Oxford University Comparative Law Forum

Restrictions on Jurisdiction Clauses in Consumer Contracts within the European Union

by Beatriz Añoveros Terradas^*

(2003) Oxford U Comparative L Forum 1 at ouclf.iuscomp.org | How to cite this article | Discuss this article

Table of contents

• Abstract
• 1. Introduction
• 2. The existing jurisdictional ptotective measures: Art 17 of the Brussels I Regulation
  • 2.1. Introduction
    • 2.1.1. Definition of ‘consumer’ within Art 15 BIR: some interpretative issues
      • 2.1.1.1. Meaning of “a purpose which can be regarded as being outside his trade or profession”
      • 2.1.1.2. The meaning of the term “person”
    • 2.1.2. Consumer contracts covered by Art 15 BIR and the conditions relating to the conclusion of the contract
  • 2.2. Territorial condition arising from Art 16 and Art 4: both parties must be domiciled in a Member State
    • 2.2.1. General rule: both parties domiciled in a Member State
    • 2.2.2. One of the parties domiciled outside any Member State
    • 2.2.3. The exception laid down in Art 15(2) BIR: the defendant domiciled outside a Member State has a branch, agency or other establishment in one of the Member States
  • 2.3. Jurisdiction clauses covered under Art 17 BIR (ex. Art 15 BC)
    • 2.3.1. Conditions of effectiveness
      • 2.3.1.1. “Which is entered into after the dispute has arisen”
      • 2.3.1.2. “Which allows the consumer to bring proceedings in courts other than those indicated in this Section”
      • 2.3.1.3. “Which is entered into by the consumer and the other party to the contract, both of whom are at the time of the conclusion of the contract domiciled or habitually resident in the same Member State, and which confers jurisdiction on the courts of that State, provided that such an agreement is not contrary to the law of that State”
    • 2.3.2. The application of Art 23 BIR to intra-Community consumer transactions
      • 2.3.2.1. Formal requirements
      • 2.3.2.2. Conditions of applicability
• 3. Jurisidiction clauses falling outside Article 17 of the Brussels I Regulation
  • 3.1. Introduction
  • 3.2. Directive 93/13/EEC on Unfair Terms in Consumer Contracts and the potential of a rule complementing Art 17 of the Brussels I Regulation
    • 3.2.1. Construing letter q of the Annex of the Unfair Contract Terms Directive as covering harmful jurisdiction clauses
    • 3.2.2. The application of Directive 93/13 to international consumer contracts
  • 3.3. The implementing statutes
    • 3.3.1. Implementation of letter q of the Annex of the Directive
    • 3.3.2. Implementation of Art 6(2) of the Directive
• 4. Conlusions
• List of Abbreviations
• Table of Cases
• Bibliography
• Footnotes

Abstract

Jurisdiction clauses in cross-border consumer contracts may contravene the consumer’s interests. This article examines whether the European consumer, when entering into international contracts, is protected against disadvantageous choice of court agreements. Art 17 of the Council Regulation on Jurisdiction and Recognition and Enforcement of Judgments in Civil and Commercial Matters aims to protect the consumer by limiting party autonomy in certain international consumer contracts. The extent and effectiveness of such a provision is analysed. The discussion of Art 17 raises issues regarding several aspects of its scope of application and its relationship to other provisions of the Regulation. Art 17 forms part of Section IV entitled “Jurisdiction over Consumer Contracts.” This section’s material scope of application has been substantially modified by the Regulation. This fact has increased the significance of the definition of the term ‘consumer’ as the main factor determining the beneficiaries of the protective rules. It is suggested that such a provision limits the derogative effect of jurisdiction clauses in consumer contracts. In order to have also prorogative effect, a jurisdiction clause, which is valid under Art 17, must additionally fulfil the requirements laid down in Art 23. The further analysis of the protective rules will also expose some gaps that may reduce the desired level of protection, which may be filled through a Community derived rule contained in the 93/13/EEC Directive on Unfair Terms in Consumer Contracts which limits party autonomy in those consumer contracts not covered by Art 17. The article examines, through a comparison between the Spanish and English legislation which implement the Unfair Contract Terms Directive, whether such legislation can complement the protection afforded by the Brussels I Regulation by providing for cases not covered by the latter.

1. Introduction

The freedom of the parties to determine the contents of a contract is a general principle of contract law recognised by almost all legal systems. In private international law, party autonomy means the freedom of the parties to choose the law applicable to the contract. It also involves the choice to determine the forum which is to have jurisdiction to hear any potential or actual dispute between them.

The main reason for jurisdiction clauses in international contracts is that they provide for certainty by determining in advance a forum acceptable to both parties. Furthermore, they have the advantage that the parties can choose a neutral forum or a forum specialised in the relevant subject-matter.¹ All of the above reasons justify and explain the wide acceptance of jurisdiction clauses and the important role they play in international trade and commerce.

Within the European Union, the Council Regulation on Jurisdiction and Recognition and Enforcement of Judgments in Civil and Commercial Matters (hereinafter, Brussels I Regulation and BIR)² gives wide room for party autonomy. The Brussels I Regulation, in force since March 1, 2002, has superseded the Brussels Convention³ among the Member States except as regards Denmark (Art 68 BIR). This conversion from treaty to regulation has its origin in the new Title IV of the Treaty of the European Union which contains specific provisions on judicial cooperation in civil matters. ⁴ In particular Art 65 TEU anticipates that the Community will take measures to improve and simplify the recognition and enforcement of decisions in civil and commercial cases.

According to Art 23 BIR, where one or more of the parties to a contract is domiciled in a Member State and those parties have agreed that a court or the courts of a Member State are to have jurisdiction to settle any disputes which have arisen or which may arise in connection with a particular legal relationship, that court or those courts shall have jurisdiction. Such jurisdiction shall be exclusive unless the parties have agreed otherwise.

The advantages and the important role which jurisdiction agreements play in international trade must be reassessed with regard to cross-border consumer contracts. In the vast majority of cases, consumer contracts are standard form contracts offered on a “take it or leave it” basis in which the consumer lacks knowledge of the exact significance of a jurisdiction clause and therefore agrees to it whilst being ignorant of all its implications. In consumer contracts, there is generally no bargaining power on the part of the consumer. Choice of forum agreements are normally incorporated into the contract or form part of the supplier’s general conditions.⁵ Jurisdiction clauses will rarely be individually negotiated.⁶ The risks of harming the consumer through jurisdiction clauses are basically twofold: first, by choosing a forum far from the consumer’s domicile, the supplier may seek to discourage him from bringing an action, restricting in such a case the consumer’s access to justice; second, jurisdiction agreements in international contracts may imply an indirect choice of the proper law of the contract. This consequence may be used by the supplier to avoid the application of a protective law.

As is well known, individual consumers who have a legitimate complaint face several difficulties even in a purely domestic situation.⁷ Consumers are often not aware of their rights, and even if they are, they may not know how to claim them. The biggest problem, however, is the fact that the relatively small amounts which are frequently involved will inhibit consumers from taking legal action. Moreover, litigation can be very costly and time-consuming.

All these difficulties in domestic cases are amplified in cross-border consumer disputes. In international litigation the consumer might have to litigate abroad and the law applicable to the contract might be a foreign law. Thus, consumers are even less likely to know their rights. Furthermore, finding a lawyer may be more difficult, and the proceedings are likely to be conducted in a foreign language.

Other barriers have been stressed by the Commission in the Green Paper on Consumer’s Access to Justice.⁸ Additional delays occur when letters rogatory have to be sent to the court of other Member States. And when the party who loses the dispute is domiciled in a country other than the one in which the court has handed down its decision, enforcement must be preceded by the recognition of the foreign decision.⁹ The Green Paper on Legal aid in civil matters also shows the difficulties met by cross-border litigants in obtaining access to legal aid.¹⁰

Moreover, there are numerous differences in the procedural rules of the different Member States which may lead to advantages in selecting trial in one Member State rather than another (eg litigation’s costs). When dealing with consumer complaints, some – but not all - Member States have special procedures whose main features are their celerity and low cost.¹¹ Therefore, the mere fact that the consumer has to take legal action abroad may inhibit him from seeking redress.

In addition, the supplier may seek, through a forum selection clause, to avoid the application of mandatory rules which protect the consumer. As every court applies its own rules of conflict of law to determine the applicable law, the selection of a court may determine the selection of the proper law applicable to the contract.

On the other hand, since 1980, the choice of law rules with regard to contractual obligations have been common to all Member States. The Rome Convention on the Law Applicable to Contractual Obligations has unified the choice of laws rules throughout the Community.¹² This means that all courts within the European Union will apply the same conflict of law rules and therefore, in principle, the substantive applicable law will be the same regardless of the forum.¹³ Art 5 of the Rome Convention aims to protect the consumer by determining the proper law of certain consumer contracts.¹⁴ To this end, Art. 5 limits the parties’ choice of the applicable law. The contract will be governed by the law chosen by the parties, but the application of the chosen law shall not have the result of depriving the consumer of the protection afforded to him by the mandatory rules of the place of his habitual residence. In the absence of such a choice the law of the place of the consumer’s habitual residence will apply.

However, when the chosen court is the court of a non-Member State, the Rome Convention does not apply, and the consumer will consequently not be protected by Art 5. The level of protection afforded to the consumer through the harmonisation of the laws of the Member States can be avoided through the choice of a foreign law as the law applicable to the contract.

The establishment of the Internal Market in Europe has significantly increased intra-Community consumer transactions. The free movement of goods and services provided for by the Treaty of Rome and the intensification of competition has increased the variety of goods and services, improved quality, and reduced prices.¹⁵ Furthermore, foreign suppliers of goods and services have now direct access to the consumer’s market. The free movement of persons has also increased the number of people moving from one State to another, be it for holidays, professional reasons, or in order to receive services. In order to benefit from the Internal Market, it is very important that the consumer feels confident when he enters into an intra-Community transaction. As has been pointed out, “all the consumer rights provided by the EC legislation and by domestic law will count for nothing if they cannot be effectively enforced.”¹⁶

Additionally, modern distribution methods, including those using tele-purchase and especially the Internet, facilitate cross-border consumer transactions. Without the purchaser having to leave his Member State, he may now easily enter into contracts with suppliers domiciled in other Member States as well as outside the European Union.

Thus, the question arises whether the European consumer entering into an international contract is sufficiently protected against harmful jurisdiction clauses.

