AUSTRALIA--Mallesons Stephen Jaques|
American Bar Association
Transnational Jurisdiction In Cyberspace Project
Comments - Australia
Mallesons Stephen Jaques
Sydney, Melbourne, Brisbane, Perth, Canberra, Hong Kong, London
November 30, 1999
Table of Contents
2 The traditional concepts of jurisdiction in Australia
3 Specific Questions Asked By the ABA
5 Payment Systems and Banking
6 Sale of Goods and Services
7 Advertising/Consumer Protection
The traditional concepts of jurisdiction in Australia
- We have been asked to provide a written analysis of the laws of Australia that may be affected by the growth of electronic commerce.
- Our comments respond to specific questions set out on the web site www.kentlaw.edu/cyberlaw and discuss areas of Australian law relating to electronic commerce where jurisdictional issues have been considered. These areas are:
- payment systems and banking;
- sale of goods and services;
- advertising and consumer protection; and
- Internet gambling.
- Section 2 of this paper starts with an overview of jurisdictional concepts in Australian law. Section 3 considers the specific questions. Sections 4 through 8 deal with the five specific areas of Australian law listed in the previous paragraph.
- Australian is a federation of six States, with a constitutional structure similar to that of the United States and Canada. The States and the federal government can pass laws. There are both State and federal courts. Jurisdictional problems arise both within Australia (between States) and internationally.
- The law in Australia relating to the Internet and electronic commerce is relatively undeveloped. There have been very few decided cases on this topic in Australia. Some States and the federal government have passed electronic commerce-related laws that raise jurisdictional questions.
Personal (Adjudicative) Jurisdiction
Specific Questions Asked By the ABA
- Adjudicative jurisdiction refers to the power of a state to require defendant to appear and defend a claim.
- In Australia, a personal action is brought by serving the defendant with a writ or other originating process. Such service generally establishes the court’s adjudicative jurisdiction over the person served. At common law, such an originating process may be personally served on a person who is present within the jurisdiction or, if the person has left the jurisdiction to avoid service, substituted service may be ordered.
- A corporation is present in the jurisdiction if it carries on business within the jurisdiction. The Corporations Law also provides for the registration of foreign companies which carry on business in Australia. Process may be served on such a registered foreign company by leaving the documents with, or by sending them to, the local agent notified when the company was registered with the Australian Securities and Investments Commission.
- A court also has adjudicative jurisdiction if the defendant has submitted to the court’s jurisdiction by entering an unconditional appearance with the court or by agreeing to submit to the court under the terms of a contract.
- Personal service is not necessary if the defendant’s solicitor (attorney) accepts service and undertakes to enter an appearance. These common law rules are supplemented in a number of ways.
- The Service and Execution of Process Act 1992 (Cth) provides for the service of process outside jurisdiction but within Australia. That is, this Act governs the service of process between the various Australian States and Territories. It permits an initiating process issued in an Australian State or Territory to be served in another Australian State or Territory without the need to show a nexus between the initiating State and the parties or the cause of action. Therefore, the rules for service interstate but within Australia are simple.
- The rules for service of process outside of Australia are governed by the rules of the State and Territory Supreme Courts and the rules of the Federal and High Courts. Generally, these rules require some nexus between the Australian jurisdiction in which the process has been issued and the defendant or the cause of action being asserted. There are substantive and procedural differences between the various States and Territories. In some, the court’s leave is required before process may be served outside jurisdiction; in others, the court’s leave is only required if the defendant does not appear and the plaintiff wishes to proceed in the defendant’s absence. The court has a discretion as to whether or not it should grant the necessary leave. Adjudicative jurisdiction based on the court rules, as opposed to the common law, is discretionary. The plaintiff bears the onus of showing that the matter comes within one of the relevant rules and that leave should be granted.
- The defendant may apply to have service set aside on the basis that the matter does not fall within one of the relevant rules without submitting to jurisdiction. Generally, personal service out of jurisdiction is required but in some jurisdictions it is sufficient if the originating process is served as required by the rules of the country in which service is actually effected.
- Although the grounds on which leave may be granted to serve process outside Australia or to proceed after such service differ between each Australian jurisdiction, there are some grounds which are common to all jurisdictions. For example, proceedings for the enforcement of a contract or damages for breach may be served outside the jurisdiction if the contract was made within the jurisdiction either by the defendant or through an agent, or if the contract was governed by the law of the jurisdiction, or if the contract was actually broken within the jurisdiction. Proceedings in relation to a tort may be served outside the jurisdiction if the tort was committed within the jurisdiction. Similarly, where the defendant is ordinarily domiciled in the jurisdiction, the rules provide that service may potentially be effected on the defendant outside the jurisdiction.
- The court’s jurisdiction is subject to a number of limitations. For example, it cannot generally adjudicate on the title or possession of an immovable which is located in a foreign country or in relation to suits against a foreign state which is entitled to sovereign immunity.
- A defendant who is served within or outside the jurisdiction may apply for a stay of the proceedings brought in an Australian jurisdiction on the basis that the court is a "clearly inappropriate forum" for determining the dispute. The defendant may enter a conditional appearance to contest the court’s jurisdiction without submitting to it. In deciding whether the forum is clearly inappropriate, the court takes into account matters such as the nature of the dispute, the issues involved, the availability of witnesses, whether there is another court in which the issues can be fully litigated and what relief can be obtained in that other court. A permanent stay may be sought on the basis that the proceedings are oppressive, vexatious or an abuse of process, that any order made will be incapable of enforcement in the country where it must be enforced or that the parties have agreed that another forum will have exclusive jurisdiction over the dispute.
- In an appropriate case, an Australian court may restrain proceedings in a foreign jurisdiction.
- As stated above, the Commonwealth of Australia is a federation of States. The federal constitution allocates specific heads of power to the Commonwealth legislature to make laws "for the peace, order and good government of the Commonwealth". However, these words do not impose any extraterritorial or other limitation upon the powers of the Commonwealth (Federal) Parliament.
- The federal legislative powers are subject to certain express and implied constitutional limitations such as the requirement that property may only be compulsorily acquired on just terms. However, there is no "Bill of Rights" in Australia.
- The federal parliament has jurisdiction over most matters which relate to electronic commerce including matters such as the major taxes, intellectual property, banking, privacy (to some extent), international trade and telecommunications. However, some matters such as gaming still fall within the State sphere.
- Matters which do not fall within a federal head of power are left to the States. In the case of an inconsistency, a federal law prevails over a State law. States have extraterritorial jurisdiction but there still needs to be a general connection between the enacting State and the persons or matters which the law concerns.
- The federal parliament has passed legislation to regulate a number of matters specific to electronic commerce such as legislation dealing with Year 2000 compliance and the highly controversial Internet censorship legislation. However, many of the laws that apply to ordinary electronic commerce transactions are to be found in the common law of the states and general fair trading statutes such as the federal Trade Practices Act 1974 (Cth).
- Australian courts apply principles of Australian private international law to determine whether the law of the forum or the law of a foreign country should be applied to determine the parties’ rights. However, foreign law will not be applied where, for example, an issue is procedural or where the foreign law’s application would be contrary to public policy or because it is a penal or revenue law.
- Separate choice of law rules apply to different areas of law such as tort and contract. In the case of contract, the parties are generally free to choose the proper law. If the parties do not choose the proper law then the contract will generally be governed by the law of the state with which the transaction has the closest and most real connection.
- A judgment of the court of another country will not automatically operate in Australia. It needs to be recognised by Australian courts first.
- At common law, an action may be brought to enforce a final and conclusive judgment for the payment of money where the defendant was resident in or submitted to the jurisdiction in which the judgment was issued. The merits of the case are not re-examined but the judgment may be challenged on grounds such as public policy, lack of natural justice or fraud.
- Some judgments may be registered under the Foreign Judgments Act 1991 (Cth) and directly enforced without having to satisfy the common law rules. Generally, a judgment registered under this legislation has the same effect as judgment of the court in which it is registered. The Act applies to final and conclusive judgments of specified superior and inferior courts of specified countries. A party against whom a judgment is registered may apply to have it set aside on certain grounds including that the foreign court had no jurisdiction, the person did not receive notice of the proceedings in sufficient time to enable the judgment debtor to defend the proceedings and did not appear, the judgment was obtained by fraud or that enforcement of the judgment would be contrary to public policy.
Question 1. What is the jurisdictional relevance of the presence on a state’s territory of the Internet network infrastructure, such as a server?
- There are no decided cases or national legislation dealing with this exact issue in Australia.
- Where a defendant is located outside of Australia, the existence of a server in Australia may be sufficient to provide the Australian court with personal (adjunctive) jurisdiction. See paragraph 2.7 above.
- Many Australian laws explicitly require a nexus with Australia, but this nexus is often described generally in the legislation. The legislation in question must be considered to determine whether network infrastructure provides sufficient jurisdictional nexus.
- Some Australian laws indirectly deal with the jurisdictional relevance of network infrastructure, as set out below.
