UK government plans to revamp holiday pay calculation for part-year workers
Out-Law Guide | 30 Mar 2005 | 4:03 pm | 12 min. read
This guide is based on UK law. It was last updated in October 2007.
One of the fundamental advantages of e-commerce is its global dimension, allowing businesses to reach new markets in far (and not so far) flung places. Yet while this seems like a great commercial advantage a range of complicated legal issues arise when territorial borders are broken down.
Where business is conducted between parties in different countries it is not always clear whose law should apply to the contract, or which courts should resolve disputes arising between the parties. The global reach of the internet makes it all too tempting for businesses to start selling outside their home jurisdiction. However, without putting some thought into the legal issues involved they risk storing up legal problems for the future. In this article we examine some basic rules for conducting business outside the UK.
It is worth noting very early on that the laws and principles applying to jurisdiction and choice of law are extremely complex. It is not the intention of this article to discuss these laws in depth. Rather, it will highlight some general principles and thoughts on how best to manage the risks. It is very important that before any business starts trading abroad it understands all of its legal obligations and rights, and deals with these both in the construction of the website and its contracts.
The question of which laws apply is very important. National laws differ considerably and this can affect terms in the contract or may mean the contract is simply not enforceable. It's also expensive and inconvenient to sue abroad. Some examples:
Certain businesses are heavily regulated. The most obvious example is the Financial Services industry. It may not be lawful for a company authorised to conduct investment business in the UK to sell its products to citizens of the US. Similarly, gaming will either be prohibited or, if permitted, will be subject to varying degrees of regulation in different countries.
Where parties are both domiciled in member states of the EU the following general rules apply:
In the case of individuals "Domicile" means the country in which the individual has their habitual residence. This is normally self-evident in the case of individuals, and in the case of companies it generally means the country in which "it pursues economic activity" (e.g. where it sells its products). If the company is active in several places, it is the county in which their central administration in based.
The EU Directive on Electronic Commerce seeks to remove obstacles to the use of electronic contracts. In particular, EU members are obliged to ensure that their legal requirements applicable to the contractual process neither create obstacles for the use of electronic contracts nor results in such contracts being deprived of legal effectiveness and validity on the account of their having been made by electronic means. Certain exceptions are set out by the Directive, including contracts that create or transfer rights in property (except rental rights), contracts requiring the involvement of a public authority, contracts governed by the family law, and certain other contracts.
The Directive sets out a number of pieces of information that must be provided by a business selling via electronic means. This includes:
The contractual terms and conditions applicable must also be available to the customer, in a format which allows the customer to store and reproduce them. Additionally, in the process provided for making an order, businesses must make available to a customer an appropriate, effective and accessible means of identifying and correcting input errors. On the placing of an order, a business must acknowledge receipt of the order by electronic means without undue delay. The order, and acknowledgement of the order, are only deemed received once the customer has received this receipt.
The general rules set out above regarding jurisdiction will apply to many standard contracts between business. However, under the 2001 European Council Regulation on the enforcement of foreign judgments and jurisdictions (the "Brussels Regulation") there are a number of other important rules to consider, in particular when dealing with consumers.
Where a contract between businesses does not contain sufficiently clear terms on choice of law and / or jurisdiction the Brussels Regulation sets down additional rules to determine which EU member state's laws will apply. Under the regulation a recipient of goods or services may rely on the laws of his own country in relation to a contract with a seller based in another Member State where the seller "directs" his activities towards that recipient's country.
In the case of sale of goods or services this would mean that the buyer can rely on any laws in his own country which cover to the sale of those goods and services. These laws may be more onerous (or more lenient) than those in the country of the supplier. The supplier can only sue the recipient in the recipient's country of domicile, but the supplier can be sued in either country.
The key to whether these rules apply is understanding what is meant by the seller "directing" his activities towards the recipient's country. The regulation itself does not spell this out, and while the recitals to the Regulation give some clues a clear definition has yet to emerge. One commonly held view is that "directs" should be interpreted in its widest sense: the mere fact that a website is available in the recipient's country could be enough to give the recipient's courts jurisdiction.
Other factors which could be taken into account might include: where the seller has offered a choice of languages, currencies, delivery times, or prices; or where the seller carries out advertising or sends marketing material to customers in the member state.
The solution in any particular situation may lie somewhere in the middle of all of these factors. The fact that a website is accessible in a member state is simply a consequence of the global nature of the internet. A more appropriate test may be where the seller accepts and processes orders from customers based outside of the seller's domicile.
This interpretation might help a seller better control their risks, as they can select which countries their goods and services are supplied to, and ring fence themselves from risk.
To do this the site should state clearly what jurisdictions the supplier will and will not sell to. It is not enough to stop there, however, and the back-office systems must also be capable of rejecting orders from individuals in excluded jurisdictions. This is not always easy to manage, particularly for suppliers of software and other digital products and services, where it is not strictly necessary to know the country of domicile of the customer in order to deliver the goods or provide the services.
