Internet law: EU legal Framework

In an effort to provide certainty for parties entering into cross-border contracts, an EU legal framework has been developed to determine the governing law and jurisdiction which will apply to contracts where at least one party is based in an EU Member State.

Fundamental principle:

The parties are (subject to specific exceptions) free to choose the law and jurisdiction which will apply to their contract.

'Recast' Brussels Regulation (EU 1215/2012) replaced the Regulation EC NO.44/2011 that replaced the 1968 Brussel Convention

Rome I (EC 593/2008)

Rome II (EC 864/2007)

JURISDICTION
'Recast' Brussels Regulation (EU 1215/2012)

TRANSITIONAL PROVISIONS

Article 66

1. This Regulation shall apply only to legal proceedings instituted,  to authentic instruments formally drawn up or registered and to court settlements approved or concluded on or after 10 January 2015.

2. Notwithstanding Article 80, Regulation (EC) No 44/2001 shall continue to apply to judgments given in legal proceedings instituted, to authentic instruments formally drawn up or registered and to court settlements approved or concluded before 10 January 2015 which fall within the scope of that Regulation.

KEY POINTS

•       The regulation applies in civil and commercial matters.

•       It does not apply, to family law, bankruptcy, inheritance questions and other specific matters listed in the regulation (i.e social security or arbitration).

GENERAL PROVISIONS (art 4)

A) DEFENDANT DOMICILES IN A MEMBER STATE

“Subject to this regulation, persons domiciled in a Member State shall, whatever their nationality, be sued in the courts of that Member State.”

(Company’s domicile: statutory seat or central administration or principal place of business)

B) DEFENDANT NOT DOMICILED IN A MEMBER STATE

The jurisdiction of the courts of each Member State shall be determined by the law of that Member State.

However, certain rules of jurisdiction apply, regardless of the defendant’s domicile, in order:

•       to ensure that consumers and employees are protected,

•       to safeguard the jurisdiction of the courts of EU countries when they have exclusive jurisdiction (e.g. in the case of real estate), and

•       to respect the autonomy of the parties.

SPECIAL PROVISIONS (Art.7-9)

(Exceptions to the general provisions)

In many commercial disputes the Claimant has the option of litigating not only in the Member State(s) where the Defendant is domiciled, but also in one connected to the subject matter of the dispute.

CONTRACTUAL CLAIM - Art 7(1)

(excluding insurance, consumers contracts, employment contracts)

May be tried in the courts of the place of performance of the obligation(s) in question;

•       sale of goods: where, under the contract, the goods were delivered (or should have been…);

•       provision of services: where, under the contract, the services were provided (or should have been…)

Problems for MULTIPLE PLACES OF DELIVERY (provision of services)

Different obligations = different places

(One court for each obligations / the court of the principal obligation)

•       + places in a single Member State, the place of delivery must have the closest linking factor between the contract and the court (general rule the place of the principal delivery)

•       + places in different Member States: Advocate’s General Opinion: no application of the art.7.1.b, therefore art 4 general rule (domicile of the defendant).

Color Drack GmbH V Lexx International Vertriebs GmbH,

Wood Floor Solution V Silva Trade SA

Internet related disputes? Sale of goods? provision of services? physical goods-services/digitised goods-services?

•       Digital books

•       Software transferred on-line

•       Financial services

•       On-line newspapers

Place of delivery in cyberspace? (dispatch, receipt) depending on the characteristics of the transaction

DISPUTES RELATING TO NEGLIGENCE OR OTHER TORTS (Art. 7.2)

May be tried where the harmful event occurred or may occur

Case: Peter Pinckney v KDG Mediatech AG

CLAIM FOR DAMAGES (Art 7 (3)

(based on an act giving rise to criminal proceedings)

In the court seised of those proceedings, to the extent that such court has jurisdiction under its own law to entertain civil proceedings;

(other…)

CONSUMERS (Art 17-19)

“Consumer” a person acting for a “purpose which can be regarded as being outside his trade or profession”.

The Regulation determines jurisdiction in proceeding concerning a contract concluded by a consumer in the following cases:

•       a contract for the sale of goods on instalment credit terms;

•       a contract for a loan repayable by instalments or any other for of credit, made to finance a sale of goods 

•       in all other cases the contract has been concluded with a person who pursues commercial or professional activities in the Member State of the consumer’s domicile or, by any means, directs such activities (also) to that Member State and the contract falls within the scope of such activities.

CONSUMERS – OTHER PARTY’S PLACE OF BUSINESS

If the consumer enter into a contract with a party who has not commercial activity in a Member State but has a branch, agency or other establishment in one of the Member States, that party will be deemed as domiciled in that State.

CONSUMERS - COURT (Art.18)

Proceedings brought by a consumer: either in the court of the Member State  in which the party is domiciled or in the courts where the consumer is domiciled.

Proceedings brought against a consumer: only in the courts of the Member State where is domiciled.

