DEMYSTIFICATION OF
CONTRACT FORMATION IN
ELECTRONIC DATA
INTERCHANGE;
A critical assessment of a course for legal
activism
Candidate: # 8019
Supervisor: Dr. Maryke S. Nuth
Deadline for submission: January/14/2011
Number of words: 16,269 (max. 18.000)
University of Oslo
Faculty of Law
DEMYSTIFICATION OF
CONTRACT FORMATION IN
ELECTRONIC DATA
INTERCHANGE;
A critical assessment of a course for legal
activism
II
© Candidate:
# 8019
2011
DEMYSTIFICATION OF CONTRACT FORMATION IN ELECTRONIC DATA
INTERCHANGE; A critical assessment of a course for legal activism
http://www.duo.uio.no/
III
IV
Content
1
2
3
4
INTRODUCTION ................................................................................................. 1
1.1
Background ................................................................................................... 1
1.2
Legal qestion: Is there a course for legal activism? ....................................... 2
HISTORY AND DEVELOPMENT OF EDI ........................................................... 5
2.1
What is Electronic Data Interchange ............................................................. 5
2.2
Structure of Communication Infrastructure in E-commerce in brief ............... 6
2.3
EDI; The bedrock for the development of E-Commerce. ............................... 8
2.4
Conclusion................................................................................................... 12
SYNOPTIC METAMORPHOSIS OF THE LAW OF CONTRACT ...................... 14
3.1
Definition of Contract ................................................................................... 14
3.2
Contract formation through Telephone and Fax .......................................... 14
3.3
An overview of Communication online......................................................... 21
3.4
An overview of Communication in Online Contract Formation .................... 24
3.5
Relevant Legislative overview ..................................................................... 29
3.6
Conclusion................................................................................................... 34
CONTRACT FORMATION IN EDI .................................................................... 36
4.1
Introduction.................................................................................................. 36
4.2
Sequence of Electronic Data Interchange Transaction................................ 36
4.3
Contract formation via Electronic Data Interchange .................................... 37
4.4
A Critique of Communication of Contract in Electronic Data Interchange .... 38
4.4.1
Automated EDI...................................................................................... 38
4.4.2
Non-Automated EDI .............................................................................. 40
4.5
Conclusion................................................................................................... 43
Recommendation ..................................................................................................... 45
References ............................................................................................................... 46
Annex I .................................................................................................................................... 50
V
1 INTRODUCTION
The transcendence of online commercial practice over its off line counterpart has
been an unprecedented success. Indeed most facets of human intercourse have
been invaded by the euphoria of this technological innovation to such an extent that
our traditional way of interaction has been activated to constantly shift lines to adjust
to the speed and vibrancy of this new and ingenious wave of communication. There
is obviously no need to truncate or stampede this natural adoption, even when its
influence is constantly posing serious challenges to the status quo. The technologies
manifest benefits of efficiency, convenience and cost effectiveness, just to mention a
few, are overwhelming indeed. In view of the above, heated debate has ensued on
the potency of our existing legislative mechanisms and dispute resolution institutions,
which are aimed at exacting effective control and management of rapid influence of
online commercial practices.
There are two main divergent views on the impact and regulation necessary to
regulate online commerce. First, that it is imperative new institutions, policies, and
regulations are created to regulate online commerce because the existing legal
regime lacks the capacity to adequately deal with such issues. Second, that although
the technologies are indeed novel, the legal principles on which their operations are
predicated are still the very old ones. It is the opinion of this second school of
thought, that what is needed is simply interpretation and transposition of the new
technologies, rather than a new round of regulation and institutions. Howbeit,
standardization, undertaken to accommodate new technologies, must be the
watchword and must thus become the result of the consummation between the
marriage of technology and the law.
1.1 Background
What is legal activism? Legal activism is not akin to judicial activism. It is derived
from two independent words law and activism. Law is generally defined as a system
of rules a society sets to maintain order and protect persons and property from harm.
While, activism consists of intentional action to bring about social, political, economic,
or environmental change. This action is in support of, or opposition to, one side of an
1
often controversial argument. Used together I would described legal activism as
“radical pragmatism” that is to say stretching the boundaries of law to it elastic limit
e.g.1 ., more like the application of the golden rule: one of the cannons of statutory
interpretation.
