The Hague runs into B2B: why restructuring the Hague Convention of foreign judgments in civil and Commercial Matters to deal with B2B contracts is long overdue.

• Author: Elacqua, Benjamin C.
• Position: Business to business - Report

1. INTRODUCTION

   In October of 1999, The Hague Conference on Private International Law issued a Preliminary Draft Convention on Jurisdiction and Foreign Judgments in Civil and Commercial Matters (Hague Convention). (1) There were sixty-four member States to the Hague Conference on Private International Law in January 2004. (2) In order to maintain effective international business to business (B2B) (3) contracts, the Hague Convention must revise some of its original language. (4)

   Part I of the note analyzes electronic commerce, specifically B2B contracts. Next, Part II briefly describes the foundation and history of the Hague Convention, as well as two specific articles. In Part III, alternative approaches to jurisdiction and enforcement of judgments are outlined; including an overview of the informal working group's proposals to accomplish the goal of the Special Commission. (5) The Special Commission is concerned with whether the Hague Convention meet the needs of e-commerce. (6) Finally in Part IV, proposals are tested by adopting certain aspects of the alternative approaches in Part III, better aligning the Hague Convention with current B2B law.

2. ELECTRONIC COMMERCE

   By the year 2007, the number of Internet users is projected to be approximately 1.46 billion. (7) Congress has defined e-commerce as "any transaction conducted over the Internet or through Internet access, comprising the sale, lease, offer, or delivery of property, goods, services, or information, whether or not for consideration, and includes the provision of Internet access." (8) These transactions are creating a great deal of revenue, with some estimating Internet commerce growth to be 1.3 trillion by the end of 2003. (9) The above numbers evidence the growing trend toward the online marketplace using B2B contracts, but if the Hague Convention is not updated, these trends might decrease. (10)

   This note specifically deals with B2B contracts. (11) Many nonnegotiated, mass-market contracts are enforceable as B2B contracts, under the current Hague Convention. (12) In addition, click-wrap agreements are also enforceable. (13) Businesses are able to choose which jurisdiction their contracts will be enforced by using clip-wrap agreements. (14) In a recent survey of international businesses, the majority of the businesses specified certain courts to obtain exclusive jurisdiction over their businesses. (15)

   There are some courts which do not enforce click-wrap agreements. (16) Being relatively young, these types of "contracts" will surely change the way many conduct business over the next several years. Recently, a broad based electronic commerce organization has urged Mr. Jeffrey Kovar, Assistant Legal Advisor for Private International Law, United States Department of State, to revamp the current language of the Hague Convention because click-wrap agreements have an adverse impact on current electronic commerce. (17) Cases of this sort will be distinguished under the Hague Convention because the treaty honors forum selection clauses. If adopted by Congress, courts of the United States, and the several States would be required to enforce the Hague Convention. (18) Perhaps the threat of a constitutional crisis may permit some courts to disregard an adopted Hague Convention. (19)

   There is another type of business contract conducted over the Internet, used mainly for personal transactions, called business to consumer (B2C) contract. (20) The most recognizable B2C contracts are transacted through ebay. Contracts which fall under this category are potentially within the Hague Convention, but there has been considerable dispute over the language of Article7-dealing with B2C contracts. (21) The online marketplace is now a global forum for businesses and persons to conduct business. In the interest of modernizing the law, the Hague Convention is proposing to adopt a uniform set of rules dealing with business, but that does not necessarily mean e-commerce or B2B.

3. HAGUE CONVENTION AND ENFORCEMENT OF B2B CONTRACTS

   The Hague Convention is not the first multilateral convention dealing with recognition and enforcement of judgments, and most likely, it will not be the last. The Convention was not specifically drafted to deal with Internet or B2B contracts, but typical "business" jurisdiction and judgments. (22) Specifically, the Hague Convention prohibits its application in a number of areas of law. (23) Primarily based on the Brussels and Lugano Conventions, (24) the Hague Convention seeks to establish international jurisdiction and recognition of foreign judgments. (25) The United States would like an international model for jurisdiction of B2B contracts because traditional approaches have proved rudimentary at best. (26)

