ELECTRONIC COMMERCE
II.8 Applicable law and dispute resolution
These topics are presented in this study as principal subjects of discussion in the field of electronic commerce. They were not widely discussed during the earlier stages of the development of electronic commerce, but have come into focus together with the rapid development of the use of the Internet, by consumers especially. When electronic commerce is not based on a preset contract between regular business partners, the issues of applicable law and dispute resolution contain an element of uncertainty.
Conflict of laws in the context of the Internet is very problematic, because the use of the Internet is characterised by the fact that national borders do not apply, while conflict of laws rules aim to localise legal acts and events under a particular national legal system. Therefore, notions relying on the geographical location do not always provide a practical solution to disputes which arise from the use of the Internet. As stated by Boele-Woelki in an international conference on the subject at issue “the Internet and the Savignian method, which was used as the basic point of departure when the conflict of laws rules of the EC
Convention on the Law Applicable to Contractual Obligations of 1980 were drafted, are not on an equal footing”.131
Where the choice-of-law rule relies on places as connecting factors, problems will arise where neither the contracting parties nor the goods, services or other subject-matter of a contract, may have a significant relationship with a place and no other place has been moved to for the purposes of entering into or performing a contract.132
It could nevertheless be stated, by and large, that as long as the Internet is no more than a means of communication under the sale of tangible goods, nothing or little will change. If the performance of the relevant obligation takes place offline, the existing rules of private international law referring to the place of performance of the contract remain relevant.133 Where the performance takes place online, the place of performance cannot be used as a connecting factor, but one has to resort e.g. to the location of each of the parties involved. As business relations will become more and more complex, party autonomy remains the safest method of gaining predictability in the contractual relationship.134
131 Katharine Boele-Woelki, Applicable Law in Electronic Commerce, a presentation at the 19th Annual Meeting of the Institute for World Business Law - “Forging Trust in Electronic Commerce: Law and Dispute Resolution”, Paris 1998.
132 Kronke in Internet..., p. 74.
133 Huet, p. 7.
134 Kronke in Internet..., p. 75, Naimark, p. 22.
Private international law rules in most countries135 give parties the freedom to choose the law applicable to their contractual relationship (party autonomy).
The principle of party autonomy is embedded in the 1980 Rome Convention on the Law Applicable to Contractual Obligations and the 1955 Hague Convention on the Law Applicable to International Sales of Goods (and its revision in 1986).
In an established commercial relationship, the parties may use an interchange agreement defining the obligations of the parties in respect of the data
interchange. The standard interchange agreement models contain a choice-of-law clause. If an interchange agreement does not cover the substantive aspects of the transaction136 there are two contracts between the parties, one covering the rights and obligations relating to communication and one relating to the substantive aspects of the commercial relationship. The choice-of-law clause should select a law which is sufficiently elaborate and liberal in questions of electronic
commerce.
The freedom of the parties to choose the applicable law may be limited by consumer or other mandatory legislation (jus cogens). The term ´mandatory´ has at least two meanings. Lawyers in Continental Europe may use it to denote rules which cannot be excluded or modified by contract but which may nevertheless be replaced by a choice of foreign law if the rules are not of such overriding character so as to form part of the ordre public of the forum. In this broad sense the term is used in Article 3(3) of the EC Convention on the Law Applicable to Contractual Obligations. 137 In traditional English legal language, however, the term ´mandatory´ was used to denote rules of such a compelling character that they will be considered to apply even to a contract which is otherwise governed by foreign law, and a choice-of-law clause cannot be used to evade them.138 Article 7 of the same Convention uses the term mandatory in this sense. Article 7 applies in the international context, and involves provisions to which the state attaches such importance that it requires them to be applied whenever there is a connection between the legal situation and its territory, whatever law is
otherwise applicable to the contract.139
135 General restrictions in this respect have prevailed in the legislation of Latin American countries.
136 American Trading Partner Agreements do this.
137 Article 3(1) of the EC Convention provides that “a contract shall be governed by the law chosen by the parties. The choice must be expressed or demonstrated with reasonable certainty 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 a part only of the contract”.
Moreover, article 3(3) provides that “the fact that the parties have chosen a foreign law, whether or not accompanied by the choice of a foreign tribunal, shall not, where all the other elements relevant to the situation at the time of the choice are connected with one country only, prejudice the application of rules of the law of that country which cannot be derogated from by contract, ... (the) ´mandatory rules´”.
138 Goode, Commercial Law, p. 920.
139 These laws are often called ´overriding´ or ´lois d´application nécessaire´. Typical examples of such laws are foreign exchange regulations, import-export licences or competition laws.
See the Green Paper on the conversion of the Rome Convention of 1980 on the law applicable to contractual obligations into a Community instrument and its modernisation, Brussels 14.1.2003, COM (2002) 654 final, pp. 32-34. See also the Inter-American Convention on the Law Applicable to International Contracts, Art. 11.
Special attention should be paid to choice-of-law clauses in standard form contracts which parties incorporate by reference since a court may treat the incorporation as invalid. The parties´ express choice should be a result of a safeguarded and properly documented process.
If there is no choice of law done by the parties, it is even much more difficult to determine the law applicable to the contract by choosing the determining connecting factors. The same problems exist in determining the scope of the CISG to see when a contract of sale is to be regarded as international within the meaning of the Convention.140
Conflict of laws in the context of electronic commerce is often approached in legal literature from a consumer law point of view. This is because a mandatory law element usually exists in consumer law. In the international sale of goods from business to business, however, there are fewer mandatory requirements. On the other hand, a multitude of conflict of laws issues exists.