EXCEPTIONS (Art.19)

The rules under Art 18 may be departed only by an agreement:

•       entered into after the dispute has arisen;

•       which allows the consumer to bring the proceeding in courts other that those indicated in the section 18

•       both parties are domiciled or habitually resident in the same Member State and the agreement confers jurisdiction to that Member State, provided that it is not contrary to the law of that Member State.

CHOICE OF COURT (Art.25)

The law improves the effectiveness of choice of court agreements where the parties have designated a particular court or courts to resolve their dispute.

It gives priority to the chosen court to decide on its jurisdiction, regardless of whether it is first or second seised. Any other court has to suspend proceedings until the chosen court has established or - where the agreement is invalid - declined jurisdiction. (art 31,1-2)

THE “EXCLUSIVE CLAUSE” (ART 25):

All disputes between the parties arising out of the agreement must be referred to a named court or courts of a named country. (let’s read together)

Pay attention, please:

“REGARDLESS OF THEIR DOMICILE”: BOTH PARTIES COULD BE DOMICILED IN A NO MEMBER COUNTRY.

AGREEMENT’S FORM

•       in writing or evidenced in writing;

•       form which accords with practices established by the parties;

•       in international trade or commerce, in a form which accords with a usage of which the parties are aware  (or ought to have been aware). Usage knows and observed.

ELECTRONIC AGREEMENT’S FORM

In writing: art.25,2  also “communication by electronic means which provides for durable record of the agreement”

-          agreements exchanged as a secured word document (read-only document or with a code password)

-          concluded by email

-          clicking “I agree” button

ELECTRONIC AGREEMENT’S FORM

•       AVAILABLE

•       READ

•       DOWNLOAD

•       REPRINT

Please, pay attention:

The exclusive clause in a “clickwrap” (part of the installation package) software licence is deemed valid

WHICH JURISDICTION CHOOSE?

•       Convenience: You may well want to sue or be sued in the country in which you are based.

•       Preferred judicial system: Civil litigation systems vary widely and some systems are recognised as being preferable to others depending on whether you are a claimant or defendant. For example, if you are the party most likely to sue (e.g. a purchaser or lender) then you will want any dispute to be heard in a jurisdiction which has an efficient judicial system and offers a good range of interim and final remedies.

WHICH JURISDICTION TO CHOOSE?

•       Enforcement: The State in which any judgment is obtained will affect how easily it can be enforced.

The commercial worth of a judgment depends on its enforceability and the location of the defendant's assets needs to be taken into account. For example, while an English judgment can be easily enforced against assets located in the UK and elsewhere in EU, more difficulty may be encountered in another continent.

CONSENSUS

Particular care should be exercised when relying on standard terms and if your counterparty is domiciled in the EU as Article 25 of the Brussels Regulation requires consensus to the jurisdiction clause. If seeking to rely on the jurisdiction clause, you should ensure that the counterparty's attention is drawn to the clause and choice of jurisdiction.

GOVERNING LAW

“Rome I Regulation” (EC 593/2008): Regulation of the European Parliament and the Council on the Law Applicable to Contractual Obligations.

Replaced Rome Convention 1980 in Member States to which Rome Convention 1980 does not apply.

Contracts concluded after 17 December 2009.

Rome I Regulation

•       The basic rule of Rome Convention 1980 has been preserved: in the absence of party choice the governing law is the law of the place where the party which has to perform the main obligations of the contract is normally resident.

•       Rome I converts the existing presumptions into a fixed rule.

•       In order for Rome I to apply, the parties need not have any EU connection – all that is required is that the case is raised in a relevant court which raises a choice of law issue in subject matter that falls within the regulation. Any law may be specified as the applicable law of the contract, whether or not it is the law of an EU member state.

•       Rome I applies to "contractual obligations in civil and commercial matters". The term 'contractual obligation' is not defined, and care must be taken about whether a claim is one made in tort (to which Rome II will apply) or one made in contract. Some claims which are regarded as torts in English law may be regarded as contract claims for the purpose of the two regulations.

MATTERS EXPRESSLY EXCLUDED

•       revenue, customs and administrative matters;

•       questions involving people's status or legal capacity;

•       obligations arising out of family relationships;

•       obligations concerning matrimonial property;

•       obligations arising under bills of exchange, cheques and promissory notes;

•       arbitration agreements and agreements on choice of court;

•       issues governed by company law – for example registration, legal capacity, internal organisation, winding-up or personal liability;

•       disputes relating to trusts;

•       obligations arising out of dealings before the contract was finalised;

•       insurance contracts.

•       In addition Rome I does not apply to matters of evidence and procedure. These are governed exclusively by the law of the court hearing the claim, regardless of the law which applies to the substantive issues.