Federal Laws and Bills
Electronic Transactions Act 1999
- The Electronic Transactions Act 1999 (Cth) ("ETA") contains a provision which indirectly deals with the jurisdictional relevance of the presence of Internet network infrastructure on a state’s territory. The ETA is designed to facilitate the development of electronic commerce in Australia, whether occurring over the Internet or via other media, by "removing existing legal impediments that may prevent a person using electronic communications to satisfy obligations under Commonwealth law". The ETA is limited in its application:
- prior to 1 July 2001, to laws of the Commonwealth specified by regulation; and
- after 1 July 2001, to laws of the Commonwealth other than those exempted under the ETA or by regulation.
- Legislators believe that the Australian federal government does not have power under the Australian Constitution to regulate electronic commerce occurring within each State and Territory. Accordingly, the Australian federal government envisages that each Australian State and Territory will enact mirror legislation to give effect to the ETA reforms throughout Australia. The Australian State and Territory governments have provided agreement in principle to this arrangement.
- The ETA was passed by the Australian House of Representatives after extensive amendment on 30 September 1999, and was passed by the Senate on 25 November 1999. It is expected to come into effect within the next six months.
- Section 14 of the ETA sets out default rules governing, among other things, the place of dispatch and receipt of electronic communications in the absence of agreement to the contrary by the parties. Under section 14(5), for the purposes of a law of the Commonwealth, an electronic communication is taken to have been:
- dispatched at the place where the originator has its place of business; and
- received at the place where the addressee has its place of business.
- If either party has more than one place of business, then section 14(6) provides that:
- if one of those places of business has a closer relationship to the underlying transaction, that place of business is the relevant place of business for the purposes of section 14(5); and
- if none of those places of business has a closer relationship to the underlying transaction, that party’s principal place of business is the relevant place of business for the purposes of section 14(5).
- If a party to an electronic communication does not have a place of business, then that party’s place of business for the purposes of section 14(5) is the place where that party ordinarily resides (s14(6) ETA).
- As explained in the Explanatory Memorandum to the ETA, these default rules reflect the fact that "the physical location of information systems is often irrelevant to the use and purpose of the electronic communication." Reasons for this include that:
- an information system can be in a different place to where the parties to that communication are located; and
- it is often easier to determine the place of business or residence of a party to an electronic communication than to determine the location of an information system from which that communication was sent or received.
- Accordingly, the default rules for determining the place where an electronic communication is sent or received focus on the connection between the parties to an electronic communication and the place where that communication is taken to have been sent or received, rather than focusing on the physical location of the information system from where that electronic communication was sent or received.
- For the purposes of transactions under Commonwealth laws, the presence on a state’s territory of the Internet network infrastructure will be of little relevance to determining the jurisdiction applicable to transactions which take place over the Internet.
Copyright Amendment (Digital Agenda) Bill 1999
- The Copyright Amendment (Digital Agenda) Bill 1999 (Cth) ("CAB") deals with the liability of communications carriers and Internet service providers ("ISPs") for copyright infringements facilitated by use of their network infrastructure or services.
- The CAB aims to limit the liability of carriers and ISPs for authorising copyright infringement by, among other things, providing that carriers and ISPs will not be consider to have authorised a copyright infringement simply by providing physical facilities used to infringe the copyright.
- Under the CAB, the following factors must be considered when determining whether a person has authorised copyright infringement:
- power to prevent an infringing act;
- the relationship between the person and the infringer; and
- whether the person took reasonable steps to prevent or avoid the infringing act.
- Accordingly, the CAB makes the mere provision of Internet network infrastructure alone in Australian territory irrelevant in relation to copyright infringement cases. However, if a carrier or ISP becomes aware of acts of copyright infringement in Australia facilitated by use of their Internet network infrastructure, then that carrier or ISP may, under the CAB, be taken to have authorised those infringing acts if they have power but fail to take reasonable steps to prevent the continuance of those acts. In these circumstances, the provision of Internet network infrastructure in Australia may become relevant to the exercise of prescriptive jurisdiction by the Australian government over foreign carriers and ISPs.
- The CAB was introduced into Australia’s House of Representatives on 2 September 1999, but has not yet been passed by either House of Parliament. Accordingly, it is not yet law in Australia.
- We are not aware of any Australian case law which discusses the jurisdictional relevance or otherwise of the presence of Internet network infrastructure on a State’s territory.
- There are a number of decisions in the United States ("US") that deal with this issue. It is likely that the US decisions will have some influence when this issue comes to be considered by Australian courts. See Bernadette Jew, "Cyber Jurisdiction – Emerging Issues & Conflicts of Law when Overseas Courts Challenge your Web" (1998) Computers & Law 24.
- Despite some conflicting decisions in the US, it appears to us that a general principle has emerged from the US authorities, namely, that the presence on a state’s territory of Internet network infrastructure is not a conclusive factor in determining the appropriate jurisdiction in relation to activities conducted over the Internet. We understand that this principle has also been applied in the decisions of courts in other countries, including the United Kingdom and Japan.
- Commentators have stated that there may be confusion and injustice if a court attempted to exercise jurisdiction in Internet cases over persons based on the physical location of the Internet network infrastructure. For example:
- The information accessed by an Internet user via a web site may be sourced from many different locations, which can be impossible to determine. For example, this information may be from the original web site hosted on a server in one location, a mirror web site hosted on a server in another location, cached material stored on an Internet service provider’s server in yet another location or the user’s hard drive, or a combination of these.
- If the location of the Internet network infrastructure was determinative of jurisdiction, Internet users could use that fact to manipulate the jurisdiction in which an activity is deemed to occur to circumvent laws and to choose the jurisdiction most favourable to them. For example, an Australian vendor selling Australian goods to an Australian purchaser for use in Australia could operate its online business from a computer system located in a country with less stringent trade consumer protection laws to avoid liability under the Australian Trade Practices Act 1974 (Cth).
Question 2. What is the jurisdictional relevance of maintaining a web site?
- As in relation to many other issues regarding jurisdiction and the Internet, there is currently little guidance either in Australian legislation or in Australian case law regarding the jurisdictional relevance of maintaining a web site. The first and only Australian decision that considered this issue was handed down in June 1999. This was the decision of a single judge of the Supreme Court of New South Wales, and whilst it is authoritative, it is not binding on the courts in other Australian States and Territories or on any higher courts. In short, the Australian position on the jurisdictional relevance of maintaining a web site remains largely untested.
- The sole Australian decision regarding jurisdiction on the Internet is Macquarie Bank & Anor v Berg, handed down by Simpson J of the New South Wales Supreme Court on 2 June 1999.
- This case related to the alleged defamation of Macquarie Bank ("MBL") and Andrew Downes by the publication of certain material on a web site thought to be operated by the defendant. Court proceedings had already been commenced by the defendant against the plaintiffs in relation to MBL’s termination of the defendant’s employment. Since May 1999, material containing defamatory imputations about the plaintiffs had been published on a web site. The court inferred that the defendant was associated with the publication of this material.
- The plaintiffs sought an injunction to prevent the defendant from publishing the defamatory material on the web site in question. On the available evidence, the defendant was believed to be in the US, and any acts done by him that resulted in the publication of the defamatory material on the web site were done outside of New South Wales.
- Simpson J held that, while a court is empowered to restrain conduct occurring or expected to occur outside the jurisdiction, whether the court should exercise that power is a question of discretion. In determining whether or not to exercise this discretion, the court had to consider factors such as whether there is a more appropriate forum and the enforceability of any order made.
- In refusing to grant the injunction sought, Simpson J held that it would "exceed the proper limits of the use of the injunctive power of the (New South Wales) court." Counsel for the plaintiffs had conceded that he did not know of any means by which operation of the injunction could be limited to New South Wales. Accordingly, Simpson J found that the consequence of granting an injunction in the terms sought would restrain the defendant from publishing the relevant material anywhere in the world via the Internet. Such an injunction would go beyond its purpose of ensuring compliance with the laws of the state of New South Wales and protection of the plaintiffs’ rights as they are defined under the law of New South Wales. Further, it would interfere with any rights that the defendant may have to publish that material in another jurisdiction. Simpson J also found that it would be difficult to enforce the injunction while the defendant remained outside of New South Wales.
- Simpson J’s decision asserts that maintenance of a web site that is accessible in a particular jurisdiction does not of itself give the courts jurisdiction over the defendant in that jurisdiction. On the facts in the Macquarie Bank case, the alleged acts of defamation involved posting of information on "passive" web site. However, Simpson J did not apply the sliding scale test that has been proposed in some US cases in analysing the jurisdictional issue.
- Simpson J’s decision relied in part on the assumption that the prohibition on publication and dissemination of the defamatory material could not be limited to New South Wales. However, this factor alone is not sufficient reason for a court to decide that it does not have jurisdiction over a foreign defendant. If Australian courts refuse in all Internet cases to exercise jurisdiction over a foreign defendant on the basis that the operation of a court order cannot in practice be limited to a particular jurisdiction, then Australian courts would only exercise jurisdiction over such foreign defendants in very limited circumstances. In turn, this would provide an opportunity for foreign defendants to carry on activities that would be otherwise illegal in Australia by conducting them online. It is therefore important that Australian courts do not exclude their jurisdiction too readily on this basis.
- As mentioned above, Macquarie Bank is the decision of a single judge of a New South Wales court, and is not binding on higher courts or courts in other Australian States or Territories. Accordingly, the Australian position on the jurisdictional relevance of maintaining a web site remains uncertain.
