Optimising the potential of e-commerce by vivi07

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									Optimising the potential of e-commerce: a win-win solution
(Published in: Internet Law Bulletin Vol 3 Issue 10 (June 2001) http://www.prospectmedia.com.au)

Dan Svantesson

The Hague Convention on Jurisdiction and Foreign Judgements in Civil and Commercial matters (the Hague Convention) carries the power to bring e-commerce closer to its full potential. No other international instrument has had the potential to mean so much for the development of this new way of conducting transactions. The Hague Convention can, if it is designed in a proper manner, be the instrument that takes e-commerce from a prosperous but small portion of business to consumer (B2C) transactions to the mainstream way of conducting B2C transactions. There are several obvious benefits of e-commerce for both consumers and business. A business can easily and cost effectively reach a worldwide market and the consumer gains greater choice amongst a wider and more diverse range of products. In order to achieve the full potential of e-commerce, the Hague Convention must create trust amongst consumers. Only if there is a healthy balance between the consumer’s need for protection and the business’ need to be able to conduct business in an effective manner, will e-commerce reach its full potential.

The need for trust. If e-commerce is to become a mainstream way of conducting B2C transactions consumers will necessarily need to feel that they enjoy at least the same degree of protection while conducting business via the Internet as they do at the local store. There is no lack of statistics to support this. According to ABS data “despite the fact that almost half of Australian consumers have experience being online, only slightly more than 5% of them are willing to transact online (actually complete the purchase).”i The situation is similar overseas. More than three million British adults now claim to shop
regularly online, “but one in four of them think they're taking a risk when they use their credit card to do so.”ii And almost two thirds of consumers in the US fear credit card fraud when they use

their credit cards on-line.iii Even without the added complications of e-commerce, cross-border transactions are considered a “risky business”:
“The Eurobarometer survey of 17 May 1995 reveals that 24% of Member States' citizens buy sporadically (mostly while travelling abroad) goods or services worth up to 2,000 ECU in

other EU countries. 10% of these consumers are unsatisfied and two thirds of them are unable or unwilling to pursue their claims. The survey also shows that a Single Market for durable goods hardly exists. These are rarely bought abroad due to the risks of not being able to claim for repairs or return of money.”iv

Although statistics about e-commerce have to be viewed with some scepticism, it seems clear that consumers need to feel a greater degree of trust in e-commerce if e-commerce is ever going to become a mainstream way of conducting B2C transactions.

Article 7 of the proposed Hague Convention Article 7 of the proposed Hague Convention gives consumers the right to sue a business in the consumer’s own home forum, while the business is forced to sue the consumer in the consumer’s home forum. Of course there are certain exceptions and limitations to this, but that is the main rule. The aim of Article 7 is to even out the assumed difference in strength between the parties in a B2C transaction. But it also carries another very important function. It aims at providing the consumer with the same protection in e-commerce as the consumer has when conducting business off-line. It ensures that the consumer can rely on the same legal protection in crossborder transactions as the consumer enjoys in domestic transactions. Of course one could now argue that a consumer that purchases something in a store while being outside his/her own State of habitual residency cannot reasonably expect to get the consumer protection he/she is used to from home and therefore when a consumer “goes to a website” he/she cannot expect to be protected by the home forum’s legislation. But you could just as easily argue that a business knowingly “broadcasting” its advertisements to the consumer’s forum should expect to be bound by the consumer protection available in that State if a contract is entered into with a consumer habitually residing in that forum. There are legal arguments supporting both these theories, but here I am not primarily concerned with the position of the law itself, but rather what solution would be better for the positive development of e-commerce. For the benefit of the positive development of e-commerce, one has to look at the consumer’s expectations and the fact remains that the majority of the consumers purchasing a product via the Internet would not be aware of the fact that the transaction might not, in a legal sense, take place in their home forum. Since the consumer can enter into B2C contracts in the comfort of their own home it is far more likely that the consumers would be expecting the protection of the home forum’s legislation and if that expectation is met the consumers will be more willing to conduct B2C transactions via the Internet.

The naive consumer As mentioned above the rationale behind making special regulations in relation to consumers is the basic assumption that consumers are not as well equipped to deal with complicated legal matters as the businesses are, and therefore there is a built-in power imbalance in B2C transactions. In the great majority of cases the consumer will have very little, if any at all, understanding of the importance of choice of law clauses and choice of jurisdiction clauses. Furthermore a majority of consumers today, and even more so if e-commerce becomes a mainstream way of doing shopping, do not understand the technology behind the transaction and can therefore, not foresee the full extent of the transaction. Most likely a great number of consumers are not even aware of the importance of the actual geographical location of the other party to the transaction.

The actual value of Article 7 In praxis Article 7 might turn out to have a very limited direct effect. Let me use an example: If a consumer in Australia orders a pair of shoes, valued at $50 from a Swedish businesses website and then receives a faulty product, the costs involved with litigation and enforcement will obviously outweigh the value of the shoes. In that sense the practical value of Article 7 of the proposed Hague Convention may be limited. A socio-legal study conducted by Professor Gessner of Bremen University showed that only disputes regarding values higher than 2.000 ECU were profitable to litigate within the internal market of the European Union.v This obviously makes the Hague Convention a limited tool in most B2C transactions. However, despite the limited direct effect of Article 7, it is still vital for the creation of consumer trust required for the positive development of B2C e-commerce. The mere presence of such a provision - the acknowledgement of the need for special considerations in relation to consumers - carries a great policy value. It shows that it is only reasonable for the consumer to enjoy the same protection on-line as off-line.

The need for Alternative Dispute Resolution Since the majority of B2C transactions will not be suitable for cross-border litigation, other alternatives may have to be developed. Alternative Dispute Resolution (ADR), such as mediation and arbitration, has grown in popularity. ADR provides a faster, less costly and more flexible way of resolving disputes involving relatively small values and is therefore very suitable for B2C transactions on-line as well as off-line. It is only natural for the Hague Convention to encourage some form of ADR mechanism, however the presence of ADR should not replace the protection provided by the courts. In consumer disputes, the parties should always have the right to take the matter to a court of justice in case the ADR process fails.

A win-win situation To somebody that is watching from a spectator’s position it seems that stakeholders in the negotiations, from all over the world and from all sides, hold on a little too tight to their own interests. Everybody wants their own interests to be looked after in the Hague Convention but show little tolerance in relation to “the other side’s” position. If e-commerce can evolve, from what it is today, to a mainstream way of conducting B2C transactions all sides will be winners, and the only way that will ever happen is if there is a healthy balance between the consumer’s need for protection and the business’s need to be able to conduct business in an effective manner.

Dan Svantesson SJD Research student at UNSW, Sydney Australia
i

The Australian Consumers’ Association comments to the Australian AG’s Issues paper 3, on the proposed Hague Convention on Jurisdiction and Foreign Judgments. http://lists.essential.org/pipermail/hague-jurcommercial-law/2001-February/000009.html
ii

http://www.which.net/publicinterest/freereport/01frontpage.html

iii

Leadership for the New Millennium, Delivering on Digital Progress and Prosperity. The third annual report of the Electronic Commerce Working Group, January 16 2001. http://www.ecommerce.gov/
iv

http://europa.eu.int/comm/consumers/policy/eclg/rep01_en.html http://europa.eu.int/comm/consumers/policy/eclg/rep01_en.html

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