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. Firstly, there
needs to be an offer and acceptance[1].
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[2].
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[3]. 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[4].
It is the intention by both parties to be held to account to ensure that they
play their role under the contract. 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[5].
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[6].
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[7].
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[8].
After following the usage directions of the company for the three weeks, Mrs.
Carlill contracted flu and sought to claim the reward. 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. 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.
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[9].
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. 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[10].
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[11].
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[12].
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. 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 directly stated, the choice
of court of jurisdiction could vary where two criteria could be used[13].
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. 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. 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[14].
This is irrespective of the circumstances of the case. 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[15].
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.
A party to the contract may seek to
challenge the choice of court of jurisdiction if they believe that it unfairly
protects the rights of one party against the interest of other parties[16].
In the case of Mr. Smith, the ABC Company is seen to have already determined
that the jurisdiction of choice would be Romania. The other parties to the
contract are restricted to either agree or reject the offer entirely. The fact
that this is spelt out as a condition of the contract means that the
interpretation is clear. Mr. Smith would have few options but to subject
himself to the Romanian jurisdiction in seeking remedy for breach of contract
by ABC Company.
In the event that Mr. Smith opts to seek
action in an English court, the defendant (ABC Company) would have the right to
demand a stay of proceedings until the court can determine whether it has the
jurisdiction to preside over the dispute. Mr. Smith may have the option of
invoking some of the factors that can be used to limit the applicability of the
exclusive jurisdiction clause. One of this is in the event that subjecting
oneself to a different court’s jurisdiction substantially erodes the rights of
a consumer[17].
For instance, for a UK citizen to institute legal proceedings in Romania, this
would constitute incurring high costs in terms of getting legal representation
or even making trips to attend court proceedings. These factors could be used
to argue to convince an English court to nullify the express court of
jurisdiction clause. However, the general practice is that courts within EU
member states tend to respect the exclusive jurisdiction clause; hence this is
expected to apply. Mr. Smith would therefore need to file for remedies in a
Romanian court in spite of him being in the UK.
It is important to be explicit on which
laws are to be used to resolve disputes in an international contract. 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[18].
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. 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[19].
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[20].
A subsequent revision was in 2008 in regulation 593/2008 which came into effect
in the EU in December 2009. 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[21].
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 case, Mr Smith consented to the condition which has a choice of
Romanian jurisdiction. The presumption is that the court would apply the
domestic law in the country in which it operations, hence the laws of Romania
would apply in interpreting the contract.
The ‘caveat emptor’ or buyer beware
provision requires the buyer to apprise themselves with circumstances
surrounding the purchase of a given product[22].
In this case, the presence of an exclusive provision that the Romanian
jurisdiction would be applicable ought to have prompted Mr Smith to apprise
himself with the relevant law and determine whether or not he would be at a
disadvantage if a dispute arose. The presumption is that by the time of signing
the contract (by clicking on the ‘I agree’ button), he’d have been comfortable
with the Romanian law being used to resolve any dispute.
This brings the question on whether the
findings of the court of Romania would be enforceable even if there was a
conflict in the explicit legal provisions. To begin with, the English common
law tends to be the basis for contract laws in most jurisdictions[23].
This means that there is unlikely to be any major conflicts in terms of the
legal provisions. For instance, the Romanian law outlines the same seven
elements of a valid contract as the common law with differences being very
slight with reference to interpretation. But even if there were any major
differences in the substantive law being applied, the UK would be obligated to
enforce the judgement of the Romanian court.
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[24].
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 this case, it is unlikely that
the situation of Mr Smith would be seriously comprised given that the law of
contract tends to be quite similar across the EU. Secondly, Mr Smith
voluntarily subjected himself to the jurisdiction of the Romanian law. The
Romanian law is therefore likely to apply in any legal proceeding instituted by
Mr Smith.
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). Given that both
parties have willingly consented to this (by virtue of Mr Smith agreeing to the
contract terms unconditionally), any subsequent disputes would have to be
sought under the mentioned courts. Mr Smith could have an option of challenging
the express court of jurisdiction clause if he could demonstrate that being
subjected to such jurisdiction could substantially impede on their rights and
interests as a UK citizen. However, any case filed in a UK court would have to
be subjected to a process of determination of the legal authority of the UK
court in presiding over the dispute.
Thirdly, the law applicable would be the
Romanian 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 resolutions.
