Select Committee on European Communities Second Report


Letter from Lord Tordoff, Chairman of the Committee, to Keith Vaz Esq MP, Parliamentary Secretary, Lord Chancellor's Department

  The above document was considered by Sub-Committee E (Law and Institutions) at its meeting on 14 July. The Committee decided to retain the document under scrutiny pending clarification of three matters.

  The first arises from reports in the media that the new text causes difficulty for those engaged in electronic commerce and that the industry was not consulted. I attach an extract from European Report for 3 July. I would be grateful to have your reactions to the points it raises.

  Secondly, your Explanatory Memorandum draws attention to the fact that the Justice and Home Affairs Council on 12 March decided to "freeze" the text on the assumption that a Community instrument to replace the Brussels Convention would be brought forward under the new Title IV of the EC Treaty. The Committee notes that the House of Commons European Scrutiny Committee has sought further information from you on the implications of the shift from a Convention to a Community regulation and on the position of the United Kingdom under the Protocol on the position of the United Kingdom and Ireland and the intentions of the Government as regards the present proposal. We reserve the right to pursue the matter further when we have seen your response to the Commons Committee. We hope your answer will include an explanation of the consequences if the United Kingdom and/or Denmark does not opt in. Would the Convention (unamended) continue to apply as between the "opted-outs" and as between an "opted-out" and a Member State which becomes subject to the Regulation? What happens to the current system of mutual recognition?

  Finally, the Committee is aware that negotiations on an international convention on jurisdiction and recognition of judgments are presently under way under the auspices of the Hague Conference. The Committee is surprised that this development was not mentioned in your Explanatory Memorandum. The Committee would therefore be grateful if you could provide it with a description of the proposal being discussed at the Hague and an explanation as to how its provisions might overlap with or otherwise relate to the new texts of the Brussels and Lugano Conventions. The Committee would also welcome your views on the implications for those negotiations, and in particular for the United Kingdom's role in them, if the new text of the Brussels Convention is adopted as a Community Regulation. It would be helpful if you could describe the legal position (a) if the United Kingdom opts in to the Regulation, (b) if the United Kingdom chooses not to opt in, and (c) if Denmark does not opt in to Title IV.

  I look forward to receiving the information requested above.

16 July 1999

Letter from Keith Vaz MP, Parliamentary Secretary, Lord Chancellor's Department, to Lord Tordoff, Chairman of the Committee

  Thank you for your letter of 16 July which raised three matters on which Sub-Committee E (Law and Institutions) has sought clarification.

  The first matter concerns potential difficulties for those engaged in electronic commerce arising out of a proposal relating to consumer transactions.

  In broad terms, Article 13 of the Conventions allows a consumer to bring proceedings before a court in the country and specific jurisdiction or where he lives, if the goods were paid for on instalment credit terms, or if the transaction resulted from an advertisement and the consumer took steps in that state necessary for the conclusion of contract. It probably covers e-commerce transactions but there is some uncertainty about whether the maintenance of a website constitutes "advertising" for this purpose. There are legal arguments both ways and only a decision from the European Court of Justice would finally decide the matter.

  In May the Justice and Home Affairs Ministers agreed as part of the review of the Conventions that, apart from goods bought on instalment credit terms (where the rules would remain unchanged), contracts for goods and services should fall within the protective scope of Article 13 if the contract was concluded with a trader 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".

  The intention of Member States was to make it clear that e-commerce transactions, including those involving websites, come within Article 13. This would help improve comsumers' access to justice in cross border cases and so should enhance consumer confidence in e-commerce, especially for higher value purchases.

  However, the concerns reflected in the extract from European Report have been noted and the Government recognises that the prospect of having to defend cases in a foreign court could deter some businesses from making the most of e-commerce. The Commission's proposal for a Regulation offers Member states another opportunity to review the matter and in particular the Government welcomes the Commission's decision to hold a hearing on the topic in the autumn. The Department of Trade and Industry intends to supplement this with a seminar for interested parties in the UK. This will take place on 15th October and should ensure that the Government has a full understanding of the views of business, consumer organisations and regulators before the negotiations on this issue begin in the autumn.

  On the issue of consultation the proposals to make amendments to Article 13 emerged during the course of the negotiations. The Government considered that the proposed changes were a minor clarification of the existing law and did not consult at that stage. The Lord Chancellor's Department liaised with other Government departments, including the Department of Trade and Industry. The DTI had had earlier discussions about this issue and other related matters with business and consumer organisations in the context of a Council Resolution on the Consumer Dimension of the Information Society which was adopted in November 1998.