Conscious of the potential negative effects of such clauses in intra-Community consumer transactions, the Member States of the European Community have restricted party autonomy in consumer contracts. Art 17 BIR aims to provide the consumer with the desired level of protection by limiting the enforceability of jurisdiction agreements in certain consumer contracts. A detailed analysis of the exact implications of the limitation provided by this provision is conducted in the first part of this article. To this end, we will examine the personal, material and territorial ambit of application of Section IV of the Brussels I Regulation entitled “Jurisdiction over Consumer Contracts” formed by Arts 15-17 BIR.

The study of the protective measures provided for by the Brussels I Regulation will show that there are some gaps which could be abused by foreign suppliers and might leave the European consumer unprotected. When a contract entered into by a consumer domiciled in the Community has a connection with a non-Member State but is still closely linked to the Community, we consider it necessary to protect the consumer. We intend to show by a comparison between Spanish and English legislation implementing the Unfair Terms in Consumer Contracts Directive that this legislation could be used in order to control jurisdiction clauses in consumer contracts beyond what is provided by the Brussels I Regulation.

2. The existing jurisdictional protective measures: Art 17 of the Brussels I Regulations

As has been said, Art 17 BIR limits, without prohibiting, the use of jurisdiction clauses in cross-border consumer contracts. Does this provide enough protection for the European consumer? In order to ascertain the extent of this limitation and its effects it is necessary to identify the scope of this provision as relates to (1) those persons (consumers) for whose benefit these special protective measures are provided (below, 2.1.1.1-2.1.1.2), (2) those contracts which fall under the BIR definition of “consumer contracts” (below, 2.1.2), and (3) the territorial scope of application of Section IV in particular, and of the Brussels I Regulation in general (below, 2.2).

The Brussels I Regulation has substantially modified the scope of application of Section IV while the rules of jurisdiction over consumer contracts remain almost identical. A thorough discussion of the revised Section IV of the Brussels I Regulation is beyond the scope of the present article. I will rather give an overview of the existing law under the Brussels I Regulation, referring back to the previous law (Brussels Convention) where appropriate.

For Section IV of the BIR to be applicable the following requirements must be fulfilled: first of all, the person who enters into an international contract must be a consumer according to the definition given by the Brussels I Regulation (Art 15(1) BIR); secondly, Art. 15 (1)(c) BIR imposes certain conditions relating to the conclusion of the contract, but these provisions do not apply to contracts for the sale of goods on instalment credit terms, or to a loan repayable by instalments, or any other credit arrangement made in order to finance the sale of goods.

Art 15(1)(c) (which mirrors Art 13 of the Brussels Convention) has been substantially amended while the definition of a consumer remains identical. As this notion of “consumer” has in the past proven to be the decisive factor within the rules governing jurisdiction,¹⁷ particular attention will be given to this important issue. This will be followed by a briefer account of the meaning and effects of Art 15 (1)(c).

Before turning to the analysis of Art 15 (1), one more preliminary remark seems appropriate as relates to the continuity between Brussels Convention and Brussels I Regulation. While the latter has replaced the former, the Brussels Convention, and particularly the interpretation given by the ECJ to several provisions of the Convention by virtue of the Luxemburg Protocol of 3 June 1971 remain important aids for the interpretation of the Brussels I Regulation. The same is true for the accompanying Report to the Brussels Convention,¹⁸ which retains its relevance for the simple reason that the Brussels I Regulation, as an instrument of Community secondary legislation, cannot be accompanied by a similar official Report.¹⁹ Furthermore, attention must be paid to the Rome Convention and the Giuliano/Lagarde Report.²⁰ That Report stated i.a. that the consumer within Art 5 of the 1980 Rome Convention on the Law Applicable to Contractual Obligations had to be interpreted in accordance with the Brussels Convention.²¹ Even if the Schlosser Report does not refer to the Rome Convention, given that the two Conventions were drafted at the same time, it is widely accepted²² that the Giuliano/Lagarde guidelines on Art 5 should be taken into consideration when construing Art 13(1) BC and extensively Art 15 BIR (although the Protocols which would establish jurisdiction for the European Court of Justice to interpret the Rome Convention are not yet in force.)²³

2.1. Scope of application of Art 15 BIR

2.1.1. Definition of ‘consumer’ within Art 15 BIR: some interpretative issues

Art 15(1) BIR defines ‘consumer’ as the person who concludes a contract “for a purpose which can be regarded as being outside his trade or profession;” this formulation, which is ambiguous and imprecise, gives rise to some problems in the application of the protective jurisdictional rules.

In its case-law with regard to the interpretation of the former Section IV of the Brussels Convention, the Court of Justice has laid down three main canons of construction: autonomous interpretation, restrictive interpretation, and teleological interpretation.²⁴

The first case brought to the European Court of Justice concerning Section IV of the Brussels Convention was Société Bertrand v Paul Ott KG.²⁵ Bertrand, a French company, was sued before a German court by Ott, a German company, for non-payment of the total amount of two equal bills of exchange payable at 60 and 90 days as the price of a machine tool. A French court subsequently held that the decision of the German court was enforceable in France. Bertrand appealed against the decision of the French court on the grounds that a sale in which the price must be paid in particular by two bills of exchange constitutes a credit sale, that it is mandatory for actions against credit buyers to be brought before the courts of the State in which the buyer is domiciled, and that a decision of a foreign court which has not complied with this binding rule on jurisdiction cannot be made enforceable in France. The French Cour de Cassation referred a question to the ECJ on the interpretation of Art 13(1) BC (Art 15 BIR) in order to ascertain whether the transaction in question was a sale of goods on instalment credit terms, in which case the French court could have reviewed the German court’s jurisdiction and denied the enforcement of the decision under Art 28 of the Brussels Convention.²⁶

The ECJ had two options. The first was to interpret the expression “sale of goods on instalment credit terms” according to the law of a particular Member State, in which case the ECJ should have chosen either the law of the Member State where the case was tried, or the law of the Member State where enforcement was sought. The second was to interpret this term as a uniform Community concept, giving it an autonomous interpretation valid for all Member States. The Court followed the second option and held that “for the purpose of eliminating obstacles to legal relations and to the settlement of disputes in the context of intra-Community relations in matters of the sale of goods on instalment credit terms”²⁷ it is necessary “to consider that concept as being independent and therefore common to all Members States.”²⁸ The approach in the case-law has been consistent²⁹ with an autonomous and uniform interpretation of the notion “consumer”, with reference to the system and objectives of the Convention. In his opinion in Benincasa Advocate General Ruiz-Jarabo Colomer outlines two main reasons for such interpretation.³⁰ Firstly, national legislation varies from one State to another and may differ strongly in certain aspects, depending on the case at issue. To rely on a particular piece of legislation rather than another would jeopardise the legal certainty that the Brussels Convention seeks to ensure. Secondly, the same national legislation may contain different definitions of ‘consumer’ depending on the field of law in which they occur.³¹

The second principle stated by the Court in the Bertrand case and followed in the subsequent case-law was the necessity of a restrictive interpretation of the concept of consumer. The possibility given to the consumer in Art 14(2) BC (Art 16 BIR) of suing the other contracting party before the Court at the claimant’s domicile (forum actoris) “cannot give rise to an interpretation going beyond the cases envisaged by the Convention.”³² Section IV of the Brussels I Regulation derogates from the general principle of the Regulation (Art 2), according to which the national courts of the Member State in which the defendant is domiciled are to have jurisdiction.

The Court also stated the necessity of a teleological interpretation of Section IV. With regard to the Brussels Convention it held that this Section seeks to protect the consumer by providing a procedural safeguard.³³ Consumers, who are less experienced in legal matters and economically in a weaker position, must not “be discouraged from suing the other party to the contract being compelled to bring his action before the courts in the Member State in which the other party to the contract is domiciled.”³⁴ Therefore, “the protective role fulfilled by those provisions implies that the application of the rules of special jurisdiction laid down to that end by the Convention should not be extended to persons to whom that protection is not justified.”³⁵

The application of both a restrictive and teleological interpretation of the term ‘consumer’ could give rise to some problems of construction. In certain situations the restrictive and teleological interpretation could lead to different results. As will be shown, some situations may require special protection due to the existence of an unequal bargaining power of the contracting parties (teleological interpretation); however, following a restrictive interpretation, these situations could fall outside Section IV.

In light of these principles we will now try to outline and further develop the essential features of the notion of consumer as laid down in Art 15 BIR. To this end we will first focus on the meaning of “a purpose which can be regarded as being outside his (the consumer’s) trade or profession.” Secondly, we will examine the term “person,” in order to ascertain whether the special rules of jurisdiction apply only to individuals (natural persons) or whether other persons (companies, corporations etc.) can also be regarded as consumers within the meaning of Art 15 BIR.³⁶

2.1.1.1. Meaning of “a purpose which can be regarded as being outside his trade or profession”

In defining the term ‘consumer’, Art 15 BIR emphasises the non-professional or non-trade character of the consumer activity.³⁷ The person in question must conclude a contract for a purpose which must be regarded as being outside his trade or profession.

The rather general nature of this description leaves open a number of questions. Some of these have been clarified by the European Court of Justice, while others remain unresolved.

One could argue from the wording of Art 15 BIR that all those individuals who are acting outside any trade or profession fulfil the conditions stated by the Convention. However, in his opinion in Benincasa, the Advocate General states that “the status of the consumer referred to by Art 13 [BC] is not determined by a pre-existing subjective situation: the same natural person may be a consumer for certain purposes and an entrepreneur for others.”³⁸ Therefore the quality of ‘consumer’ depends on the position held by the person concerned as relates to the contract in question. As has been pointed out by Bischoff, the quality of ‘consumer’ cannot be regarded as a personal status such as “marital status”.³⁹

Moreover, the contract must be a ‘consumer contract’ and not one of a commercial nature.⁴⁰ This principle was laid down by the Court in the Benincasa case.⁴¹ This case concerned an Italian national with residence in Munich, Mr Benincasa, who concluded a franchising contract with Dentalkit Srl, an Italian company which set up in 1987 a chain of franchised shops in Italy specialised in dental hygiene products. The contract was concluded by Mr Benincasa in order to establish and operate a shop in Munich. Mr Benincasa set up the shop, paid the initial sum and entered into some purchase agreements, which were never paid for. He ceased his business and sued Dentalkit before the Landericht at Munich, arguing that the franchise agreement and the subsequent purchase contracts were void. Dentalkit raised the objection that the German Court had no jurisdiction because of the existence of a jurisdiction clause in favour of the Courts of Florence. Mr Benincasa pleaded, inter alia, that the application of the jurisdiction clause was to be excluded since he was a ‘consumer’ within the meaning of Art 13 BC (Art 15 RBI) and that therefore, according to Art 15 BC (Art 17 BIR) the clause had no effect. Furthermore, in accordance with Art 14 BC (Art 16 RBI) the consumer may sue the other contracting party before the Courts of the Member State in which the consumer has his habitual residence. If Mr Benincasa was regarded as a consumer, the German Courts had jurisdiction.⁴²

