The Public Interest Advocacy Centre Comments on the draft Hague Convention on Jurisdiction and Foreign Judgments in Civil and Commercial Matters

The Public Interest Advocacy Centre (PIAC) is a Canadian non-profit organization whose mandate provides for the representation of consumers in marketplace issues. PIAC’s organizational membership comprises thousands of Canadians. Over the past twenty-five years, PIAC has frequently intervened in regulatory, legislative, and other policy proceedings affecting large numbers of Canadian consumers. PIAC has been particularly active in recent years representing the interests of ordinary consumers in the new electronic marketplace, both nationally and internationally.


In the context of electronic commerce, it is expected that cross-border consumer transactions will increase, and that as a result, so will cross-border disputes between consumers and merchants. Hence, governments need to work together to facilitate efficient and effective consumer redress across borders. We therefore welcome this Hague Conference initiative as it pertains to cross-border consumer litigation.
We are limiting these comments to issues around Article 7 and consumer contracts. Other important consumer issues raised by the draft Convention (e.g., intellectual property and tort claims) also need to be addressed. Our focus on Article 7 should not be interpreted as diminishing in any way the importance of these other issues.

Article 7 should be retained

Special rules for jurisdiction in the case of consumer contracts, as set out in Article 7, are a necessary component of any international treaty on jurisdiction. Article 7(1) recognizes important and well-established consumer rights to redress via their own courts in respect of contractual disputes with foreign merchants, where the merchant directs its activities to the consumer’s jurisdiction and where the contract was concluded by the consumer in the consumer’s home jurisdiction. Similarly, Article 7(2) as currently drafted recognizes important and well-established consumer rights to defend themselves against cross-border lawsuits in their home courts. Finally, Article 7(3) as currently drafted recognizes an important principle of fairness and equity: that choice of forum clauses in consumer contracts are rarely understood, let alone consciously negotiated, by consumers, and should therefore not be given legal force and effect. The Hague Convention must not detract from this existing body of law, by excluding consumer protections either wholly or in part via national opt-out rights.
Overall, Article 7 reflects the reality that consumers (both offline and online) suffer from tremendous information asymmetries and unequal bargaining power vis-à-vis sellers, and that if legal redress is to be made available to ordinary consumers in any practical sense, it must be available via their own courts.
Furthermore, the rules set out in Article 7 are essential for the development of consumer trust and confidence in electronic commerce, by assuring consumers of an accessible and trustworthy avenue of redress in the event of a dispute.
The following comments address issues identified in the document by David Goddard entitled “Proposed Convention on Jurisdiction and Foreign Judgments: E-Commerce Issues – An Outline”, under “Topic B – Consumers”.

Issue B1: Definition of “Consumer”

If the current definition of “consumer” in Article 7 is problematic, consideration should be given to extending the benefit of this Article to any person purchasing a mass-marketed product or service. In this way, the test for application of Article 7 would become one of the nature of the contract in question. Where the contract is a standard form, “take it or leave it”, contract, with no negotiation of terms between the parties, Article 7 should apply. We have no objection to broadening the definition of “consumer” in this respect, for the purposes of this Convention.
However, individuals concluding non-mass-marketed contracts for purposes outside their trade or profession still deserve the jurisdictional protections set out in Article 7, due to their relatively weak bargaining position vis-à-vis businesses.

Issue B2: Disclosure of Consumer Status

In respect of the application of Article 7, the selling party (generally, the repeat player) should bear the risk of failure to clarify whether the purchasing party is a consumer. In other words, businesses should assume that they are dealing with consumers unless they are advised to the contrary, or unless the facts clearly indicate otherwise. To take the opposite approach (i.e., to allow businesses to assume that they are dealing with businesses unless advised by a consumer to the contrary) would be to deny the reality of consumer-business transactions and the legitimate expectations of consumers regarding their legal rights. It would gut Article 7 of effectiveness, by establishing a default rule that allows businesses to easily circumvent important provisions designed to ensure consumer rights to redress.
In any given situation, however, the facts will determine whether a selling party’s assumption of the buying party’s status was reasonable. If a consumer was, for example, posing as a business, purchasing through a business-to-business portal clearly labeled as such, and ordering quantities that are normal for a business to order, then the consumer may not be entitled to protections under Article 7. Similarly, if a person fraudulently identifies himself as a consumer, that person would not be able to claim protection under Article 7. It is unlikely that any legal system would permit a person to benefit from such fraud.

