The circumstances in which EU businesses based in one member state will be regarded as having “directed” their business activities to consumers in another member state – entitling such consumers to sue in their “home” courts – have recently been clarified by the Court of Justice of the European Union (“CJEU”).

Within the EU, jurisdiction is generally based on the defendant’s domicile. As with any good rule, however, many exceptions apply. Article 16(1) of Council Regulation (EC) No 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters(more commonly and concisely known as “Brussels I”) provides that in certain contractual circumstances, a consumer may elect to sue a business in either:

  • the member state where that business is domiciled (as per the general rule); or
  • the member state of their own domicile.

According to article 15(1), the consumer’s right to elect arises for contracts:

  • for the sale of goods on instalment credit terms;
  • for a loan or any other form of credit to finance the sale of goods; or, in all other cases;
  • concluded with a person who pursues commercial or professional activities in the member state of the consumer’s domicile or, by any means, directs such activities to that  member state or to several states including that member state, and the contract falls within the scope of such activities” [our emphasis].

The CJEU’s recent decision in the case of Lokman Emrek v Vlado Sabranovic Case C-218/12 [2013] illustrates just how wide-ranging the provision in article 15(1)(c) is.

THE FACTS

Mr Emrek lived in Saarbrücken, a German city close to the French border. Mr Sabranovic ran a business selling second hand cars in Spicheren, a French town situated about a 20 minute drive away from Saarbrücken.

Whilst looking to purchase a second hand car, Mr Emrek learned of Mr Sabranovic’s business from acquaintances and, in September 2010, travelled to France where he purchased a car directly from Mr Sabranovic.

At the time the contract was concluded, Mr Sabranovic ran an internet site which contained, amongst other information, the contact details for his business. Crucially, it provided a French landline, along with the relevant international dialling code, and a German mobile number, preceded by the German international dialling code.

Mr Emrek began to experience problems with his car and sought to claim against Mr Sabranovic under the car’s warranty. The claim was brought in Germany on the basis that, under article 15(1)(c), Mr Sabranovic directed his commercial activity to Germany and that the German court therefore had jurisdiction to hear the matter.

The first instance decision of the German court was that they did not have jurisdiction on the grounds that Mr Sabranovic did not direct his business to Germany within the meaning of article 15(1)(c). On appeal by Mr Emrek, however, the German regional appeal court held that Mr Sabranovic had directed his business to Germany, citing as evidence the presence of the French international dialling code and the German telephone number on his website, particularly given his proximity to the border.

Importantly, though, the appeal court also expressed the view that regardless of whether:

  • the contract for the car was concluded at a distance; or
  • article 15(1)(c) required it to be,

in order for the consumer right under article 15(1)(c) to bite, some connection must be established between:

  • the commercial activity “directed” to Germany (i.e. having included a German telephone number on the website); and
  • the conclusion of the contract.

Accordingly, the German appeal court stayed the proceedings and sought a preliminary ruling from the CJEU.

THE PRELIMINARY RULING

The following two questions were referred:-

  • In cases in which a trader’s internet site is directed to the member state of the consumer, does article 15(1)(c) of [Brussels I] require, as a further unwritten condition, that the consumer was induced to enter into the contract by the website operated by the trader and, consequently, that the internet site has a causal link with the conclusion of the contract?
  • If there must be a causal link between the activity directed to the member state of the consumer and the conclusion of the contract, does article 15(1)(c) of [Brussels I] also require that the contract was concluded as a distance contract?

CAUSAL LINK

The CJEU held that no causal link was required between the business’ direction of its activities and the consumer’s conclusion of the contract. Its rationale was twofold:

The wording of the article did not expressly require the existence of any such causal link. It applied when two specific conditions were fulfilled, namely:

  • the business pursued or directed, by any means, commercial activities to the member state of the consumer; and
  • that the contract in issue fell within the scope of such directed commercial activities.

To introduce such a requirement would be contrary to the object of the Article and the EU’s aim of protecting consumers as the weaker party in consumer-to-business contracts.

The CJEU was concerned that requiring consumers to prove a causal link might discourage them from bringing proceedings in their national courts. In addition, the requirement of prior consultation of a website by a consumer could give rise to evidential obstacles, in particular where, as in the present case, the contract was not concluded at a distance through that website. However, the existence of a causal link would constitute strong evidence which the national courts should consider when determining whether a business had in fact directed its activities to another member state.