Broadcasting Services Amendment (Online Services) Act 1999
- The Broadcasting Services Amendment (Online Services) Act 1999 ("BSA"), which comes into force on 1 January 2000, imposes obligations on Internet content hosts ("ICH") and Internet service providers ("ISP"). Different rules apply, depending on where the web site is hosted. The Act distinguishes between web sites hosted in Australia and web sites hosted outside Australia but accessible from within Australia.
- The objects of the BSA include the following:
- to provide a means to address complaints about Internet content;
- to restrict access to Internet content that is likely to cause offence to a reasonable adult; and
- to protect children from exposure to Internet content that is unsuitable for children.
- The BSA regulates Internet content hosted in Australia or outside Australia that is classified as prohibited content or potentially prohibited content. Internet content is to be classified in the same way as a film or a computer game would be classified by the Classification Board under the Classifications (Publications, Films and Computer Games) Act 1995 (Cth). This approach has been taken because of the Government’s view that convergence is occurring between the Internet and other means of delivering audio-visual content.
- Under clause 10(1) of the BSA, Internet content hosted in Australia is prohibited content if:
- the content has been classified RC (Refused Classification) or X by the Classification Board; or
- the content has been classified R by the Classification Board and access to the content is not subject to a system which limits access to that content ("restricted access system").
- Internet content hosted outside Australia is prohibited content under clause 10(2) of the BSA if the content has been classified RC (Refused Classification) or X by the Classification Board.
- Internet content is "potentially prohibited content" if the content has not been classified by the Classification Board, and there is a substantial likelihood that the content would be prohibited content if it were classified (clause 11 BSA).
- The BSA imposes obligations on ICHs and ISPs in respect of:
- take-down notices and access-prevention notices given by the Australian Broadcasting Association ("ABA") for specified prohibited content or potentially prohibited content; and
- online provider determinations made by the ABA.
- The BSA does not impose any obligations on producers of content or persons who upload or access content. While the Australian federal government intends that producers of content will continue to be regulated by State and Territory laws, it is urging the development of uniform State and Territory laws that create offences for the publication and transmission of prohibited material by producers of content and end-users of Internet services.
- After 1 January 2000, the following general scheme will apply:
- a person may complain to the ABA about prohibited content or potentially prohibited content;
- the ABA must investigate the complaint;
- in relation to content hosted in Australia, if the ABA is satisfied that:
- the content is prohibited content, then the ABA must give the relevant ICH a final take-down notice;
- the content is potentially prohibited content and likely to be classified RC or X, then the ABA must request the Classification Board to classify the content and the ABA must give the relevant Internet content host an interim take-down notice; and
- the content is potentially prohibited content and likely to be classified R, then the ABA must request the Classification Board to classify the content;
- in relation to content hosted outside Australia, if the ABA is satisfied the content is prohibited content or potentially prohibited content, then the ABA must either:
- notify the content to the ISPs so that the ISPs can deal with the content in accordance with procedures specified in an industry code or industry standard; or
- if no relevant industry code or industry standard applies, give each ISP an access-prevention notice directing the ISP to take all reasonable steps to prevent end-users from accessing the content.
- ICHs and ISPs must comply with take-down notices and access-prevention notices as soon as practicable, but no later than 6pm on the next business day after the notice was given. It is an offence not to do so, and a separate offence is committed in respect of each day during which contravention continues.
- The ABA can also make online provider determinations setting out the rules that apply to ICHs in relation to the hosting of content in Australia and the rules that apply to ISPs in relation to the supply of Internet carriage services. The rules contained in the online provider determinations will be online provider rules, and the same scheme of offences as described above will apply to contravention of those rules.
- State and Territory laws and rules of common law or equity will not apply to the extent to which those laws:
- subject the ICH or ISP to liability (whether criminal or civil) in respect of hosting or carrying Internet content, in cases where the ICH or ISP was not aware of the nature of the content; or
- require monitoring, making inquiries or keeping records of Internet content.
- The scope of protection from liability for ICHs and ISPs is potentially very broad, and the Explanatory Memorandum does not clarify what types of State and Territory laws and rules of common law or equity are envisaged. However, the Minister will be able to exempt a specified law or class of laws if it is later found that the above provision has unintended consequences.
- The BSA provisions must be reviewed by the relevant government Minister before 1 January 2003. The matters to be taken into account in conducting the review include the general development of Internet content filtering technologies, and whether those technologies have developed to a point where they can be used to prevent access to R-rated Internet content that is hosted outside Australia and which is not subject to a restricted access system. In the event that filtering technologies have developed so that it is practicable to use them to prevent access to R-rated Internet content hosted outside Australia, then the Government’s intention is make the definition of prohibited content the same for content hosted in Australia and outside Australia.
- The BSA makes the fact that a web site is maintained by a web site author so that it is accessible in Australia jurisdictionally relevant in relation to the activities of ICHs and ISPs. ICHs and ISPs are bound to comply with the BSA in relation to prohibited content or potentially prohibited content regardless of where in the world that content is hosted if it is accessible in Australia. However, as the BSA does not operate extraterritorially, it is ICHs and ISPs situated in Australia that are most affected.
- There has been widespread criticism of the BSA both in Australia and internationally. These criticisms include that the legislation is unworkable, its definitions are too uncertain and wide, and that it demonstrates a failure by the legislature to understand the nature of the Internet. However, the Australian federal government has maintained its support of the BSA, stating that the BSA is being criticised "on a very narrow technical argument".
- A similar legislative regime is already in force in the State of Victoria. Section 57 of the Classification (Publications, Films and Computer Games) (Enforcement) Act 1995 makes it an offence to use an on-line information service to publish or transmit "objectionable material", which includes offensive material and material that is classified RC or X. This provision is broad enough to apply to communications carriers and Internet service providers whose online services are used to publish or transmit objectionable material. It is a defence to this charge if a person can prove that they believed on reasonable grounds that the material was not objectionable (s57(2)). This places a heavy burden on ISPs to show that they were not aware that they had committed an offence in publishing or transmitting objectionable online content provided by others, and has been subjected to criticism similar to that currently being levelled at the BSA.
Conclusion in relation to Question 2
- The Australian position on the jurisdictional relevance of maintenance of a web site is uncertain. However, the decision in Macquarie Bank Limited v Berg indicates that Australian courts will not exercise jurisdiction over a foreign defendant simply because that defendant maintains a web site so that it is accessible in an Australian jurisdiction.
- The sliding scale test developed in some US decisions (e.g. the Zippo decision) has not, at this stage, been adopted by Australian courts.
- The Broadcasting Services Amendment (Online Services) Act 1999 distinguishes between web sites hosted in Australia and web sites hosted out of Australia.
Question 3. If a web site author cannot prevent access to its site from any country, what is the jurisdictional effect of a geographic disclaimer on the site?
- We are not aware of any law dealing with this topic in Australia.
- A geographic disclaimer may show an intent to deal only with Internet users in a particular country.
- However, if other circumstances exist, a geographic disclaimer may be given little weight by Australian courts when considering jurisdictional questions. For example, if a Canadian website stated "Intended for Canadian residents only", but the website owner sent email advertisements for the site to Australian users, or sold goods across the website to Australian consumers, or in other ways targeted Australian residents, the geographic disclaimer is likely to be of little effect.
- A number of Australian websites have jurisdictional disclaimers, which suggest that legal advisers in Australia are recommending their use.
- We are aware of the following US articles that may provide some guidance on this question for Australian courts:
- Edward Bodsky, "Solicitation Via the Internet; Jurisdiction Over Claims" The New York Law Journal 11/6/97. Available at http://www.ljextra.com/internet/0611irsolic.html
- Robert Bourque and Kerry Conrad, "Avoiding Remote Jurisdiction Based on an Internet Web Site", (1996) New York Law Journal. Available at http://www.ljx.com/internet/1210jurs.html
- Dale Cendali and Rebecca Weinstein, "Personal Jurisdiction in Cyberspace", New York Law Journal, 20 July 1998. Available at http://prod01.ljextra.com/internet/0720cyberjur.html
Question 4: If parties to a transaction agree at the outset that the law of a given state will apply to any future disputes or that any future dispute will be litigated in the courts of a chosen state, is that agreement enforceable?
- Parties to international commercial contracts often include jurisdiction clauses and governing law clauses in an attempt to provide for some certainty in the event of a dispute arising. Under such provisions parties agree to submit their disputes under the contract to a designated court and to a designated law. As trade and commerce become increasingly international and immediate through e-commerce, parties are trying to protect themselves from having to assert or protect their legal rights in an unfamiliar legal system and in an unfamiliar country. The inclusion of both jurisdiction clauses and governing law clauses in cross border contracts, is therefore highly desirable.
- However, whether such protective jurisdictional and governing law clauses will be enforceable, in Australia in particular, will depend on a the clarity of the drafting as well as on a number of factors discussed below.
General principles on the enforceability of governing law clauses
- Express governing law clauses are generally enforced to give effect to the express intention of the parties pursuant to the principles of party autonomy. Only in extreme circumstances will the express intention of the parties be overridden.
- In the absence of an express governing law clause, or in the event that the clause is invalid (for uncertainty, ambiguity etc) then the proper law of the contract applies as the governing law.
