Lex mercatoria and e-commerce: a small step

A court decision has taken a small step – in the right direction – towards recognising customary practices and policy considerations in applying online terms and conditions.

In the case Miller v Facebook (15 January 2010, US District Court, Georgia), the plaintiff claimed that part of Facebook’s terms and conditions did not apply – specifically, the clause requiring any claims to be brought in Facebook’s home state of California (known as a “forum selection” or jurisdiction clause). The court said:

“striking the forum selection clause could wreak havoc on the entire social-networking internet industry. If this court were to determine that the forum selection clause contained in Facebook’s TOU was unenforceable, the company could face litigation in every state in this country and in nations around the globe which would have potential adverse consequences for the users of Facebook’s social-networking site and for other internet companies”

The court therefore upheld Facebook’s forum selection clause.

Common law legal systems (such as New Zealand, the UK, the US and Australia) have long recognised “customs of merchants” (the lex mercatoria) in applying and shaping the law. There are good reasons why the common law has done so, going back many centuries: it provides certainty for commerce, recognised accepted “best practice”, and promoted uniformity conducive to trade. To ignore it would have been to potentially disrupt and destabilise commercial dealings.

For the same reasons, as the common law is continuously evolving, the customs of “e-merchants” should also be taken into account by courts.

This is likely to be relevant to the enforceability of website terms and conditions. There have been a number of cases in the past year involving disputes over whether or not website terms are binding (for example Website disclaimers – yes, they do work). Some have argued that a standard link to a disclaimer is insufficient. There are a number of legal grounds for finding it is sufficient (and a growing number of cases have upheld them – successful challenges are rare).

However, there is good argument that such practice is now also customary. Many websites have a disclaimer link, often at the bottom of the page. It is commonly understood that when you use a website, there may be “Terms of use” or “Disclaimer” link. That is accepted and, today, could be said to be the custom for online business. The common law should not disregard the accepted, reasonable and necessary practices established by modern merchants.

Although the Facebook decision is only a lower-court procedural ruling, it provides an encouraging demonstration of a court’s willingness to consider the new lex mercatoria (and other policy considerations), and the perils of the law ignoring them, relating to e-commerce.