DISPUTES ARISING FROM INTERNATIONAL E-COMMERCE CONTRACTS, WHERE TO RESOLVE THEM

JONATHAN KISH ADAMU zitshio@linkserve.com

FOCUS OF DISCOURSE
INTRODUCTION CLASSIFICATION OF DISCOURSE NATURE OF JURISDICTION FORUM IN E-COMMERCE DISPUTES ETHE POSITION IN THE EU OTHER PLACES CHOICE OF FORUM CLAUSES CONCLUSION

       

INTRODUCTION

The advent of the internet has moved businesses from the usual brick and mortar environment to an electronic platform, where contracts are consummated at a distance without physical contact between the contracting parties. This practice is referred to as eecommerce and has been variously defined as The practice of buying and selling goods through on-line onconsumer services on the Internet[1] Internet[1] A transaction formed by electronic messages in which the messages of one or both parties will not be reviewed by an individual as an expected step in forming a contract[2] contract[2] Any form of business transaction in which the parties interact electronically rather than by physical exchanges or direct physical contact[3] contact[3]

INTRODUCTION (contd)

It follows from the various definitions that e-commerce involves the esale of goods and services, and has the following features  It is mediated by an electronic platform rather through conventional means of communication.  It is conducted at a distance such that goods are delivered and services provided without the parties necessarily getting to meet one another face to face. Undoubtedly this has increased the pace of commerce and enhanced efficiency with a resultant reduction in cost of doing business. In becoming a medium used by hundreds of millions of people, the Internet has become an essential tool for commerce. The United States (U.S.) Supreme Court[1] provided its impressions of the Court[1] Internet in 1997, labeling the Internet a unique medium known to its users as cyberspace located in no particular geographical location but available to anyone, anywhere in the world.[2] world.[2]

INTRODUCTION (contd)

It is this very lack of a particular geographical location or its borderless nature that has brought the issue of the appropriate forum to resolve online disputes arising from e-commerce across ephysical borders to the front burner. This problem is further exacerbated by the fact that e-commerce edeals with two types of products; physical goods and services and electronic material such as software, images, voice and text etc. In the former case the internet mediates and provides the platform to conclude the contract while in the later case it becomes the place of performance of the contract. Also in the first case performance takes place outside the electronic environment, while in the latter, the whole transaction is initiated and concluded on the internet.

INTRODUCTION (contd)

The internet does not really bring any thing new. It does not a change the people neither does it change the law. What it does however change is the way we do things and how long established principles of law are applied to new situations arising from the peculiar nature of the internet. the questions raised by [Internet] conduct are indeed different, and more difficult, than the analogous questions raised by its real space counterpart, and we [cannot] resolve the jurisdictional dilemmas by applying the traditional legal tools developed for similar problems in real space[1] space[1]

INTRODUCTION (contd)

For most paper based contracts the rules are clear and the applicable law is certain. This is not so for e-contracts which are conducted over edistances. Thus the certainty necessary for smooth business relationship is lacking. This is not helped by the fact most web-based webbusinesses will normally specify which law will apply to the transaction using hyperlinks which are often not read by the consumer of online goods and services. The consumer is therefore most often left in the dark as to what law will govern the transaction. For even when such laws are specified the parties are not too sure that the courts will honor such choice of law or choice of forum[1]. forum[1].

INTRODUCTION (contd)

The internet, however, due to its borderless nature creates a problem of appropriate forum in an eecommerce transaction. For instance in what country will a case be tried when it involves a Nigerian national resident in the USA who downloads software from a Japanese registered company from a website placed on a server in Australia while on a business trip to England. The issue of forum takes on a different dimension when a dispute arises from this transaction. What will be the forum conveniens[1] for dealing with this issue? What conveniens[1] law will apply? [1] Blacks law dictionary supra pg 665, defines it as the court in which an action is most appropriately brought, considering the best interests and convenience of the parties and witnesses.

CLASSIFICATION OF E-COMMERCE EGenerally e-commerce can be classified into 4 categories[1]. ecategories[1].  Business to Business (B2B) transactions involving performance against payment or performance against performance.


Business to Consumers (B2C) transactions involving the purchase of products by individuals outside their trade or profession or E- retailing. EBusiness to Administration. This involves commercial activities between companies and public bodies. Consumer to Administration. The consumer to administration category has only recently emerged e.g. welfare payments or tax matters.