- The proper law of the contract is determined by looking at a range of factors such as the language of the contract, the place of performance, the place where the contract was entered into etc. It is not necessary that the law selected have any factual connection with the parties or the subject matter of the contract. If this is the case, then this may point to the application of one of the exceptions to the application of the governing law clause (see below).
Situations where an express governing law clause will be overridden
- Only in extreme situations will governing law clauses be overridden by the domestic courts. These include:
- where the application of the foreign law is contrary to the law of the forum (this includes situations where contractual performance is unlawful by the law of the country where the contract is to be performed.)
- where the choice of law is not bona fide and legal;
- where a mandatory law of the forum is expressed to invalidate governing law clauses and can therefore be applied irrespective of the law which governs the contract in general. Australian examples include:
- s. 67 Trade Practices Act (Cth)
- s. 3(1) Credit Act (Vic) - similar legislation exists in other Australian States and Territories
- ss. 8 & 52 Insurance Contracts Act 1984 (Cth)
- For the Insurance Contracts Act exception to apply, the law of the forum must expressly override application of a governing law clause which points to the application of a foreign law. AKAI Pty Ltd v The Peoples’ Insurance Co Ltd (1996) 141 ALR 374 illustrates this. In that case, s. 52 of the Insurance Contracts Act expressly provided that a contractual provision purporting to exclude operation of the Act is void and thus denied the parties autonomy to choose the governing law.
In effect, the Insurance Contracts Act applies to contracts of insurance, the proper law of which is or would be the law of a State or Territory in which the Act applies. Where the proper law of a contract would, but for an express provision in the contract to the contrary, be the law of a State or Territory in which the Act applies, then notwithstanding that contractual provision, the proper law of the contract is the law of that State or Territory. The proper law of the contract is then ascertained by reference to the system of law with which the insurance policy "has the closest and most real connection", the "natural seat or centre of gravity" of the policy. This requires consideration of the following factors:
(i) the place of business of the parties
(ii) the place of contracting
(iii) the place of performance
(iv) the nature and subject matter of the contract.
- Obviously, in relation to transactions conducted primarily or wholly through the Internet, these "connection" factors are more difficult to ascertain. In the absence of a strong legislative intention in similar terms relating to the contract , it is unlikely that a governing law will be overridden by the operation of this exception.
- Similarly, section 67 of the Trade Practices Act ("TPA") attempts to prevent parties contracting out of the implied consumer protection based conditions and warranties of Pt V Div 2 to their advantage by providing that a foreign law will govern the operation of the contract. The section provides that in cases where the law of Australia would normally govern the operation of a contract, the conditions and warranties will be implied notwithstanding a contrary contract term. The TPA relies for its validity on a number of specific Commonwealth heads of power under the Constitution, the main one of which is the corporations power. Accordingly, the TPA applies to "corporations engaging in trade or commerce within Australia". A "corporation" includes foreign corporations, trading corporations and financial corporations (which include bodies corporate carrying on banking or insurance business). In the e-commerce arena, this provision of the TPA could therefore have potentially broad application.
- Another situation in which a governing law clause will be overridden by the domestic courts is where the choice of law is made to evade the application of law which would have applied in the absence of such a choice.
- The examples outlined in this section are extreme examples and illustrate that "countervailing reasons" are required to undermine an express choice of law, as indicated by Brennan J in Oceanic Sun Line Shipping Co Inc v Fay (1988) 165 CLR 197.
General principles on the enforceability of jurisdictional clauses
Exclusive and Non-exclusive jurisdiction clauses
- Consent to jurisdiction clauses may be either exclusive or non-exclusive. A non-exclusive jurisdiction clause is merely a submission to the jurisdiction which does not purport to prohibit the institution of an action in another jurisdiction. In contrast, "an exclusive jurisdiction clause is one which imposes a contractual obligation on one or more parties to litigate in the stated jurisdiction".
Enforceability of exclusive jurisdiction clauses
- In the case of exclusive jurisdiction clauses, if a defendant challenges the issue of proceedings out of the stated jurisdiction, the court has a discretion whether to stay the proceedings. In approaching the exercise of this discretion there is a strong bias in favour of holding the parties to their contract. The approach adopted in Australia is the same as that of the UK, as set out by Brandon J in The Eleftheria  2 All ER 641:
- "The principles established by the authorities can, I think, be summarised as follows: (i) 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. (ii) The discretion should be exercised by granting a stay unless strong cause for not doing so is shown. (iii) The burden of proving such strong cause is on the plaintiffs. (iv) In exercising the discretion, the court should take into account all the circumstances of the particular case. (v) In particular, but without prejudice to (iv), the following matters, where they arise, may properly be regarded: (a) In what country the evidence of the issues of fact is situated, or more readily available, and the effect of that on the relevant convenience and expense of trial as between the English and foreign courts. (b) Whether the law of the foreign court applies and, if so, whether it differs from English law in any material respects. (c) With what country either party is connected, and how closely. (d) Whether the defendants genuinely desire trial in the foreign country, or are only seeking procedural advantages. (e) Whether the plaintiffs would be prejudiced by having to sue in the foreign court because they would: (1) be deprived of security for that claim; (2) be unable to enforce any judgment obtained; (3) be faced with a time-bar not applicable in England; or (4) for political, racial, religious or other reasons be unlikely to get a fair trial."
- This approach has been followed in many Australian cases, including most recently the NSW case of FAI General Insurance Company Ltd v Ocean Marine Mutual Protection and Indemnity Association Ltd (1997) 41 NSWLR 559.
Inequality of bargaining power
- Where there is a discrepancy in bargaining power between the parties to an international contract (as is often the case in e-commerce contracts) Australian courts have shown a greater willingness to avoid foreign exclusive jurisdiction clauses. Australian courts have acceded to "a desire to protect local residents from being sued or forced to sue overseas" at the expense of the interests of commercial certainty and protection of contractual expectations which would be enhanced by the enforcement of the jurisdiction clause.
Enforceability of non-exclusive jurisdiction clause: forum non conveniens
- Jurisdiction clauses may be classified as non-exclusive, merely being submissions to the jurisdiction and not express prohibitions on the commencement of an action in another jurisdiction. Equally, as Hobhouse J stated in Berisford plc v New Hampshire Insurance  2 QB 631, 636, "it is of course possible for such clauses to impose such an obligation on only one of the contracting parties." In such a case the jurisdiction clause is more properly characterised as one in which the plaintiff has chosen to issue proceedings in one forum rather than another, both fora being available to him. In that situation, should the defendant wish to seek a stay of the proceedings it must do so on the ground that the forum chosen is not an appropriate forum. That is, the issue of whether or not to grant a stay falls to be determined on more general forum non conveniens grounds. The exclusive jurisdiction clause would still be one factor to be considered in this context.
- The leading Australian cases on forum non conveniens, Oceanic Sun Line Shipping Co v Fay (1988) 62 ALJR 389 and Voth v Manildra Flour Mills Pty Ltd (1990) 97 CLR 124, determine that a stay will only be granted where the court of issue is a clearly inappropriate forum for the determination of the dispute and continuation of the proceedings in that forum would be vexatious or oppressive. The majority in Voth approved of the discussion of Lord Goff in Spiliada Maritime Corp v Cansulex Ltd  AC 460, 477-8, 482-4, which suggested relevant "connecting factors" when deciding this question. These factors include:
- factors affecting convenience or expense, such as the availability of witnesses and other evidence;
- the law governing the transaction; and
- the places where the parties respectively reside or carry on business.
- the place where the cause of action arise is also relevant.
- Another factor is that of ‘legitimate juridical advantage’. An Australian court may refuse to grant a stay upon application by the defendant, on the ground that the plaintiff would be denied a legitimate juridical advantage. For this to apply, the plaintiff must seek to invoke a particular statute or part of Australian law which is not available in the nominated jurisdiction (this must be something of note and not simply a procedural matter). This is simply one element to consider in applying a forum non-conveniens test and is of less weight than geographical factors. For this to apply, the juridical advantage must be more than simply a incidence of residence.
Conclusion in relation to Question 4
- In summary, as a result of Australian courts’ practice of making a distinction between exclusive and non-exclusive jurisdiction clauses, when faced with a claim bought in contravention of a foreign jurisdiction clause, the court is obliged to stay the proceedings, in the absence of strong reasons to the contrary. In relation to non-exclusive jurisdiction clauses, a stay would only be granted in accordance with the general principles of forum non conveniens, if the Australian forum is ‘clearly inappropriate’ within the terms of the Voth principle.
- The practice of distinguishing between exclusive and non-exclusive jurisdiction clauses has been criticised by academic writers. They argue that in light of the rapid increase of transnational contracts (both electronic and written) the non-exclusive test for resolving interjurisdictional disputes, based on the appropriateness of the local forum, is "excessively myopic" and does not foster good international judicial relationships. There have also been judicial recommendations that jurisdiction clauses of both types should generally be enforced on the basis that they reflect the intention of the parties as to choice of forum. Such a move would bring Australia more into line with developments under English and European law. It is clear from the exponential growth in cross border electronic contracts, that a harmonisation of the enforceability of exclusion clauses is a logical response to the many contractual and jurisdictional disputes which arise in a world without frontiers.
- The following articles are relevant to this question:
- "Stay of Proceedings in Australia : A ‘Clearly Inappropriate’ Test?". R Garnett, 23 MULR 30.
