It is our understanding that the European Commission ("Commission") are
proposing to adopt the amended Brussels Convention ("Brussels Regulation" or
"Regulation") and the draft Rome II Convention ("Rome Regulation" or
"Regulation") (together "Regulations") as EU regulations pursuant to Article
65 of the Amsterdam Treaty. We believe that this position will seriously
damage European business and impede the development of the internal market
for E-commerce. Furthermore, this position is contrary to stated Commission
policy of making the EU a centre of excellence for E-commerce and the
Information Society.
The position of the Commission on the Brussels Regulation and the Rome
Regulation is also contrary to both the spirit and ethos of the internal
market and the draft E-commerce Directive.
Our objections to Commission's position on both the Brussels Regulation
and the Rome Regulation are set out in detail below.
| 1. The Brussels Regulation |
| 1.1 |
The proposed 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. Article 15 (c) (which mirrors article 13 of
the amended Brussels Convention) states that:
"... in all other cases, the contract has been concluded
with a person who pursues commercial or professional activities in
the state of the consumer's habitual residence or, by any means,
directs such activities to that state or to several states including
that state the contract falls within the scope of such
activities".
|
| 1.2 |
This Article must be interpreted in line with the
criterion set out in Recital 13 of the proposed Brussels Regulation
which, if adopted in its present form, will trigger the jurisdiction of
the consumer's country of habitual residence in respect of any
E-commerce website established in a member state of the EU merely
because it can be accessed by a consumer. For example, this means that
if the website of a company using E-commerce to trade in the UK is
accessed by a Swedish consumer in the event of a contractual dispute,
the Swedish courts will have jurisdiction. This provision means that
not only companies which actively target the Swedish market but also
companies passively trading in the UK will be subject to Swedish
jurisdiction on the basis of the mere fact that their website can be
accessed by a Swedish consumer. |
| 1.3 |
The test contained in Article 15 of the Brussels
Regulation is much stricter than the test set out in Article 13 of the
existing text of the Brussels Convention which stated that:
"... any other contract for the supply of goods or a
contract for the supply of services:
- in the state of the consumer's domicile where 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".
|
| 1.4 |
The Schosser Report (1 of 2 official reports on the
Brussels Convention) gave the following example of how the rule set out
in the existing text of the Brussels Convention should be interpreted:
"The first indent relates to the situation where the trader
has taken steps to market his goods and services in a country where the
consumer resides. It is intended to cover, inter alia, mail order and
doorstep selling. Thus the trader must have done acts such as
advertising in the press, on the radio or television or in the cinema or
by catalogues aimed specifically at that country, or he must have made a
business proposal individually through a middle man or by canvassing.
If, for example, a German makes a contract in response to an
advertisement published by a French company in a German publication, the
contract will be covered by the special rules.1 If, on the other hand the German replies to
advertisements in American publications, even if they are sold in
Germany, the rule does not apply unless the advertisements appeared in
special editions of the publication intended for European countries. In
the latter case the seller will have made a special advertisement
intended for the country of the purchaser".
|
| 1.5 |
The Schosser Report goes on to state (at paragraph
158): "On the other hand, consumer contracts other than those referred
to in paragraph 157 2 are subject to the
special provisions 3 only if there is a
sufficiently strong connection with a place where the consumer is
domiciled".
|
| 1.6 |
It is clear from the above comparison of the provisions
of Article 13 of the existing Brussels Convention and Article 15 of the
proposed Brussels Regulation that much stricter rules are being imposed
on E-commerce than were originally intended for cross-border
transactions. The enactment of strict rules which will have a
disproportionate effect on E-commerce is not justifiable within the
context of a Regulation on jurisdiction. |
| 1.7 |
To make a comparison between an E-commerce service
which makes information accessible through a website and activities
which are specifically targeted at and require a physical link with the
territory of the consumers habitual residence (e.g. advertising in the
national press or TV, or targeted advertising in the international and
satellite TV or targeted direct marketing via catalogue or mail) shows a
fundamental misunderstanding of the technology. E-commerce websites are
automatically accessible throughout the EU (indeed throughout the
world). Many of these websites have no physical link with the country
of the foreign consumer's habitual residence nor do they specifically
solicit consumers in member states other than the state in which they
are established. |
| 1.8 |
Furthermore, the text of Article 13 (indent b) of the
existing Brussels Convention, which reads "the consumer took in that
state the steps necessary for the conclusion of the contract", does not
appear in Article 15 (c) of the Brussels Regulation. This may create
problems for businesses as in many cases a company will not know in
which state the consumer who accesses its website is habitually
resident. For example, a German consumer may be accessing a website
from a laptop computer while on holiday in the UK and/or the consumer