CLASSIFICATION OF E-COMMERCE (CONTD) E

The most important are the first two. US retail EEcommerce sales for the fourth quarter 2005 show a figure of $22.9 billion, an increase of 3.3% from the third quarter 2005 figure. Compare this to a 0.3% rise for retail sales for the same period. The fourth quarter figure for 2005 represent an increase of 23.0% against the corresponding period in 2004 compared to a growth figure of only 6.0% for retail sales[1] in the sane period. sales[1] The corresponding statistics for the EU and other regions may show similar growth patterns.

CLASSIFICATION OF E-COMMERCE (CONTD) E

For most B2B contracts the transaction is consummated over time and may involve a series of correspondence leading to the formation of a contract where you have performance against performance or performance against payment. Here parties will generally have a physical presence in a particular place and identifying their domicile for the purpose of applying the rules as to forum is not too difficult. Again in such cases most parties will have well in advance agreed on forum and the law to govern the transaction. Later on we shall look at the issue of choice of forum and see whether the courts will respect such choice of law agreements. Unlike B2B transactions deciding the right forum for adjudication of a B2C dispute; which involve consumers ordering for goods and services online becomes a lot more complex.

NATURE OF JURISDICTION
The rules of jurisdiction can be divided into the following categories[1]: categories[1]:  the jurisdiction to prescribe (or legislative jurisdiction);


the jurisdiction to adjudicate (or judicial jurisdiction); and the jurisdiction to enforce (or enforcement jurisdiction).

For court in a country to exercise jurisdiction over a case, that country must have the capacity to legislate on the issue, it must have the capacity to adjudicate or try the matter and thirdly it must the power to enforce its decision. It is trite law that a court must not act in vain. This is why courts decline jurisdiction on the basis of forum non conveniens where it concludes that it is not the right forum to adjudicate.

FORUM IN E-COMMERCE DISPUTES EGenerally, especially in the commonwealth and common law countries, forum is determined by the place of performance of the contract and the domicile of the defendant. In Nigeria under the uniform procedure rules which apply in most parts of the country the rules provide for forum as follows: All suits for specific performance, or breach of contract, shall, where the contract ought to have been performed, or where the defendant resides or carries on business in the Federal Capital Territory, be commenced and determined in the High Court of the Federal Capital Territory, Abuja[1] Abuja[1] [1] Order 9 Rule 3 High Court of the Federal Capital Territory Abuja Civil Procedure Rules 2004

FORUM IN E-COMMERCE DISPUTES (CONTD) EThus forum in Nigeria is determined by the following;  Where the contract was made or  where the contract ought to have been performed or  Where the defendant resides. Under these provisions however, it is difficult in an international e-commerce transaction to decide the venue eto try a dispute. - How do you determine the place of formation of contract in cyberspace? - What is the place of performance in the case of a software download as in the example given above? Therefore a Nigerian court will only assume jurisdiction if the domicile of the defendant can be shown to be Nigeria. It is expected that the draft Electronic transactions Bill when passed into law will address some of this jurisdictional problems.

FORUM IN E-COMMERCE DISPUTES (CONTD) EIn most commonwealth and common law countries jurisdiction to enforce is dependent on the courts ability to bring a defendant within its boundaries. In Nigeria, a defendant outside jurisdiction (outside Nigeria) can be served a writ of summons or notice of a writ of summons in a commercial dispute under the following circumstances.
   

the subject matter is land within jurisdiction the defendant is domiciled or ordinarily resident in Nigeria the contract is made within jurisdiction the contract was made by an agent trading or residing within jurisdiction on behalf of a principal residing out of the jurisdiction the contract is governed by Nigerian law[1] law[1]

FORUM IN E-COMMERCE DISPUTES (CONTD) E-

Under Order 21 a defendant in a foreign nation who meets the above criteria can be brought within the jurisdiction of the court if it is a convention country. Under the Foreign Judgments (Reciprocal Enforcement) Act, Nigeria accords recognition to judgments obtained in foreign countries on a reciprocal basis[1]. basis[1].


Applying this ruling in a typical e-commerce transaction a eNigerian court will assume jurisdiction where it can establish the domicile of the defendant as Nigeria. It will however be difficult to establish the place of formation of the contract or the place of performance. It can be argued that the courts here may assume jurisdiction under the minimum contacts rule. bb

FORUM IN E-COMMERCE DISPUTES (CONTD) E

This was the test applied in McBee v. Delica Co., No. 02-198-P-C (D. Me. 2003) 02-198Three Maine residents purchased "Cecil McBee" merchandise over the Internet. McBee brought the suit under theories of trademark dilution and unfair competition. The court determined that three transactions with Maine residents constituted purposeful minimum contacts sufficient to support jurisdiction by a court in Maine. The court also determined that Delica Co. had purposefully availed itself of conducting business in Maine by using the name of a Maine resident on its clothing[1]. clothing[1].