Issue B3: Relevance of Consumer Location

The consumer’s location at the time of the transaction is a critical element of establishing jurisdiction (and identifying the appropriate forum) where a transaction occurs online. As Article 7(1)(a) provides, consumers should be entitled to access their home courts where they have taken the steps necessary for the conclusion of the contract in their home jurisdiction.
There is no reason to change this logical and long-standing rule. If businesses choose to transact with consumers in a given jurisdiction, they should be willing to submit themselves to the courts of that jurisdiction. Businesses who wish to avoid being subject to the courts of a certain jurisdiction can choose not to do business with consumers in that jurisdiction.
There is nothing about electronic commerce which justifies changing this rule. Electronic vendors, like non-electronic vendors, have various means by which to determine the consumer’s location, not least of which is simply to ask the consumer. Consumers who incorrectly characterize their location would not be able to benefit from Article 7’s jurisdictional rules.

Issue B4: Connection between Defendant and Forum (Article 7(1)(a))

Article 7 applies to contracts concluded by consumers. For this reason, there should not be any concerns about the application of Article 7(1)(a) where no contract is concluded. In particular, Article 7 does not expose online businesses to foreign jurisdictions unless and until they actually transact with consumers in such jurisdictions.
As noted above, online businesses who wish to limit the jurisdictions in which they may be haled can and should communicate to consumers any such limitations, and may rely upon a consumer’s declaration of location.

Issue B7: The Consumer as Defendant

Most litigation between consumers and defendants will involve consumers as plaintiffs, not defendants. There will nevertheless be situations in which businesses feel wronged and wish to obtain redress from consumers via the courts. It is entirely appropriate that the consumer in such situations benefit from the jurisdictional rule set out in Article 7(2). Otherwise, innocent consumers may find themselves subject to foreign court rulings based on vexatious lawsuits, incomplete submissions, or distorted facts, simply because they could not afford to defend themselves in the foreign jurisdiction. Allowing businesses to sue consumers outside of the consumer’s jurisdiction is to invite businesses to take advantage of consumers in this manner.
More likely, however, are disputes between consumers and businesses based on misunderstandings. To the extent that any rule regarding jurisdiction will benefit one party over the other, it should benefit the weaker party. It is reasonable in this case to expect businesses to take precautionary measures against loss. Businesses can (and do) ensure that they receive payment before shipping. Alternatively, they can use escrow services to eliminate the risk of non-payment. As repeat players with the resources and incentive to take such precautionary measures, businesses do not need to be protected against their own imprudence. Consumers, on the other hand, cannot be expected to go to the same effort as businesses to ensure that their contracts are honoured.

Issue B8: Jurisdiction rules should not be linked to use of Alternative Dispute Resolution (“ADR”)

We are aware of suggestions by business interests that the application of Article 7 be made contingent upon prior resort by the consumer to out-of-court redress systems. While we heartily support the development of effective online ADR options for consumers in cross-border disputes with merchants, we oppose any such requirements, for the following reasons:

  • It is unnecessary: if good ADR options are made available to consumers, consumers will use them before resorting to court.
  • It is premature: there is no system in place for ensuring that any ADR system meets minimum standards of fairness, independence, competence, transparency, etc.
  • Allowing businesses to force consumers into private ADR in this way would diminish the incentive for businesses to build and/or use good ADR systems (so as to attract consumers voluntarily).
  • Forcing consumers in engage in private ADR does not enhance consumer trust and confidence in e-commerce.
  • Forcing consumers to engage in private ADR before going to court unfairly prejudices their rights to redress via the courts, both by removing the consumer’s right to engage in class actions regarding the matter in question, and by failing to automatically stay the applicable limitation period for court actions.
  • Consumers should not be forced to engage a private justice system which lacks the long tradition and entrenched standards of fairness that characterizes the public justice system, which provides no guarantees of fairness, and which could in fact end up costing the consumer more.
  • Allowing businesses to require consumers to engage in private ADR before going to court permits abuse by unethical businesses (e.g., through use of biased or unfair ADR).

It has been suggested that a requirement for consumers to use ADR before resorting to court action be contingent upon independent accreditation of the ADR service, or some other method of guaranteeing that the ADR service meets certain minimum standards. Such musings may be interesting, but the reality is that no such system of neutral, independent, and reliable accreditation is likely to be developed in the foreseeable future. First, the standards themselves need to be developed, at an international level. Then, a system of accreditation and ongoing compliance assessment needs to be developed. Both the standards development process and the accreditation/compliance assessment process, to be credible, must involve the active participation and support of consumer groups. No international body meeting the requirements of neutrality and independence is currently working on any such project.
In any case, there are numerous other reasons, listed above, why the Convention should not and need not require consumers to make use of ADR schemes.

Enforceability of Arbitration Clauses under the Convention

There appears to be considerable confusion over how the Convention, as currently drafted, would treat arbitration clauses in consumer contracts. We do not presume to have any particular expertise in the interpretation of private international law Conventions. However, we do have views as to the results that this Convention should achieve. In this respect, it is critical that the Convention be clearly drafted so as to ensure that consumer rights to sue and to be sued in their home courts take precedence over any conflicting contractual agreements, including arbitration agreements.
As commercial arbitration is a practice largely confined to the business-to-business sphere of activity, it is likely that the exception in Article 2(g) was designed to exempt only business-to-business arbitration from the scope of the Convention. Business-to-consumer arbitration agreements cannot be accorded the same deference given the tremendous imbalance between the parties. Hence, if an exception for arbitration is maintained in Article 2, such exception should be explicitly limited to non-consumer arbitration.

Issue B9: Forum Selection Clauses

Forum selection (choice of court) clauses in consumer contracts should never be effective. Like other “fine print” in standard form contracts, such clauses are invariably imposed on unwitting consumers. They are not the result of conscious negotiation between two relatively equal parties. No one, least of all the business using such clauses, expects the ordinary consumer to address her mind to such clauses at the time of the transaction. No one should therefore expect consumers to be bound by such clauses. In effect, there is no forum “selection” other than by the merchant in such cases.
Even where such a clause is brought to the attention of the consumer at the time of the transaction, it is unfair and unrealistic to expect the consumer to appreciate its implications. Choice of jurisdiction, like “ADR-first” clauses, cannot be considered a true choice by the consumer unless it is made after the dispute has materialized, when the consumer can fully understand and appreciate its implications. This is appropriately recognized in the current draft Article 7(3), which permits choice of forum if such choice is made by the parties after the dispute has arisen.

National law exceptions

It has been proposed that the question of whether consumers can sue at home be left to national law, with the resulting judgments therefore not enforceable under the Convention. Such a rule could apply only in the case of a forum selection clause, or generally in respect of consumer contracts. We oppose any such “opt-ing out” by signatory countries of such a fundamental and important jurisdictional rule which is based on notions of fairness and justice that transcend borders. Consumers worldwide deserve to have effective access to justice, via their own court systems, in respect of contracts entered into from their home jurisdictions.
Philippa Lawson
Public Interest Advocacy Centre
1204 – 1 Nicholas St.
Ottawa, Ontario K1N 7B7
tel: (613) 562-4002 x.24
fax: (613) 562-0007