Patrick McGrath of Shieff Angland explores ways to avoid confusion about which country's law applies when doing business on the Internet

Few online businesses are adequately protecting themselves against problems that may arise from the international nature of e-commerce transactions. A Ministry of Consumer Affairs survey in October 1999, found that 90 percent of web sites failed to advise customers what laws applied to their transactions.

Problems may arise when material placed on a web site, while complying with New Zealand law, fails to comply with the laws of other countries where the material may be received. Consider advertising material placed on the web site of a business based in New Zealand. The ad may not contain anything that would be seen as misleading according to New Zealand's Fair Trading Act 1986. However, the trade practices laws of other countries in which the web site may be accessed may apply different standards.

If an overseas consumer is misled according to another country's laws, that consumer could sue the New Zealand company in the Courts of the overseas jurisdiction, under the laws of that jurisdiction, then enforce the foreign judgment in New Zealand. New Zealand has arrangements with many countries, including most of our trading partners, for overseas judgments to be enforced here and vice versa.

The law of intellectual property presents another potential minefield. A trademark or domain name properly registered in New Zealand may be similar or identical to a trademark or domain name used in another country. A New Zealand company could find itself embroiled in proceedings in, for instance, Cameroon for using the New Zealand company's New Zealand registered trade mark, or domain name, on its web site.

Where goods are bought and sold online, the contract can specify that any disputes are to be dealt with according to the laws of New Zealand and in the New Zealand Courts. Such clauses will normally be effective, with some exceptions. In the absence of such a clause, the law of the country with which the contract has its most substantial connection will apply. The Courts of whatever jurisdiction(s) the proceedings are brought in will then need to decide the question of whose law applies, and where the dispute is to be decided. This leaves these decisions subject to a great deal of uncertainty.

Minimising risk

Outside the contractual context, such as where a web site is being used only to provide advertising material or other information free of charge, disclaimers can be used to limit liability and may state that the web site is intended only for people based in New Zealand. Other ways of minimising risk can be used. Where goods are being bought and sold over the Internet, a New Zealand company could require purchasers to identify themselves and where they are from. The company could refuse to deal with buyers from countries where undue risk could be created. Technology could be used to block access to users with a particular country code. However, this will not prevent access by people with .com addresses.

None of these strategies will completely eliminate the risks, but properly drafted jurisdiction, choice of law, and disclaimer clauses can minimise them. Where a web site is aimed at a particular overseas jurisdiction, and the level of business done, there is substantial, specific legal advice on the laws of that jurisdiction should be obtained.

This is a general summary only and should not be taken as a substitute for specific advice.

Patrick McGrath is an associate at Shieff Angland
Email: patrick.mcgrath@shieffangland.co.nz

March 2001