FORUM IN E-COMMERCE DISPUTES (CONTD) EAlso inFenn v. MLeads Enterprises, Inc., 103 inFenn P.3d 156 (Utah Ct. App. 2004) where a Utah appellate court held that sending one email to a resident of Utah was a sufficient "contact" to satisfy the long-arm statute and minimum longcontacts requirement of due process for a claim arising from the email. The appellate court found that MLeads purposely directed its activities at Utah residents and should have reasonably anticipated being hailed into court wherever its emails were received. Moreover, the court determined the interests of Utah and Fenn outweighed the burden on MLeads of defending in the state

FORUM IN E-COMMERCE DISPUTES (CONTD) E

Compare this with the decision in Graduate Management Admissions Council (GMAC) v. Raju, No. 02-581-A 02-581(E.D. Va. 2003) The court determined that although Raju did not have the required minimum contacts with the State of Virginia, the court could still exercise personal jurisdiction under Fed.R.Civ.P. 4(k)(2). Rule 4(k)(2) which authorizes personal jurisdiction over any defendant if (a) that exercise is consistent with the Constitution and US law, (b) the claim arises under federal law and (c) the defendant is not subject to the jurisdiction of the courts of general jurisdiction of any state. The court determined that exercising personal jurisdiction under Rule 4(k)(2) was appropriate because the defendant does not reside in the US, lacks sufficient minimum contacts with any single state, but has enough contacts with the United States as a whole to satisfy due process

THE POSITION IN THE EU



In the EU under the Brussels convention of 1968 on Jurisdiction and the Enforcement of Civil and Commercial Judgments, the general rule is that; persons domiciled in a member state shall, whatever their nationality, be sued in the courts of that member state[1]. state[1]. A consumer may choose to bring a suit against the other party in the court of his domicile or in the court of the counter paritys domicile if it is: (1) a contract for the sale of goods on installment credit terms (article 13.1); or (2) a contract for loans repayable by installments, or for any other form of credit, made to finance the sale of goods (article 13.2); or (3) any other contract for the supply of goods or services, a consumer is entitled to bring an action in the country of his own domicile, upon condition that the conclusion of the contract was preceded by a specific invitation addressed to the consumer or by advertising carried out in the state of consumers domicile24 and the consumer took in that state the steps necessary for the conclusion of the contract itself (article 13.3).

THE POSITION IN THE EU (CONTD) From a narrow perspective, the Brussels convention gave jurisdiction to the place of domicile of the consumer on these conditions That the contract is predicated or a specific invitation addressed to the consumer That he acted in response to an advertisement carried out in the state of the consumers domicile That he took steps in that state necessary for the conclusion of the contract itself self

THE POSITION IN THE EU (CONTD)

These provisions while they could work in the brick and mortar environment are faced with difficulty of application with online business. - How do you interpret the term addressed to him? Is it when an e-mail enters the consumers inbox or when he edownloads it? - What if he downloads the e-mail from a server that is not elocated in his country of domicile?
 

Secondly the expression advertisement carried out in the state of the consumers domicile is difficult to apply when dealing with e-commerce. This is because of the nature of ethe World Wide Web. An advertisement on the internet could be placed by a company in the U.S on a server in Germany and accessed by a consumer surfing the internet in the UK. How would such a provision assist a consumer in determining the right forum to sue?

THE POSITION IN THE EU (CONTD)



Thirdly how would you apply the phrase took steps in that state necessary for the conclusion of that contract? How do you determine steps taken in an online transaction for the purpose of determining the appropriate forum? For while a consumer may be domiciled in a particular state all the steps he may take to conclude a contract may take place outside his state (this is typical of contracts for the sale of intangible material such as software which could be downloaded from any where and paid for from any where in the world).