The CJEU held that it was for the national courts to make an overall assessment of the circumstances in which the consumer contract was concluded, in order to decide whether article 15(1)(c)’s consumer-friendly “home” jurisdiction exception should apply.

Earlier case law had already identified a non-exhaustive list of factors which would assist the national courts in determining whether the essential condition of commercial activity directed to the member state of the consumer’s domicile was satisfied (discussed further below). Those factors included ‘the establishment of contact at a distance’ and ‘the conclusion of a consumer contract at a distance’, which were of such a nature as to establish that the contract related to an activity directed to the member state of the consumer’s domicile (Daniela Mühlleitner v Ahmad Yusufi & Wadat Yusufi C 190/11 [2012]).

DISTANCE CONTRACT

By the time the Lokman case was heard, the CJEU had already answered the second question relating to whether or not the contract must be concluded as a distance contract (Mühlleitner). The short answer is - no.

That case also involved the sale of a car - this time from a German business. Ms Mühlleitner was an Austrian citizen who had found the defendants’ details online, contacted them using the supplied international dialling code and sought confirmation that her Austrian nationality would not prevent her purchasing a car from them. Ms Mühlleitner then travelled to Germany to purchase the car.

When things went wrong, Ms Muhlleitner brought proceedings in Austria and the defendants challenged the Austrian courts’ jurisdiction on the grounds that the article 15(1)(c) exception only applied in respect of contracts concluded at a distance.

The Austrian court referred the “distance contract" issue to the CJEU, which held that article 15(1)(c) does not expressly make its application conditional on relevant contracts having been concluded at a distance. The CJEU’s principal rationale was that adding such a condition would run counter to the overriding objective of article 15(1)(c), namely protecting consumers as the weaker parties to the contract, and add an additional requirement not found in the wording of the primary legislation.

GUIDANCE AND BACKGROUND DISCUSSIONS TO BRUSSELS I

Both Regulation (EC) No 593/2008 (“Rome I”, concerning which jurisdiction’s law to apply - a separate question from which member state’s courts have jurisdiction), and the joined cases C 585/08 and C 144/09 Pammer and Hotel Alpenhof [2010] ECR I 12527 provide guidance on what constitutes “directing activity” to another member state. Whilst the legislation provides for business to be directed ‘by any means’, such activity will usually be directed through the internet and the guidance in Rome I and Pammer therefore focuses on e-commerce.

The following factors may constitute evidence that a business directs its activity to another member state:-

  • the business’ website solicits distance contracts;
  • it is clear that the company or trader had envisaged doing business with consumers domiciled in one or more member states;
  • the business makes mention of its international clientele;
  • the activity is by its nature international (e.g. hotel bookings);
  • the website can be viewed or allows a transaction to be undertaken using a currency or language other than that of the member state of the business;
  • the company or trader provides directions from other member states to the place of business;
  • telephone numbers are listed with an international code;
  • a top level domain name is used which is not that of the member state of the business; and
  • an internet referencing service is used to facilitate access to the business’ site.

However, the mere fact that a business’ website is accessible in another member state is not sufficient to establish that its business activity was “directed” to consumers in that member state.

With regard to language, most practitioners would probably agree that an Italian business which allowed its website to be viewed and/or a transaction to be concluded in German, would and should almost certainly be classed as directing activity to Germany. However, given the widespread use of English as a second language in almost all member states, would a business which allowed its website to be viewed in English be considered to have directed its business to all member states, or only the United Kingdom and the Irish Republic? Potentially, the former. In his opinion of May 2010 for Pammer, Advocate General Trstenjak said that, whilst the mere use of English in this context would not be determinative, it would be a strong indication of direction of activities across the EU.

CONCLUSION

Following Lokman, businesses operating in the EU should be aware that their customers may be allowed to bring claims in their “home” jurisdiction, which may not be the member state in which the business is based. Being sued is bad enough – but being sued in an overseas jurisdiction, with which you are not familiar (and within which you did not necessarily know you were trading), could present a significant additional business risk and cost.

Simple actions, for example including an international dialling code on your website, may open a business up to being sued in member states other than its own. In particular, any website that allows a consumer to purchase goods online and offers delivery to another member state will almost certainly be caught by article 15(1)(c).

Businesses should be aware of these issues and manage their risks accordingly. Regrettably, however, it seems likely that in many cases this will involve a weighing-up of the advantages of targeting consumers in a particular member state against the risk that the business could find itself defending proceedings in that jurisdiction.

This article was published in New Law Journal in March 2014.