may be using an e-mail address without any geographical indication, for
example, Mike.Pullen@hotmail.com. The use of an e-mail address without
a geographical indication would present a major problem to companies
selling software by E-commerce (this is currently one of the principal
E-commerce activities) as both the order and the delivery of the goods
takes place electronically over the Internet. |
| 1.9 |
If the Brussels Regulation is adopted in its current
form it will have a disproportionate effect on the activities of small
and medium-sized businesses ("SMEs") which currently form the majority
of start-up E-commerce businesses. This is due to the fact that they
will need to understand and comply with the consumer protection laws in
up to 15 member states of the EU. The cost of conducting a legal audit
of the various consumer protection laws and implementing a compliance
programme will be far too expensive for most companies to bear. This
means that companies are likely to protect themselves by placing
specific disclaimers on their websites, for example, "this site is not
open to contractual offers by German consumers". |
| 1.10 |
However, there is a large degree of legal uncertainty
as to whether such a disclaimer would be valid. For example French law
provides that all terms and conditions of a contract with a consumer
(including representations ) must be in French. Thus, if a consumer
habitually resident in France accesses the English language website of a
company established in the UK and the website contained a disclaimer (in
English) stating that it was not open to French consumers but the
consumer continued with the contract procedure and then brought an
action against the UK company in the French courts it is highly likely
that the courts would hold that the disclaimer is null and void. |
| 1.11 |
To give a further example, if a British citizen
habitually resident in France enters into a contract with a company
established in the UK (governed by English law) via its website, the
French courts would have jurisdiction in the event of a contractual
dispute. Article 5(3) of the 1980 Rome Convention (contracts applicable
law) states that in consumer contracts a choice of law clause cannot
deprive the consumer of the protection of the law of the country in
which he has his habitual residence. It is a mandatory rule of French
consumer protection law that all contracts be written in French. This
means that the French courts would be able to disregard the provisions
of the contract governed by English law and apply the mandatory
requirements of French law. |
| 1.12 |
This would seriously affect the access of companies
established in one member state to markets in other EU member states.
It will also have the effect of seriously fragmenting the internal
market. Moreover, Article 15 (c) together with Recital 13 of the
Brussels Regulation will have a disproportionate effect on websites
which use the English language. This is due to the fact that there is a
significant English speaking population in the majority of EU member
states and English is the lingua franca of both the Internet and the EU.
Therefore in a dispute regarding jurisdiction it is much easier to
sustain the position that a site in the English language can be accessed
by a foreign consumer than a site in Finnish, Greek or Dutch. |
|
| 2. The Adoption Of The Brussels
Regulation Will Not Increase Current Levels Of Consumer
Protection |
| 2.1 |
A recent report prepared for the Commission by the ECLG
on jurisdiction and applicable law in cross border consumer complaints
states that the procedure provided under the Brussels Convention only
has a positive economic effect for consumers where the value of the
litigation is above 2,000 ecu. 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 offer effective protection for
consumers. |
| 2.2 |
Therefore the adoption of Article 15 (c) together with
Recital 13 of the Brussels regulation has the double detriment of
imposing the very heavy and disproportionate burden on companies trading
via E-commerce, particular SMEs while at the same time not increasing
the level of consumer protection. |
| 2.3 |
The draft Directive on E-commerce proposes a number of
scenarios for alternative dispute resolution and court actions. We
suggest that the whole issue of consumer protection should be looked at
within the framework of the draft E-commerce directive. This will be a
positive step to ensuing effective cross border consumer redress rather
than relying on antiquated theoretical legal consumer remedies which are
of no benefit to the consumer in the majority of disputes. |
|
| 3. The Rome Regulation |
| 3.1 |
We understand that a Council Working Party composed of
experts from the member states is discussing the Austrian Presidency's
proposal for the Rome Regulation. The Rome Regulation deals with
non-contractual liability. Of particular concern is Article 6 of the
Austrian Presidency's draft which deals with the applicable law in
respect of unfair competition and unfair practices. This Article
states:
" the law applicable to obligations arising from unfair
competition or unfair practices shall be the law of the country where the
competitive action or unfair practice affects competitive relations or
collective consumer interest". |
| 3.2 |
If the provisions of Article 6 are adopted in their
current form it would mean that a UK company using E-commerce to trade
on a pan European basis would not be able to take advantage of the
principles of home country control and mutual recognition. This is due
to the fact that if such a trader were to offer promotions or discounts
on consumer purchases or the use of certain types of marketing
techniques (for example, buy a packet of cornflakes and get the
opportunity to win a holiday or purchase two pairs of shoes and get a
third pair free) which are perfectly legal under English law, the
provisions of Article 6 would mean that the trader could fall foul of
