International electronic contracting in the newest UN Convention

• Author: Paul Przemyslaw Polanski
• Position: Warsaw University
• Pages: 112-120

A version of this paper was published in Kierkegaard, S. (2006) Business Law and Technology Vol.1 and presented in the 2006 IBLT Conference, Denmark.

Page 112

1. Introduction

A year ago, the United Nations General Assembly adopted a Convention on the Use of Electronic Communications in International Contracts (United Nations 23 November 2005). As of November 2006, only eight states including Central Republic of Africa, China, Lebanon, Madagascar, Senegal, Sierra Leone, Singapore and Sri Lanka have signed it. However, none of the states have ratified it yet. One of the potential reasons for the slow adoption of the Convention might be the lack of international promotion of this instrument by the United Nations among users, businesses and governments.

It is the first international convention designed specifically for international business-to-business electronic commerce. Other international treaties, such as the Council of Europe Convention on Cybercrime, was intended to facilitate the enforcement of law with respect to crimes committed online such as hacking, child pornography or hate speech (Council of Europe 23 November 2001). On the other hand, international treaties such as the 1980 Vienna Convention on Contracts for the International Sale of Goods (UNCITRAL, 1980) were drafted in the era of faxes and telegrams, which is visible in their provisions (Bianca and Bonell ,1987; Audit, 1998; Eiselen, 1999). The new Convention fills a regulatory gap that has existed in this respect and gives new life to old international conventions that deal with traditional international commerce.

The aim of this article is to give a brief account of its most important provisions, particularly those related to electronic contracting. The research method will be based on the analysis of preparatory works contained in numerous reports prepared by Working Group IV of the United Nations Commission on International Trade Law. The present contribution will also draw upon and expand earlier commentaries of this instrument (Polanski, 5-7 June 2006; Chong and Chao, 2006; Connolly and Ravindra, 2006; Polanski, 2006).

The first part will present some basic facts about the Convention including its aim, scope of application and its content. The second part will be devoted to the analysis of specific provisions of the Convention on electronic contracting. In the third part, an attempt will be made to assess its advantages and disadvantages for global electronic commerce.

2. Overview of the Convention

The Convention was drafted by the United Nations Commission on International Trade Law Working over six sessions since 2002. It has been influenced by earlier works of UNCITRAL, especially the CISG and the Model Law on Electronic Commerce. The influence of the former is particularly visible in the adoption of two principles of functional equivalence (which assumes that paper-based transactions and electronic transactions should be treated equally) and technology neutrality (which assumes that none of the technologies is favoured by law). On the other hand, some provisions were directly copied from the Vienna Convention. However, the Treaty does not establish substantive rules on contract formation or sets out rights and duties for entrepreneurs akin to the CISG.

The Convention is short and consists of a Preamble and 25 articles. It is organized into four chapters. The first part delineates the sphere of application of the instrument. The second chapter contains general provisions, including the definitions of the terms used. Chapter III, which covers the use of electronic communications in international contracts, contains provisions on legal recognition of electronic communications, form requirements, time and place of electronic communications, invitation to make offers, use of automated systems for contract formation, availability of contract terms and the treatment of input error. The last part contains final provisions.

Page 113

2. 1 The aim of the Convention

The purpose of the Convention is to offer practical solutions for issues related to the use of electronic means of communication in international contracts. The drafters of this instrument wanted it to apply not only to electronic contracts per se but also to communications made during the negotiations or contract performance (e.g. notices of receipt, notices of fault etc).

In particular, the aim of the Convention is to remove legal obstacles to electronic commerce, including those which arose under other instruments (UNCITRAL, 11- 22 October 2004). The unique technique of this Convention can be found in Article 20, which has the goal of removing obstacles to e-commerce found in other international instruments adopted before the Internet era. According to this provision, electronic contracts are given full recognition whenever the older conventions apply. ¹[1] The only condition is that an online company has a place of business in a contracting state of this Convention.

As a result, the rules of older conventions such as 1980 Vienna Convention on International Sale of Goods or the 1958 New York Convention on International Arbitration would be given full effect in case of a dispute involving electronic exchange of messages. For example, the term "writing" as used in the 1980 Sale of Goods Convention would be extended to cover electronic writing and therefore conventional rules on formation of contracts and rights and obligations of parties would apply. In consequence, companies having their places of business in a contracting state to this Convention would have the advantage over companies located in other states because they could be certain that electronic contracts would be honoured in courts despite the lack of tangible form (Boersma, 1998).

The technique adopted in this Convention is a wise strategy, as it is much easier to give new meaning to older conventions than to renegotiate all of them. Without an attempt to broaden the scope of older conventions, international e-commerce would be left with a very limited legal framework, which would not guarantee legal security. It is so at least with respect to written norms, as there are numerous unwritten Internet customs particularly in the area of online contracting, security and property that could help to fill in a regulatory gap (Polanski, 5-7 June 2006). However, the Convention contains elaborate rules that permit states to change the scope of the Convention and hence, introduce the legal uncertainty that it aims to avoid (Connolly and Ravindra,2006).

2. 2 Sphere of application

The Convention regulates the use of electronic communications in electronic contracting between parties whose places of business are in different states. "Electronic communication" includes any statement, declaration, demand, notice or request, including an offer and the acceptance of an offer, made by electronic, magnetic, optical or similar means in connection with the formation or performance of a contract. The Convention applies not only to data exchanged over the Internet using web pages or e-mail, but also extends to older technologies such as Electronic Data Interchange (EDI) or even telefax, telex and telegram (art. 4 (c)). The term contract is also given a wide meaning to include not only contracts of sale or services but also e.g. arbitration agreements. Furthermore, pre- and post-contractual communications will also be covered e.g. electronic notices sent during the performance of the contract. Nationality or character of online entrepreneurs (civil or commercial) is irrelevant. In other words, the Convention applies to any transactions performed electronically provided that commercial parties are located in different states.

The Convention will always apply to contracts between parties located in two states that are contracting states. This formulation departs from the United Nations Sales Convention, which applies only when both parties are located in contracting states (or rules of private international law so decide). Therefore, the new Convention will also govern the dispute if only one party is located in a state that ratified this Convention. It is clear from the preparatory materials that the provisions of the new Convention will only be used in a dispute involving international electronic commerce if the laws of a contracting state applied to the underlying transaction (A/60/17, para. 20). In other words, parties to an electronic contract can be located in any two states, but at least one of these states must be the contracting state or the laws of that state must point to the law of the other contracting state.

Page 114

Furthermore, any contracting state may declare that it will apply this Convention only when the states are contracting states, or when parties have agreed that it applies (art. 19 (1)). The Convention requires that all online companies must have their places of business in different states. However, the term 'place of business' can have different meanings in Internet-based commerce (Malloy September 2004) and its determination is crucial in order to ascertain the place of contract formation, the applicable law and jurisdiction. The Convention defines place of business as "any place where a party maintains a non-transitory establishment to pursue an economic activity other than the temporary provision of goods or services out of a specific location." (art. 4 (h)) Therefore, the Convention relies on physical...