Legal activism as it relates to Electronic Data Interchange opens up for a
jurisprudential discourse of whether the enactment of law should be purely a
proactive exercise to provide a legal framework for anticipatory exigencies or merely
a reaction control measure to create standards to resolve existing issues. To
perceive law merely and only as a proactive control measure is to exterminate its
organic quality; it is therefore reasonable to argue that having recourse to the
innovation within the field of science and technology, with respect to its tremendous
speed and unpredictability which is very impressive but has sort of mitigated the
potency of law. These characteristics of technology are posing serious challenges to
our legal system because generally, the law making process is slow and
conservative. The resultant effect of this is that it becomes practically impossible for
the law to contemplate immediate and dynamic responses to these challenges
presented by technology. However, it would not be out of place to stretch the existing
legal principle to accommodate perceived new scenarios mostly when, the material
facts of the new system is in pari materia with the existing system. That is to say that
the applicable and existing rules are not inconsistent
1.2 Legal question: Is there a course for legal
activism?
This thesis shall concentrate on electronic contracting with special emphasis on
whether there is a justifiable course for legal activism within the field of EDI. EDI is
the automated exchange of commercial data between one application and another
1 http://en.euabc.com/word/620 [assessed 10th of January 2011]. An expression used to refer to the special role of the EU Court in Luxembourg.
The EU Court does not only interpret EU law as stated in the treaties, it also shapes the law by extending its own powers (competences) and the power
(competence) of the EU institutions generally.
2
between trading partners2. Electronic Data Interchange is used for the transmission
of business transactions in computer-readable form between trading partners in a
standard format.
Should the dematerialization of contract formation necessitate an entirely new regime
of law? In determining whether electronic commerce requires a new legal regime, the
following questions would be considered:
•
Should a contract that is formed electronically, be deprived legal of its status?
•
What are the legal status of offer, acceptance, consideration, intention to enter
legal relationship and capacity to contract within an online environment?
•
With respect to the peculiar nature of the online environment, should the
established legal principle on communication of offer in an offline environment
suffice?
•
Does the fact that there is no single global applicable law on contract formation
pose a threat to the universal accessibility of the Internet? In term of inter
jurisdictional formation of contract.
•
There are also issues relating to online security, electronic signature,
electronic evidence etc; are old laws impotent to guarantee protection?
•
There is also the issue with legal personality mostly with automated Electronic
Data Interchange transaction should this call for a redefinition of that legal
concept?
•
Ingenious ways have been developed to address some of this issue in
contract formation through Email Fax and Telephone etc. Can these forms of
innovation be transposed in contract formation through Electronic Data
interchange?
2 http://webjcli.ncl.ac.uk/1999/issue2/zekos2.html [Visited on the 17th of October, 2010].
3
•
Is the fact there has been a huge surge in businesses and profits and virtually
no reported case law yet, evidence that perhaps, the fears being expressed
are basically academic?
To provide a solid background for the analysis of this paper; a skeletal overview is
indispensable. Therefore, Chapter two shall concentrate on the history and
development of Electronic Data Interchange. Chapter three shall dwell on the
synoptic evolution of elements of the Law of contract. Chapter four, shall delve into a
critical analysis of the cogency or otherwise of legal activism in contract formation in
Electronic Data Interchange.
4
2 HISTORY AND DEVELOPMENT OF
EDI
2.1 What is Electronic Data Interchange
Electronic Data Interchange also referred to as (EDI) is the automated exchange of
commercial data between one application and another. EDI is used to communicate
the information between trading partners. EDI is used for the transmission of
business transactions in computer-readable form between trading partners in a
standard format.3 This akin in some ways to “Just-in-Time” (JIT), a technique of
managing inventory pioneered in Japan,4 which involves the channelling of materials
by suppliers to a manufacturer for production activities, rather than for storage or
inventory. With the advent of the web, a new strand of EDI was conceived. The new
strand was called “Web EDI” or “Open EDI”, which has the capacity to exchange EDI
transactions with trading partners over the web and avoids costly charges of trading
on a per transaction basis. EDI has been implemented in many organizations in order
to gain the advantage of increased efficiency and profits. EDI provides the following
benefits:
 Improved inventory management
 Excellent accuracy
 Minimize paper use and storage
 Reduce cycle times and costs
Accredited Standards Committee (ASC) X12 develops and maintains EDI standards
to work across all companies and industries in North America.
The United
Nations/EDI for Administration, Commerce, and Transport (EDIFACT) standards
supported by the United Nations Economic Commission for Europe (UN/ECE) also
3
G,
Zekos.
EDI:
Electronic
Techniques
of
EDI,
Legal
Problems
and
European
Union
Law
Greece
[1999]
at
http://webjcli.ncl.ac.uk/1999/issue2/zekos2.html [Visited on the 17th of October, 2010].