the unfair competition laws of other member states (for example,
Germany) where such trading practices are illegal. |
| 3.3 |
This means that, for example, a UK company conducting
lawful business activities under English law could face the risk of
prosecution in countries such as Germany as a result of a complaint by a
consumer or by a competitor in that state merely because its website can
be accessed from the German market. Therefore, the company has a simple
choice. It can choose to trade by E-commerce on a pan-European basis
and accept the legal cost and risk of complying with up to 15 differing
national laws or it can take measures to specifically restrict its
trading activities to the UK market and UK consumers. |
| 3.4 |
The Commission has pointed out in its explanatory
memorandum to the draft electronic commerce Directive that continental
European unfair competition laws can have a detrimental effect on the
development of E-commerce within the EU internal market. The memorandum
states:
"National rules on unfair competition may have a very
restrictive effect as the interpretation may result in prohibitions or
restrictions on certain commercial practices, such as promotional offers
or rebates and discounts. The effect is particularly serious in the
case of new and innovative marketing practices and in view of the need
to employ them on the Internet to make business stand out amongst other
services available". |
| 3.5 |
Furthermore, on the 2nd of July 1999, the Commission
decided to bring proceedings against Germany in the European Court of
Justice in respect of its unfair competition law which severely
regulates promotional offers, discounts and free gifts. The Commission
believes that the legislation represents a disproportionate obstacle to
market access by companies from other member states using techniques
such as direct marketing and thus violates the freedom to provide
cross-border services as set out in Article 49 (formerly Article 59) of
the EU Treaty. The Commission also believes that if a new market
entrant cannot make promotional offers that will attract potential
customers in order to build up a client base it will not be viable for a
company from another member state to provide direct marketing services
in Germany. |
| 3.6 |
Recent market research conducted in the USA by a major
on line market research company shows that almost 53% of consumers
using E-commerce are willing to buy more on line if they are given some
kind of incentive or reward programme (eg discounts for loyalty bonuses)
and 47% said they would return to a specific E-commerce website if they
know that such rewards or loyalty incentives were offered. Only 15% of
customers surveyed said that such incentives would not influence their
buying decisions.4 |
| 3.7 |
The above research provides an indication of the
necessity for start up E-commerce businesses to be able to offer to
incentives in order to gain market shares. If UK businesses trading
into Europe are to become subject to restrictive continental European
unfair competition laws this will have the effect of creating a serious
impediment to the development of the internal market in E-commerce thus
widening the gap between EU and US companies using the medium. |
| 3.8 |
The detrimental effect of the implementation of Article
6 of the Rome Regulation on EU companies using E-commerce to access the
internal market is obvious from the above. |
|
| 4. The Proposed Brussels And Rome
Regulations Are Incompatible With The European Commission's Proposed
E-commerce Directive And The Internal Market. |
| 4.1 |
The draft E-commerce Directive is based on the primary
Articles of the EU Treaty (notably Article 49) and the case law of the
European Court of Justice which establish the principles of country of
origin control and mutual recognition of laws as the fundamental
principles of the internal market. Thus, if the company complies with
the law of the country in which it is established, the other member
states of the EU should accept that the law of the country of
establishment offers an adequate level of protection notwithstanding the
fact that it may differ from or be less strict than their own domestic
law. |
| 4.2 |
This is a general rule which is subject to certain
exemptions on the ground of public health, public security and public
policy. However, these exemptions are strictly construed by the
European Court of Justice and are rarely used as they require member
states to derogate from the obligations under the EU Treaty. |
| 4.3 |
The case law of the European Court of Justice has also
established that, in certain very limited circumstances where national
law is not harmonised by directive, member states other than the home
states may impose their own rules in order to protect certain mandatory
requirements (which include consumer protection). However, such
mandatory requirements cannot be invoked in areas of law which have been
approximated by a directive. Therefore, if the E-commerce Directive is
enacted receiving member states will not be able to invoke mandatory
requirements to restrict or regulate the provision of cross-border
E-commerce services from member states exercising country of origin
control in areas approximated by the Directive. |
| 4.4 |
The proposals for the Brussels Regulation and the Rome
Regulation seem to be completely contrary to the Commission's proposal
for the draft E-commerce Directive the aim of which is to create an
internal market for E-commerce services. In short, the proposed
Regulations drive a coach and horses through the country of origin
principle which not only provides the basis for the E-commerce Directive
but also the fundamental underpinning of the Television Without
Frontiers Directive, the Distance Selling Directive and the Data
Protection Directive. |
| 4.5 |
The proposals for the Brussels Regulation and the Rome
Regulation completely contradict the Commissions proposals for a
