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THE JURISDICTIONAL DIVIDE IN INTERNET TRANSACTION

The growth of the borderless internet has seen eCommerce transactions skyrocket. With US online retail sales in third quarter of 2007 at US$34.7 billion, questions over the appropriate place, or jurisdiction to hear and resolve disputes has become a paramount concern for eTraders.

Often, the parties to business to business (B2B) and business to consumer (B2C) transactions will be based in different countries. In the event of a dispute between the parties, jurisdictional issues can arise between people living in different countries or within countries (that is, between individual states of a nation).

So when a cross-border dispute occurs, where should it be resolved? One way that businesses can settle this question before a dispute arises is by nominating a governing jurisdiction in the contract binding the transaction. Whether the contract is a click wrap agreement or a terms and conditions of use, it should always expressly state that any dispute arising out of the agreement is to be governed by the laws of a particular jurisdiction, for example:

In the event of litigation between the parties to this contract the only competent court is the New South Wales Supreme Court and the parties agree to submit to the jurisdiction of that court.

This means that if a contracting party wishes to bring an action against a software developer, service provider or a website host, they can generally only do so in the specified jurisdiction.

Note however, that the jurisdiction stated in the clause may be challenged on the following grounds:

In addition to these grounds, the nominated jurisdiction may be challenged on the grounds of the quality of law available in the nominated jurisdiction. Take for example the situation where a B2B eCommerce transaction takes place between a business operating in country X and a business based in Australia. The contract binding the transaction contains a jurisdiction clause stating that country X is the governing jurisdiction. If a dispute arose between the parties and the Australian business approached an Australian Federal or State court, the Australian court may rule that the quality of justice attainable in court in country X is inferior to that of an Australian court, and subsequently grant jurisdiction to an Australian court to hear the matter.

Where there is no written contract and the contracting parties are in different countries, if the communication is instantaneous, the appropriate jurisdiction is determined where the acceptance of an offer is communicated to an offeror.

Despite the technological advances brought about by the Internet, the relevant case is Brinkibon Ltd v Stahag Stahl und Stahlwarenhandelsgesellschaft mbH). The House of Lords noted when dealing with telexes that the formation of a contract, regardless of where the parties are located, will be the place where acceptance is communicated to the offeror. For example, if someone in Australia purchases an item online from an overseas website and there is no written contract indicating a governing jurisdiction, Australia will be the appropriate jurisdiction to hear any dispute as that is where acceptance of the seller’s offer has occurred.
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Contracting parties can avoid the time and cost associated with court proceedings in court by including an adequate dispute resolution clause in their contracts. Because of the international nature of ecommerce, an International Arbitration clause would be the best option. Typically, the clause will provide that disputes will be submitted to mediation, conciliation or arbitration and further state that any decision of the arbitration will be binding. For contracts of an international nature, the clause may require the parties to submit to arbitration proceedings under the United Nations Commission on International Trade Law (UNCITRAL) Arbitration Rules. The UNCITRAL Arbitration Rules are a comprehensive guide to all aspects of the arbitration process.

Businesses operating in the information technology sector, such as software developers and internet service providers, should be particularly mindful of the benefits of alternative dispute resolution. According to a recent dispute resolution survey by the Institute of Arbitrators & Mediators Australia (IAMA), almost half of all technology contracts result in some kind of dispute over factors such as time, cost or performance.

As yet there is no settled legal framework to govern jurisdictional issues in cross-border disputes. Businesses wanting to take advantage of the growing online market should bear in mind the contractual safeguards available to them, and seek advice on domestic and international developments impacting their transactions.

If you have any specific or general questions in relation to this article, please do not hesitate to contact us.