DISPUTES ARISING FROM INTERNATIONAL

E-COMMERCE CONTRACTS,
WHERE TO RESOLVE THEM

Prof. D. Choudhury
 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 e-
commerce and has been variously defined as

 “The practice of buying and selling goods through on-line

consumer services on the 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]

 “Any form of business transaction in which the parties interact

electronically rather than by physical exchanges or direct physical
contact”[3]


Prof. D. Choudhury
 INTRODUCTION (contd)

It follows from the various definitions that e-commerce involves the

sale 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
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]

Prof. D. Choudhury
 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
physical borders to the front burner.

 This problem is further exacerbated by the fact that e-commerce

deals 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.

Prof. D. Choudhury
 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]


Prof. D. Choudhury
 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 distances. Thus
the certainty necessary for smooth business
relationship is lacking. This is not helped by the fact
most web-based businesses 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].

Prof. D. Choudhury
 INTRODUCTION (contd)

 The internet, however, due to its borderless nature creates a

problem of appropriate forum in an e-commerce 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 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.

Prof. D. Choudhury
 CLASSIFICATION OF E-COMMERCE

Generally e-commerce can be classified into 4 categories[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.

 Business 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.

Prof. D. Choudhury
 CLASSIFICATION OF E-COMMERCE (CONTD)

 The most important are the first two. US retail E-

commerce sales for the fourth quarter 2009 show
a figure of $22.9 billion, an increase of 3.3% from
the third quarter 2008 figure. Compare this to a
0.3% rise for retail sales for the same period.
 The fourth quarter figure for 2009 represent an
increase of 23.0% against the corresponding
period in 2008 compared to a growth figure of
only 6.0% for retail sales[1] in the same period.
The corresponding statistics for the EU and other
regions may show similar growth patterns.

Prof. D. Choudhury
 CLASSIFICATION OF E-COMMERCE (CONTD)

 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.

Prof. D. Choudhury
 NATURE OF JURISDICTION

The rules of jurisdiction can be divided into the following

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.

Prof. D. Choudhury
 FORUM IN E-COMMERCE DISPUTES

 Generally, 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]

[1] Order 9 Rule 3 High Court of the Federal Capital
Territory Abuja Civil Procedure Rules 2004

Prof. D. Choudhury
 FORUM IN E-COMMERCE DISPUTES (CONTD)

Thus 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
to 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.

Prof. D. Choudhury
 FORUM IN E-COMMERCE DISPUTES (CONTD)

In 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]

Prof. D. Choudhury
 FORUM IN E-COMMERCE DISPUTES (CONTD)

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].

 Applying this ruling in a typical e-commerce transaction a

Nigerian 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

Prof. D. Choudhury
 FORUM IN E-COMMERCE DISPUTES (CONTD)

 This was the test applied in McBee v. Delica

Co., No. 02-198-P-C (D. Me. 2003)
Three 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].

Prof. D. Choudhury
 FORUM IN E-COMMERCE DISPUTES (CONTD)

Also inFenn v. MLeads Enterprises, Inc., 103

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
contacts 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

Prof. D. Choudhury
 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].

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 parity’s 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 consumer’s domicile24 and the consumer took in
that state the steps necessary for the conclusion of the contract itself
(article 13.3).”

Prof. D. Choudhury
 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 “

Prof. D. Choudhury
 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 consumer’s inbox or when he
downloads it?
- What if he downloads the e-mail from a server that is not
located 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
the 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?
Prof. D. Choudhury
 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).
Prof. D. Choudhury
 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.
 Having 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] 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 consumer’s domicile

Prof. D. Choudhury
 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.
Prof. D. Choudhury
 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 person’s 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, 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.

Prof. D. Choudhury
 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.

Prof. D. Choudhury
 THE POSITION IN THE EU (CONTD)

 In Zippo’s case[1] a Pennsylvanian court ruled as follows;

“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
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).

Prof. D. Choudhury
 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 web-
based 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.

Prof. D. Choudhury
 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]
 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

Prof. D. Choudhury
 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
business 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]

 Thus is an international e-commerce dispute it is the domicile of

the 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.

Prof. D. Choudhury
 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]

Prof. D. Choudhury
 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 e-
commerce 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”

Prof. D. Choudhury
 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.

Prof. D. Choudhury
 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
choice 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.

Prof. D. Choudhury
THANK YOU FOR YOUR
ATTENTION

Prof. D. Choudhury