CONSUMER PROTECTION ISSUES UNDER BRUSSELS CONVENTION ON JURISDICTION
The Brussels convention began when the high contracting parties in European countries decided to create a treaty in establishing the European Economic Community (EEC) to strengthen the economic jurisdiction within Europe’s scope. The occasion occurred in 27th of September 1968. The preamble of the convention states that its purpose is to implement the provisions of Article 220 of that Treaty by virtue of which they undertook to secure the simplification of formalities governing the reciprocal recognition and enforcement of judgments of courts or tribunals. It also has the objective of strengthening in the community the legal protection of persons therein established to facilitate recognition and to introduce an expeditious procedure for securing the enforcement of judgments, authentic instruments and court settlements (Court of Justice of the European Community, 2001). The Brussels Convention sets the basic legal framework for jurisdiction in disputes between litigants-that is, in which court the case will be heard- and in certain cases allows the consumer to take legal action at home when he is in dispute with a trader in another EU member State. Court action is usually a last resort, particularly in the consumer field, and is rare in cross border cases.
In Article 1, it has been written that the convention shall apply in civil and commercial matters whatever the nature of the court or tribunal. It shall not extend, in particular, to revenue, customs or administrative matters. The convention shall not apply to the status or legal capacity of natural persons, rights in property arising out of a matrimonial relationship, wills and succession; bankruptcy, proceedings relating to the winding-up of insolvent companies or other legal persons, judicial arrangements, compositions and analogous proceedings; social security; and arbitration (CJEC, 2001). The convention has created many international policies including the protection of consumers within Europe, which this paper specifically tackles.
Graham (1999) states that the national legal systems have a dual regime in regard to jurisdiction. If the defendant is domiciled or if the obligation is performed in the EC, one has to refer to the Brussels Convention. In the other cases, the judge applies its national jurisdiction rules. He further states that the basic principle of the Brussels Convention is that only the forum domicilii has jurisdiction to adjudicate. However, the Convention provides some limited exceptions. One of these is article 13 that allows the court of the domicile of the consumer to judge the litigation if: in the State of consumer’s domicile the conclusion of the contract was preceded by a specific invitation addressed to him or by advertising; and the consumer took in that State the steps necessary for the conclusion of the contract. Graham (1999) expresses his opposition on the convention by giving this example:
“… a consumer responding to a publicity published in an American Journal cannot invoke the special rule of article 13. However, if the American Journal publishes a special German version, the consumer benefits from his forum actoris. Mutatis mutandis we do consider that an American site, in English, with prices in $, does not fulfill the requirement. On the opposite, an American firm having a site with a French domain name and its pages in French can be considered as fulfilling the condition of article 13” (Graham, 1999).
Under the Brussels Convention, consumers are provided with special protective provisions. For example, “if a consumer enters into a contract with a party that is not domiciled in a contracting state through a branch, agency or establishment then for the purpose of those disputes the party will be treated as domiciled” (Brownsword and Howells, 2001). Brownsword and Howell (2001) further states that “the rules are generous to consumers. Claims can be brought against the other party either in the courts of the state in which that party is domiciled or in the consumer’s domicile. Consumers can only be sued in their state of domicile. At the moment the Brussels Convention’s definition of customer is limited. It only covers in all situations when contracts for the sale of goods on installment credit terms, or loans repayable by installments or any other form of credit to finance the sale of goods and the provision of services is not included. There is then a section, which covers contracts for both the supply of goods and services. However, this only bites when prior to the conclusion of the contract the consumer in his state of domicile received a specific invitation addressed to him or advertising and took in his state of domicile the steps necessary for the conclusion of the contract.
On the other hand, a new amendment has been born out of the Brussels Convention and has been called as the Brussels Regulations. It was stated as an improved version of the 1968 convention to better implement the law on online consumers. But even though the Brussels Regulation supersedes the Brussels Convention of 1968, and contains provisions on jurisdiction in civil and commercial matters as well as on recognition and enforcement, in the courts of one EU Member State (except Denmark), of judgments awarded in the other EU Member States (Castren and Snellman, 2001), it does not escape blatant criticisms. Graham (1999) states that the real difficulty can be traced in the requirement of the conclusion in the consumer’s State. Technically speaking, the contract is not concluded on the consumer’s personal consumer; the conclusion is on the seller’s server. Consequently, the consumer can never benefit from his protection.
