to have
the Romanian law applied. But since the court of jurisdiction is in the UK, the
implication is that the UK domestic laws could be applied. Even where UK laws
were applied, the ruling could still be enforceable in Romania.
EU regulations require that rulings of
foreign courts be enforceable. In enforcing the findings of a foreign court,
the EU regulations 1215/2012 require that the EU member states apply all
measures necessary under their local laws[33].
The foreign court’s judgement is not to be subjected to a further to the
implementer’s laws unless it translates into a serious breach of public
interests or the rights of the individuals. In Romania, judgements passed by
foreign courts within the EU can be enforced without need for further review of
the substance of the cases[34].
They are only subject to a formality where the judgement and certificate of
completion needs to be filed with a Romanian court for enforcement to be done.
This is unless it can be proven that the ruling is a result of fraud in the
foreign court or that enforcing it could amount to gross violation of the
rights of the Romanian party[35]. This
latter provision could potentially be used by ABC Company to challenge certain aspects
of the ruling; arguing that enforcing a ruling based on UK law amounts to a
serious violation of their rights as Romanians. This could lead to unwarranted
delays in the implementation of the court ruling. Nevertheless, this is an
acceptable risk international disputes where a ruling is made in one country
and needs to be implemented in another country. The best possible outcome for
Mr Smith under the circumstances is for the dispute to be resolved in a UK
court and the UK domestic laws applied.
From the discussions above, the
following conclusions can be made. Firstly, there is a valid contract between
Mr Smith and the ABC Company. Even though certain arguments could be raised on
whether the online advertisement constituted a valid offer, the critical
perspectives evaluated in this paper shows that a valid contract does exist
between the two parties. Mr Smith is therefore a party to a valid contract and
is entitled to remedial action after the ABC Company failed to meet its obligations
under the contract.
Secondly, there is an explicit provision
in the contract that the contract is subject to the jurisdiction of the court
of Bucharest (Romania). This provision
can however be set aside in the interest of consumer protection. As the weaker
party in this contract, Mr Smith can be protected by invoking provisions of
Brussels 1 Regulation which prohibit application of contract terms aimed at
frustrating the consumer. For small claims such as the amount involved in this
dispute, it would be unfeasible to viably lodge a claim in a Romanian court
from the UK. The provision can therefore be said to be prohibitive and designed
to get consumers to forfeit their right to legal redress in case of a dispute.
Based on these considerations, Mr Smith would be entitled to lodge a claim in
the UK courts.
Thirdly, the law applicable would be the
UK law. Courts are allowed to apply their domestic laws in resolving disputes
and their rulings are bound to be respected even in countries where there are substantive
conflicts in the legal provisions. This is in line with the article 3 of Rome I
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[1]
European
Commission, ‘Contract Law’, (Web page) (2015) < http://ec.europa.eu/justice/contract/index_en.htm>
accessed 19 April 2016.
[2]
Luanda Hawthorne, ‘Contract
law- a Déluge of norms in search of principles: the common European sales law
and the South African Consumer Protection Act’, Studia Universitatis Babes-Bolyai. Serie: Iurisprudentia, 68/1
(2013), 60.
[3]
European Commission EC, ‘REGULATION (EU) No 1215/2012 OF THE EUROPEAN
PARLIAMENT AND OF THE COUNCIL of 12 December 2012 on jurisdiction and the
recognition and enforcement of judgments in civil and commercial matters’, EUR-LEX, (Web page) (2016)
<http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32012R1215>,
accessed 4 April 2016.
[4]
Edna Sussman and Victoria Kummer, ‘Drafting the Arbitration Clause: A Primer on
the Opportunities and the Pitfalls’, Dispute
Resolution Journal, 67/1 (2012), 32.
[5]
Ibid.
[6]
Ronald A.
Brands, ‘Recognition and Enforcement of Foreign Judgments’, (Web document)
(2015) < http://www.fjc.gov/public/pdf.nsf/lookup/brandenforce.pdf/$file/brandenforce.pdf>
accessed 19 April 2016.
[7]
Georgeta-Bianca Spîrchez , ‘The valid conclusion of the compromise/transaction
contract: special rules’, Juridical
tribune journal, 2/2 (2012), 173.
[8]
Adriana Sferle, ‘A Comparative Study of Legal Terminologies in French and
Romanian. The Translation of International Contract Law Terminologies’, Studii de Stiinta si Cultura, VIII(2
/29) (2012), 72.
[9]
Partridge v Crittenden (1968) 2 All
ER 421.
[10]
Carlill v Carbolic Smoke Ball Company
[1892] EWCA Civ 1; [1893] QB 256, [1892] EWCA Civ 1, [1893] 1 QB 256.
[11]
Lee A
Bygrave and Dan Svantesson, ‘Jurisdictional Issues and Consumer Protection in
Cyberspace: The View from “Down Under”’, (Web document) (2016) < http://folk.uio.no/lee/oldpage/articles/CLE_paper.pdf>
accessed 19 April 2016.
[12]
Tomasz
Kramer, ‘Main characteristics of EU Law Relations between EU Law and National
Legal Systems’, (Web document) (2015) < http://www.ab.gov.tr/files/EKYB/egitim_materyalleri/main_characteristics_of_eu_law.pdf>
accessed 19 April 2016.