4 The Popular Encyclopaedia: Being a General Dictionary of Arts, Sciences, T. Literature, Biography, History, and Political Economy, (University of
Michigan Library), 2007 see also The Machine That Changed the World: The Story of Lean Production, P. Womack ... [et al.] Chicago, (Harper
Business), 2003.
5
regulates and standardizes EDI in Europe and other parts of the world. 5 Some of the
industries using EDI include retail, insurance, education, entertainment, financial, and
various government entities.
EDI works by relying on standards to allow different companies' systems to
communicate with one another. These standards are administered by a body called
American National Standards Institute (ANSI). ANSI ensures that standards like EDI
comply with an established set of rules and methods to make them accessible to
everyone.6 What results from the EDI standard is a common language for
exchanging data and thus minimizing the resources required to re-programme
internal data systems now and in the future, as technology changes. Network service
providers use standard communication protocols for the transmission of electronic
data. The protocols contain such features as positive and negative delivery,
notification, message tracing capability useful in audit trails, facilitation of encrypted
and authenticated data, and interconnectivity of the EDI system with the e-mail of the
user.7
2.2 Structure of Communication Infrastructure in Ecommerce in brief
The virtual environment generally, as opposed to the real environment, is a
manifestation of certain forms of interaction that allows remote and indirect contact
among people. It consists of three levels:
•
Infrastructure: hardware, software, databases, and telecommunications that
together deliver such functionality as the World Wide Web over the Internet, or
support EDI and other forms of messaging or over value-added networks;
5 Electronic Data Interchange: An Overview of EDI Standards for Libraries. The Hague, 1993
(In UDT Series on Data Communication Technologies and Standards for Libraries) http://www.ifla.org/VI/5/reports/rep4/42.htm#chap2 [Visited on the
17th of October 2010].
6 M, Cooper. ANSI Position Statement on Reference to Standards and Building Codes, New York (ANSI Public Document Library) 2008.
7
G.,
Zekos.
EDI:
Electronic
Techniques
of
EDI,
Legal
Problems
and
European
Union
Law
Greece,
1999
at
http://webjcli.ncl.ac.uk/1999/issue2/zekos2.html [Visited on the 17th of October, 2010].n 37.
6
•
Services: messaging and a variety of services enabling the finding and
delivery (on business terms, if desired) of information, as well as negotiation,
transacting business, and settlement;
•
Products and Structures: direct provision of commercial services to consumers
and business partners, intra-organizational information sharing and collaboration,
and organization of electronic markets and supply chains.8
The first level of EDI is the role of scientists and technologists in designing the
systems. We shall do little in discussing EDI`s operation in this work. It suffices to say
that this first level forms the foundation in Vladimir Zwass'9 framework of the structure
of e-commerce, such that the others are built on it. The advancement of the
technological infrastructure has been the basis of the global nature of e-commerce,
the bedrock on which jurisdictional questions are raised and answered, the essence
of the uniqueness of e-commerce.10 The Internet has become a pilot for e-commerce
as the World Wide Web has given information sharing an unprecedented speed and
it allows carving out of apparent real spaces from the virtual space for specialised
functions. It is in this regard that the first level is sometimes described as creating a
simulation of the real world by the computer and with a certain futuristic romanticism
attached. 11
E-commerce is basically, commerce supported by electronic communication, ranging
from simple and long established means of communication like telephone, telex, fax
through to more advanced, automated and modern forms of communication like
email, web and EDI. Prior to this transcendence, telecommunication used
semaphore; heliography and even smoke signals to disseminate information. In this
context, of a business nature, the modern telecommunication transaction there is
much doubt if there will be a departure from the limited circle of the use of fax,
telephones, mobile phones and predominantly the Internet.
8 V, Zwass. Electronic Commerce: Structures and Issues in International Journal of Electronic Commerce Volume 1, Number 1, Fall, 1996, pp. 3 - 23
9 http://www.medialab
research.com/cr/2000/01/docs/Zwass%20Foundations%20of%20Information%20Systems.htm
10 D, Spar. And J, Bussgang. Ruling the Net Harvard Business Review (May-June 1996), 125-133.
11
A,
Pollack.
For
Artificial
Reality,
Wear
A
Computer
in
New
York
Times,
(New
York,
April
10,
1989)
http://www.nytimes.com/1989/04/10/business/for-artificial-reality-wear-a-computer.html [accessed on the 17th of March, 2010.]
