UK's draft e-commerce law attacked on issue of which laws apply

Specifically, the AA considers that the UK’s interpretation of the Directive’s provisions on the “country of origin” principle is flawed. This principle, in its purest form, says that a business needs only comply with its domestic laws when selling abroad – i.e. it can ignore the laws of the countries into which it is selling. The Directive itself dilutes the principle to an extent; the AA argues that the UK Government is, perhaps inadvertently, diluting it much further.

Under the Directive, there are exceptions to the country of origin principle. It does not apply to copyright, electronic money, certain insurance laws and other carve-outs; but perhaps most significantly, the Directive says that it does not apply to “contractual obligations concerning consumer contracts.”

In practice, this means that a UK-based web site selling to consumers, on the Directive’s wording, would need to make sure that its terms and conditions comply with the laws of the country in which the consumer is based. However, the remainder of that site would only need to observe UK laws. In the UK, retailing rules are less stringent than in some other Member States, which potentially gives UK traders an advantage.

However, the AA believes that the UK Government has used wording in its draft law that defeats the advantage of this country of origin proposal.

The Government’s draft Electronic Commerce (EC Directive) Regulations 2002 do repeat the country of origin principle, with the same exceptions. The AA believes that the wording applied introduces new exceptions which do not come from Brussels and which contradict the Government’s stated intentions.

The AA states that the Government’s choice of wording:

"appears to reduce the country of origin principle to a mere supervisory and enforcement rule and thus undermine the intention that UK information society services are submitted only to UK law for their e-commerce activities."

When the Government released its draft Regulations it also released a “Guide” on interpreting the wording of the proposed law. The AA points to a section of this that attempts to explain the meaning of the exclusion for “contractual obligations concerning consumer contracts.”

The Guide explains that this covers “requirements to do certain things before entering into a contract (e.g. provide information about cancellation rights under the provisions of timeshare legislation” and “essential information that has a determining influence on the decision to contract, which must be provided in accordance with the requirements of the consumer’s Member State.”

The AA considers this explanation a step too far. In its comments, submitted to the Government this week, it writes:

"The Directive was clear that in other areas such as non-contractual liability, defamation, unfair competition or misleading advertising, these would fall under the country of origin control. During the European Parliament and Council negotiations leading up to agreement over the Directive, the UK remained steadfast in its position that derogations in the area of Private International Law to cover pre-contractual obligations would not be extended. The current draft document incorrectly interprets the Directive."

The AA gives an example of the risks that it perceives if this draft becomes law:

“A UK company carrying out an on-line advertising campaign offers a DVD for £1. This is permitted in the UK, however, a Belgian distributor of DVDs brings an action in the UK courts on the basis that the UK company is engaging in unfair competitive practices which are prohibited in Belgium, i.e. selling below cost. The courts could apply Belgian law on the basis of the Private International Law Act. This destroys the essence of the E-Commerce Directive.”

The AA does acknowledge that the Government’s rhetoric on implementing the Directive is not consistent with any such risk. The Department of Trade and Industry’s report said of the country of origin principle:

"This has the benefit of allowing UK providers of online services to comply with only one national legislation - that of the UK - in most matters, wherever they do business in the EC. It removes the need to track and comply with up to 15 national legislations when providing such services within the EC".

Phil Murphy, European Public Affairs Manager at the AA concluded:

"This Government is currently drifting away from both the spirit and indeed the letter of the original Directive and this is a cause for much concern. The AA is unaware of any policy shift by Government towards discouraging UK companies from participating in cross-border trade over the internet - indeed the Association had been of the opinion that the reverse was in fact the case."