legislative framework to regulate E-commerce at an EU level as contained
in the E-commerce directive. This seems perverse as the E-commerce and
Information Society policy has been reaffirmed as a high level political
priority at the meeting of the Heads of the 15 member states of the
European Council in Cologne. |
|
| 5. Reasons Given For The Adoption Of
The Regulations Under Article 65 Of The Amsterdam Treaty. |
| 5.1 |
Other than in relation to the matters described above,
the adoption of the Brussels Convention as the Brussels Regulation is to
a large extent merely a re-formatting exercise under the new power given
by Article 65 of the Amsterdam Treaty. However, the procedure adopted
for the legislative progress of the Regulation is a major cause for
concern. It seems that the amendments to the text of the Brussels
Convention and their incorporation into the Brussels Regulation were
decided upon by a Council Working Party conducting its procedures in
isolation. It appears not to have consulted significant departments
within member states' administrations, the Directorate Generals of the
Commission responsible for major policy areas (such as the internal
market and SMEs) or with European industry. Furthermore, the proposal
for the Brussels Regulation is being steam rollered through the
caretaker Commission with undignified haste. This calls into question
the Council's, the Commission's and the member states commitment to
transparency and open government. The main reasoning behind the drive
to push the Brussels Regulation through the legislative process is the
argument that the Council has agreed in principle to the recommendations
of the Working Party. The adoption of the Brussels Regulation is viewed
by elements of the Commission and the Ministries of Justice of the
member states as a "fait accompli" despite the fact that there has been
no consultation or impact analysis undertaken either at EU or national
level (for example, the Commission has not published a consultation
paper on this issue). |
| 5.2 |
The proposal for the Rome Regulation gives even more
cause for concern as this is a completely new initiative and not merely
a re-formatting exercise. The Rome Regulation is in essence a test case
on how the use of the new powers pursuant to Article 65 the Amsterdam
Treaty will impact on the EUs horizontal decision-making process and
more particularly how it will fit in with internal market policy. The
signs do not appear to be good. There appears to be no strong
justification for the adoption of the Rome Regulation and indeed it runs
counter to established internal market policy. Its appears not to be
supported by European industry. However, it is difficult to make an
accurate assessment of any support the Rome Regulation may receive as
there has been no consultation on its implementation and no impact
analysis has been carried out either at EU or national level. Again, the
Commission's initiative seems to be driven by the mere fact that the
deliberations of a Working Party have been agreed to in principle by the
Council |
| 5.3 |
It appears that EU policy and the national policy of
the member states on this issue is being driven solely by the
deliberations of a committee of experts on private international law
without any thought being given to its impact on the internal market in
general and the development of an internal market in E-commerce in
particular. |
|
| 6. Conclusions |
| 6.1 |
On the basis of the above arguments the following
conclusions can be drawn:
| 6.1.1 |
The proposed Brussels and Rome Regulations will be
highly detrimental to EU industry attempting to use E-commerce as a
commercial trading medium both within the territory of their country
of establishment and on a pan-European basis. |
| 6.1.2 |
There is no support or demand for the Regulations
by British or European industry. |
| 6.1.3 |
The Regulations are being used by some member
states to impede the implementation of the draft E-commerce
Directive and to restrict the internal market in commercial
communications (advertising, direct marketing, promotions and
sponsorship etc.) in order to protect their own industry from
competition. |
| 6.1.4 |
There has been no analysis at either EU or national
level of the need for the Regulations and no analysis of their
impact on the internal market. |
| 6.1.5 |
The Regulations will have a disproportionate impact
on the activities of SMEs. |
| 6.1.6 |
The Regulations constitute a manifest contradiction
of EU policy on E-commerce as reaffirmed by the heads of all 15
member states at the European Council meeting in Cologne. |
|
|
| 7. Recommendations |
| 7.1 |
The Commission should withdraw the Brussels Regulation
and the Rome Regulation in their current form. |
| 7.2 |
At the very least the adoption of both Regulations
should be delayed until an in-depth consultation exercise and an impact
analysis assessment have been conducted. |
| 7.3 |
If the Commission is not prepared to withdraw the
Brussels Regulation, Article 15 (c) and Recital 13 should be replaced by
the existing article 13 (c) of the Brussels Convention. The review
clause contained in Article 66 of the Brussels Regulation should also
clearly state that the issue of country of destination jurisdiction over
E-commerce activities should be the subject of an analysis in the
Commission's report on the implementation of the Regulation. |
| 7.4 |
With regard to the Rome Regulation, the Commission
should strongly oppose the inclusion of the current Article 6 or any of
the provision which gives the country of destination jurisdiction in
matters of unfair competition over companies established in other EU
member states. We urge the Commission to fully support the principles
of country of origin control and mutual recognition as fundamental
pillars of the internal market and to recognise the need to create an
internal market in E-commerce by calling on the Council to adopt the
draft E-commerce Directive as soon as possible. |