The Court was requested to give a preliminary ruling on the interpretation of the concept ‘consumer’ in order to determine whether Mr Benincasa was a ‘consumer’ within the definition given by Art 13 BC (now Art 15 BIR). To this effect, the Court held that “in order to determine whether a person has the capacity of a consumer, a concept which must be strictly constructed, reference must be made to the position of the person concerned in a particular contract, having regard to the nature and aim of the contract, and not to the subjective situation of the person concerned.”⁴³

It follows from the foregoing that when deciding whether a person is acting outside any trade or profession, the relevant factor is the contractual position of this person within the given contract, rather than the individual circumstances of the party concerned.⁴⁴ When he entered into the contract, Mr Benincasa was not a businessman. However, once he concluded the franchise agreement with Dentalkit he started acting in a business capacity. Moreover, the purpose of the franchise agreement cannot be regarded as a private and final one.⁴⁵ Thus, the Court held that Mr Benincasa was not a consumer within the meaning of Art 13 BC (now Art 15 BIR), since “the specific protection sought to be afforded by those provisions is unwarranted in the case of contracts for the purpose of trade or professional activity, even if that activity is only planned for the future, since the fact that an activity is in the nature of a future activity does not divest it in any way of its trade or professional character.”⁴⁶

The result achieved by the Court in Benincasa conforms with the necessity of a restrictive interpretation of the notion ‘consumer’. However, it could be argued that this interpretation is inconsistent with a teleological approach. Mr Benincasa did not have any previous business experience and could therefore have been seen as the weaker party to the contract. However, the Advocate General stated that “the wording of Art 13 [BC (Art 15 BIR)] does not permit it to be extended to cover any contract, irrespective of its subject-matter and purpose, in which an economic weaker party is faced by a party in a position which is objectively superior or superior by reason of the circumstances.”⁴⁷ It is clear that Art 15 BIR cannot be applicable in all situations in which a difference in bargaining power exists.⁴⁸ This result would go against the scope of the protective jurisdictional measures. These protective measures have a clear procedural character. The forum actoris is upheld in order to encourage the ‘consumer’ to bring proceedings against the other contracting party without being compelled to bring his action before the Courts of the defendant’s domicile. Only those persons for whom proceedings are something unusual⁴⁹ must be protected; ie ‘consumers’ strictu sensu. Parties who act in a business capacity, even when less experienced than the other contracting party, must foresee the possibility of litigation.⁵⁰

Difficulties arise in defining when a person acts in a business capacity.⁵¹ There are some borderline situations that might fall under Art 15 BIR. We will analyse some of them so as to reach the conclusion that the term ‘consumer’ according to Art 15 BIR has to be interpreted in a restrictive way.

A trader or professional may conclude a contract partially for a trade purpose and partially for a domestic purpose. For example, a company could purchase a car for both business and private use. According to the Giuliano/Lagarde Report “the situation only falls under Art 5 if he [the relevant contracting party] acts primarily outside his trade or profession.”⁵² The burden of proof lies on the person invoking the application of the protective rules. Nonetheless, “where the receiver of goods or services or credit in fact acted primarily outside his trade or profession but the other party did not know this and, taking all the circumstances into account should not reasonably have known it, the situation falls outside the scope of Art 5.”⁵³ Thus, if the recipient of goods or services holds himself out as a professional, for instance, by using his professional stationery to order goods (which might well be used in his trade or profession), the good faith of the other party is protected and therefore the case will fall outside Art 5.⁵⁴

The Giuliano/Lagarde Report further states that the rule does not apply to contracts made by traders, manufacturers or persons in the exercise of a profession (eg doctors) who buy equipment or obtain services for that trade or profession.⁵⁵

On the other hand, a trader may use his economic and legal skills to conclude a contract for a purpose which can be regarded as being outside his trade or profession.⁵⁶ As pointed out by Esplugues Mota, one can imagine a trader who buys some furniture for his house. In that case, the purchaser acts outside his business but uses his economic and legal skills to conclude the contract, and therefore it could be argued that he does not need special protection on the grounds of his weaker position. Nevertheless, this case might well be covered by the wording of Art 15 BIR. Carrillo⁵⁷ rightly observes that to grant such a person the protective fora could go against the objectives of the Convention as interpreted by the ECJ, since “the Convention is inspired by the concern to protect the consumer as the party deemed to be economically weaker and less experienced in legal matters.”⁵⁸

The Court of Justice has from the very beginning limited the scope of Art 13 BC (Art 15 BIR) requiring that the consumer acts in a final and private capacity.⁵⁹ The same principle can be found in the Schlosser Report which states that “only final consumers acting in a private capacity should be given special protection and not those contracting in the course of their business to pay by instalments for goods and services used.”⁶⁰

What is to be understood by the terms ‘final’ and ‘private’ consumption? While the term ‘private’ arguably refers to a non-professional or non-trader, similar to the concept of “familiar or domestic” used in other conventions⁶¹ and in domestic legislation, the term ‘final’ is more difficult.

In Shearson Lehman Hutton Inc. v TVB,⁶² the main issue related to the applicability of Section IV to agency contracts concerning currency, security and commodity futures. A German judge entered into an agency contract for currency, security and commodity futures transactions with Hutton Inc., an American brokerage company registered in New York. The German subsidiary of the American firm, Hutton GmbH, acted as the intermediary. The considerable sums invested by the judge were nearly all lost; he then decided to assign his claims to TVB a German trust company, registered in Munich. TVB sued Hutton Inc. (which in the meantime had been taken over by another American Company, Shearson Lehman Hutton) in a German Court, claiming reimbursement of the losses. The action was based on unjust enrichment, damage for breach of contract and of pre-contractual obligations and for negligence, on the basis that the defendant had not sufficiently explained to the assignor the risks of the futures transactions. While the Landgericht of Munich declined jurisdiction, the Oberlandesgericht held that the Landgericht had jurisdiction. Shearson Lehman then appealed to the Bundesgerichtshof, which referred the issue to the ECJ for a preliminary ruling on the applicability of Art 13 BC (Art 15 BIR).⁶³

The Court of Justice ruled that Section IV of the Brussels Convention was not applicable in this case since TVB, the assignee company, was not a consumer within Art 13 BC (Art 15 BIR). The Court did not examine whether this kind of contract might have fallen under Section IV had the plaintiff been a consumer. In fact, though, a person who invests through a brokerage company in the exchange market does not necessarily act as a professional.⁶⁴ Rather, following the definition given by Art 15 BIR such an investor may be regarded as a consumer. The main problem, were the point to arise in a future case, would be to decide if the private investor who enters into an agency contract concerning currency, security and commodity futures could be considered a ‘final consumer’. The answer to that question, which depends on the meaning of the latter term as used by the Official Reports and the Court of Justice, is unclear. ⁶⁵

The person who invests through a brokerage company in the exchange market merely seeks a profit for his investment.⁶⁶ Some authors define ‘final consumer’ as a person who purchases goods or services to satisfy his private necessities, and therefore who does not reintroduce the product acquired into the market.⁶⁷ According to them, the purpose of ‘the activity of the private investor is the reintroduction of the product in the market.’⁶⁸ Hence, following the above definition, such an investor cannot be regarded as a ‘final consumer.’ However Arenas, recognising the need for the protection of the private investor in this kind of situation, relies on the teleological interpretation to solve the problem: the person in question is not acting in a business capacity and therefore should not be “discouraged” from suing the other contracting party.⁶⁹

However, the same result can be achieved by means of another interpretation. The consumer who enters into an agency contract concerning currency, security and commodity futures receives not goods, but a service from the brokerage company. The contract between the private investor and the brokerage firm is normally a contract for the supply of services. From this perspective it could well be said that, since the consumption of that service is ‘final’, the consumer is a ‘final consumer’ or ‘final user’ vis-à-vis the brokerage firm. Therefore, when the person who enters into a contract of the type described acts outside his trade or profession, it is submitted that he may be regarded as a consumer within the definition in Art 15 BIR.⁷⁰ In such a case, the investor is a consumer vis-à-vis his agent, albeit not a consumer vis-à-vis the seller of the securities.

The Brussels I Regulation does not require the other party to the contract, ie the provider of the goods and services, to act in the course of a trade or profession.⁷¹ This omission could lead to the conclusion that a contract between two consumers may fall within the ambit of application of Section IV. However, the Giuliano/Lagarde Report notes that “in the opinion of the majority of the delegations it will, normally, only apply when the person who supplies goods or services or provides credit acts in the course of his trade or profession.”⁷² Thus, it is preferable to regard contracts entered into by two consumers as falling outside Art 15 BIR.⁷³

2.1.1.2. The meaning of the term “person”

The term ‘person’ is used in Art 15 BIR in a generic way, ie it does not refer to any particular kind of person, as some Directives do.⁷⁴ This gives rise to the question whether only individuals (natural persons) benefit from the special jurisdiction rules or other persons (companies, corporations, etc.) may be also regarded as consumers.⁷⁵

The wording of Art 15 BIR does not expressly exclude companies and other entities from falling within the concept of consumer,⁷⁶ although companies normally act in a business capacity.⁷⁷ Nevertheless, some non-trading companies, such as “those formed for the promotion of art, science, education, religion or charity, could be held to be acting outside of any trade or profession.”⁷⁸ Even so, such companies due to their corporate form are likely to be run in a business manner.⁷⁹

The consumer may assign his claim to a company. That was the situation in Shearson Lehman Hutton Inc. v. TVB case.⁸⁰ In order to be regarded as a consumer, the assignee company has to fulfil the requirements laid down by Art 13 BC (Art 15 BIR). In view of the ECJ, Art 13 BC (Art 15 BIR) only protects a private final consumer not engaged in trade or professional activities and who is a party to the action in accordance to Art 14 BC (Art 16 BIR).⁸¹ Thus, Section IV of the Convention does not apply to a plaintiff who is acting “in pursuance of his trade or professional activity and who, therefore, is not himself a consumer party to one of the contracts listed in Art 13(1) BC [Art 15 BIR].”⁸²

More difficulties arise in the case in which a consumer association claimed the application of Section IV of the Regulation when enforcing the consumer’s rights. As Kessedjian has pointed out, two kinds of actions can be distinguished:⁸³ first, those which seek “to represent a special category of persons in their individual claims” (eg class actions, actions en répresentation conjointe.⁸⁴). Secondly, there are actions intended to protect the collective interests of consumers (eg injunctions)⁸⁵. It is not the purpose of this research to analyse collective actions brought by consumer organisations or some public body in the consumer’s interest.⁸⁶ Thus, we will not examine the possibility of applying Section IV to injuctions, since in this kind of action the organisation acts in its own name and therefore, following the ECJ ruling in Shearson Lehman Hutton, cannot be regarded as a consumer.⁸⁷ The existence of this difficult problem was acknowledged by the Working Party for the Revision of the Brussels and Lugano Conventions. On that occasion, some delegations proposed an amendment⁸⁸ to include in Art 13 BC (Art 15 BIR) a section concerning injuctions. However no agreement was reached.