Of course the problems can be avoided to a large part (provided that the sale of the goods / services is legal in the recipient's jurisdiction) if the seller makes sure that the contract between himself and the buyer contains full and enforceable terms on jurisdiction and choice of law.
Reflecting the importance of protecting consumers who enter into contracts with foreign companies the law places a strict limit on the general rule above, where a contract is between a business and a consumer. The Brussels Regulation provides that the contract between the business and the consumer cannot deprive the consumer of the protection of the laws of the country in which he has his habitual residence. This is echoed in the E-Commerce Regulations 2002 which, while providing for a "country of origin" principle meaning that suppliers will only be liable in their home jurisdiction, specifically excludes consumer transactions from such protection.
This means that the business will be obliged to meet all of the legal requirements relating to the sale of goods or services of the type being sold in the country where the consumer is based. As before these laws may well be more onerous than those in the seller is based. Further, in almost all business to consumer sales the consumer can choose which country to take an action against the business, but the consumer can only be sued in his own country of residence.
In the case of disputes involving countries which are outside the scope of European law, there are a number of issues which must be considered. There are a number of international conventions dealing with choice of law, and consumer rights. If these do not set out the relevant position it is then worth checking whether the UK has entered into an agreement with the foreign jurisdiction. Any such agreement would set out the basis on which jurisdiction is determined between the countries. Failing this it would be necessary to consider the legal position under UK law, and what the courts consider to be the appropriate forum for hearing legal issues.
The position in the United States is different. There has been a string of cases dealing with internet jurisdiction. The approach the US courts have chosen to take largely follows the principles set out in a court case of 1997 in which a distinction was drawn between different types of web site.
The court considered that there were three different types of web site. First, there was an active web-site which was transactional in nature. This enabled the people accessing the web site to enter into binding contracts with the web site owner. The courts considered that this was sufficient to establish a place of business and, as such, would give the court jurisdiction.
The second form of active web site which was limited to the exchange of information between the parties. Such a web site, although interactive and providing a means of communication between the parties did not seek to create any binding contracts and so should not be treated as creating a place of business and in the court's opinion would not give rise to the courts being able to seize jurisdiction.
The court then considered that there is a third type of web site, namely one which is passive and which is used solely to provide information to the parties and as such could not give rise to any suggestion that a place of business was established in the US and, as such, the courts could not seize jurisdiction.
The question of forum should not be confused with the question of applicable law. The starting point is to look at the Rome Convention 1980. For countries which follow this Convention, any contract shall be governed by the law chosen by the parties. This choice may either be express or implied.
On the whole, courts are reluctant to interfere with an express choice of law agreed between the parties in business to business transactions.
Normally, an express term that specifies the choice of laws is preferable. However, it is worth considering the ways in which a law may be implied into a contract.
What then if there is no express choice and it is not possible to imply a choice? The courts will look at the country most closely connected to the party, who is due to effect performance under the contract which is the "characteristic of the contract", at the time of the conclusion of the contract. The characteristic of the contract is the delivery of the goods or services, rather than the mere payment of them, which clearly gives the advantage to the seller rather than the customer.
As always, there are exceptions. These exceptions give further protection to consumers. It is not permitted to have a choice of law which deprives the consumer of the protection afforded to him by the mandatory rules of the law of the country in which he has his habitual residence. This ties in with the Brussels Regulations, as the definition of consumer is the same. At present this means that the consumer is only protected if targeted by the vendor. However, if the interpretation of the Brussels Regulations discussed above is accepted, then putting up a web site might, in itself be enough to give such protection to consumers.
While it is always recommended that businesses seek specific advice about the laws of the country into which they are selling, the following general tips apply when selling outside of the UK.
Before doing anything else consider whether it is possible to legally sell into the foreign country – are the goods or services legal in that country? For instance the sale and promotion of alcohol is illegal in certain Muslim countries. Also consider whether there are any restrictions on the export / import of what you are selling – strict international controls govern the transfer of certain technology.
Consider how practical issues will be dealt with. Will the business still be able to guarantee delivery within a reasonable time?
If there are countries which the business chooses not to sell into, or cannot sell into, then it is important to ensure that the back-office systems are not able to process orders from those countries.
In addition it might be necessary to specify on the site and in the terms and conditions which countries the site is intended to sell to, and / or if there are any which it is not.
The website should contain a well drafted set of website terms and conditions including clauses clearly identifying chosen markets, choice of law, jurisdiction and preferred form of dispute resolution. Consider adopting a "best of breed" approach when drafting terms – meeting the strictest legal controls of all of the countries into which you sell goods or services. This helps to make sure that even if your terms are questioned the business is likely to have met or exceeded its legal obligations.
Terms will need to be properly incorporated into the order process. When drafting terms and conditions, the following issues must be considered:
UK government plans to revamp holiday pay calculation for part-year workers