- "The Enforcement of Jurisdiction Clauses in Australia", R Garnett 21(1) UNSW Law Journal, 1.
- "Forum Shopping A New Lease of Life", R Williams & W Marsh, International Business Lawyer, July/August 1999, p307
- "Information Transactions Under UCC Article 2B: The Ascendancy of Freedom of Contract in the Digital Millennium", G Evans, B Fitzgerald, Volume 21(2) University of New South Wales Law Journal, p 404
- "Law and Borders - The Rise of Law in Cyberspace", D Johnson & D Post, www.cli.org/X0025_LBFIN.html
Question 5: Is it possible to identify a state in which transactions occur?
- The usual rule is that a contract is formed at the place and at the time where the acceptance is received. The exception to this is the
Postal Acceptance Rule
: where an acceptance is sent by post, the contract is made at the time and at the place where the acceptance is posted. The Postal Acceptance Rule has been extended to acceptance by telegram.
- The Postal Acceptance rule has not been extended to other forms of "instantaneous
communication. Where communication is by telephone, telex, facsimile or similar means, the usual rule applies (with some limited exceptions) and the contract will be formed at the time and at the place where the acceptance is received. In Brinkibon Ltd v Stahag Stahl Gmbh  2 AC 34, it was explained that where the communication is for all intents and purposes
then the usual rule applies. This has been referred to as the "Instantaneous Communications Rule
- The law on the time a contract is formed by an electronic data message has not been dealt with by the Australian courts. However, under general contract principles, the time a contract is formed by an electronic data message over the Internet is probably the time that the message sent by the acceptor is received by the offeror's computer. This is particularly true where the message is not intended to be read directly by humans but to be acted upon by the receiving computer.
- There is a further question as to who is the offeror and who is the acceptor in an on-line consumer transaction. The usual rule for consumer sales was established as long ago as Spencer v Harding (1870) LR 5 CP 561: a retailer who circulates promotional material is not making an offer, but rather an
invitation to treat
. The would-be purchaser is then making the offer which is then accepted by the retailer. The same result has been held to apply to the case where goods are displayed in a shop.
- This rule cannot be applied blindly since each case will depend upon the facts. However, the better view is that it is probably the correct interpretation for goods
for sale on the Internet where there is no contrary intention expressed.
- The rule may be overcome by an expression of contrary intent. This may be appropriate in the Internet context. Where there is an
button to be used by the consumer as the last act in forming the contract, the contract would be formed at the place where the
message is received. This would be reinforced if the Web Site had a statement to the effect that there is no binding contract until the
button is clicked.
- Where the contract imposes a money obligation, the general rule is that questions affecting the substance of the debt are determined by the proper law of the contract but questions affecting the mode of performance are determined by the law of the place of performance: see Bonython v Commonwealth  AC 201. Generally, debts are taken to be located at the place where the debtor resides: Arab Bank v Barclays Bank (DCO)  AC 495.
- The general principle is that a tort occurs at the place where the act occurred on which the tort is placed rather than the place where the damage was suffered: Monro (George) Ltd v American Cyanamid and Chemical Corp  KB 432. This has been criticised by academics, who prefer the place where the harm is done.
- Negligent misrepresentation occurs at the place where the message is received and acted upon: Diamond v Bank of London and Montreal Ltd  QB 333. The manner of communication is irrelevant here, that is, there is no analogue to the Postal Acceptance Rule.
- Product liability issues often concern a failure to warn: the tort is taken to be the place where the item is purchased by the unwarned plaintiff: Distillers Co (Bio-Chemicals) Ltd v Thompson  AC 458.
- Defamation occurs where the material is published: Gorton v Australian Broadcasting Commission (1973) 22 FLR 181.
- Fraudulent misrepresentation is where the message is received and acted upon (including by mail): Diamond v Bank of London and Montreal Ltd  QB 333.
- It is thought that other
issues would be settled by the same rule. So, for example, the Trade Practices Act 1974 prohibits
misleading and deceptive
conduct. The best view is that the conduct occurs where the person misled or deceived receives the "message
that causes him or her to be misled or deceived.
Question 7: If a Plaintiff obtains a judgment in one country against the Defendant with no assets there, where and how can a judgment be enforced?
- This section looks at the legal position that will confront a business or consumer in Australia, who has obtained a judgment from an Australian Court against an entity which has no assets within the jurisdiction of the Australian Court.
- This situation may become increasingly frequent along with the rise of electronic commerce. The jurisdictional nexus enabling Australian Courts to adjudicate upon a matter (for example, an Internet contract for the supply of goods) could well be established by the performance by part of the contract in Australia (ie the delivery of the goods) and yet the company with whom the Australian buyer is dealing could not only have no physical presence or assets in Australia, but also have no easily identifiable assets in the jurisdiction where the web site originates.
- There is no easy "cure" for the problems associated with dealing with companies or individuals without assets. For this reason, this part of the paper will assume that assets exist, and a judgment might be enforceable, however those assets are wholly outside the jurisdiction of Australian Courts. We will also assume that the Australian Judgment is a "money judgment". Judgments involving orders to do or refrains from doing acts, or giving declarations, are more difficult to enforce internationally.
- There are a number of issues that need to be considered when examining the enforceability of Australian judgment in a foreign jurisdiction. The first, and most important, is to determine the use to which the judgment itself may be put in realising assets out of the jurisdiction. However ancillary issues also arise as to the extent which Australian and foreign law can assist in:
- determining whether the defendant has assets, and where they are located;
- ensuring that assets located in a foreign jurisdiction are preserved and not dissipated or transferred; and
- obtaining evidence to enable the assets to be realised to satisfy and Australian judgment.
- We will address these matters in turn.
Enforcement of Australian Judgments
- There are two principal ways in which Australian judgments might be enforced in other jurisdictions. The most important of these is through reciprocal recognition of judgments. In Australia, this is governed by the Foreign Judgments Act 1991 (CTH) ("Foreign Judgments Act"). The Foreign Judgments Act operates to allow foreign judgment contained in jurisdiction to which the Act applies to be enforced in Australia. The jurisdictions to which the Act applies depends upon reciprocity of treatment. In other words, Australia will allow foreign judgments from certain jurisdictions to be enforced in Australia and its territories, on the proviso that those jurisdictions give similar treatment to Australian judgments. The countries which could be expected to allow relatively easy registration of Australian money judgements are those listed in the Schedule to the Foreign Judgements Act.
- However, at present those countries providing reciprocity to Australia on this basis are few, and (with some important exceptions) the majority of the countries involved are relatively small in terms with trade conducted with Australia. In order to enforce an Australian judgment, the judgment creditor must supply to an Australian Court for a certified copy of the judgment together with a certificate containing particulars with respect to the courses of action and the rate of interest payable on the sums under the judgment. These certificates are only available in relation to judgments thought to be enforced in countries to which the Foreign Judgments Act applies.
- Enforcing Australian judgments in countries not covered by any reciprocal arrangement such as is contemplated by the Foreign Judgments Act is more problematic. The procedure to be adopted to enforce an Australian judgment varies from country to country. It may be possible in some countries to obtain recognition of an Australian judgment to enable assets in that jurisdiction to be attacked, however usually this requires fresh legal proceedings then instituted in the country in which the assets are situated. In some cases these proceedings amount to suing upon the judgment, with the potential that proceedings will be relatively quick.
- There is also a specific agreement in place between Australia and the United Kingdom concerning the recognition of judgements, to the advantage of Australian plaintiffs seeking to enforce judgements in the UK.
- In other cases an Australian judgment is of little use, as to have it enforced requires the matter to essentially be re-litigated.
- This is a considerable disincentive for an Australian litigant pursuing a debtor overseas. Unless the debt is very large, it my not be considered economic to institute proceedings in certain foreign jurisdiction based upon a judgment obtained in Australia. The inability of Australian businesses (and consumers) to have recourse to commercially feasible foreign enforcement proceedings after having obtained an Australian judgment against a person with no assets in the jurisdiction may be a factor that retards the development of the Internet as a trading tool.
- Australia is currently undertaking negotiation with countries in the Asia/Pacific region seeking to extend its reciprocal arrangements. Australia also participates in the work of the Hague Conference assessing the scope for a multi-lateral convention on the recognition and enforcement of foreign judgments based upon the Brussels and Lugano Conventions.
- Finally, before a creditor takes the time and expense of seeking to have an Australian judgment recognised in a foreign jurisdiction, that creditor would be well advised to try and ascertain what assets are available in that jurisdiction. There would be no point in having the judgment recognised is no assets were realisable to satisfy the judgment.
Assets and Evidence
- To preserve the utility of a judgment, the Courts can provide remedies to prevent a defendant removing assets from the jurisdiction and so out of the easy reach of a creditor, and also assist is gathering evidence of assets overseas.
- In relation to the preservation of assets, this is principally achieved by way of a Mareva injunction, restraining a defendant from moving assets out of the jurisdiction of the Court. A Mareva injunction is only available where the assets are within the jurisdiction and so subject to the control of the Court, and hence it is outside the scope of this part of the paper (dealing with a situation where there are no assets within the jurisdiction). However an injunction may be available preventing a debtor from dealing with assets outside the jurisdiction.