7
2.3 EDI; The bedrock for the development of ECommerce.
Electronic commerce is new, however the practice it denotes originated just over a
half-century ago in the Berlin Airlift.12 “In 1949 after the Second World War when
Soviet authorities, claiming technical difficulties, halted all traffic by land or water into
and out of the western-controlled sector of Berlin, Western powers stepped in to
supply Berlin’s inhabitants with the necessities of life by air. Some 278,000 flights
delivered over 2.3 million tons of supplies. With aircraft landings at the rate of one
every three minutes, cargo had to be loaded and off-loaded faster than the
accompanying paperwork could be completed and verified. Because of this,
inventory lists were rarely up-to-date and ordering and expediting lists became of
little consequence. Recognizing the need to standardize the paper manifests coming
in from different countries (and in different languages) coupled with the need to
communicate this information independently from delivery, Master Sergeant Ed
Guilbert of the United States Army, developed a standard manifest system that could
be communicated via telex, radio-teletype, and telephone. It was from this standard
manifest system that EDI evolved. The practice of EDI (EDI), which was the
computer-to-computer exchange of standardized electronic transaction documents,
can now be called the traditional e-commerce. However e-commerce, as practiced
today has not been limited to EDI and has included business practices built around
computer-to-computer transmissions of a variety of message forms, bar codes, and
files; the use of EDI has arguably led to the most significant organizational
transformations and market initiatives. Beyond economy, companies sought strategic
benefits, such as a compressed business cycle and intensified relationships with
business partners. These were sufficiently provided for in the close network of
communication wherein e-commerce takes place. Time-based competitive moves of
quick-response retailing by pulling in demanded products from the supply chain and
just-in-time manufacturing with close-to-zero inventories are also enabled by EDI.”
12 J. W., Verity. Invoice? What's an invoice ?( Business Week) June 10, 1996.p 110-112. See also; Soft share Tips, In the Beginning: The history of
Electronic Data Interchange, Volume 2, Issue 12, [December 1998] at www.softshare.com/tips/1998/tips27.html [accessed on 14th of March, 2010]. And
http://www.liaison.com.[accessed on the 29th of November, 2010}.
8
The growth of e-commerce is landmarked by several remarkable events. Back in
1968, even with the creation of EDI, most businesses were unable to interact with
different companies. This was because everyone was using different software and
there was no standard of software used, as a result Company A and Company B, for
instance, could not exchange information. However, in 1984 the Accredited
Standards Committee (ASC X12)13 established itself an easy and reliable means to
handle a number of transactions, attempting to introduce an easier communication
medium for computers14. This landmark accomplishment was not heralded with great
enthusiasm, but it remains a fundamental event in the potential chaos of ecommerce. This is because ASC X12 gave businesses the first stable platform for a
cohesive system of business transactions by standardizing business transactions
through the creation of trust among business enterprises. Around the mid-1990's,
Netscape15 was created. Netscape allowed persons to go to websites by using a
point and click interface. This not only allowed greater use of the Internet, it was also
free. Previously that is before Netscape you almost had to be a programmer to be
able to navigate the vast World Wide Web because of its complexity.
Then there was the emergence of the Digital Subscriber Loop (DSL); in May of 1998,
a company called SBC Communications installed Asymmetrical Digital Subscriber
Line (ADSL)16 lines in 200 communities in California. This allowed people to travel
the Internet at incredible speeds, 50 times faster than with the traditional modem.
The ADSL line is always connected to the Internet, this leads to a frequent use of the
Internet. The fourth event is in December of 1998, when Amazon.com 17 reached $1
Billion dollars in annual sales, America Online (AOL)18 reached $1.2 Billion in holiday
sales in ten weeks. These stupendous sales numbers not only caused pandemonium
to erupt in the offline retail world, but also were indicative of the vast coverage the
Internet was getting.
13 The official designation of the United States' national standards body for the development and maintenance of Electronic Data Interchange
14 J, Weisman. The Making of E-Commerce: 10 Key Moments, Commerce Times at www.ecommercetimes.com/story/4085.html accessed on 29th of
June, 2006.
15 A widely used browser or client used to search and view information files on the World Wide Web, similar to the Microsoft's Internet Explorer.
16 A modem technology that converts existing twisted-pair telephone lines into access paths for high-speed communications of various sorts.
17 An American electronic commerce company based in Seattle, Washington. It was one of the first major companies to sell goods over the Internet.