   At its essence, the Hague Convention, if adopted by its member States, would allow a person to obtain a judgment in a member country, and enforce the judgment in another member country. (27) The Hague Convention does provide member countries with an escape clause, so long as the foreign judgment is "manifestly incompatible with public policy." (28) This clause may be applicable in the United States to deal with issues such as censorship. (29)

   To enforce B2B contracts under the Hague Convention, the courts of member States must first have jurisdiction to settle the dispute, conferred by Article 4: choice of court. (30) Furthermore, the party must establish the B2B contract under Article 6: contracts, which does not specifically use the acronym B2B. (31) The definition of contracts under the present Hague Convention would include B2B contracts because the language of Article 6 does not exclude B2B contracts. (32) Enforcement of B2B contracts under Article 4 would be mandatory because the language used in Article 4 does not incorporate earlier proposed language prohibiting abusive or unfair contracts. (33)

   There will be significant effects to B2B contracts if the present Hague Convention is not altered to address the increasing e-commerce market. Perhaps the most detrimental characteristic of the Hague Convention is its permissive attitude towards forum shopping. (34) Businesses would be able to find jurisdictions with favorable laws, enforceable in all member countries. (35) Forum selection clauses are generally acceptable within the United States, subject to the general restrictions and requirements of contract law. (36) Most citizens of this country would probably not believe that courts of the United States may be asked to enforce laws from other countries, which are not congruent and proportional to the laws of their country or State. Forum shopping does not affect every business, but it places an undue burden on those businesses that do not have the capabilities to defend themselves internationally. (37)

   The doctrine of forum non conveniens exists in some United States jurisdictions. This allows jurisdictions to not hear cases that could be heard in other forums; or if it is inconvenient for the forum court to exercise jurisdiction. (38) There are problems in relying on this doctrine because it is not recognized in all states. (39) Furthermore, the present draft Hague Convention does not adopt forum non conveniens, so that alone would forbid courts from exercising the common law doctrine. (40)

   The draft treaty is not meant for a global economy that supports e-commerce, and some argue that the treaty is an attempt by the Europeans to put their mark on an area of law they have no control over. (41) Some possibilities the Internet and e-commerce community might take would be to block users from countries whose laws are not satisfactory, or even force e-commerce companies to discontinue business altogether in certain areas of the world. (42) This fear is in addition to the imminent threat of free speech and First Amendment issues surrounding the Hague Convention. (43) By curtailing business and business related activities to specific regions of the world, whole countries would be cut off from being able to make their own conscious choices of what to read, buy, and sell.

4. ALTERNATIVE APPROACHES TO JURISDICTION AND ENFORCEMENT OF JUDGMENTS

   This section discusses some alternative approaches to jurisdiction and enforcement of judgments. First, it discusses federal due process analysis, specifically concentrating on cyberspace jurisdiction. Next are Restatement sections, and model laws, which overall set specific jurisdictional parameters for parties trying to exercise jurisdiction. Finally, the European Union (EU) approach is analyzed, concentrating on the Brussels Convention, and a specific regulation issued to deal with e-commerce. These respective approaches to jurisdiction and enforcement of judgments vary, but could assist the Special Commission in drafting specific language to deal with B2B contracts. (44)

   1. Due Process in Cyberspace

      A party seeking to establish specific jurisdiction over a nonresident defendant in the United States must conform to International Shoe v. Washington and its progeny. (45) Jurisdiction exercised over a non-resident defendant is valid if the defendant has "minimum contacts" with the forum and exercising jurisdiction over the defendant does not violate "traditional notions of fair play and substantial justice." (46) A three-prong test now governs Internet jurisdiction; articulated by Zippo Manufacturing Co. v. Zippo Dot Com, Inc. and its progeny. (47) Zippo involved an Internet domain name dispute. The Plaintiff was a Pennsylvania tobacco lighter manufacturer and the Defendant was a California based Internet news service with approximately three thousand subscribers in Pennsylvania. (48) The court granted jurisdiction because of the defendant's contacts and business within the forum state. (49) After Zippo, Internet jurisdiction was viewed as something unique because courts recognized the distinctive realm of the online community. (50)

      Two specific deviations exist from the Zippo test, which were...