- There are several avenues open to a plaintiff wanting to gather evidence overseas of assets that may be available for realisation to satisfy a judgment debt. The Foreign Evidence Act 1994 (Cwlth) ("Foreign Evidence Act") allows an Australian Superior Court to make an order (inter alia) for:
- the issue of a commission for examination of a person on oath at any place outside Australia; or
- the issue of a letter of request to the judicial authorities of a foreign country to take the evidence of a person or cause it to be taken.
- Such an order should be available in most Australian jurisdictions to allow a court to give orders directing or requesting the examination of a judgment debtor (which includes the officer of a body corporate) in a foreign country. The examination would be directed to compelling the disclosure of assets wherever located. The appropriate forum for the examination would be the location of the debtor, which in turn would determine the prospects of such an approach being fruitful. There is little case law available to suggest that such a procedure is widely used.
- The Foreign Evidence Act has also been criticised for not permitting documents only (without also seeking oral evidence) to be sought by way of a letter of request to a foreign authority.
- A judgment creditor could also seek to use the Hague Convention on the Taking of Evidence Abroad in Civil and Commercial Matters 1970 (Hague Evidence Convention). This convention has been criticised for procedural delay, however it does at least give an alternative source of power for a judgment creditor to seek evidence of overseas assets. The Hague Evidence Convention also only applies to "civil and commercial" matters, and this is not a well defined expression in the common law.
- Regard should also be had to the dangers of taking evidence in certain foreign jurisdictions, and in particular to the Swiss Criminal Code and the Swiss Federal Banking Act.
- The issue of insolvency is also relevant. An Australian debtor with assets overseas can be bankrupted in Australia, and the Bankruptcy Act has provisions allowing letters of request to be issued seeking the assistance of foreign courts. Likewise for corporate insolvency, where section 581(4) of the Corporations Law contains a similar provision for liquidators.
- Australia only has reciprocal arrangements for letter of request issued under the Bankruptcy Act and the Corporations Law with seven countries, being the UK, PNG, Jersey, Malaysia, Switzerland, Singapore and the USA. Having such arrangements makes it likely that a letter of request for assistance will be acted upon by the courts of the country to whom it is issued. The courts of countries other than those listed above may also provide assistance, however the lack of certainty makes it less likely that a court will issue a request in the first place.
- In relation to a corporate insolvency, a company that is not registered in Australia can still be wound up provided there is sufficient territorial connection such as local assets. As we are here dealing with a situation where there are no local assets, the debtor effectively needs to be registered in Australia or have some other sufficient connection to the jurisdiction to enable the court to make the winding up order.
SPECIFIC AREAS OF COMMENT
Payment Systems and Banking
- The Electronic Commerce Project team within the Australian Taxation Office ("ATO") released a report in 1997 entitled Tax and the Internet. As part of this project the impact of electronic commerce on the tax base was examined. The ATO expects to release the second part of its report on Tax and the Internet early next year.
- The legal basis of tax jurisdiction in Australia is premised on taxation concepts of residency, source and permanent establishment. These concepts imply an element of physical or territorial nexus with Australia. These jurisdictional bases of taxation are challenged by electronic commerce which allows for highly mobile activities to be moved offshore, beyond the reach of the Australian tax authorities. The problem is highlighted by this paragraph taken from the report:
"The Internet provides an environment where automated functions, by their very nature, may be able to undertake a significant amount of business activity in a source jurisdiction with little or no physical activity or participation in the economic life in any jurisdiction anywhere. This highlights the inappropriateness in an Internet environment of allocating taxing rights on a concept based on geographical fixedness." (paragraph 7.2.17)
- Australia has introduced legislation for a goods and services tax (commonly known as a value added tax) which will take effect from 1 July 2000. The GST provisions use the concepts of ‘connected with Australia’ and ‘permanent establishments’ to bring transactions within the GST net. As the GST Act uses a concept of geographical fixedness, it can be expected that the Australian taxation authorities will be presented with challenges to the jurisdictional base for GST similar to that currently being experienced with income taxation.
- The issue of the effect of electronic commerce on the traditional tax bases of countries is a live issue within the international arena. The OECD Committee on Fiscal Affairs has been undertaking a major consideration of the taxation issues raised by e-commerce and its underlying technologies. As part of this, the OECD is considering how the concept of ‘permanent establishment’ in the OECD Model Tax Convention applies to electronic commerce. A draft paper has been released for comment on this issue(comments can be made until 31 December 1999). The main points arising from this draft are as follows:
- A website itself does not involve any tangible property and therefore cannot itself constitute a place of business. The mere operation of the web site from a server located in a country cannot constitute a permanent establishment. The Internet Service Provider (on whose server the website is hosted) will not in normal circumstances be the agent of the enterprise which operates the website. This means that the website operator does not have a deemed permanent establishment arising from the location of the Internet Service Provider.
- A server through which the website is operated is a piece of equipment which itself needs a physical location and may, if it is fixed, constitute a fixed place of business of the enterprise that operates it. It will often be the case that the enterprise that operates a server on which a website is hosted is often different from the enterprise that carries on business through that website. If the server is a piece of automated equipment that does not require on site human intervention, it can still constitute a permanent establishment. For a server to be a permanent establishment, a server will need to be located at a certain place for a sufficient period of time so as to become fixed.
Permanent establishment ("PE") for purposes of section 9-25(6) of the GST Act
- The primary test of the existence of a PE is whether there is a fixed place of business through which the enterprise carries on business. The section 6 definition of permanent establishment contemplates a place in a country at or through which a person carries on any business.
- OECD commentary suggests that a fixed place of business requires:
- a facility such as premises or equipment; and
- that it be in a specific geographical place with some degree of permanence; and
- that personnel conduct the business from that place.
- In one of the rulings dealing with transfer pricing, for the purposes of the section 6 definition of permanent establishment, the word ‘at’ refers to the PE as a geographical point at which the business is carried on. The word ‘through’ refers to the PE as a means or instrument of carrying on the business. Both words connote that the business carried on is attributable to, or results from, the activities of the PE.
- It would appear that some degree of entrepreneurial activity is a prerequisite to a finding that a facility is a PE. There have been very few cases that have appeared before the courts on the meaning of permanent establishment. However, from these cases (see case F85 (1955) 6 TBRD) it would seem to require some element of ‘management’ in Australia is required.
- Paragraph (b) of the definition of section 6 definition of ‘permanent establishment’ in includes a place where the person has, is using or is installing substantial equipment or substantial machinery. It would appear that it is not necessary that the person who is using the equipment actually own the equipment. The arrangement can be by way of licence or bailment. A server may potentially be substantial equipment or machinery.
Website, servers and permanent establishment
- Can a website constitute a permanent establishment for the purposes of the A New Tax System (Goods and Services Tax) Act 1999 ("GST Act") and the Income Tax Assessment Act 1936?
- The 1997 Australian Taxation Office publication, Tax and the Internet, made the following comments on this issue:
"As with source rules, the permanent establishment (PE) rues can be applied to Internet business, but may provide tax planning opportunities and could be difficult to apply in practice. A website located on a server, that is fixed in time and location and through which business is carried on may constitute a PE. However, the requirement for fixedness is easily circumvented by segregation and moving web sites. These factor and the automation of functions also raise difficulties with applying the general exclusion in double taxation agreements that preparatory and auxiliary activities do not by themselves amount to a permanent establishment." (paragraph 7.2.15)
"The Internet provides an environment where automated functions, by their very nature, may be able to undertake a significant amount of business activity in a source jurisdiction with little or no physical activity or participation in the economic life in any jurisdiction anywhere. This highlights the inappropriateness in an Internet environment of allocating taxing rights on a concept based on geographical fixedness." (paragraph 7.2.17)
- There have been no rulings or determinations issued on this topic by the Australian Taxation Office to date. At this point whether a website constitutes a permanent establishment would appear to turn on the facts under consideration. The ATO is preparing to release its follow up report to Tax and the Internet shortly. It is expected that this report will address the issues arising from the interaction of GST and e-commerce.
- The issue of whether a website can be a permanent establishment is certainly a live issue within the international arena. The OECD Committee on Fiscal Affairs has been undertaking a major consideration of the taxation issues raised by e-commerce and its underlying technologies. One of the issues sought to be clarified was how the concept of permanent establishment used in the OECD Model Tax Convention applied to electronic commerce. A draft paper has been released for comment (comments can be made until 31 December 1999).
Sale of Goods and Services
- Many Internet banking transactions will have a territorial connection with Australia that is sufficient to ground jurisdiction. It is arguable that some of the contracts formed in any Internet banking operation will be formed in Australia as the place where the acceptance is received. Transactions which do not involve the formation of a new contract may be found to be conducted in Australia by similar reasoning.
- In other cases, the laws of Australia will apply by virtue of the "consumer'" being resident in Australia. In general, "choice of law" clauses will have a limited effect since they are specifically overruled in much of the Australian regulatory and consumer protection legislation.
- The Australian Securities and Investments Commission ("ASIC") has issued policy statements on offers of securities on the Internet, investment advisory services and the issue of electronic prospectuses. Although ASIC regards the relevant legislation as being applicable to Internet transactions, the general approach of these policy statements has been that ASIC will only intervene if any one of the following applies:
- the offer, invitation or advertisement is targeted at persons in Australia;
- the offer or invitation does not contain a meaningful jurisdictional;
- the offer, invitation or advertisement has a significant impact on Australian;
- investors; or
- there is misconduct.