  The second matter raised by the Committee concerns the implications of the Commission's proposal to convert the 1968 Brussels Convention into a Community regulation. If the United Kingdom or Ireland decide not to adopt such a Community regulation, either at the same time as, or some time after, such an instrument is adopted by the Council of Ministers, then these states will remain parties to the Convention which will continue to operate for those States as between themselves and the other States of the European Union. This matter has been confirmed by an opinion from the Council Legal Service. The Convention will, in any event, remain operative as between Denmark (which has chosen to be excluded by the EC Treaty from taking part in the adoption of measures under Title IV of the Treaty) and those States which adopt a regulation to replace the Brussels Convention. In this respect the current system of mutual recognition and enforcement of judgments established by the Convention will continue to operate as it does at present. In this situation it will be for the Commission on behalf of the States which are governed by the new regulation to negotiate with Denmark and any other "opted-out" States an agreement which would change the Convention in order to incorporate the amendments which have recently been agreed by the Council of Ministers. Once such an agreement has been concluded and ratified the same rules will, in substance, operate throughout the European Union; with most States being parties to the new regulation and a small minority (possibly only Denmark) retaining the Brussels Convention. The consequence of this "variable geometry" as regards references to the Court of Justice is described in paragraph 3 of my letter to Jimmy Hood, chairman of the House of Commons European Scrutiny Committee.

  Finally, your Committee has correctly noted that negotiations for a world-wide convention on jurisdiction and recognition of judgments in civil and commercial matters are currently under way under the auspices of the Hague Conference. The present intention is that these will be concluded with a diplomatic conference in the autumn of 2000 to adopt a convention text. Although a significant amount of work remains to be done, it is likely that the final agreement will contain the following main components:

    —  a list of mandatory grounds of jurisdiction: that is grounds which will oblige a Contracting State to assume jurisdiction;

    —  a list of prohibited grounds of jurisdiction: that is grounds which will oblige a Contracting State to refuse jurisdiction;

    —  a so-called "grey area" of jurisdiction: that is an area covering grounds not specified in the lists mentioned above on which a Contracting State may assume jurisdiction if the ground in question is available under the national law of that State;

    —  machinery for the recognition and enforcement of judgments, including provisions to protect the legitimate interests of defendants, which will only operate in respect of judgments based on one of the mandatory grounds of jurisdiction; judgments based on a ground in the "grey area" will continue to fall to be recognised and enforced in accordance with the national law of the State where that is sought.

  This project was originally proposed by the United States in 1992. The Europeans have been understandably cautious about entering into such an agreement with the US. The very high levels of damages and surprising findings of liability in some well-publicised cases raise concerns about the prospect of American civil judgments being automatically enforceable in other countries. Despite these reservations negotiations have been proceeding reasonably constructively for the last two years and the Government remains committed to making every effort to achieve a successful outcome.

  From the United Kingdom's point of view, there are two main advantages which could follow successful negotiations in this area. The first, and more important, is that a Convention which contained a sufficiently broad list of grounds on which Member States would be prohibited from assuming jurisdiction could protect British defendants from the exorbitant grounds presently claimed by courts in the United States and other non-EU states. The second advantage is that a Convention would, assuming it is widely ratified, provide for the easier enforcement of UK judgments in those countries with which we currently have no reciprocal enforcement.

  The issue of the relationship between the Brussels and Lugano Conventions (and any regulation which replaces the former), and any Hague Judgments agreement has not yet been discussed in the negotiations at the Hague. In view of the overlapping scope of the two existing agreements and any new Hague agreement, it is clearly important that there should be a provision in the latter agreement which, in broad terms, preserves unaltered the operation of the former agreements. The United Kingdom will seek to secure the inclusion of such a provision.

  If and when the Brussels Convention is replaced, at least for the majority of the Member States, by a Community regulation, the issue arises as to the extent to which such a development would give rise to community competence. This matter is discussed in my letter to Jimmy Hood. The extent to which such competence could affect the negotiating position of the United Kingdom at the Hague Conference in relation to the world-wide judgments agreement is also discussed in that letter on the basis that the United Kingdom decides to adopt the Community regulation. If the United Kingdom decides not to do so, then any such competence does not affect the position of the United Kingdom in this regard. This follows from Article 2 of the Protocol attached to the EC Treaty which governs the special position of the United Kingdom and Ireland in relation to Title IV measures.

  The position of Denmark as regards Title IV measures is governed by a separate Protocol to the EC Treaty. Under Article 1 of this Protocol Denmark is excluded from taking part in the adoption of such measures, although under Article 7 it "may, in accordance with its constitutional requirements, inform the other Member States that it no longer wishes to avail itself of all or part of this Protocol. In that event, Denmark will apply in full all relevant measures then in force taken within the framework of the European Union". Denmark has not so far exercised this option.

28 September 1999

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