Legal aspects of digital contracts, E-Commerce (Part Two)

Last week we briefly framed the eCommerce phenomenon and delved into where, how and when a digital contract is deemed to have been concluded.

Among the legal problems addressed last week in connection with digital contracts, one fairly complex problem was deliberately left out for which a separate discussion was necessary, namely, which law is applicable to digital contracts.

WHAT IS THE LAW APPLICABLE TO DIGITAL CONTRACTS?

On the subject of eCommerce, it is necessary in this respect to refer to a variety of regulatory sources, including the Rome Convention and the Rome I Regulation.

The Rome Convention of 1980 on the law applicable to contractual obligations is a convention of private international law that entered into force in Italy on 1 April 1991, following ratification by Law No. 975 of 18 December 1984.

It is in force in all countries of the European Union but has a universal character, as it applies even when the law to which its principles refer is not the law of a contracting state.

Over the years, the ratification of the Convention was followed by the adoption of Regulation (EC) No. 593/2008, known as the ‘Rome I Regulation’, which had the effect, within the European Union, of disapplying the Convention to contracts entered into on or after 17 December 2009.

THE ROME CONVENTION AND DIGITAL CONTRACTS

Assuming that the eCommerce relationships of which we speak are characterised by an international component of the parties involved, for the purpose of identifying the law applicable to international contracts, the Convention indicates three criteria:

1. the autonomy of the parties;
2. that of proximity,
3. that of conservation

The main criterion, party autonomy

The main connecting factor established by the Convention is certainly the will of the parties 1. The autonomy of the parties in choosing which law is applicable to the contract (“choice of law”) is an absolute principle that may also legitimise the use of systems of law that have no connection with the essential elements of the contract or the application of different systems of law to different parts of the contract (“depecage”).

The choice of law is considered to be a legal transaction and may be either expressly deliberated or tacitly identified through the interpretation of the content of the contract or the circumstances surrounding its conclusion. This choice is always modifiable by agreement of the parties but the modification will not produce effects in relation to the possible invalidity of the contract or in relation to possible prejudice to the acquired rights of third parties.

Very relevant to the application of the convention to eCommerce is the regulation in relation to contracts concluded with consumers 2 who may not be deprived of the protection granted to them by the mandatory provisions of the law of the country in which they habitually reside.

Specifically:

• if the conclusion of the contract was preceded in the country of the consumer’s habitual residence by a specific proposal or advertising and if the consumer performed in the same country the acts necessary for the conclusion of the contract, or
• if the other party or its representative received the consumer’s order in the country of residence, or
• if the contract is a sale of goods and the consumer has travelled from his country of residence to a foreign country and placed the order there, provided that the journey was organised by the seller to induce the consumer to conclude a sale;

the law of the country in which the consumer has his habitual residence shall apply.

This rule does not apply in the case of contracts of carriage and contracts for the provision of services where the services owed to the consumer are to be provided exclusively in a country other than that in which he or she is habitually resident, except in the case of contracts providing for combined transport and accommodation services for an overall price.

The residual criteria

To the extent that the law governing the contract has not been chosen, the contract is governed by the law of the country with which it is most closely connected. However, if a part of the contract is severable from the rest and has a closer connection with another country, the law of that other country may exceptionally apply to that part of the contract.

In this regard, it is presumed that the contract is most closely connected with the country in which the party who is to render the performance characterising the contract has, at the time of the conclusion of the contract, its habitual residence or, in the case of a company, association or legal person, its central administration. In contracts involving consideration for services, the characterising nature of services involving the payment of sums of money is excluded.

Furthermore, where the subject matter of the contract is a right in rem in immovable property or the right to use immovable property, the contract shall be presumed to be most closely connected with the country in which the property is situated and, in the case of a contract for the carriage of goods, it shall be presumed to be most closely connected with the country in which the carrier has its principal place of business at the time of the conclusion of the contract if that country is the same as that in which the place of loading or unloading or the principal place of business of the shipper is situated.

Under the preservation criterion, the contract is to be considered fully valid if it satisfies the formal requirements of the law governing its substance or, alternatively, the law of the place where it was concluded.

DIGITAL CONTRACTS UNDER REGULATION (EC) NO 593/2008

As specified above, the ‘Rome I Regulation’ has had the effect within the European Union of disapplying the Convention to contracts entered into on or after 17 December 2009.

While reaffirming the centrality and priority of the parties’ choice of applicable law 3 , the Regulation determined the merely residual nature of the criterion requiring reference to the law of the country with which the contract is most closely connected, setting specific criteria for the various types of contract identified. Hence:

• a contract for the sale of goods is governed by the law of the country in which the seller has his habitual residence;
• the contract for the provision of services is governed by the law of the country in which the service provider has his habitual residence;
• a contract having as its object a right in rem in immovable property or a lease of immovable property is governed by the law of the country in which the property is situated;
• However, the letting of a property concluded for temporary private use for a period of no more than six consecutive months is governed by the law of the country in which the owner has his habitual residence, provided that the tenant is a natural person and has his habitual residence in the same country;
• the franchise contract is governed by the law of the country in which the franchisee has its habitual residence;
• the distribution contract is governed by the law of the country in which the distributor has his habitual residence;
• the contract for the sale of goods at auction is governed by the law of the country in which the auction takes place, if that place can be determined;
• a contract concluded in a multilateral system that enables or facilitates the matching of multiple third-party buying and selling interests in financial instruments, as regulated by Directive 2004/39/EC 4.

Very special rules are laid down for contracts of carriage since the parties may choose as the law applicable to the contract of carriage of passengers only the law of the country in which: a) the passenger has his habitual residence; b) or the carrier has his habitual residence; c) or the carrier has its central administration; d) or the place of departure is situated; e) or the place of destination is situated.

Furthermore, to the extent that the law applicable to the contract of carriage has not been chosen:

• the law applicable to the contract of carriage of goods is that of the country of habitual residence of the carrier, provided that the place of receipt or delivery or the habitual residence of the sender is also situated in that country;
• the law applicable to a contract of carriage of passengers is that of the country of habitual residence of the passenger, provided that the place of departure or destination is situated in that country.

In any event, if these conditions are not met, the law of the country in which the carrier is habitually resident shall apply.

Notes:

1. Art. 3, Law 18/12/1984 n° 975
2. Art. 5, Law, 18/12/1984 n° 975
3. Art. 3, Regulation (EC) No 593/2008
4. Art. 4, Regulation (EC) No 593/2008