- It seems likely that ASIC and other regulators will take a similar approach to the offering of Internet banking services. Applications for exemptions will be entertained in appropriate cases.
- It also seems likely that Australian regulators will follow the approach known as the "push-pull" analysis. Where Information, offers or other communications are actively sent to Australian residents, Australian law will apply. Where such information is created and hosted overseas and the only Australian linkage is access through Internet links, Australian law is unlikely to apply. This is reflected in the ASIC approach to offers of securities on the Internet.
Carrying on banking business in Australia
- A person or body corporate may not carry on any "banking business in Australia" without obtaining authorisation from the Australian Prudential Regulation Authority ("APRA"). All Authorised entities are known as Authorised Deposit-taking Institutions ("ADIs"). All ADIs are subject to prudential supervision by APRA. Prudential standards have been established on matters such as capital adequacy, liquidity management, risk management, debt concentration and market risk.
- The requirements apply to both locally incorporated companies and branches of foreign entities. In Australia, the essential characteristics of the business of banking have been defined by the High Court of Australia In Australia, the essential characteristics are the collection of money by receiving deposits and the utilisation of the money so collected by lending it in such sums as are required.
- These definitions have now been formalised in the Banking Act 1959. Section 5(1) provides:
"banking business means:
- a business that consists of banking within the meaning of paragraph 51(xiii) of the Constitution; or
- a business that is carried on by a corporation to which paragraph 51(xx) of the Constitution applies and that consists, to any extent, of:
- both taking money on deposit (otherwise than as part-payment for identified goods or services) and making advances of money; or
- other financial activities prescribed by the regulations for the purposes of this definition."
- To constitute Australian banking business, both the activities of taking deposits and making advances must occur "in" Australia. Under general law, a debt is taken to be located where the debtor resides or where the debt is likely to be enforced. In considering deposit-taking institutions that are not resident in Australia, it is arguable that the deposit taking business is located offshore. A final conclusion of this question will depend upon the interpretation of the Internet-solicitation of deposits and the means of acceptance of the deposits.
- The Banking Act recognises that an organisation may carry on some aspects of banking business without carrying on the full business of banking. Exemptions are required and available. Although the deposit-taking business may occur offshore, it would obviously be open for a court to find that some aspects of Internet banking involve the carrying on of some banking business. The only safe course of action is to seek an exemption from APRA.
Use of the word "bank"
- Section 66 provides that a person is guilty of an offence if:
- the person carries on a financial business, whether or not in Australia;
- the person assumes or uses, in Australia, the words "bank", "banker", "banking" or another restricted word or expression in relation to that financial business;
- the person is not an Authorised Deposit-taking Institution under the Banking Act;
- APRA did not consent to that assumption or use of that word or expression; and
- there is no exemption order in force determining that this section does not apply to the person.
- The issue is not whether the relevant business is located in Australia, but whether a restricted word is "assumed" or "used" in Australia. APRA adopts a strict policy in relation to the interpretation and application of section 66 (eg it restricts the distribution of business cards by foreign banks in Australia). It seems likely that APRA will regard the section as applying to Internet banking services targeted at Australian residents.
- Under the Payment Systems (Regulation) Act 1998, the Reserve Bank of Australia ("RBA") has the power to regulate payment systems. It may impose access regimes and standards on a system. This legislation is relatively untested and the RBA is developing policies on its application. "Payment systems" means a funds transfer system that facilitates the circulation of money, and includes any instruments and procedures that relate to the system. It is thought that services such as bill paying and standing order facilities would be payment systems for the purposes of the Act.
- Although the Act expressly applies to foreign corporations, it is unclear as to whether the relevant payment system must be located or operated in Australia in order for the Act to be applicable. Presumably the same considerations as outlined above with respect to "banking business" would apply.
- The Act provides explicit regulation of "purchased payment facilities" ("PPFs"). Section 9 of the Act provides:
- A "purchased payment facility" is a facility (other than cash) in relation to which the following conditions are satisfied:
- the facility is purchased by a person from another person; and
- the facility is able to be used as a means of making payments up to the amount that, from time to time, is available for use under the conditions applying to the facility; and
- those payments are to be made by the provider of the facility or by a person acting under an arrangement with the provider (rather than by the user of the facility).
- However, a facility covered by a declaration under subsection (3) is not a purchased payment facility for the purposes of this Act.
- The notion of a "facility" is not defined, but s(9(4)) provides:
- In this section:
- a reference to a facility includes a reference to a right to use a facility; and
- a reference to the purchase of a facility includes a reference to the payment of an amount for a right to use a facility.
- It is obvious, and confirmed by the Explanatory Memorandum, that these sections were intended to apply to new payment system developments such as smart cards and digital cash as well as to older facilities such as travellers' cheques. The notion of a "facility" is not defined, but s(9(4)) provides:
- In this section:
- a reference to a facility includes a reference to a right to use a facility; and
- a reference to the purchase of a facility includes a reference to the payment of an amount for a right to use a facility.
- It is obvious, and confirmed by the Explanatory Memorandum, that these sections were intended to apply to new payment system developments such as smart cards and digital cash as well as to older facilities such as travellers’ cheques.
- The Act provides that the "holder of stored value" must be an ADI. The "holder of stored value" is the person who makes the payment referred to in s9(1)(c): see s9(2) and the interpretations in s2.
- It seems clear that the Reserve Bank will have the power to regulate PPFs where they are sold to Australians for use in Australia. Application to Internet operations will probably follow the guidelines mentioned above.
- The legal issues arising from the sale of goods and services cannot be divorced from jurisdictional issues. If a contract is made over the Internet, where is that contract made? What is the proper law to be applied? Where is the contract to be performed?
- These issues are dealt with elsewhere in this submission. It is enough to understand the potential complexity of these matters when seeking to allays an international Internet sale transaction. For example, the web site of a company may be in the Cayman Islands, with the server to that web site being located in the US, and order forms dispatched through the web site processed in Hong Kong. There is obviously a considerable potential for disputes as to the proper jurisdiction and hence proper law to be applied to such a sale transaction.
- Unless uniform rules and laws are available to be adopted in relation to international e-commerce transactions, there may be resistance to entering into agreements. There may also be a tendency for service providers to structure their affairs in a way which arguably results in a transaction being conducted in a country with laws and regulations that are favourable to the service provider, much in the same way as many ships show Panama or Liberia as their flag states irrespective of the nationality of the owners of the vessel.
- If e-commerce is to result in a market for goods and services being truly global (in the sense that it may be commercially advantageous for a buyer of goods or services to purchase them from a foreign supplier notwithstanding a local supplier is literally next door) then globally applicable laws, or at least recourse to standard international legal regime (such as INCOTERMS) should be available.
Sale of goods and services in Australia
- Australian laws are likely to apply to Internet transactions in circumstances where both parties to the transaction occurs in Australia or where at least the vendor of the goods or services is amenable to Australian laws. The following comments are based upon an assumption that the laws of Australia apply to a sale transaction.
- There are different classes of transactions to be considered. When dealing with an international transaction, there is a distinction which must be made between the sale of goods for commercial purposes and the sale of goods for a personal family or domestic use.
- For international transactions for the sale of business related goods, the likely legal regime is to be found in the various State enactments giving affect to the Vienna Convention on the Sale of Goods. The parties to any international agreement otherwise governed by the Vienna Convention can exclude it by contract.
- The Vienna Convention does not apply to services. Nor does it apply to goods bought for personal family or household use, unless the seller neither knew nor ought to have known that the goods were bought for any such use. It also does not apply to sales by auction (increasingly common in Internet consumer transactions), or to sales of ships or other vessels.
- If the Vienna Convention does regulate the transaction, it imports a series of well accepted legal principles to govern the contract. These provisions regulate the formation of the contract, the obligations of the seller, the obligations of the buyer, and the passing of risk.
- For domestic transactions, each State has its own Sale of Goods legislation. The general provisions are similar to the Vienna Convention in each case, and in each case the parties can exclude the operation of the act by agreement.
- The Sale of Goods acts all have provisions that imply certain warranties into contract for the sale of goods. The warranties implied are generally that the goods supplied are of merchantable quality, and where the buyer makes known to the seller the purpose for which the goods are acquired, that the goods are reasonably fit for the purpose for which they have been acquired. These implied warranties can be excluded by agreement or if inconsistent with express terms.
- Outside of the operation of Sale of Goods legislation, many commercial contracts are governed by agreed terms, or by practice and custom. There are a number of standard agreements that can be adopted for the international sale of goods of various classes (particularly commodities). In general, when dealing with non-consumer transactions of a significant size, the parties are well able to regulate their own affairs, and a choice of law and/or jurisdiction clause is often included in the agreement. In this sense, the potential problems associated with e-commerce are unlikely to be a major problem to existing international commercial trade, where the law is already quite well developed.
- What about the sale of services? There is no specific legislative equivalent to the Sale of Goods acts of the various states. Subject to general consumer protection legislation (discussed below) the common law rules of contract apply to regulate the formation of the agreement, and the rights of the parties if performance is defective.
