About ILPFTo Join ILPFWorking Groups and PublicationsMember ResourcesEventsHome



  Upcoming Events
  Archived Events


Jurisdiction: Building Confidence in a Borderless Medium

July 26-27, 1999
Montreal, Canada

On The Proposals To Adopt The Amended Brussels Convention And The Draft Rome II Convention As EU Regulations Pursuant To Article 65 Of The Amsterdam Treaty
EU Version
Position Paper Prepared For The Advertising Association

Mike Pullen
Dibb Lupton Alsop

65 Rue Stevin
B1000 Brussels
Tel 00 322 230 4454
Fax 00 322 230 2012
Email mike.pullen@dla-law.co.uk


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.

5th July 1999

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:
  1. 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
  2. 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.
Endnotes

  1. Article 13
  2. contracts for installment sales (hire purchase, consumer credit etc)
  3. Article 13
  4. The interactive survey results by Greenwich CT Marketers are based on responses from a representative sample of 1,905 on line consumers.

Back

About ILPF | To Join ILPF | Working Groups & Publications
Member Resources | Events | Home