In the case of the French actions en répresentation conjointe, the action is brought on behalf of the consumer who has given a mandate to the organisation in question. This situation differs from that analysed under the Shearson Lehman Hutton case where the assignee company acted on its own behalf. Assuming that all other requirements laid down in Art 15 BIR are fulfilled it can be argued that those organisations can be regarded as consumers within Art 15 BIR, and therefore benefit from special protective fora. It is, however, difficult to justify a special procedural protection in these circumstances. Kessedjian has rightly observed that a real weakness deserving special procedural protection does not exist: the consumer can choose whether to assign his claim to a consumer association or to bring an action himself and take the benefits of Section IV of the Regulation.

It follows from the foregoing that the term ‘consumer’, laid down in Art 15 BIR, must be interpreted in a uniform way common to all Member States. The Court has not yet fully defined the consumer concept in an autonomous way. It has, however, stated some guidelines so as to designate the persons who benefit from special jurisdiction rules. Firstly, a teleological interpretation must be applied with regard to the protective objectives of Section IV in order to protect a final private consumer not engaged in any trade or profession. Secondly, Section IV must be interpreted in a restrictive way, so as to cover only the consumer who really needs to be protected. Moreover, it can be assumed that in principle only individuals (natural persons) may be regarded as consumers. Finally, the consumer must be a party to the proceedings and must be bound by one of the consumer contracts covered by Art 15 BIR.

2.1.2. Consumer contracts covered by Art 15 BIR and the conditions relating to the conclusion of the contract

Art 15 BIR divides consumer contracts into three categories. First, it applies to “contract for the sale of goods on instalment credit terms” (Art 15(1)(a)); secondly, it covers contracts for a loan repayable by instalments, or any other form of credit, made to finance the sale of goods (Art 15(1)(b)). Thirdly, in ‘all other cases’ jurisdiction shall be determined by Section IV when the contract “has been concluded with a person who pursues commercial or professional activities in the Member State of the consumer’s domicile or, by any means, directs such activities to that Member State or to Several States including that Member State, and the contract falls within the scope of such activities”. Finally, Section IV does not apply to a contract of transport other than a contract which, for an inclusive price, provides for a combination of travel and accommodation (Art 15(3) BIR).

A distinction should be noted between, on the one hand, sale of goods and loans on instalment credit terms and, on the other hand, all other consumer contracts. Only the latter must produce certain effects within (or be connected to) in the market of the country of the consumer’s domicile.⁸⁹

The concept of “sale of goods on instalment credit terms” in Art 13(1)(1) BC (Art 15(a) BIR) has been given an autonomous interpretation by the ECJ. In its decision in Bertrand v Ott,⁹⁰ the Court of Justice held that a contract of sale on instalment credit terms is a transaction in which the price is discharged by way of several payments or which is linked to a financing contract. Further, according to the Schlosser report, “the rules governing instalment sales also apply to the legal institution of hire purchase, which has developed into the commonest legal form for transacting instalment sales in the UK.”⁹¹

In its recent case Hans-Herman Mietz v Intership Yachting Sneek BV,⁹² the Court has further developed the definition of “sale of goods on instalment credit terms.” The case concerned a contract, described by the parties as a “contract of sale,” for the construction of a yacht conforming to a standard model but with a number of alterations to be made, between Mr Mietz, domiciled in Germany, and Intership Yachting, a Dutch company. Mr Mietz was to pay DM 250,000 in five instalments while Intership Yachting undertook to manufacture the yacht and to transfer title to Mr Mietz after the full payment of the price. One of the questions referred to the ECJ was whether the contract described was a contract of sale of goods on instalment credit terms within the meaning of Art 13(1)(1) BC (Art 15(a) BIR). The ECJ held that Art 13(1)(1) BC (Art 15(a) BIR) is intended to “protect the purchaser where the vendor has granted him credit; that is to say, where the vendor has transferred to the purchaser possession of the goods in question before the purchaser has paid the full price.”⁹³ The main reason for such protection is “on the one hand, that the purchaser may, when the contract is concluded, be misled as to the real amount which he owes, and on the other, he will bear the risk of loss of those goods while remaining obliged to pay any outstanding instalments.”⁹⁴ Following these considerations, the Court held that the contract at stake was not covered by Art 13(1)(1) BC (Art 15(a) BIR), but was to be classified as a contract for the supply of services or of goods within the meaning of Art 13(1)(3) BC.

As has been said, letter (c) of Art 15 BIR states that “in all other cases, the contract has been concluded with a person who pursues commercial or professional activities in the State of the consumer’s domicile or, by any means, directs such activities to that State or to several States including that State, and the contract falls within the scope of such activities.” Two significant amendments have been made with regard to the former provision of the Brussels Convention (Art 13(1)(3)) . In the first place, Art 15(1)(c) does not limit the protection to “any other contract for the supply of goods or the supply of services” (as does Art 13 BC), but refers to “all other cases.” It may thus be assumed that consumer contracts other than those referred to in Art 15(1)(a) and (b) are subject to the special jurisdiction provision, provided that one of the parties to the contract can be regarded as a consumer. This fact strengthens the significance of the concept of “consumer” discussed in the previous section. The Brussels I Regulation has therefore extended the material scope of application of Section IV, solving one of the main protective drawbacks of the jurisdiction rules regarding consumer contracts.

Secondly, the amended Art 15 BIR redefines the necessary conditions that “all other consumer contracts” have to fulfil in order to receive protection.⁹⁵ The main concern related to the use of new technologies and, in particular, whether e-commerce consumer transactions, the so-called Business to Consumer contracts (hereinafter BtoC), were covered (or ought to be covered) by Section IV of the former Brussels Convention. The wording of Art 13(3) BC was uncertain on this point. Therefore, one of the main objectives of the revised version of Art 15 BIR was to clarify in which situations the consumer was granted the forum actoris when contracting through the Internet.⁹⁶ As the Council and the Commission pointed out, “the development of electronic commerce in the information society facilitates the economic growth of undertakings. Community law is an essential if citizens, economic operators and consumers are to benefit from the possibilities afforded by electronic commerce.” However, the decision to include BtoC contracts in Section IV of the BIR was highly criticised by industry.

Art 15 BIR has set out the conditions with regard to the conclusion of the contract in a more flexible way, that is to say, it is less casuistic and therefore will be easier to apply to new situations which probably deserve protection. The first condition is that the contract has been concluded with a supplier who pursues commercial or professional activities in the State of the consumer’s domicile or, by any means, directs such activities within that State or several States including that State. Secondly, the contract has to fall within the scope of such activities. In these cases the consumer can sue the supplier in the courts of his (the consumer’s) country of domicile (Art 16 BIR).

The conditions formerly laid down in Art 13 BC, according to which the conclusion of the contract had to be preceded by a specific invitation or advertisement addressed to the consumer in his country of domicile and that he must there have taken the steps necessary for the conclusion of the contract, have been omitted in the Regulation. The last omission is especially significant in relation to BtoC contracts.⁹⁷ In such contracts, the place where the consumer concludes the contract could be very difficult to determine. As has been remarked, with the new wording of Art 15 BIR “we can assume that as long as the consumer has his domicile within the territory of a Member State, the e-commerce contract can be concluded not only from the State of his domicile but also while the person in question is on travel,” whenever the web site where the goods or materials are being advertised is available in the Member State where the consumer has his domicile.⁹⁸

As has been pointed out, Art 15 (c) BIR includes two criteria in order to give jurisdiction to the courts of the consumer’s domicile. The first is the so-called “Doing Business” test, which requires the supplier to be engaged in commercial or professional activities in the State of the consumer’s domicile. Whenever the supplier operates in the consumer’s market he will foresee the possibility of being sued in that State. The second criterion is that of the so-called “Stream-of-Commerce”, which extends to those cases in which the supplier directs commercial or professional activities to the State of the consumer’s domicile. In the latter , the supplier is deemed to assume the risk of being sued in that State.⁹⁹

The question which arises at this point is the exact meaning of “directing activities,” ie when should a professional be considered as directing its activities to the State of the consumer’s domicile or to several States including that State? It seems that the mere accessibility of a web site in a particular State would not be sufficient. On the contrary, when the supplier solicits the consumer through e-mail (for example), Art 15 (c) applies.¹⁰⁰ When the web site permits the conclusion of the contract through the Internet (on-line), Art 15 (c) applies unless the site expressly excludes activities from being directed at certain markets, or prevents consumers domiciled in certain Member States from contracting.

The Council and the Commission have pointed out in their statement on Art 15 BIR that “for Art 15(1)(c) to be applicable it is not sufficient for an undertaking to target its activities at the Member State of the consumer’s residence, or at a number of Member States including that Member State; a contract must also be concluded within the framework of its activities. This provision relates to a number of marketing methods, including contracts concluded at a distance through the Internet.” In this context they stress that “the mere fact that an Internet site is accessible is not sufficient for Art 15 to be applicable, although a factor will be that this Internet site solicits the conclusion of distance contracts and that a contract has actually been concluded at a distance, by whatever means. In this respect, the language or currency which a website uses does not constitute a relevant factor.”¹⁰¹

The distinction laid down by the Council and the Commission between passive and active web sites has been criticised by some authors. According to Droz and Gaudemet-Tallon, web site advertising if accessible in the State of the consumer’s domicile meets the criterion and therefore makes the distinction between passive and active sites irrelevant.¹⁰²

Despite the objections made to Art 15 (c) BIR, the truth is that the Community institutions wanted to protect the consumer who enters into BtoC contracts. The main difficulty is to ascertain the limits of this protection and the situations which should deserve protection. To that end it is very important to determine the meaning of the term ‘directing activities’ at a Member State. However, in the absence of official guidance we must await an ECJ ruling that defines the concept.¹⁰³

2.2. Territorial condition arising from Art 16 and Art 4: both parties must be domiciled in a Member State

In the previous part we have analysed the material and personal scope of application of Section IV of the Brussels I Regulation. In order to apply Section IV, the territorial scope of application of the Brussels I Regulation must now be examined.¹⁰⁴

The general rule of jurisdiction laid down in Art 2 provides that persons domiciled in a Member State shall, whatever their nationality, be sued in the courts of that Member State (actor sequitur forum rei).¹⁰⁵ Therefore, in order to assess jurisdiction it is the defendant’s domicile which is relevant, while the plaintiff’s domicile is, in principle, irrelevant.¹⁰⁶ This rule is compulsory but not exhaustive.¹⁰⁷ Consistent with this rule, Art 4 provides that the Brussels I Regulation does not apply when the defendant is domiciled outside any Member State. In that case the relevant court will determine its jurisdiction according to its national rules (subject to Art 22 and 23 BIR).