In this study, conflict of laws situations may relate to the contract of sale, to the contract of transport, to the contractual relationships involved in
documentary credit or contract guarantee operations as well as to the dispute settlement. It would not be very easy to try to give a comprehensive general account of all conflict of laws in relation to the international sale of goods in the context of electronic commerce. However, as the various contracts may
eventually be linked to one another by being concluded through or evidenced by storing information in a general electronic trading platform such as that provided by the Bolero System, it is worth noting that a variety of national laws will coexist in the system. This is not only because various contracts or contractual
relationships are governed by different laws, but also because different aspects of an individual contractual relationship may be governed by different laws.
This severability, the contractual splitting up on an issue-by-issue basis is generally referred to by the French term dépeçage. In international trade, dépeçage is in some cases unavoidable. For instance, a multimodal transport contract incorporates a number of transport mode specific laws, which apply mandatorily to the period the goods remain under an individual mode of transport. However, the traditional private international law of many countries does not necessarily admit depeçage, although the 1980 EC Convention on the Law Applicable to Contractual Obligations now expressly admits it. National courts of the
convention states are bound to follow this rule. The more complicated the legal structures of international trade become, the more laws are in principle involved.
This problem can be tackled by choice-of-law clauses, but is one of the reasons why uniformity of regulation should be sought by legal harmonisation or by contractual means. The parties can largely opt for their own legal rules among the increasing number of lex mercatoria instruments.
Due to the absence of uniform laws for electronic transactions in the field of trade and transport establishing electronic bill of lading systems, the desired results will have to be achieved through contractual arrangements such as the
140 For this question, see Chapter X, post.
Bolero Rulebook. Such arrangements may be based on a single national law.
However, as they touch upon fields that are subject to mandatory national legislation, at least parts of the transactions may have to be governed by the law applicable to the system as well as by relevant national laws.
It is, however, worthwhile to note the efforts that have been made in the European Union to tackle this issue. It has been recognised that the EC
Convention on the Law Applicable to Contractual Obligations signed in Rome in 1980 is in need of revision. The European Commission has recently published a Green Paper inviting interested parties to express their opinion on this
Convention very often referred to as ´Rome I´.141
It is presumed that the majority of private law issues relating to electronic commerce are contractual rather than non-contractual. It could be presumed that some issues relating to liability in tort might arise, for example, in connection with third party service providers and in transport law in cases where no contractual relationship exists. It is worthwhile to mention attempts to reach Rome II, which is not Constantinople, nor even on the threshold of the EU´s future enlargement, but a potential legislative instrument relating to law applicable to non-contractual liability.142
The law of tort is traditionally one of the applications of the lex loci delicti commissi or the law of the country with the most significant relationship to the event.143 Liability in tort is also a matter of jurisdiction, because a harmful effect may arise in country A while the negligence took place and the damage was thereby caused in country B.144 This study will largely have to omit questions relating to non-contractual liability.
Disputes arising from electronic commerce can be settled, in principle, by similar means as other disputes, although the use of evidence in electronic form may require its recognition by the relevant jurisdiction and is technically more demanding. Disputes between commercial partners may be settled, in addition to more amicable means, including conciliation and Alternative Dispute Resolution (ADR), by litigation or by arbitration. In consumer contracts, however, arbitration is usually more or less out of the question, except in the United States. In parallel with the principle of party autonomy in private contract law, parties may agree on an exclusive jurisdiction145 or arbitration clause. As regards consumer
141 Green Paper on the conversion of the Rome Convention of 1980 on the law applicable to contractual obligations into a Community instrument and its modernisation, COM (2002) 654 final, 14.1.2003.
142 See the Proposal for a Regulation of the European Parliament and the Council on the Law Applicable to Non-contractual Obligations (“Rome II”), Brussels 22.7.2003, COM (2003) 427 final. When the Amsterdam Treaty came into force in 1999, cooperation in civil matters was transferred under the Community method meaning, in a nutshell, the Commission´s initiative monopoly, (in this case) codecision procedure, and a binding nature of the successful outcome.
143 Kronke in Internet..., pp. 67-68.
144 Council Regulation (EC) No 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgements in civil and commercial matters, OJ L 12, 16.1.2001, p. 1.
145 See Chapter VI of the Convention on Jurisdiction and the Enforcement of Judgements in Civil and Commercial Matters signed in Brussels 1968 (revised 1999).
contracts concluded through electronic means, there is a tendency in the EU to see that ´consumer confidence´ on electronic commerce should be particularly boosted by efficient out-of-court settlement procedures.146
Questions relating to the dispute settlement in electronic commerce and the use of electronic dispute settlement mechanisms will be examined in greater detail in Chapter IX, post. That chapter is written particularly with a view to resolving disputes relating to letters of credit and predominantly “documentary”
in nature, but most of what is said applies to all commercial disputes. As will be seen, the treatment will be greatly biased towards commercial arbitration. The main reason is the need to focus this study on international and formalistic issues and the capability of arbitration to shape non-state rules of law.
Litigation is based generally on national procedural rules. Out-of-court dispute settlement systems other than arbitration are less formalistic, at least in the mandatory sense of viewing them. Although arbitration is formalistic, the rules applicable to it often allow dispensing with an oral hearing, which makes it possible to “delocalise” the dispute settlement. Arbitrators can, in certain
situations, apply other legal rules than state law to determine a contractual dispute. Therefore it is interesting also as a means of shaping new legal rules for electronic commerce.