July 03, 2001

World eBusiness Law Report

Taming the Net by strangulation


The world may not be taking much notice, but two treaties of crucial importance to future e-commerce are entering the latter stages of preparation. One of them, the Hague Convention on Jurisdiction and Foreign Judgments (the 'Hague Convention'), has just emerged rather battered from a boisterous two-week drafting session. The other, the Council of Europe's Cybercrime Treaty, is ready for approval after 27 drafts, but critics say it sacrifices privacy protection.

The Hague Convention

In a report written after the Hague Convention meeting broke up on June 20, Jamie Love, director of Ralph Nader's Consumer Project on Technology, lambasted the convention. The treaty would "kill the Internet with a suffocating blanket of overlapping jurisdictional claims," said Love, and expose each web page publisher to liabilities for "libel, defamation and other speech offences from virtually any country." Yet this treaty was dreamed up back in 1992 to do something entirely laudable - to create legal certainty within the business world. It would do this by determining jurisdiction in cross-border disputes, and ensuring foreign judgments were enforced abroad. Something similar already exists in Europe's Brussels Convention, which allows foreign court decisions within the European Union to be enforced in the winning party's member state. The Hague Convention aimed to extend that principle for the first time onto a truly international stage. Sadly, drafters found themselves somewhat the victims of history. Brian Hengesbaugh, now with Baker & McKenzie in Chicago, was one of three US government delegates sent to Europe to work on the treaty. "No one back then had the Internet in mind when drafting the rules," says Hengesbaugh. "It wasn't until late 1999 that people started thinking they needed to pay attention to e-commerce. Some suggested we carve out e-commerce and not have the convention apply to that area. But every business transaction involves multiple media; you can't carve one out."

The lowest common denominator

No one had allowed for the presence of a sales platform that was visible everywhere at all times. By making foreign judgments enforceable at home, any company trading on the Web would have to comply with the commercial laws of all signatory countries simultaneously - even if this meant prohibiting actions permitted under their own local laws. "Within the realms of all the places you are doing business, you have to live with the lowest common denominator, or to put it another way, the most restrictive rules," says Hengesbaugh. The writers of the treaty created further trouble with provisions on copyright, libel and hate speech. "The tort provisions would create jurisdiction either where the wrongful act was done, or where the harm occurs," says Barbara Wellbery from the Washington DC office of Morrison & Foerster. "With regard to information tort, such as libel, defamation, hate speech and copyright infringement, wherever the information is downloaded is where the hurt occurs." This opens companies up to concepts of harm based on very different cultural assumptions. The danger is illustrated by the case brought against Yahoo! in France over Nazi memorabilia sold through the company's US web site. Viewable to surfers in France, the local court found Yahoo! in breach of French law and threatened the company with a fine for every day when such objects were visible to consumers in France. The US courts agreed that the French judgment should be enforced in the United States. While Yahoo! has defended the case, it no longer sells Nazi memorabilia through its US site. "You wind up with one rule for the whole world, even though we in the United States permit the sale of Nazi memorabilia," says Wellbery. The current draft of the Hague Convention includes a 'get-out' clause, however. Countries can refuse enforcement where it goes against public policy. In the Yahoo! Case, for example, ratification of the treaty might allow the company to argue that the French ruling undermines the US constitutional right of free speech. But that does not stop third parties enforcing the judgment, so a company could find its assets attacked elsewhere under a judgment rejected at home. There may be ways for businesses to evade such cultural clashes manifested through the law. "There could be a problem with something that is quite legal in Western Europe, but pornographic in Saudi Arabia," says Rainer Kornfeld of Schmidt Kornfeld Wukoschitz in Vienna. "But in this case you have to find escape clauses and include a notice on your web site. Something like: 'If you aren't from Austria or the United Kingdom [for example] please get out of this site; it isn't for you.'"

Location in cross-border disputes

The second part of the Hague Convention, which covers where a dispute should be heard, is causing at least as much controversy. "In the past, if the contract said the forum for disputes is the courts of a particular country, then that would normally be binding," says Ranald Robertson of the Robertson & Co Technology Law Practice in London. "They are now looking at changing that so that if the consumer is based in the United Kingdom, he could bring an action in the United Kingdom." A clause allowing consumers to sue in their home jurisdiction creates a paradox. It was thought that consumers would not buy over the Internet from a business based overseas if they could not pursue disputes inexpensively through local courts. That desire for accessibility meant that, in order for e-commerce to flourish, consumers should be guaranteed the ability to have a case heard in their home jurisdiction. But the burden this places on businesses engaging in e-commerce is immense. Such an approach would open them up to being sued anywhere in the world, multiplying many times the costs of engaging in global e-commerce. Rather than face this, merchants might well prefer to ask for location information and refuse sales to anyone outside their established jurisdictions. The whole idea of consumer-based litigation has been vigorously opposed by industry as something that could strangle global e-commerce - the exact opposite of the drafters' intention. "The cost of checking that your contract is watertight in every single country you plan to trade in would be tremendous," says Dai Davis, a consultant with UK firm Nabarro Nathanson. "It's one thing to go to a lawyer and ask him to check over a contract in the United Kingdom. It's another thing entirely to say is it valid and enforceable in every country in the world." Yet Baker & McKenzie's Hengesbaugh believes there may yet be some middle ground. "It may be that the only way through is to start drawing up some rules that assign the responsibility to the merchant to go to the place of the consumer, but allow the merchant to more closely define types of consumer it will sell to," he says. "A merchant could, for example, decide not to sell its software to consumers in Australia. If an Australian ignored this and decided to buy the product anyway, he or she would do so knowing the right to sue the company through local courts has been forfeited." In practice, the clause may not make a big difference either way, says Davis. "In theory, it becomes cheaper for the consumer. In practice, this is not so certain because a business would ultimately have to be sued in its own jurisdiction. The consumer would have to go to the foreign court and persuade it to enforce the judgment."

This clause is a crucial sticking point in negotiating a treaty that the 52 participating states will ratify - especially the United States. A meeting in Edinburgh this April failed to resolve the issue. Several options were drawn up, among them the suggestion that consumer contracts be deleted altogether from the convention. Hengesbaugh believes this could be the key to getting the treaty through. There would be no problem, he argues, if the convention dealt only with business cross-border disputes, allowing choice of foreign law clauses to stand. Foreign court judgments would be enforced if the foreign court had proper jurisdiction. "The more complicated it is, the more likely that it won't be ratified in the United States," he says. With such an important international treaty, getting the balance wrong between consumer and business interests would cause major glitches for e-business. Sorting them out is likely to be a torturous process given the unwieldy nature of treaty negotiation and re-negotiation. As Morrison & Foerster's Wellbery points out, if it turns out to be a real problem - as many people believe it will - "you will have engraved it in stone."