In order to ascertain the territorial scope of application of Section IV, three situations must be analysed. The first is where both contracting parties, the consumer and the supplier, are domiciled in a Member State; secondly, one of the parties is not domiciled in a Member State; finally, the supplier not domiciled in any Member State has a branch, agency or other establishment in a Member State.

2.2.1. General rule: both parties domiciled in a Member State

Leaving aside some exceptions which will be analysed below,¹⁰⁸ when the consumer and the supplier are both domiciled in a Member State, the jurisdiction rules shall be determined according to Section IV. Art 16 provides that the consumer may choose whether to sue the supplier before the courts of the State where he, the consumer, is domiciled, or before the courts of the State where the supplier is domiciled. The first option (forum actoris) constitutes one of the principal mechanisms for the protection of the consumer,¹⁰⁹ the second option corresponds to the general rule provided by Art 2. On the other hand, the supplier may only bring an action against the consumer in the courts of the State of the consumer’s domicile.¹¹⁰

2.2.2. One of the parties domiciled outside any Member State

More difficulties arise when one of the contracting parties is not domiciled in a Member State.

Where the plaintiff is domiciled in a non-Member State and brings an action in a Member State, then, according to the general rule provided by Art 2 BIR, the courts of the State of the defendant's domicile have jurisdiction. Thus, in the case of a defendant supplier domiciled outside a Member State who enters into a contract with a consumer domiciled in a Member State, the supplier benefits from the application of the Brussels I Regulation. This result is in principle not surprising since the rule actor sequitur forum rei is broadly accepted.¹¹¹ However, the very application of the Brussels I Regulation in a situation like the one described above is controversial. Provided that the supplier is domiciled in a non-Member State and the consumer is domiciled in a Member State, the situation is only connected to one Member State. In that case the situation is a non intra-Community one and therefore it could be argued that the Brussels I Regulation should not apply. As has been remarked “the Contracting States were setting up an intra-Convention mandatory system of jurisdiction. They were not regulating relations with non-Member States.”¹¹² Thus, the courts of the Member State involved should assess their jurisdiction according to their own national jurisdiction rules. This was the reasoning used by the Court of Appeal in Re Harrods (Buenos Aires) Ltd.¹¹³ in applying the forum non conveniens doctrine in a case where the defendant was domiciled in England. It held that the Brussels Convention was not applicable since England was the only Contracting State involved. Thus, English courts here had to assess whether or not they had jurisdiction according to their own national rules.¹¹⁴ Therefore they could decline jurisdiction.

The ECJ finally had the opportunity to rule on the above-mentioned question in its decision in Group Josi Reinsurance Company SA.¹¹⁵ The Court stated that “Title II of the Convention is in principle applicable where the defendant has its domicile or seat in a Contracting State, even if the plaintiff is domiciled in a non-member country. It would be otherwise only in exceptional cases where an express provision of the Convention provides that the application of the rule of jurisdiction which it sets out is dependent on the plaintiff’s domicile being in a Contracting State.”¹¹⁶ It may therefore be assumed that, whenever the defendant is domiciled in the territory of a Member State, Art 2 of the Regulation shall apply nothwithstanding the plaintiff’s domicile in a non-Member State.

In this context Recital 11 of the Brussels I Regulation states that “[The] rules of jurisdiction must be highly predictable and founded on the principle that jurisdiction is generally based on the defendant’s domicile and jurisdiction must always be available on this ground save in a few well-defined situations in which the subject-matter of the litigation or the autonomy of the parties warrants a different linking factor.” This statement has led Droz and Gaudemet-Tallon to argue that, insofar as jurisdiction on the ground of the defendant’s domicile must always be available, the Harrods case has effectively been overruled.¹¹⁷

When the defendant is domiciled in a non-Member State, according to Art 15(1) BIR read in conjunction with Art 4, Section IV is not applicable.

When a consumer domiciled outside the Community enters into a contract with a supplier domiciled within the Community, there is in principle no reason why he should benefit from the protective fora.¹¹⁸ If the consumer is sued before a court of a Member State, this court will apply its own national rules on jurisdiction and the supplier will be able to rely on any applicable long-arm national jurisdiction rules.¹¹⁹ For instance, a French supplier who sues a consumer domiciled outside any Member State before the French Courts may also rely on Art 14 of the French Civil Code.¹²⁰

When the supplier is the defendant and is domiciled outside a Member State, it is not so clear whether the consumer could benefit from the forum actoris and bring proceedings in the courts of the Member State in which he himself is domiciled. This problem arose in Brenner and Noller v Dean Witter Reynolds Inc.,¹²¹ a case in which two individual consumers,¹²² both domiciled in Germany, entered into an agreement with an American company, Dean Witter Reynols Inc. registered in New York, for the management of commodity futures transactions on a commission basis. Subsequently, the American firm penetrated the German market through advertisements made by its agency Dean Witter Reynolds GmbH, a German company established in Frankfurt. The agreement in this case, however, was exclusively mediated through another German company, Metzler Wirschafts-und Börsenberatungsgesellschaft, which was completely independent from the American firm.

The sums invested by the American firm on behalf of the plaintiffs were almost entirely lost. Thus, Mr Brenner and Mr Noller sued the American firm in the German courts for compensation on the grounds of breach of contractual and pre-contractual obligations, tortious conduct in connection with inflating charges by carrying out a large number of sometimes unreasonable transactions, and unjust enrichment.

The German court of first instance declined jurisdiction and its decision was upheld on appeal. The Bundesgerichtshof,¹²³ referred four questions to the ECJ on the interpretation of Art 13-14 of the Brussels Convention.¹²⁴

In its reference the Bundesgerichtshof made clear that in the present case the defendant (the American firm) was not domiciled in a Member State and no branch, agency or other establishment within the meaning of Art 13(2) BC (15(2) BIR) acted as intermediary in the conclusion or performance of the contract.¹²⁵ Thus, the contract was concluded by a consumer domiciled in a Contracting State (Germany) and a supplier domiciled in a non-Member State (New York).

The German court asked the ECJ whether, in order to apply Section IV, it is necessary that the supplier is domiciled in a Member State, or is deemed to be so under the second paragraph of Art 13 BC (Art 15 BIR). The ECJ firstly noted that Art 13(1) BC (Art 15 BIR) expressly states that Section IV, as a whole, applies “without prejudice to the provisions of Art 4.”¹²⁶ According to this provision, when the defendant is domiciled in a non-Member State, “the jurisdiction of each Contracting State shall, subject to the provisions of Art 16, be determined by the law of that State.”¹²⁷ The Court then stated that with regard to consumer contracts the only exception to Art 4 is the one contained in Art 13(2) BC (Art 15(2)BIR); accordingly, “the courts of the State in which the consumer is domiciled have jurisdiction in proceedings under the second alternative of Art 14(1)(...) if the other party to the contract is domiciled in a Contracting State or is deemed under Art 13(2) to be so domiciled.”¹²⁸

The outcome of the ECJ’s decision is unsurprising since the wording of the Convention and the Brussels I Regulation is clear in this respect. However, it seems unjust for many reasons.

In the first place, as we have seen above, when the supplier is domiciled in a non- Member State he benefits from the application of the Brussels I Regulation when he brings proceedings in the courts of the consumer’s domicile (assuming the consumer is domiciled in a Member State). However, when the consumer wishes to sue the foreign supplier before the courts of his (the consumer’s) domicile, the Brussels I Regulation does not apply. For instance, an American supplier may sue a German consumer before the German courts according to the general rule of jurisdiction laid down in Art 2 BIR, whereas the German consumer may not bring an action against the American supplier in the German courts. Arguably, such a result would, in certain circumstances, be inconsistent with the European approach to consumer policy.

Secondly, however, in the Brenner case the consumer could rely neither on special rules of jurisdiction under German law,¹²⁹ nor on the long-arm fora provided for under German law.¹³⁰ The outcome of the ECJ’s decision is even more unsatisfactory with regard to the fact that each State will be able to apply its own jurisdiction rules, thus leading to different standards of consumer protection within the Community. For instance, if the same case had been decided by a Spanish court, the consumer, being domiciled in Spain, would have been able to sue the American supplier before the Spanish courts.¹³¹ The existence of different standards of protection throughout the Community may hinder the purpose of European consumer protection policy.¹³²

On the other hand, it might also be argued that the relevant situation is a non intra-Community one, and therefore is not a matter of Community Law but of national law. Thus, the problem in the case at hand could be seen as the result of a lack of protection provided for under the German jurisdiction rules and not as a failure of the Brussels I Regulation.¹³³

Although the outcome is discriminatory, the wording of the Regulation is very clear in this respect. However, it is next necessary to examine whether the exception provided for in Art 15(2) could be relied upon to grant the European consumer the desired protection.

2.2.3. The exception laid down in Art 15(2) BIR: the defendant domiciled outside a Member State has a branch, agency or other establishment in one of the Member States

Art 15(2) BIR¹³⁴ provides for an exception to Art 4 BIR: “Where a consumer enters into a contract with a party which is not domiciled in a Member State but has a branch, agency or other establishment in one of the Member States, that party shall, in disputes arising out of the operations of the branch, agency or establishment, be deemed to be domiciled in that State”¹³⁵. Thus the consumer may choose either to sue the other contracting party in the courts of the Member State where that party has the branch, agency or other establishment (hereinafter branch), or in the courts of his (the consumer’s) domicile.

The meaning of the terms “branch, agency and other establishment,” is not always easy to define, nor when the dispute arises “out of the operations of that branch, agency or establishment.” In order to supply a definition, reference must be made to the provision laid down in Art 5(5) BIR and the ECJ’s interpretation of the corresponding Brussels Convention provision. Art 5(5) BIR provides for a special jurisdiction rule, according to which if the defendant has a branch, and the dispute arises out of the operation of that branch, jurisdiction is given to the courts of the Member State where the branch is situated. As the wording of Art 5(5) and 15(2) BIR is almost identical, it has been argued that “the interpretation of Art 5(5) should be adopted in order to prevent confusion.”¹³⁶ However, such a joint construction may give rise to an interpretation of Art 15(2) BIR resulting in a lack of protection for the European consumer.