ALFEREZ, FRANCISCO J. GARCIMARTIN, ‘The Rome I
regulation: exceptions to the rule on consumer contracts and financial
instruments’, Journal of Private International Law, 5/1 (2009), 85-104
Carlill v Carbolic Smoke Ball Company [1892] EWCA
Civ 1; [1893] QB 256, [1892] EWCA Civ 1, [1893] 1 QB 256
CUC, VLAD, ‘Contracts in Romania’, (Web document)
(2016) Enescu & Cu (Web page) (2016) <http://www.romanianlawoffice.com/contracts-agreements-romania.htm>,
accessed 4 April 2016
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
GARNETT, RICHARD, ‘"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
GHADGE, N, ‘E-CONTRACT LAWS WITH CONTRACTUAL
FORMATION & CHALLENGES’, International Journal of Trade & Global
Business Perspectives, 3/3 (2014), 1183-1187
HAWTHORNE, LUANDA ,
‘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), 59-90
JALIL, ABDUL, ‘Clarification of rules of acceptance
in making business contracts’, Journal of Politics and Law, 4/1 (2011), 109-123
Mauritius Commercial Bank Ltd v Hestia Holdings Ltd
and Another [2013] EWHC 1328
OPREA, ALINA, ‘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
Partridge v Crittenden (1968) 2 All ER 421
SCHWARTZ, JULIA K., ‘"Super contracts":
invoking aiding-and-abetting jurisdiction to hold foreign nonparties in
contempt of court’, University of Chicago Law Review, 80/4 (2013), 1961-2004
SFERLE, ADRIANA, ‘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
SMITH, HERBERT, ‘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
SMITH, HERBERT, ‘Jurisdiction clauses: the need to
be clear’, (Web page) (2012)
<http://www.herbertsmithfreehills.com/-/media/HS/SIBAJ3005124.pdf>,
accessed 4 April 2016
SPÎRCHEZ, GEORGETA-BIANCA, ‘The valid conclusion of
the compromise/transaction contract: special rules’, Juridical tribune journal,
2/2 (2012), 172-185
SUSSMAN, EDNA and KUMMER, VICTORIA, ‘Drafting the
Arbitration Clause: A Primer on the Opportunities and the Pitfalls’, Dispute
Resolution Journal, 67/1 (2012), 30-38
TANG, ZHENG, ‘Effectiveness of exclusive
jurisdiction clauses in the Chinese courts: a pragmatic study’, International
and comparative law quarterly, 61/2 (2012), 459-484
THE EUROPEAN COMMISSION ROMANIA, ‘The law of cross-border
contracts’, (Web document) (2016)
<http://www.eccromania.ro/media/pdf/11.Applicable_Law_Crossborder_Contracts.pdf>,
accessed 4 April 2016
[1]
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.
[2]
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.
[3]
Edna Sussman and Victoria Kummer, ‘Drafting the Arbitration Clause: A Primer on
the Opportunities and the Pitfalls’, Dispute
Resolution Journal, 67/1 (2012), 32.
[4] Ibid.
[5]
Georgeta-Bianca Spîrchez , ‘The valid conclusion of the compromise/transaction
contract: special rules’, Juridical
tribune journal, 2/2 (2012), 173.
[6]
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.
[7] Partridge v Crittenden (1968) 2 All ER
421.
[8] Carlill v Carbolic Smoke Ball Company
[1892] EWCA Civ 1; [1893] QB 256, [1892] EWCA Civ 1, [1893] 1 QB 256.
[9]
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.
[10]
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.
[11]
Abdul Jalil, ‘Clarification of rules of acceptance in making business
contracts’, Journal of Politics and Law,
4/1 (2011), 117.
[12]
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.
[13] N
Ghadge, ‘E-CONTRACT LAWS WITH CONTRACTUAL FORMATION & CHALLENGES’,
International Journal of Trade & Global Business Perspectives, 3/3 (2014),
1183-1187.
[14]
Zheng Tang, ‘Effectiveness of exclusive jurisdiction clauses in the Chinese
courts: a pragmatic study’, International
and comparative law quarterly, 61/2 (2012), 459-484.
[15] Ibid.
[16] Ibid.
[17]
Julia K. Schwartz, ‘"Super contracts": invoking aiding-and-abetting
jurisdiction to hold foreign nonparties in contempt of court’, University of Chicago Law Review, 80/4
(2013), 1961-2004.
[18]
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.
[19][19]
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.
[20]
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.
[21] Ibid.
[22]
Vlad Cuc, ‘Contracts in Romania’, (Web document) (2016) Enescu & Cu (Web page) (2016)
<http://www.romanianlawoffice.com/contracts-agreements-romania.htm>,
accessed 4 April 2016.
[23] Ibid.
[24]
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.
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