Any business which offers goods and services over the Internet has to consider what will happen if there is a dispute about the purchase of those goods or services. Generally the answer is to simply apply the law which is specified in the terms and conditions of the online contract. However, different considerations arise where the supplier and purchaser are resident in different countries.

In any international transaction there are two systems of law that might govern the transaction - the laws that apply in the supplier's country or the laws that apply in the purchaser's country.

When a New Zealand court is faced with a cross border dispute it will consider the following issues:

- Which country has jurisdiction to hear the dispute?
- What law should be applied to determine the dispute?
- Can the judgment be enforced?

Does New Zealand have jurisdiction?
Before a case can be brought in New Zealand, it first has to be determined that
New Zealand has the necessary jurisdiction to hear the dispute. New Zealand courts can exercise jurisdiction where a party has:

- been validly served with the court proceeding, under New Zealand law; or

- submitted to the jurisdiction of the New Zealand courts.

A party is deemed to have submitted to the jurisdiction of the New Zealand courts if that party:

- takes steps to actively participate in the proceedings (i.e. files a statement of defence or counterclaim); or

- has expressly agreed, in a contract, to submit to the jurisdiction of that court for the purpose of determining any dispute which may arise under that contract; or

- commences proceedings in New Zealand.

Is New Zealand the most suitable forum?
Even if a New Zealand court determines that it has jurisdiction to hear a matter, a defendant might still argue that there is another country that also has jurisdiction, and that in the interests of justice the other country is the most appropriate place for the dispute to be heard. The result can be an international tug of war between the parties.

What law applies?
If there is an express clause in an online contract stating which law will apply in the event of a dispute, the courts will accept this, provided that choice of governing law choice is:

- genuine;
- not contrary to legislation; and
- not against public policy.

Choosing which law applies by specifying it in the contract does not resolve the dispute in itself. The jurisdiction clause in the contract merely points the parties to which country's law should be applied to determine the dispute.

Sale of Goods (United Nations Convention) Act 1994
The United Nations Convention on Contracts for the International Sale of Goods was enacted in New Zealand by the Sale of Goods (United Nations Convention) Act 1994. It provides rules that govern the formation of international contracts for the sale of goods, the rights and duties arising under that contract, and the remedies available to the parties for breach of contract. It:

- applies to contracts for the sale of goods between parties in different countries, provided that both countries are parties to the convention or that the proper law of the contract leads to the application of the law of a party to the convention;
- does not apply where the goods are bought for personal, family or household use, or where the goods are sold by auction; and
- allows parties to contract out of it by specifying an express choice of law clause.

Can the judgment be enforced?
Once a court has determined that it has jurisdiction and which law will apply, judgment will be delivered in favour of one party to the transaction. If that party is not resident in the country in which the dispute is heard, the judgment needs to be enforced in a foreign country. This means a New Zealand company will need to bring separate proceedings overseas to enforce that judgment in the correct jurisdiction. New Zealand only has reciprocal enforcement of judgment arrangements with a limited number of countries. It is often a time-consuming and costly exercise to enforce a judgment overseas.

In Summary
Before allowing customers to enter into online contracts to purchase your goods or services, it is worth considering what will happen if there is a dispute. Do you want the dispute heard in New Zealand? Do you want New Zealand law to apply to determine the dispute? Are you willing to go through the expense of enforcing a judgment overseas?

The simplest and most cost-effective solution for most companies is to include in their online terms and conditions, a properly drafted and unambiguous statement as to which law will apply to the transaction and where disputes will be heard.

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

x-tech group Simpson Grierson Web site: x-tech group Simpson Grierson

Contacts

Earl Gray, Partner, earl.gray@simpsongrierson.com
Michael Sage, Partner, michael.sage@simpsongrierson.com
Jan Kelly, Partner, jan.kelly@simpsongrierson.com
Alicia Wright, Senior Associate, alicia.wright@simpsongrierson.com


October 2001
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