This is because the aim of Art 15(2) BIR is to protect the consumer by precluding the application of Art 4 BIR when the supplier is domiciled outside any Member State but has a branch in a Member State.¹³⁷ This could be seen as a way of securing the consumer the possibility of bringing proceedings within the Community, by finding him a defendant who is deemed to be domiciled in a Member State.¹³⁸ This protective intention cannot be found in Art 5(5) BIR, which departs from the general rule provided for in Art 2 BIR for a different reason, namely to facilitate proceedings.¹³⁹ The existence of a protective purpose distinguishes Art 15(2) from Art 5(5) BIR and therefore the contexts of both articles are different.¹⁴⁰ Thus, it would be possible to argue fort a wider construction of Art 15(2) BIR since a restrictive interpretation may jeopardise the intended consumer protection.

According to the case-law¹⁴¹ of the European Court of Justice, the essential features of the concept ‘branch’ are the following: first, the branch must be under the direction and control of the parent body.¹⁴² Secondly, it must have a place of business which has the appearance of permanency,¹⁴³ such as the extension of a parent body, so that third parties do not have to deal directly with such parent body but may transact business at the place of business constituting the extension. Finally, the branch must not simultaneously represent the interests of several competing firms.¹⁴⁴

This strict test shows the restrictive interpretation given by the Court which, as has been argued, “will often prevent the consumer from using the seat of the intermediary as a basis of jurisdiction.”¹⁴⁵ For instance, in the case of a brokerage contract the intermediary will often serve as a forwarding body where the branch is not subject to the direction and control of the brokerhouse, as happened in the cases Shearson Lehman Hutton v TVB and Brenner and Noller v Dean Witter Reynolds Inc.¹⁴⁶

In addition, in order for Art 5(5) BIR to apply, a second condition must be satisfied, namely the dispute must concern the operations of the branch. The concept of “operations of the branch” has been interpreted as encompassing issues of rights and contractual or non-contractual obligations in respect of the management of the branch itself. This would include matters arising out of the situation of its building or the local engagement of staff.¹⁴⁷ Moreover, it also includes “those [transactions] relating to undertakings which have been entered into at the [branch’s] place of business in the name of the parent body and which must be performed in the Contracting State where the [branch’s] place of business is established.”¹⁴⁸ Further, it also includes disputes in relation to non-contractual obligations that have arisen out of the branch’s activities at the place where it is established on behalf of the parent body.¹⁴⁹

More difficulties could arise if we accept the interpretation given by AG Darmon in Brenner. As we have seen in the Brenner case, the conditions laid down in Art 13(2) BC were not fulfilled and therefore the ECJ assumed that the defendant had no branch in a Member State. However, in AG Darmon’s opinion even if the requirements laid down in Art 13(2) BC had been fulfilled, Section IV would still not have applied since the supplier would have been deemed to be domiciled in Germany, the same state in which the consumer was domiciled. Thus, the dispute at issue would not be an international, but an internal one.¹⁵⁰

This reasoning has been strongly criticised.¹⁵¹ It has been argued that the necessity of an international condition in order to apply the Brussels Convention derives from the Preamble. It is, however, debatable to what extent the above mentioned statement means that the Brussels Convention is only applicable if the relevant situation has connections with at least two Member States.

On the other hand, Art 13(2) BC creates a deemed domicile for the defendant at the place where the branch is situated. This legal fiction may turn an international situation into a domestic one, as if, in Brenner, the American firm had actually been domiciled in Germany. It was this reasoning that led the Advocate General to suggest the non-applicability of the Brussels Convention. It is, however, only because of the application of Brussels Convention that the foreign firm would otherwise have been deemed to be domiciled in a Member State in the first place. Thus, it seems odd and contradictory to create a legal fiction in order to apply the Convention and subsequently use the selfsame fiction so as to deny its application.¹⁵² Moreover, if such an approach were upheld, discrimination may arise since the German plaintiff in Germany would be less protected than any other European consumer-plaintiff seeking to bring an action before the German courts.¹⁵³

Lastly, if we accept the construction given by the Advocate General we are in fact limiting the effectiveness of Art 13(2) BC (Art 15(2) BIR) since it is more common for the consumer to enter into a contract with a branch domiciled in his state than with a branch situated in another Member State.¹⁵⁴

As has been rightly observed by Briggs, the real remaining issue was not the international character of the dispute but whether the German Court had jurisdiction,¹⁵⁵ an issue that falls outside the Convention.

2.3. Jurisdiction clauses covered under Art 17 BIR (ex. Art 15 BC)

The Brussels I Regulation accords an important role to party autonomy. The parties are, in principle, free to choose the forum which is to have jurisdiction to determine potential or actual disputes. Art 23 BIR provides that “If the the parties, one or more of whom is domiciled in a Member State, have agreed that a court or the courts of a Member State are to have jurisdiction to settle any dispute which has arisen or may arise in connection with a particular legal relationship, that court or those courts shall have jurisdiction. Such jurisdiction shall be exclusive unless the parties have agreed otherwise.”¹⁵⁶ The article then sets out a number of formal requirements which the jurisdiction agreement must satisfy in order to be valid. A detailed analysis of Art 23 BIR¹⁵⁷ is beyond the scope of this article; it is, however, worth pointing out that jurisdiction agreements in international contracts are widely allowed, subject only to limitations that ensure that the parties have actually agreed to a choice of forum clause derogating from the ordinary jurisdictional rules, and that their consent is clearly and precisely demonstrated.¹⁵⁸

As has been seen, granting the parties a wide freedom to choose the competent forum in transnational contracts may cause serious harm to consumers. To avoid the potential negative consequences a choice of forum clause may cause for the consumer, Section IV of the Brussels I Regulation contains a special provision which limits party autonomy in consumer transactions.

The main objective of Art 17 BIR is to protect the consumer¹⁵⁹ by preventing the supplier from avoiding, through a choice of forum clause, the provisions laid down in Art 15 and Art 16 BIR, eg by limiting the choice granted to the consumer and/or avoiding restriction imposed on him.¹⁶⁰ Thus, a choice of forum clause granting jurisdiction to a court other than those provided for in Section IV is valid only if it complies with the conditions laid down in Art 17 BIR.

According to the first sentence of Art 17 BIR “the provisions of this Section (Section IV) may be departed from only by an agreement” which complies with one of the conditions set out in the subsequent paragraphs. As a result Art 17 BIR “only applies when there would otherwise be jurisdiction under Arts 13-14 (15-16 BIR), ie when one or more of the jurisdictions in Section IV is being derogated from.”¹⁶¹ Conversely, when Section IV is not applicable and the contract contains a jurisdiction clause, Art 23 BIR is in principle applicable.¹⁶²

In the following section we will analyse jurisdiction agreements falling within Art 17 BIR in order to ascertain whether the European consumer is adequately protected against detrimental jurisdiction clauses. To this end we will examine briefly the three conditions of effectiveness laid down in Art 17 BIR and the scope of their application.

2.3.1. Conditions of effectiveness

Art 17 BIR provides that “the provisions of this Section may be departed from only by an agreement:

1. Which is entered into after the dispute has arisen.
2. Which allows the consumer to bring proceedings in courts other than those indicated in this Section.
3. Which is entered into by the consumer and the other party to the contract, both of whom are at the time of conclusion of the contract domiciled or habitually resident in the same Member State, and which confers jurisdiction on the courts of that Member State, provided that such an agreement is not contrary to the law of that Member State.”

The first and the second conditions clearly protect the weaker party, while the third aims to protect the supplier against a change of domicile by the consumer. Each of these conditions will now be examined in more detail.

2.3.1.1. “Which is entered into after the dispute has arisen”

The consumer is protected against jurisdiction agreements entered into before the dispute has arisen.¹⁶³ For instance, a choice of forum clause inserted in a standard form contract which the consumer is unable to negotiate at the time of conclusion of the contract will not be effective. However, once the dispute has arisen it is assumed that the consumer is aware of the effects of such a clause. At that time he is likely to contemplate litigation¹⁶⁴ and thus, it is plausible that he will seek legal advice. Thus, he is more likely to understand the significance of a jurisdiction clause. ¹⁶⁵

The controversial question relates to the concept of ‘dispute’¹⁶⁶ and to the point of time at which the dispute may be said to have ‘arisen’.¹⁶⁷ Three different stages may be distinguished: first, an “informal stage” where the parties acknowledge the existence of a problem within their contractual relationship; second, the moment when the writ is served on the defendant; finally, when the defendant enters an appearance. The second and the third stage imply the existence of legal proceedings, while the first one does not necessarily presuppose that the conflicts between the parties will result in litigation.¹⁶⁸

In the light of the protective objectives of Section IV, it could be argued that the dispute should be regarded as arising at the latest possible moment, namely, when the defendant enters an appearance. However, as Kaye has rightly pointed out, this interpretation “would tend to deprive Art 15 (1) [Art 17 BIR] of most of its positive scope of operation, given the unlikelihood in practice of jurisdiction agreements being entered into after one party has already commenced proceedings and the general inferred Convention principle, in any event, of assessing jurisdictional grounds and competence as at the date of institution of proceedings and not thereafter.”¹⁶⁹ If the ‘dispute’ were considered to arise only with the appearance of the defendant, Art17(1) BIR will in practice be otiose since Art 24 BIR¹⁷⁰ provides for a special jurisdiction ground when the defendant enters an appearance defence and the latter is not entered solely to contest jurisdiction. Although Art 15 BIR does not refer to Art 24 BIR, most commentators¹⁷¹ consider that it also applies to consumer contracts since as we have seen, the consumer is aware of the existence of legal proceedings and is therefore likely to take seek advice.