THE POSITION IN THE EU (CONTD)



The Brussels convention of 1968 fails to address the challenges posed by the internet and the determination of forum for the purpose of resolving international e- commerce disputes. eHaving identified this mischief, how has the EU lawmaker addressed the problem? The Council Regulation on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters (Brussels I Regulation)[1] Regulation)[1] under Article 16 has given the consumer the right to take legal action either in the domicile of the plaintiff or in the domicile of the defendant. Undertakings on the other hand may bring action against consumers only in the court of the consumers domicile

THE POSITION IN THE EU (CONTD)



However for a party to enjoy the benefits of Article 16, the contract must fall within the ambit of under Article 15(1) which provides that In all other cases the contact has been concluded with a person who pursues commercial or professional activities in the member state of the consumers domicile or, by any means, directs such activities to that member state or to several countries including that member state, and the contract falls within the scope of such activities. So in the EU under this provision the most important consideration for assuming jurisdiction is the domicile of the consumer. It can be safely assumed that in the EU once it can be established that there is some activity directed at the consumers place of domicile then the court in the consumers domicile can still assume jurisdiction to try.

 

THE POSITION IN THE EU (CONTD)

Article 15(2) states that  Where a consumer enters into a contract with a party who is not domiciled 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


Furthermore, examples exist where a persons tenuous connections to a state have given rise to the jurisdiction of the courts of that state. In South India shipping v Bank of Korea, Korea, the defendant Korean bank had a small branch located in England. This branch, while having no connection with the legal dispute that had arisen between its parent (the Bank of Korea) and South India Shipping, was nonetheless served with an English writ.

THE POSITION IN THE EU (CONTD)



On appeal, Lord Ackner held that the bank had established a place of business within Great Britain and it matters not that it does not conclude within the jurisdiction any banking transitions or have any banking dealings with the general public as opposed to other banks or financial institutions. In contrast, under the Brussels regulation, jurisdiction over the branch of a company only arises out of the activities of the branch. This is a more sensible approach, and prevents plaintiffs from forum shopping (in situations where the defendant has multiple branches)

THE POSITION IN THE EU (CONTD)

This provision accords with the ruling in a US case, Unknown v. Sharman Networks Ltd., (C.D. Cal. 2003). Kollmorgen Corp. v. Yaskawa Electric Corp., 1999 U.S. Dist.. LEXIS 20572 (W.D. Va. 1999)
 

For the purposes of Article 15(2) a service provider will be considered to be domiciled in a member state if it has a branch, agency or some other establishment in the member state. So undertakings stand a clear possibility of being sued in the EU no mater how low the activity directed at the EU state may be. A question that arises is how the courts will deal with a service provider whose website is basically passive in view of the above provision. A US court seems to be of the view that jurisdiction cannot be assumed in such a case.

THE POSITION IN THE EU (CONTD)

In Zippos case[1] a Pennsylvanian court ruled as follows; case[1] This sliding scale is consistent with well developed personal jurisdiction principles. At one end of the spectrum are situations where a defendant clearly does business over the Internet. If the defendant enters into contracts with residents of a foreign jurisdiction that involve the knowing and repeated transmission of computer files over the Internet, personal jurisdiction is proper. E.g. Compuserve, Inc. v. Patterson, 89 F.2d 1257 (6th Cir. 1996). At the Patterson, opposite end are situations where a defendant has simply posted information on an Internet Web site which is accessible to users in foreign jurisdictions. A passive Web site that does little more than make information available to those who are interested in it is not grounds for the exercise personal of jurisdiction. E.g. Bensusan Restaurant Corp., v. King, 937 F.Supp. 296 (S.N.D.Y. 1996). King,


THE POSITION IN THE EU (CONTD)

The middle ground is occupied by interactive Web sites where a user can exchange information with the host computer. In these cases, the exercise of jurisdiction is determined by examining the level of interactivity and commercial nature of the exchange of information that occurs on the Web site. E.g. Maritz, Inc. v. Cybergold, Cybergold, Inc., 1996 U.S. Dist. Lexis 14976 (E.D.Mo. Aug. 19, 1996).[2] 1996).[2]


Apart from the necessity for uniformity of law, the Brussels Regulation I, is influenced by the formation of new technologies not existing under the former legal regime in 1968. The Brussels Regulation I maintains the rule that allows a defendant in one of the member states can be sued in his place of domicile. (Article 2).It also goes further for contracts outside a trade or profession as in consumer contracts to give the plaintiff the choice of suing either in the defendants domicile or the domicile of the plaintiff. What the Brussels Regulation I appears to do is to give more protection to the consumer, such that jurisdiction in the EU is determined by the domicile of the consumer.