Rome I Regulation

Key rules:

The parties’ choice of law

Absence of choice

The parties’ choice of law

Article 3 - Freedom of choice

1. A contract shall be governed by the law chosen by the parties. The choice shall be made expressly or clearly demonstrated by the terms of the contract or the circumstances of the case. By their choice the parties can select the law applicable to the whole or to part only of the contract.

a)      Expressly

or

b) clearly demonstrated by the terms of the agreement or the circumstances of the case.

1. To the whole contract

or

2. To part only of the contract (“splitting the applicable law”)

-          Different aspects of the same obligation/different laws

-          Different terms of one contract/different laws

-          Different groups of obligations/different laws

-          The obligations of each party/different laws

-          Requirement of form? (Art. 11)

-          1. A contract concluded between persons who, or whose agents, are in the same country at the time of its conclusion is formally valid if it satisfies the formal requirements of the law which governs it in substance under this Regulation or of the law of the country where it is concluded.

Requirement of form? (Art. 11)

2. A contract concluded between persons who, or whose agents, are in different countries at the time of its conclusion is formally valid if it satisfies the formal requirements

        I)            of the law which governs it in substance under this Regulation, or

      II)            of the law of either of the countries where either of the parties or their agent is present at the time of conclusion, or

    III)            of the law of the country where either of the parties had his habitual residence at that time.

   IV)            Requirement of form? (Art. 11)

     V)            WHAT ABOUT ELECTRONIC MEANS??

   VI)            The  “functional equivalence principle” to an agreement concerning the governing law

 VII)            Is NOT recognized

VIII)            (…notwithstanding the Recital 40”)

Limitations

Generally, in all legal systems, the parties’ choice of law for a contract, and especially for a consumer contract has limitations. (i.e in the US, the law chosen must have a substantial relationship with the contract).  In Europe and US jurisdiction, the application of a law can be rejected if it is in conflict with some important provisions of such jurisdiction.

Art. 9(2) and (3) of Rome I states that nothing in the regulation shall restrict the application of the overriding mandatory rules of the law of the forum.

“Overriding mandatory provisions” are provisions the respect for which is regarded as crucial by a country for safeguarding its public interests, such as its political, social or economic organisation (i.e. poligamy in some countries)

Along with these rules, the overriding mandatory provisions of the law of the country may also be give effect where the obligations arising out of the contract have to be or have been performed, when those overriding mandatory provisions render the performance of the contract unlawful.

Moreover, in certain instances, the law of the consumers’ habitual residence also has relevance.

According to Art. 6(2), the parties may not “lower” the level of consumer protection the consumer would have in the absence of such a choice.

Absence of choice

Art. 4(1)(a) - Rules applicable to specific contracts:

Sale of good: the law of the habitual residence of the seller should be applied;

Provision of services: the law of the country where the provider has his habitual residence;

Franchising: the law of the cuntry where the franchisee has his habitual residence;

Distribution: where the dostributor has his habitual residence.

Immovable property: the law of the country where the property is located is applied, except in the cases of temporary and private tenancy (maximum six consecutive months). In such cases the applicable law is that of the landlord’s country of residence.

Sale of goods by auction: the law of the country of the auction will apply.

With regard to certain financial instruments governed by a single law, the applicable law will be that law.

Contracts for the carriage of goods:  the law of the country of residence of the carrier, provided that this is also the place of receipt or delivery, or the residence of the consignor.

Otherwise, the law of the country to which the delivery will be made will apply

Contracts for the carriage of passengers: the law of the country of residence of the passenger will apply, provided that it is also the place of departure or destination. Yet, if the contract is more closely related to another country, then the law of that country will apply

Insurance contracts: the law of the country of residence of the insurer.

However, if the contract is more closely related to another country, that country’s law will apply

Individual employment contracts: The applicable law may be determined on the basis of the freedom of choice principle, provided that the level of protection granted to the employee remains the same as with the applicable law in the absence of choice.

In the latter case, the law governing the contract will be that of the country where, or from where, the employee carries out his/her tasks. If this cannot be determined, the applicable law will be that of the country where the place of business is located. However, if the contract is more closely related to another country, that country’s law will apply.  (Art 6(2)(a) Rome Convention [C-29/10 Koelzsch V Etat du Grand Duche de Luxembourg)]

Consumer contracts (B2C)

The law of the country of residence of the consumer, provided that this is also the country where the professional carries out his/her activities or to which his/her activities are directed.

The parties may also, based on freedom of choice, apply another law, as long as it provides the same level of protection to the consumer as that of his/her country of residence. (limits the choice)

“directed activity”

Has to be interpreted, taking into consideration all circumstances of the case (the targeted activity test).  In the test, anything may have relevance: the offer on the website, shipping conditions, the e-mails the parties sent each other, etc

Contract for download software

The law applicable to contracts for downloading software, music and films over the Internet is generally the law of the country where the consumer has his/her habitual residence, provided that is the location of the download process and that the site presents a request to conclude a contract.

A passive website through which concluding a contract is

not possible, cannot be considered to be activity in that country