Thus, the relevant time within this provision should be construed as the stage after the conclusion of the contract and before the institution of proceedings,¹⁷² ie what we have called the “informal stage.”¹⁷³

2.3.1.2. “Which allows the consumer to bring proceedings in courts other than those indicated in this Section”

Art 17(2) BIR allows the parties to insert a jurisdiction clause even before the dispute has arisen when the clause is for the exclusive benefit of the consumer.¹⁷⁴ Although the wording of this provision is rather vague, it must be interpreted as a means of granting an alternative forum to the consumer and not as imposing exclusive jurisdiction upon him.¹⁷⁵ If the latter were the case, the protective aim pursued by Art 17(2) BIR would be defeated, since at the time of the conclusion of the contract the consumer cannot fully assess whether the chosen forum is convenient. The consumer (beneficiary of the jurisdiction clause) retains, therefore, the right to bring proceedings before the fora provided for in Art 16 BIR.¹⁷⁶

It is however difficult to imagine when the consumer would wish to use the additional forum granted by Art 17(2) BIR. The choice of forum clause must grant jurisdiction to a forum different from the consumer’s domicile and the supplier’s domicile (the protective fora already provided for by Art 16 BIR). However, it is hard to conceive of a case where such a forum would prove more convenient for the consumer than his domicile or the supplier’s domicile. The analogous provision in the field of insurance contracts has, however, much to commend it as it considers the interests of persons other than the policyholder that might be affected by the contract, eg those of the insured or a beneficiary. When the policy holder is not the same person as the insured or beneficiary, it is possible to see the merits of a jurisdiction clause providing for the insured or beneficiary’ domicile as an alternative forum (Art 13(2) BIR).

2.3.1.3. “Which is entered into by the consumer and the other party to the contract, both of whom are at the time of the conclusion of the contract domiciled or habitually resident in the same Member State, and which confers jurisdiction on the courts of that State, provided that such an agreement is not contrary to the law of that State”

Three different situations may arise: first, both parties are domiciled in the chosen State; second, both parties are habitually resident in the chosen State; finally, one of the parties is domiciled and the other is habitually resident in the chosen State. It is not clear from the wording of Art 17(3) BIR whether all these situations are included or only the former two. According to Kaye, it is probable thatall three are meant to be covered, although “it would have been helpful, if Art 15(3) [17(3) BIR] had instead said “each of whom is....either domiciled or habitually resident in the same Contracting State.”

A further lacuna in Art 17(3) BIR is that it does not expressly mention the person who, after the conclusion of the contract, changes his domicile or habitual residence. However a change of domicile by the supplier would not have any significant effect, as he can only sue the consumer in the courts of the latter’s domicile. Equally, in such a case the consumer as plaintiff can always choose between the courts of his domicile and the courts of the supplier’s domicile (Art 16 BIR). It seems therefore that Art 17(3) BIR intends to protect the supplier as plaintiff from a change of domicile of the consumer.¹⁷⁷ In such a case, insofar as the contract is a consumer contract within Art 15 BIR, the supplier may be faced with a non-expected forum, the new consumer’s domicile.¹⁷⁸ Moreover, as Art 17(3) RBI establishes, the agreement shall not be contrary to the law of the chosen State.¹⁷⁹

2.3.2. The application of Art 23 BIR to intra-Community consumer transactions

A jurisdiction agreement in an international contract generally has two effects: it prorogates the jurisdiction of the chosen court (prorogatio fori) and it derogates from the natural jurisdiction (derogatio fori).¹⁸⁰

Art 17 BIR limits the derogative effect of jurisdiction clauses in a consumer contract. A jurisdiction agreement can derogate from the protective jurisdiction grounds in Art 15 and 16 BIR only if it complies with one of the conditions laid down in Art 17 BIR. Therefore the conditions under Art 17 BIR are “conditions of validity” of the jurisdiction agreements which derogate from Arts 15 and 16 BIR.

This analysis explains why Art 17 BIR does not require the jurisdiction agreement to fulfil any formal requirement and why it is necessary to relate Art 17 to Art 23 BIR, which is concerned, as we have seen, with the “prorogation of jurisdiction”. Further, Art 23(5) BIR states that “agreements....conferring jurisdiction shall have no legal force if they are contrary to the provisions of Articles 13, 17 or 21…”; thus it subjects the application of Art 23 BIR itself to, inter alia, Art 17 BIR. Therefore, provided that the jurisdiction agreement is permitted under Art 17 BIR, Art 23 BIR will apply to regulate the prorogative effect of the jurisdiction agreement.¹⁸¹

In order for a party to enforce a jurisdiction agreement valid under Art 17 BIR, it is also necessary for the jurisdiction clause to comply with the requirements laid down in Art 23 BIR. Under Art 23 BIR a jurisdiction agreement must satisfy not only certain formal requirements, but also a number of substantive conditions to bring the case within its scope of application.¹⁸² The question which arises is whether a jurisdiction agreement in a consumer contract must comply with both types of requirements or only with the formalities laid down in Art 23 BIR.

2.3.2.1. Formal requirements

It is submitted that the formalities laid down in Art 23 BIR must also be satisfied by a jurisdiction clause inserted in a consumer contract. The Schlosser Report,¹⁸³ the majority of commentators,¹⁸⁴ and the ECJ¹⁸⁵ all agree on the extension of the Art 23 BIR formal requirements to Art 17 BIR.¹⁸⁶ However, the obligation to fulfil Art 23 BIR formal requirements is due not so much to an extension of these conditions to Art 17 BIR, but to the application of Art 23 BIR to jurisdiction agreements in consumer contracts. Nonetheless, it seems that some of the formal requirements laid down in Art 23 BIR are not suitable for jurisdiction agreements in consumer contracts.

In order to satisfy such requirements, a jurisdiction agreement under Art 23(1) BIR must be:

“a) in writing or evidenced in writing, or
b) in a form which accords with the practices which the parties have established between themselves, or
c) in international trade or commerce, in a form which accords with a usage of which the parties are or ought to have been aware and which in such trade or commerce is widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade or commerce concerned.”¹⁸⁷

Art 23(2) BIR further states that “Any communication by electronic means which provides a durable record of the agreement shall be equivalent to ‘writing’.”¹⁸⁸

It seems clear that in consumer contracts the only relevant condition is the first one (and paragraph 2 in relation to BtoC contract), since in a consumer contract there will rarely be common practices between the parties (as required by Art 23 (1)(b)); on the other hand the use of the words “trade or commerce” in Art 23(1)(c) shows that this provision was introduced in order to take into account the uses and requirements of international trade. ¹⁸⁹

The formality requirements, under Art 23 BIR, according to which the jurisdiction agreement must be “in writing or evidenced in writing” is relevant also to jurisdiction agreements in consumer contracts. It has been argued,¹⁹⁰ however, that those formalities are superfluous in consumer contracts. This is because in so far as the jurisdiction agreement is entered into after the dispute has arisen, the consumer may be expected to have received legal advice as to the effect of an oral agreement, and therefore the protective formalities are not required. The view of this writer, however, is that if the dispute is indeed taken to have arisen at an “informal stage” , it is necessary, for the protection of the consumer, that there is a written confirmation of the agreement. Furthermore, when the jurisdiction agreement is agreed in favour of the consumer (Art 17(2) BIR), it is necessary that the intention to advantage the consumer be “clear from the wording of the jurisdiction clause, or from evidence therein, or from the surrounding circumstances.”¹⁹¹ Finally, when the third situation contemplated by Art 17 BIR arises, then, since this provision is designed basically to protect the supplier, it is also necessary that the jurisdiction agreement complies with Art 23 BIR formalities.¹⁹² Therefore, we may conclude that it is only where the jurisdiction agreement is relied upon to prorogate jurisdiction that it needs to satisfy the formal requirement laid down in Art 23 BIR.

2.3.2.2. Conditions of applicability

A jurisdiction clause must satisfy the following substantive conditions in order to be within the scope of application of Art 23 BIR:

• the chosen court must be the court of a Member State; and
• at least one of the contracting parties must be domiciled in a Member State.

A number of difficulties may arise in the application of these two conditions to jurisdiction agreements inserted in consumer contracts covered by Section IV BIR.

At the outset, an example may help to clarify the issue. Let us suppose that a consumer domiciled in England enters into a contract with the Spanish branch of an American firm which is registered in New York. The general conditions of the contract include an agreement conferring exclusive jurisdiction upon the courts of New York to resolve any disputes. The choice of forum clause has two effects: it prorogates the jurisdiction of the chosen court and it derogates from the natural jurisdiction. Therefore, in the case at issue, the jurisdiction agreement establishes the jurisdiction of the New York courts and derogates from that of the English courts. If the consumer subsequently brings an action before the English courts, as the courts of his domicile, the English court will have to ascertain its jurisdiction against the derogating jurisdiction clause. In such a case, should the effectiveness of the clause be assessed under Art 17 BIR or according to English national rules?

It has been argued that the requirements laid down in Art 23 BIR apply “almost certainly” to jurisdiction agreements under Art 17 BIR, since, as set out in the Preamble, the Convention determines the international jurisdiction of the courts of the Member States.¹⁹³ It follows from this interpretation that a court of a Member State faced with a jurisdiction agreement conferring jurisdiction to a court outside a Member State, “will be free to decide whether to give effect to the agreement, and to make that decision according to its own law including its conflicts rules.”¹⁹⁴

For example, according to English national law “Where plaintiffs sue in England in breach of an agreement to refer disputes to a foreign court, and the defendants apply for a stay, the English court, assuming the claim to be otherwise within its jurisdiction, is not bound to grant a stay but has a discretion whether to do so or not”.¹⁹⁵ The court will exercise its discretion unless the plaintiff produces compelling arguments to the contrary, for example, by showing that the jurisdiction clause is forbiden in a statutory rule (eg Consumer Credit Act, 1974, s.141(1)).¹⁹⁶ This rule is, nevertheless, subject to Art 23 of the BIR and, as will be shown is also subject to Art 17 BIR even when the jurisdiction clause is in favor of the courts of a non-Member State.

To the extent that the conditions laid down in Art 17 BIR limit the derogative effects of a jurisdiction agreement in a consumer contract, such limitations apply both where the chosen court is the court of a Member State, and where the chosen court is that of a non-Member State. In the latter case, such a clause can derogate from the protective fora provided for in Art 15-16 BIR only in so far as it complies with one of the conditions of Art 17 BIR, ie when it has been entered into after the dispute has arisen or when it affords the consumer an additional protective forum (in the sense that benefits the consumer and does not impede the possibility granted to the consumer in Art 15-16 BIR). The fulfilment of the third condition raises more difficulties since it requires both parties to be domiciled in a Member State and that the jurisdiction agreement confers jurisdiction upon the courts of that Member State.

It is worth distinguishing two different issues. The first is whether the court seised of the dispute has discretion to stay or to refuse leave to serve out the proceedings in the case of a jurisdiction clause granting jurisdiction to the court of a non-Member State in a consumer contract. The second question is whether the jurisdiction clause is valid. To distinguish the two issues is important because, as previously noted, the court seised can only consider the derogative effects of a clause granting jurisdiction to a court of a non-Member State in a consumer contract when this clause complies with one of the conditions laid down in Art 17 BIR Therefore, the court is not free to decide to stay proceedings or to refuse leave to serve out the proceedings. There is accordingly no discretion for the court when dealing with consumer contracts.