- There is however other Australian legislation which may affect international and domestic contracts of the sale of goods and services. For example, the Trade Practices Act 1974 (Cwlth) ("TPA") implies certain warranties into consumer contract for the sale of goods and services. It is limited to "consumer" type transactions, where the contract price of the goods is less than $40,000, or, if the price exceeds that sum, the goods are of a kind ordinarily acquired for a household or domestic purpose.
- The TPA is a Commonwealth Act, and so is limited in its application to areas over which the Commonwealth has legislative power - usually linked to corporations. To ensure relatively uniform legislation even where no corporation is involved in a transaction, each State of Australia has also enacted Fair Trading legislation, which essentially repeats the consumer protection provisions of the TPA on a State by State basis. Where there is inconsistency with a State’s Sale of Goods legislation, the Fair Trading Acts usually prevail.
- The warranties implied by the TPA and the various States’ Fair Trading Acts are that similar to those implied under Sale of Goods legislation (ie goods are of merchantable quality, and both goods and services are reasonably fit for the purpose for which they are acquired). The jurisdiction of such acts is however not unlimited. In order for a foreign corporation to be subject to such provisions, it must at least carry on business in Australia even if not a registered Foreign Company. The transaction also needs an Australian nexus. For this reason it is unlikely that either the TPA or the various States’ Fair Trading legislation will have much impact on consumer transactions where the provider of goods has no physical business presence in Australia.
- Consumers in such circumstances would then be left to rely upon the laws applicable to the transaction, which may in itself be difficult to determine.
- Again, in order to alleviate these problems where goods and services are acquired on an international basis, it may be desirable to have some form of Treaty or internationally accepted source of standard terms, which provides terms and conditions for consumer transactions. This would enable both the buyer and the seller in such a transaction to have a more clear understanding of their respective rights and liabilities.
- Consideration should also be given to increasing consumer awareness of the importance of ensuring that any agreement that is made between themselves and a provider of goods or services through e-commerce is subject to a recognised legal regime and the consumer is not left to pursue remedies (for example) a country, where proceedings and enforcement would be all but impossible.
- This part of the paper will look at the Australian regulation of advertising, and consumer protection provisions. For this reason it will be based on the assumption that Australian laws apply to regulate such behaviour, which usually means that the behaviour takes place within Australian, or in certain circumstances is conducted overseas by an Australian business (particularly where Australian consumers are involved). There will be some overlap with the part of this paper that deals with the sale of goods, as the same legislation (TPA, Fair Trading legislation) that imports warranties into contracts for the sale of goods and services is also responsible for general consumer protection
- The principal regulation of advertising from the consumers perspective is undertaken in the Federal jurisdiction by the Australian Competition and Consumer Commission ("the ACCC"). This Commission is an autonomous body set up pursuant to the ("the TPA"). The ACCC has many functions, including regulating competition in the Australian markets. However, one of its functions is to police the providers of goods and services to Australian consumers, and to ensure that such providers do not contravene Part IV of the TPA which relates to consumer protection. There are however some limits to the Trade Practices Act. In general terms, it only applies to the conduct of corporations in trade or commerce.
- However, the Fair Trading Acts enact similar consumer protection divisions throughout the various States. The State enactments protect consumers against conduct in trade or commerce that is not carried out by a corporation. Under the State legislation, breaches of the acts are usually enforced by the Commissioner for Fair Trading. From now on reference will only be made to the ACCC, however it should be kept in mind that where the conduct is in contravention of a Fair Trading Act, a State based Commissioner also has the capacity to act.
- In general terms, the conduct that is prohibited is that which is misleading or deceptive, or which is likely to mislead or deceive. Further, advertising which suggests an affiliation or connection with another company or produce which the product in question does not have is also prohibited. Other prohibited conduct includes engaging in "referral selling" (where a consumer is induced to purchase a product on the understanding that a discount or rebate will be given if the consumer introduces other buys to the vendor), "bait advertising" (typically advertising goods at a low price to generate consumer interest with no intention of selling at that price), pyramid selling, asserting a right to payment for unsolicited goods, and other deceptive practices.
- There is a distinction between an advertisement that is misleading or deceptive, and advertising that uses "puffery" such as hyperbolic language. The intention of the legislation is not to prevent advertisers from promoting the product in a colourful manner, although the boundary between an advertising puff, and a deceptive statement, may be blurred.
- If a person or corporation which is subject to the jurisdiction of Australian Courts (and hence the ACCC) contravenes a provision of the TPA or the equivalent provision in one of the States’ Fair Trading Acts, both the consumer and the ACCC has a right to take action. In the case of the ACCC, this often involves a prosecution of the company concerned, which if the conduct is established may be liable for a fine. It is not unusual for injunctions to be obtained against corporations requiring them to cease engaging in the offending conduct, and often corrective advertisements are required to be placed to "undo" any consumer confusion occasioned by the breach of the TPA.
- If an action is to be taken by an individual consumer, the TPA (and the Fair Trading Acts) confer wide remedies upon the appropriate Courts in Australia to make whatever orders they consider to be appropriate. There are also specific provisions allowing for an award of damages, and for statutory injunctions to issue against those who contravene the consumer protection’s divisions of the TPA/Fair Trading Acts.
- Although the TPA/Fair Trading Acts are the main source of consumer protection in Australia, there are other sources as well.. Such legislation is less ubiquitous than the general consumer protection legislation previously dealt with, and it is not proposed to discuss such acts in this paper.
- Further, when raising money via a prospectus, there is an obligation on the corporation to notify the Australian Investments and Securities Commission of any false or misleading information the prospectus may contain, and then correct it by supplementary prospectus. Further, there is a prohibition against making false or misleading statements with a view to influencing the market price of securities. As the Internet is an excellent mechanism for disseminating market sensitive information (or misinformation as the case may be), contravention of these provisions through the use of the net may well increase in the future.
- The common law may also provide civil remedies for aggrieved consumers. Australia has a similar common law legal system to that of the United Kingdom or Canada in relation to civil liability for false or negligent misrepresentations in advertising. Contracts may be avoided, and damages recovered either in contract or through the taut of deceit. In circumstances where again, the availability of these remedies depends on the jurisdiction of the Australian Courts, which is also an issue in matters concerning international commerce.
Consumer Protection - Protection of Information, Privacy
- The issues of protection of information and privacy are discrete areas of consumer protection. In contracts formed via the Internet the consumer invariably discloses personal information to the seller. The mere purchase of a particular article is information that can be used to create a database on a consumers spending habits. The providing of a credit card number has the potential to be abused. Personal details can be compiled and disseminated to other organisations.
- This is hardly new. Customer profile information and mailing lists have been used and traded from may years. The Internet merely increases the scope for this occurring, and the rate at which consumer data is being compiled.
- In Australia the Privacy Act 1988 (Cwlth) ("Privacy Act") operates to regulate to some extent the records that can be collected about Australian consumers. Collectors of "personal information" have an obligation to adhere to Information Privacy Principals as listed in section 14 of the Privacy Act. These principles do not prevent personal information from being collected or disseminated: rather, they are directed to ensuring that the collection and use of such personal information does not intrude to an unreasonable extent.
- Further, disclosure is limited to cases where the individual concerned is "reasonably likely to have been aware" that information of that kind is usually passed on to the intended recipient. The loose language leaves room for collectors of commercial information to utilise the data, and also the restrictions are limited if the identity of the person is not able to be discerned from the information.
- The Privacy Act cannot regulate the collection of information by companies or persons outside the jurisdiction. A borderless marketplace makes the control of personal information difficult.
- Similar concerns apply to the uses to which credit card details and electronic signatures can be put. At present these is no uniform legislation in Australia governing electronic transactions and the use of electronic signatures and other security mechanisms. See paragraphs 3.5 to 3.13 above. State by State legislation ought to be enacted to match the Federal Act, however there is no indication that the States will do this in the near future.
Overview in relation to Consumer Protection
- There are reasonable safeguards in place in Australia to protect Australian consumers from the unscrupulous commercial behaviour of those amenable to the jurisdiction of Australian Courts.
- The real issues that have yet to be addressed concern circumstances where the advertiser or seller is outside the jurisdiction (and possibly conducting business in a jurisdiction without consumer protection laws), or where a seller within the jurisdiction engages in misleading behaviour to consumers outside the jurisdiction (where the consumer may have a remedy in Australia, but not necessarily in the country where the misleading behaviour "bites").
- Privacy and security issues are also pressing concerns, although at least in relation to privacy Australia has legislation regulating the collection and dissemination of personal details, at least to some extent. At present Internet trade is probably being constrained by consumer reluctance to provide information, and in particular credit card details, to foreign companies, particularly if the business does not have a substantial reputation (such as Amazon, for example).
- Two Australian States, New South Wales and Queensland, have passed laws dealing with Internet gambling.
- On its face, the Queensland law, the Interactive Player Protection Act 1998, has extraterritorial effect. Generally, a resident of Queensland cannot gamble on an Internet site unless the site holds an appropriate Queensland license and the player has registered with the site in the manner set out in the legislation. Registration is to ensure age and identity. It is irrelevant where the Internet site is hosted or located.
- To date, the Queensland law has not been enforced against web sites located out of Queensland.
Mallesons Stephen Jaques