[13]
Richard Garnett, ‘"Jurisdiction Clauses since Akai" [2013] UMelbLRS
6’, University of Melbourne Law School
Research Series, (Web page) (2016)
<http://www.austlii.edu.au/au/journals/UMelbLRS/2013/6.html>, accessed 4
April 2016.
[14] EUR-Lex, ‘REGULATION
(EC) No 593/2008 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 17 June 2008’,
(Web page) (2016) < http://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX%3A32008R0593>
accessed 19 April 2016.
[15]
Luanda Hawthorne, ‘Contract
law- a Déluge of norms in search of principles: the common European sales law
and the South African Consumer Protection Act’, Studia Universitatis Babes-Bolyai. Serie: Iurisprudentia, 68/1
(2013), 89.
[16]
Abdul Jalil, ‘Clarification of rules of acceptance in making business
contracts’, Journal of Politics and Law,
4/1 (2011), 117.
[17]
Richard Garnett, ‘"Jurisdiction Clauses since Akai" [2013] UMelbLRS
6’, University of Melbourne Law School
Research Series, (Web page) (2016)
<http://www.austlii.edu.au/au/journals/UMelbLRS/2013/6.html>, accessed 4
April 2016.
[18] Ralf Michaels, ‘Recognition
and Enforcement of Foreign Judgments’, (Web page) (2015) < http://scholarship.law.duke.edu/cgi/viewcontent.cgi?article=2699&context=faculty_scholarship>
accessed 19 April 2016.
[19]
N Ghadge, ‘E-CONTRACT LAWS WITH CONTRACTUAL FORMATION & CHALLENGES’,
International Journal of Trade & Global Business Perspectives, 3/3 (2014),
1183-1187.
[20] Ralf Michaels, ‘Recognition
and Enforcement of Foreign Judgments’, (Web page) (2015) < http://scholarship.law.duke.edu/cgi/viewcontent.cgi?article=2699&context=faculty_scholarship>
accessed 19 April 2016.
[21]
Oreste
Pollicino, ‘The New Relationship between National and the European Courts after
the Enlargement of Europe: Towards a Unitary Theory of Jurisprudential
Supranational Law?’ Yearbook of European
Law, 29/1 (2010), 65-111.
[22]
Zheng Tang, ‘Effectiveness of exclusive jurisdiction clauses in the Chinese
courts: a pragmatic study’, International
and comparative law quarterly, 61/2 (2012), 459-484.
[23]
Ibid.
[24]
Tereza
Kyselovska, ‘Protection of Weaker Parties’, (Web document) (2015) < https://is.muni.cz/do/law/47448010/47450990/47436744/Consumer_Employee.ppt>
accessed 19 April 2016.
[25]
Oreste
Pollicino, ‘The New Relationship between National and the European Courts after
the Enlargement of Europe: Towards a Unitary Theory of Jurisprudential
Supranational Law?’ Yearbook of European
Law, 29/1 (2010), 65-111.
[26]Tomasz Kramer, ‘Main
characteristics of EU Law Relations between EU Law and National Legal Systems’,
(Web document) (2015) < http://www.ab.gov.tr/files/EKYB/egitim_materyalleri/main_characteristics_of_eu_law.pdf>
accessed 19 April 2016.
[27]
Alina Oprea, ‘Article 3 § 4 of Rome I regulation on the law applicable to
contractual obligations and contracts for community’, Studia Universitatis Babes-Bolyai. Serie: Iurisprudentia, 65/3
(2010), 3-14.
[28]
Ibid.
[29]
Adriana Sferle, ‘A Comparative Study of Legal Terminologies in French and
Romanian. The Translation of International Contract Law Terminologies’, Studii de Stiinta si Cultura, VIII(2
/29) (2012), 69-80.
[30]
Francisco J. Garcimartin Alferez, ‘The Rome I regulation: exceptions to the
rule on consumer contracts and financial instruments’, Journal of Private International Law, 5/1 (2009), 85-104.
[31] EUR-Lex, ‘REGULATION
(EC) No 593/2008 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 17 June 2008’,
(Web page) (2016) < http://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX%3A32008R0593>
accessed 19 April 2016.
[32]
Ibid.
[33]
Herbert Smith, ‘England and Wales: The jurisdiction of choice The Law Society
of England and Wales’, (Web page) (2014) <http://www.eversheds.com/documents/LawSocietyEnglandAndWalesJurisdictionOfChoice.pdf>,
accessed 4 April 2016.
[34] Pinsent Masons
LLP, ‘Governing law and jurisdiction: Rome I’, (Web page) (2016) < http://www.out-law.com/topics/dispute-resolution-and-litigation/arbitration-and-international-arbitration/governing-law-and-jurisdiction-rome-i/>
accessed 19 April 2016.
[35] Teodora-Maria
Bantaş’ ‘RECOGNITION AND ENFORCEMENT IN ROMANIA OF FOREIGN JUDGMENTS PASSED IN
CIVIL AND COMMERCIAL MATTERS’, (Web document) (2016) < http://www.umk.ro/images/documente/publicatii/Buletin21/17.pdf>
accessed 19 April 2016.
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