Insofar as the jurisdiction clause complies with one of the conditions under Art 17 BIR, it may still have to satisfy certain other requirements. The formalities of Art 23 BIR are, in this case, not applicable since the jurisdiction agreement grants jurisdiction to the courts of a non-Member State.¹⁹⁷ Therefore the “formal validity” of such clause will need to be assessed by the court seised in accordance with its own national rules including its conflicts of laws rules.

The effects of a non-Member State jurisdiction clause in a consumer contract are therefore different from those of such a clause in a commercial contract. In the latter case it seems that both questions (the discretion of the court seised whether to stay or to refuse leave to serve out, and the validity of the jurisdiction clause) must be assessed pursuant to national law.¹⁹⁸

As the Schlosser Report observes, there is nothing in the Convention which validates or invalidates such clauses, so the court seised will have to decide whether to give effect or not to such a clause in accordance with its own lex fori. As Briggs and Rees rightly point out, “that is a convenient result, and it accords with a point made in Re Harrods, where it was observed by the Court of Appeal that such clauses should be given effect, even despite the Convention.”¹⁹⁹ Thus, when dealing with commercial contracts it seems that an English court may have discretion to stay proceedings or to refuse leave to serve out the proceedings commenced in breach of a jurisdiction clause granting jurisdiction to the courts of a non-Member State.²⁰⁰ This interpretation²⁰¹ is, however, “sharply distinguishable from the general Spiliada doctrine,²⁰² and the argument advanced (in this section) does not, it is suggested, apply beyond it.”²⁰³

It would appear from the foregoing that the European consumer who enters into a consumer contract within Section IV BIR has nothing to fear in relation to jurisdiction agreements (even in the case of a non-Member State jurisdiction clause). There are, however, many transnational consumer contracts falling outside the scope of Section IV which may contain a jurisdiction agreement. The question whether in those cases the European consumer should or should not be protected by European legislation (either conventional or institutional) will be addressed in the third part of this article.

3. Jurisdiction clauses falling outside Article 17 of the Brussels I Regulation

3.1. Introduction

When the defendant supplier is domiciled outside the Community, Section IV BIR does not apply²⁰⁴ and the jurisdiction of the court within a Member State, which is seised of the matter, shall be determined according to its own national laws.²⁰⁵ What are the effects here of a choice of forum clause, inserted in a contract between a consumer domiciled in a Member State and a supplier domiciled in a non-Member State, which confers jurisdiction upon the courts of the non-Member State?

Let us imagine the case of an English consumer who, attracted by an advertisement, enters into a contract for the purchase of goods with an American firm. The contract contains a choice of forum clause in favour of the New York courts.

It should be noticed that there is nothing at Community level which may impede the New York court from hearing and determining any action in respect of this situation.²⁰⁶ Both the supplier and the consumer may bring their case before the chosen court. However, from a Community perspective, the question which arises is whether the consumer as plaintiff may commence proceedings in the courts of his domicile contrary to the jurisdiction agreement and, if so, whether the relevant court may assert jurisdiction.²⁰⁷

In the case at issue, if the English consumer were to sue the supplier before the English Courts relying on Art 16 of the Brussels I Regulation, the supplier could argue that, as he is not domiciled in a Member State, the Brussels I Regulation does not apply. If the consumer instead based his claim on national jurisdiction rules, the supplier could demand a stay of proceedings on the basis of the binding jurisdiction clause in favour of the New York courts. Whether the English courts would indeed have to stay proceedings or whether they should disregard the jurisdiction clause in issue is the question we intend to analyse.

In such a situation neither Art 17 nor Art 23 of the Brussels I Regulation would apply. The former, as has been shown, only applies when the defendant is domiciled in a Member State, whilst the latter requires, as a condition of applicability, that the chosen court is the court of a Member State. Thus, the validity and effectiveness of such a clause needs to be assessed according to national law.

The rules governing choice of law in contract have been unified throughout the European Community by the 1980 Rome Convention on the Applicable Law to Contractual Obligations. However, Art 1(2)(d) of the Rome Convention provides that the rules of the Convention shall not apply to “agreements on the choice of court.” Thus, national courts shall assess the validity of the jurisdiction agreement according to the law designated by its own national conflicts of laws rules.

The application of different conflicts of laws rules throughout the Community may lead to different standards of protection which could jeopardise the proper functioning of the internal market. At the same time, according to Art 153 of the Treaty establishing the EC the Community shall promote the interests of consumers and ensure a high level of consumer protection. In this context might a Community rule be identified, harmonising the attitude of the European courts, and requiring them to disregard the jurisdiction clause in favour of the courts of a non-Member State?

The harmonisation of the laws of the Member Sates in the context of the completion of the internal market is one of the devices used by Community law in order to promote the interests of consumers and to ensure a high level of consumer protection (Art 153 TofA).²⁰⁸ The European legislator has chosen the directive as the appropriate community instrument for the enactment and development of harmonization in this field. Furthermore, it has opted for a minimum harmonization, a legislative technique though which the Community sets minimum standards of consumer protection, with freedom for Member States to impose higher standards.

There are a variety of directives, covering both specific and general issues in relation to consumer contracts, which aim to approximate the substantive law of the Member States.²⁰⁹ The contents of such Community acts are required to be implemented by the Member States and the implementing measure will substitute the previous domestic law in the harmonized areas.²¹⁰ The applicability of such implementing domestic law depends, however, on the general applicability of the national law. Therefore, it is possible for the application of the national conflict of laws rule to determine the application of the law of a non-Member state in a situation connected to the internal market.²¹¹ In the case at issue this could mean that the validity of the jurisdiction clause could be assessed according to the law of a third State (New York in our example).²¹² In such a situation the judge of the seised court could not disregard the jurisdiction clause when such a clause is valid according to the applicable (New York) law.

This was the main problem encountered by the first generation of directives devoted to the protection of consumers (ie the directives issued from 1985 until 1993, such as, for example the Consumer Credit Directive).²¹³ These Directives did not contain any rule indicating their spatial scope of application. They limited themselves to outlining rules of substantive law (to be transposed into domestic Member State law) and therefore, their own applicability depended on the applicability of the relevant State’s national law.²¹⁴ In such cases, to determine the law governing the contract, the seised court would apply its own private international law rules.

Since Directive 93/13/EEC on Unfair Contract Terms²¹⁵ the Community legislator has opted for the introduction of a private international law rule which aims to establish the mandatory character of the substantive community law. In particular Art 6(2) of this Directive enjoined that, “Member States shall take the necessary measures in order to ensure that the consumer does not lose the protection granted by this directive by virtue of the choice of law of a non-Member country as the law applicable to the contract, if the latter has a close connection with the territory of the Member State.” A very similar provision was adopted in Directive 7/97/EC on the protection of consumers in respect of long-distance contracts (Art. 12(2)),²¹⁶ as well as in Directive 44/99/EC on certain aspects of the sale of consumer goods and associated guarantees (Art 7(2)),²¹⁷ and Directive 2002/65/EC concerning the distance marketing of consumer financial services and amending Council Directive 90/619/eec, together with Directives 97/7/EC and 98/27/EC.²¹⁸ See also Proposal for a Directive of the European Parliament and of the Council on the harmonisation of the laws, regulations and administrative provisions of the Member States concerning credit for consumers, 11 September 2002, COM (2002) 443 final.

In addition, there are two directives concerning specific consumer contracts (ie Directive 90/314 on package travel, package holidays and package tours²¹⁹ and Directive 94/47 on the protection of purchasers in respect of certain aspects of contracts relating to the Member States)²²⁰ which also contain special rules indicating their spatial scope of application. Here though the rules differ considerably from those contained in the previously mentioned directives.

Finally, the Directive on certain aspects of electronic commerce in the internal market adopts a different approach again, and takes a step backward to the method used in the first generation of Directives since, as it explains, it does not aim to “establish additional rules on private international law relating to conflicts of law nor does it deal with the jurisdiction of Cours.”²²¹

It will be argued, in what follows, that the relevant national court faced with a hostile jurisdiction clause inserted in a consumer contract not covered by the protective rule provided for in Art 17 BIR, should take account of the protection afforded by Community law. When the jurisdiction clause has been inserted in a consumer contract not individually negotiated, special attention should be paid to the Unfair Terms in Consumer Contracts Directive and the relevant domestic implementing legislation. As will be shown, a jurisdiction clause such as the one in the example may legitimately be held to be unfair within the meaning of the Directive.

3.2 Directive 93/13/EEC on Unfair Terms in Consumer Contracts and the potential of a rule complementing Art 17 of the Brussels I Regulation

The aim of the Unfair Contract Terms Directive is the approximation of the laws of the Member States relating to unfair terms in consumer contracts.²²² All Member States have implemented the Directive in their national law.²²³ The Directive applies to consumer contracts for the sale of goods and supply of services;²²⁴ it applies only to terms which have not been individually negotiated (Art 3(1)).²²⁵ The Directive establishes guidelines for determining when a term may be regarded as unfair. A term shall be so regarded if, “contrary to requirement of good faith, it causes a significant imbalance in the parties’ rights and obligations, to th detriment of the consumer.”²²⁶ Further the Directive contains a non-exhaustive list of terms that may be regarded as unfair (Annex).²²⁷

Under Art 6(1) of the Directive, the Member States shall prescribe that unfair terms used in a contract concluded with a consumer by a seller or supplier shall not be binding on the consumer, but that the contract shall continue to bind the parties according to its other terms if it is capable of existing without the unfair terms.

To determine whether a jurisdiction clause, inserted in a consumer contract made between a consumer domiciled in a Member State and a supplier domiciled in a non-Member State and conferring jurisdiction upon the courts of the non-Member State, is unfair , regard should be had to the following provisions of the Directive:

Letter q of the Annex provides for the unfairness of a term “excluding or hindering the consumer’s right to take legal action or exercise any other legal remedy, particularly by requiring the consumer to take disputes exclusively to arbitration not covered by legal provisions, unduly restricting the evidence available to him or imposing on him a burden of proof which, according to the applicable law, should lie with another party to the contract.”²²⁸

Art 6(2) (third country provision) provides that “Member States shall take the necessary measures in order to ensure that the consumer does not lose the protection granted by this directive by virtue of the choice of law of a non-Member country as the law applicable to the contract, if the latter has a close connection with the territory of the Member State.”

The first question which arises is whether the first sentence of letter q of the Annex in relation to Art 3(1) of the Dire