Internet contracts and jurisdiction

Submitted by
Alasdair Taylor
on
14th July 0208

Issues of jurisdiction are important to online traders, not least because of the transnational character of many internet contracts. Private international law (also known as conflict of laws) is the legal subject concerned with jurisdictional questions – i.e. questions of where court proceedings may be brought. Private international law is international inasmuch as it is concerned with cross-border legal disputes, but – because there are no real private international courts – it must be considered from particular national perspectives.

This post is intended to introduce some of the issues of private international law in the context of internet contracts from the perspective of English law.  It is not intended to be comprehensive: it does not consider the perspectives of other countries’ courts; and it does not consider other causes of action (e.g. tort).  Indeed, because of the complexity of the law in this area, it only touches upon the main issues of English private international law relating to disputes about online contracts.  If you need specific advice on this subject, you should always speak to a suitably qualified lawyer.

The question of where court proceedings are brought is conceptually distinct from the questions of governing law (see Internet contracts and applicable law) and the enforcement of a judgment issuing from court proceedings.  In other words, proceedings may in principle be brought in one jurisdiction and a judgment issuing from those proceedings may be enforced in another.

Sources of law

The main sources of English law on this subject:

  • Council Regulation (EC) No 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (aka the Brussels Regulation).
  • The Lugano Convention on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters.
  • English common law.
  • The Civil Procedure Rules.

Applicability

The rules that the English courts will apply in considering questions of jurisdiction in relation to a contractual dispute depend upon the domicile of the defendant.

  • Contractual disputes involving a defendant domiciled in the EU will be subject to the Brussels Regulation.
  • Contractual disputes involving a defendant domiciled in the EFTA (excluding Lichtenstein) will be subject to the Lugano Convention.
  • Contractual disputes involving other defendants will be subject to the rules of English common law.

Default jurisdiction under the Regulation and Convention

Where the Brussels Regulation or the Lugano Convention applies, then the defendant may usually only be sued in: (a) the courts of his domicile; or (b) in the courts of the place of performance of the obligation in question (presumed to be the place or intended place of the delivery of goods or the supply of services in a contracting state). There are however a number of exceptions to this general rule, including where:

  • the dispute is subject to a contractual jurisdiction clause;
  • the dispute concerns a contract classes as a consumer, insurance or employment contract.

I consider contractual jurisdiction clauses below; such clauses aside, the most important exception relates to consumers.

Under the Regulation and Convention a consumer contract is subject to special rules where: “(a) it is a contract for the sale of goods on instalment credit terms; or (b) it is a contract for a loan repayable by instalments, or for any other form of credit, made to finance the sale of goods; or (c) 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 to that Member State or to several States including that Member State, and the contract falls within the scope of such activities.” (Article 15(1), Brussels Regulation; there is a parallel provision in the Lugano Convention).

Irrespective of contractual jurisdiction clauses, consumers under such contracts can sue, and can only be sued, in the state of their domicile (generally speaking). But when does a person pursue “commercial or professional activities” in a particular Member State?  When does a person by “any means” direct “commercial or professional activities” to a Member State or to “several States including that Member State”?  The answers to these questions are not at all clear. A website published by a UK publisher in Italian and advertised in Italian media selling goods in Euros may obviously be considered to be directed at Italy.  On the other hand, a website published by an Italian publisher in Italian and not marketed in any way in the UK selling goods in Euros would probably not be considered to be directed at the UK.  (Note, however, that there are different interpretations of Article 15.)

Ways to reduce the risk of becoming subject, under the Regulation or Convention, to the jurisdiction of a particular country’s courts, may include: using national flags to indicate to whom a website is directed; limiting the currencies and languages used on a website; and using technical filtering to prevent consumers in the relevant jurisdiction from using the website or purchasing the products and services offered on the website.

Common law

Where an English claimant wants to bring proceedings against a person domiciled overseas in a non-EU, non-EFTA jurisdiction, the usual method is to obtain permission to serve proceedings out of the jurisdiction (there are other ways). In order to obtain permission to serve out, the claimant wishing to bring proceedings for breach of contract will need show, first, that the claim is permissible under the Civil Procedure Rules.  Rule 6.20(5) provides: “…a claim form may be served out of the jurisdiction with the permission of the court if … a claim is made in respect of a contract where the contract – (5) (a) was made within the jurisdiction; (b) was made by or through an agent trading or residing within the jurisdiction; (c) is governed by English law; or (d) contains a term to the effect that the court shall have jurisdiction to determine any claim in respect of the contract. (6) a claim is made in respect of a breach of contract committed within the jurisdiction.” Many contractual claims will be able to surmount this hurdle. 

In an internet context, of course, the questions of where a contract was made, and where it was breached, may be contentious. Second, the claimant will have to show that England and Wales is the proper place to bring the claim (i.e. the forum conveniens).  This involves balancing the suitability of England and Wales against the suitability of the other potential forum or forums.  Consequently, the English courts will usually have more discretion to refuse jurisdiction in the case of a defendant domiciled outside Europe.

Choice of jurisdiction

In a contractual dispute it is common for the parties to have elected for disputes to be subject to the jurisdiction of the courts of a particular state. The parties to a B2B contract are generally free to choose in which jurisdiction a dispute may be litigated (although there are a few exceptions). Where the Brussels Regulation or Lugano Convention applies, consumer contracts (as defined in the Regulation and the Convention) are different.  Under the Regulation and the Convention, jurisdiction clauses can only add to consumers’ rights to litigate, not subtract from them.  So, if a consumer has a right to bring proceedings against a supplier under the rules discussed above, that right cannot be removed by means of a contractual jurisdiction clause.  Similarly, where a supplier is obliged to bring proceedings against a consumer in the consumer’s jurisdiction of domicile, then that obligation cannot be altered by a choice of jurisdiction clause.

Comments

Hi.

I am a lawyer by profession in India. I was going through this interesting article about internet contracts and jurisdiction.

This topic still has too many unanswered questions which make the companies think twice before entering into the agreements with the foreign companies. The companies remain skeptical about their payments as they fear that they would not be having any effective tool of recovering their money.

I will quote an example in support of the above:

A U.K. based company enters into an agreement with a U.S. based company for providing some web design services to the U.S. Company.

The agreement contains a clause inter alia among other clauses that the laws and jurisdiction will be of U.K. and in the event of any dispute between the parties, the courts of U.K. shall have exclusive jurisdiction.

The agreement is entered into between the parties through the exchange of emails with the the scanned copy of the signed agreement as an attachment.

The services in accordance with the agreement is provided by the U.K. company but the U.S. Company refuses to make the payment.

Now even if the U.K. company files a case in the U.K. Courts and the Defendant chooses not to appear in the proceedings, what remedy will the U.K. company have except for initiating the enforcement of the judgment in the U.S. subsequent to acquiring judgment in the U.K. Courts that also if the U.S. Courts accept the judgment passed by the U.K. Courts.

The amount of money the U.K. company will spend in the entire process will be enormous and this entire process acts as a deterrent for the small companies.

one more question – in this event as the agreement was exchanged through emails so how the question (the place where the agreement was made or entered into) about the place of the agreement will be decided.

Response to this would be highly appreciated.
Thanks and Regards.

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