THE POSITION IN THE EU (CONTD)



A problem that arises is how to determine the domicile of the defendant. Where the defendant is domiciled in a third country, say outside the EU, then the domicile of the plaintiff becomes the appropriate forum (Article 4?). Article 60 establishes the jurisdiction of the domicile of a company or legal entity as where it has its statutory seat, central administration or principal place of business. This offers little comfort, as it is quite difficult sometimes to establish this for webwebbased companies. It appears that a way out of this is resorting to the country code top level domain name e.g. .de, .uk etc The new rules make no special provision for B2B Contracts. As such the old rules still apply and in such cases whatever the nationality of the defendant, he shall be sued in his place of domicile (Article 2). Where he is domiciled in a third country, then the national rules of jurisdiction of the state concerned is applied. For companies, Article 60 will apply in defining its domicile.

THE POSITION IN THE EU (CONTD)



Article 5 provides for alternative rules whereby adjudication is based on the place of performance. Secondly, where it is a contract for the sale of goods or the provision of services, it will be courts in the state where the goods are delivered or should have been delivered or where the services were provided or ought to have been provided. For electronic materials, the place of performance still provides a dilemma. Is it the place where the supplier enters the data in the hardware or the place where the data is downloaded, what if, in a contract between two companies, one Dutch and the other English, the electronic material is being downloaded from a laptop while the person responsible for this activity is on a business trip to Greece? Will this mean that the court of the latter state can try a conflict arising from such a contract?[1] contract?[1] In the case analyzed above, the only solution may be choice of forum clause agreed to by both parties, especially where the domicile of at least one party can be determined in advance. See Article 33

OTHER PLACES


In China, forum is determined by the place of formation of the contract. The place of effectiveness of an acceptance shall be the place of the establishment of the contract. If the contract is concluded in the form of data-telex, the main databusiness place of the recipient shall be the place of establishment. If no main business place, its habitual residence shall be considered to be the place of establishment. Where the parties agree otherwise, the place of establishment shall be subject to that agreement[1] agreement[1]

Thus is an international e-commerce dispute it is the domicile of ethe service recipient that is paramount. A court in China will assume jurisdiction if it can be shown that the service recipient has its main place of business or its habitual residence (ordinarily resident in other jurisdictions) is in China.

CHOICE OF FORUM CLAUSES



Indeed, it is common for international business contracts to specify both the choice of court and law that will apply in the event of a legal dispute arising out of the contract. Where an exclusive jurisdiction clause is provided for in a contract, common law courts have tended to exercise their discretion strongly in favour of giving effect to the contract agreed by the parties. It can, therefore, be argued that persons that enter into international business transactions either: (i) have a degree of control over where

potential litigation may arise out of a contract (via the use of choice of court/law clauses); and/or (ii) are able to discern, with a level of certainty, the potential jurisdictions within which they may be hailed into court. States that a person has no connection with, for example, are unlikely to take jurisdiction in a dispute concerning such a person[1] person[1]

CHOICE OF FORUM CLAUSES (CONTD)



The Brussels I Regulation gives recognition to choice of forum clauses contracts. The Hague Conference on Private International Law has come out with the Convention on choice of court agreements dated 30th June 2005. Under the convention, signatory countries have clear rules for dealing with choice of forum issues in International eecommerce disputes. Under Article 1.2 the convention defines international transactions as follows; For the purpose of chapter II, a case is international unless the parties are resident in the same contracting state and the relationship of the parties and other elements relevant to the dispute, regardless of the location of the chosen court, are connected only with the state

CHOICE OF FORUM CLAUSES (CONTD)



Article 2 defines domicile of undertakings to include its statutory seat, the place of incorporation or formation, its place of central administration or where it has its principal place of business. Article 4 obligates courts of the state chosen the right to assume jurisdiction, while the state not chosen is obligated to decline jurisdiction. It also makes provision for the enforcement of decisions given in accordance with the convention (Article 8) Under Article 19, a state not chosen as forum may refuse to determine disputes to which an exclusive choice of court agreement applies if, there is no connection between that state and the parties or the dispute. Similarly a court will refuse to enforce the decision of another state in the same circumstances.

CONCLUSION


The issue of enforcement also needs to be addressed. While a court may have the power to prescribe and adjudicate on a dispute, it may lack the power to enforce its judgment against a non resident. It is for this reason that nations have to address the issue of forum on multilateral basis. Most jurisdictional problems in e-commerce disputes will be avoided if parties insert echoice of forum clauses in their agreements. For domain name disputes ICAANN has given the World Intellectual Property Organization (WIPO), the jurisdiction to adjudicate on domain name disputes. Finally most jurisdictions respect and enforce arbitration clauses as alternative means of dispute resolution and online contracts are not excluded.

THANK YOU FOR YOUR ATTENTION