In early of July 1999, the UK government supported a European Commission proposal to adopt the amended Brussels Convention. The proposal states that Brussels Regulation gives the courts of a consumer’s country of habitual residence jurisdiction over suppliers of goods and services, which are established in other member states of the EU in certain circumstances.
The European Union’s legal framework for consumer protection allows a consumer to sue a website operator in the country of residence of the former and see his own national law applied to the potential lawsuit provided that the website operator directs its activities to that country. On the other hand, data protection laws are harmonized at EU level, and complying with them in the country where the website operator carries out the processing of personal data will suffice, not being required that the operator adapts its activities to the specific additional obligations set forth in the country of residence of a given consumer. (Maldonado, 2003). As a general principle on jurisdiction, the Brussels Regulation provides that the Member State of the defendant’s domicile has jurisdiction over civil and commercial matters involving that defendant. However, the Brussels Regulation contains exceptions to this general principle concerning, inter alia, consumer contracts. Consumers within the EU are given the right to bring proceedings against entrepreneurs either in the courts of the Member State of the consumer’s domicile or in the courts of the Member State of the entrepreneur’s domicile, if (Castren and Snellman, 2001): the contract executed between the consumer and the entrepreneur is for the sale of goods on installment credit terms, a loan repayable by installments or for any other form of credit made to finance the sale of goods; or the entrepreneur pursues commercial or professional activities in the Member State of the consumer’s domicile, or in any manner directs such activities to that Member State, and the subject contract falls within the scope of such activities.
Given these facts, the Advertising Association (2003) states that the adoption of the Brussels regulation will not increase the current level of consumer protection in Europe mainly because the procedure provided under the Brussels Convention only has a positive economic effect for consumers where the value of the litigation is above £1,500. This means that the majority of consumer claims fall outside the scope of the protection granted by the Convention as legal costs involved in gaining and enforcing judgment outweigh the loss suffered by the consumers. The fact that the majority of transactions conducted by e-commerce are for small amounts means the Brussels Regulation will not in fact offer effective protection for consumers. In addition, the Brussels regulation has the double disadvantage of imposing a very heavy and disproportionate burden on companies trading via e-commerce, particularly SMEs, while at the same time not increasing the level of consumer protection.
The importance of consumer protection in e-Commerce stems from the fact that from a consumer’s point of view, engaging with a business taking place outside one’s jurisdiction raises the concern that the consumer may not benefit from the protection he or she has come to expect when purchasing something through more traditional means, within one’s jurisdiction. Many businesses, on the other hand, are strongly in opposition to the suggestion that they must be familiar with and expected to comply with a patchwork of regulatory schemes and varying requirements of all the jurisdictions in which their various clients or potential clients may be located. The result is legal uncertainty, for both consumers and businesses, undermining confidence in the Internet as a mode of conducting business.
Another criticism is that Article 17 of the Brussels Convention deals with prorogative jurisdiction. Unfortunately the Convention does not mention if there is a requirement of “internationality” in order to valid the proposed agreement (Graham, 1999). It was stated by Graham (1999) that for their part, they defend the idea that a virtual contract, concluded and/or executed on the Internet is always international per se, because Internet is an international space. Graham concluded that the principal difficulty of the article regarding to Internet is its requirement of writing. Nonetheless he thinks that it is possible to have a functional approach to it. He stated that in its ruling in the Porta Leasing case, the Court did not insist on the medium but on the fact that article 17 is a rule that aims to insure that the consent of the parties has been expressed in a clear and precise way. Following this ruling one can conclude that a virtual clause signed digitally fulfills the requirement. One can go one step further in saying that a click-wrap clause is valid as well, even if the problem of the electronic proof will remain.
Because of these conflicts and oppositions, it is suggested that the Brussels convention should be updated and should be pressed for greater consumer protection. However, last September 2000, European e-commerce regulators are set to clash over consumer protection rules after a controversial parliamentary ruling as a European parliament committee voted to relax regulations on selling over the internet, which is likely to conflict with the European Council, which has been pressing for greater consumer protection. The vote follows a year of wrangling on the stingy issue of legal jurisdiction for e-commerce. The European Council wants to make firms selling over the web beholden to the consumer laws of the buyers’ country (Gardiner, 2000). However, the Parliamentary Legal Affairs Committee decided by one vote to change this jurisdiction, so a company can only be sued under the laws of its registered country. The business merely has to inform the consumer the transaction will be carried out under its own law (Gardiner, 2000).
The exceptions mentioned have raised serious concerns among entrepreneurs within the B2C on-line industry, as those entrepreneurs who enter into consumer contracts with consumers, without limiting their activities to consumers domiciled in certain Member States, now face the risk of being sued in any Member State (Castren and Snellman, 2001). Furthermore, Castren and Snellman (2001) states that Furthermore, the interpretation of “directing activities to a Member State” has given rise to several questions, as consumers in one Member State are generally able to visit every web site on the Internet irrespective of where the web site owner is domiciled or which consumers the web site owner is trying to reach. “The crucial question now is, “ Castren and Snellman asks: under what circumstances does the exception for activities directed at consumers in a foreign Member State apply, and in what way is an entrepreneur required to arrange its web site marketing in order to lessen its risk of being subject to a claim in a foreign Member State? The UK Department of Trade and Industry published a draft to answer Castren and Snellman, as well as other protesting entrepreneur on the issue. The draft states that: “if an entrepreneur sells to consumers in other Member States and this is reflected in its web site, consumers will likely be entitled to sue in their Member States of domicile; A web site may be seen as being directed to other Member States if it offers, e.g., a choice of the languages or currencies of those Member States, or gives product specifications, delivery times or prices for such Member States; and If the entrepreneur intends to sell its products or services in certain specific Member States only, and the web site in question reflects this intent, the entrepreneur is less likely to be sued in other Member States” (DTI UK, 2002).
The revision of the Brussels convention has led to various divergences. Clarke (2002) states that perhaps the greatest divergence by the Regulation from the Brussels Convention is in relation to consumer contracts (Articles 15 to 17). A consumer may bring proceedings either in the member state in which he is domiciled or the member state in which the defending party is domiciled (Article 16(1)). Proceedings may be brought against a consumer only in his member state (Article 16(2)). Even under the Brussels Convention the ECJ held that a consumer contract, which obliges the consumer to submit to the exclusive jurisdiction of a court, which is not the domicile of the consumer, is unfair. In reaction to these changes in policies, Clarke (2002) suggested that if selling via a web site ensure that all terms are properly brought to the notice of the other party (for example, by displaying them prominently on the web site and requiring that the other party click on an “accept” button) and consider restricting the territories into which a person sell. An online entrepreneur should also specify in the contract a forum and choice of law that suits you best, consider including in the contract alternative dispute resolution provisions, and ensure that the contract meets any formality requirements of the chosen law.
Maldonado (2002) made a comparative analysis between the Brussels convention and the Brussels regulation. In the special jurisdiction for consumer contract, articles 13 in the Brussels convention and article15 in the Brussels regulation provide slightly different rules for consumer contracts through another case of special jurisdiction. Maldonado (2002) states that according to article 13 of the Brussels convention, the consumer’s jurisdiction will apply when the contract concerned is: preceded by a specific invitation addressed to him or by advertising; and the consumer took in that State the steps necessary for the conclusion of the contract. Another difference is that the article 15 of Brussels regulation removed entirely and, thus, a reported deficiency in the text of art. Article13 of the Brussels convention states that the consumer could not rely on this protective jurisdiction when he had been induced by the other party to leave his home State to conclude the contract. Besides, article 13 of the Brussels convention is hard to apply to website contracts, as the place where the consumer takes these steps may be difficult or impossible to determine. Article 15 to 17 of the Brussels regulation states that in matters relating to a contract concluded by a person, the consumer, for a purpose which can be regarded as being outside his trade or profession, jurisdiction shall be determined by this Section, without prejudice to Article 4 and point 5 of Article 5, if: it is a contract for the sale of goods on installment credit terms; or it is a contract for a loan repayable by installments, or for any other form of credit, made to finance the sale of goods; or 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 (DTI UK, 2002)
The second stipulation is where a consumer enters into a contract with a party who is not a residence in the Member State but has a branch, agency or other establishment in one of the Member States, that party shall, in disputes arising out of the operations of the branch, agency or establishment, be deemed to be domiciled in that State, while the third is that the section shall not apply to a contract of transport other than a contract which, for an inclusive price, provides for a combination of travel and accommodation (DTI UK, 2002)
Maldonado (2002) states that the new article states that the consumer’s jurisdiction will apply when: the other party (a business) pursues commercial or professional activities in the Member State of the consumer; or such party directs such activities to that Member State or several States including that one (note the similarities with the concept of Purposeful Availment as a means to find personal jurisdiction in the United States). Maldonado concluded that as for the new landscape (BR), according to the Council of Ministers and the European Commission, “the mere fact that an Internet site is accessible is not sufficient for Article 15 to be applicable, although a factor will be that this Internet site solicits the conclusion of distance contracts and that a contract has actually been concluded at a distance, by whatever means. In this respect, the language or currency which a website uses does not constitute a relevant factor”.
Article 15.1(c) of the Brussels Regulation makes two changes to the analogous rule in Article 13(3) of the Convention as mentioned earlier. The DTI UK (2002) claims that Article 15.1(c) raises a question about when an Internet website would be said to be directed to one or more Member States. There are no detailed rules and no case law. The Council and the Commission issued a joint statement, which covers Article 15, but it is of limited use in interpreting the provision. Ultimately it would be for the European Court of Justice to decide what constituted directed activities. We offer the following general guidance. The joint statement indicates that the Council and the Commission are aware that the development of electronic commerce in the information society facilitates the economic growth of undertakings. Community law is an essential if citizens, economic operators and consumers are to benefit from the possibilities afforded by electronic commerce; The Council and the Commission take the view that in general it is in the interest of consumers and undertakings to try to settle their disputes amicably before resorting to the courts; and pursuant to Article (68) of the Regulation, the Commission is to submit a report on the application of the Regulation, accompanied, if need be, by proposals for adaptations, to the European Parliament, the Council and the Economic and Social Committee (DTI UK, 2002).
With all the explanations, the Brussels regulation is simply a law that subjects anyone selling goods or services on the Internet to the local consumer protection laws of each of the European Union’s member states. It also enables consumers to bring foreign online retailers to court within their own country if the retailer “directs its activities” toward consumers in that particular country. As an appended version of the 1968 Brussels Convention, which established that in the case of cross-border transactions, dispute resolution is to be conducted under the jurisdiction of the state in which the consumer resides, the Brussels Regulation has caused a good amount of controversy.
Despite all the complaints, the EU believes that the Brussels regulations have been promoting actions to foster confidence of consumers. First, the existing rules of consumer protection apply to the on-line transaction. But also, in the e-commerce directive, the EU encourages the establishment of codes of conduct by operators and the use of Alternative Dispute Resolution mechanisms to solve disputes between buyers and sellers. For codes of conduct, the Commission is working with operators and consumer association to establish a best practice reference, and as regards Alternative Dispute Resolution mechanisms, the Commission has been putting in place different systems such as the European Extra Judicial network (EEJ net) launched in spring 2000 to try to resolve disputes across borders in an amicable manner (ASEM TFAP, 2002). In addition, many still agree that the Brussels regulation is more applicable to the net than the 1968 convention.
On the other hand, Caplan (2001) states that “the European Commission, the policy-making body of the European Community, contends that the regulation is necessary to protect the rights of online consumers in an emerging arena where adequate protections are sorely lacking. The commission has further argued that consumers should not have to bear the burden of legal action outside their national borders.” Caplan (2001) further states that other supporters claim consumers are likely to be more confident about shopping online if they have the protection of their own courts.
While the Brussels Regulation has ignited many criticisms coming from e-entrepreneurs, there are still some who believes that the regulation will be of great help to the Internet consumers all over the world. It has been adjusted to fit well with the information technology age as the 1968 convention has become obsolete to deal with modern ways of transacting. The European Community still believes in the capability of the regulation in protecting the consumers online, but the opposition thinks that this regulation will manifest a lot of conflict in the future. Brownsword and Howell (2001) state that “no regulator wants to be seen to threaten levels of consumer protection, especially in the internet context where the development of consumer confidence is everything. Thus the UNCITRAL Model Law stress that its provisions should not be seen as overriding consumer protection measures. Nevertheless it did not exclude consumer transactions entirely, for while it admitted that it had been drafted without paying special attention to the needs of consumers the hope was nevertheless expressed that its provisions could be found suitable for consumer transactions.” They further state that “consumers who participate in electronic commerce should be afforded transparent and effective protection that is not less than the level of protection afforded in other forms of commerce.” This has been the reason why the Brussels Regulation has been approved. But with the defects that that the opposition saw, perhaps it will take a little more time to be able to create an e-consumer protection law that would favor almost every party.
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