18 A corporate online service provider and Internet service provider based in Dulles, Virginia, with regional headquarters installations in many cities
around the world.
9
The fifth event is the Initial Public offering of Linux. 19 In 1991 Linux opened up the
Pandora box for Microsoft, which had before this event dominated a huge proportion
of the market on the defensive side for once by being, unlike the Microsoft operating
system, an open source code which allows the user to customize the programme.
This was closely followed by the creation of Napster20 on August 13, 1999. On this
day, Napster founder Shawn Fanning intimated the press that the number of
subscribers of the online music swap site had quintupled, in just seven days. Napster
operated on a pro bono service. Not only was it free to use, but you received
something that you would normally be paying for, namely, music. The result was
increased public use and patronage to its site.
Another significant event took place in January 10, 2000: the merger of AOL and
Time Warner Company. This would give AOL’s 24 million users more content and
allow more much more e-commerce globally; it was in fact often described as a
merger that would influence every American in one way or the other, besides the
massive global impact it would have. The merger was valued at 350 million dollars.21
The common denominator that runs through these events is the increasing access to
the World Wide Web for little or nothing, in terms of cost. It is noteworthy that the
events have all the trade mark of happenings around companies that are involved in
dealings in the virtual environment. This historic past compared with today’s e-world
reflects that the push had been towards a market that is not defined by geographical
boundaries and the ability to communicate with players everywhere in real time. This
borderlessness or perceived state of absence of geographical limits is the bedrock of
e-commerce. It is intended not only to consider the adjustments in legal regulation
necessitated by the growth of the online environment, but also, peripherally, those
caused by electronically aided communication generally, including the older EDI and
certain other forms of automated transactions as far as contract formation is
concerned.
19 Linux is a free open-source operating system based on UNIX, an operating system that supports multitasking and is ideally suited to multi-user
applications. Linux was originally created by Linus Torvalds with the assistance of developers from around the globe.See [accessed on the 27th of June,
2006]. See also Charles, Ferguson, How Linux Could Overthrow Microsoft at http://www.technologyreview.com/Infotech/14504/?a=f [accessed on the
26th of June, 2010].
20 This is an online music file sharing service which allowed people to easily copy and distribute MP3 files among themselves without going through the
music market.
21 See http://money.cnn.com/2000/01/10/deals/aol_warner/ [accessed on 26th of June, 2010].
10
There are enormous reasons for the fast growth of e-commerce when we consider
what advantages online trading have over its counterpart real world form of business.
Comparatively, it far cheaper, efficient and convenient to engage in transaction online
than the offline market. Market analysts estimated that £8.2bn of goods was bought
in U.K. online in 2005, up 29% from 2004. This was nearly 19 times the rise in overall
retail spending, which was up only 1.5%, its slowest since the early 1960s. By 2006,
£125.2bn was spent online, and £163bn in 2007.22 This rapid expansion is not limited
to the UK; it is a global phenomenon. In June 1996 in Taiwan, there were 440,000
Internet subscribers. By December 2000, that number had risen to 6.26 million, a 14fold increase in four years. Internet subscribers now represent 28 percent of the
entire population, making Taiwan one of the most Internet-penetrated countries in
Asia. By January 2000, the number of Internet hosts in Taiwan had reached 597,036
units, a number ranking Taiwan in second place in Asia behind only Japan (which
has 2.6 million units), and seventh in the world. The effect of the rise in Internet
subscription is a direct rise in the volume of online dealings - according to estimates
by Forrester Research Inc., the value of B-to-B trade in Taiwan reached $3,843
million in 2000, almost doubling the trade volume in 1999.23
Just like in Taiwan as well as in many other countries, a key measure of e-commerce
spread is the use, availability, and penetration of Internet services such as dial-up,
Digital Subscriber Line (DSL), which is a technology for bringing high-bandwidth
information to homes and small businesses over ordinary copper telephone lines and
can carry both data and voice signals. In France, in April 2001, 21 percent of the
French population had Internet connection at home, up from 8 percent in October
1999 and 2 percent in 1997.24 The number of active personal Internet access
contracts rose from 1,280,000 in January 1999 to 3,030,000 in January 2000, then to
5,968,000 in March 2001. For the same period (January 2000-March 2001), the
22 --“Strong Year for Online Retailing” at www.news.bbc.co.uk/1/hi/business/4707750.stm accessed on the 14th of March, 2010. See also News Release,
Office for National Statistics, http://www.statistics.gov.uk/pdfdir/ecomnr1108.pdf accessed on the 14th of March, 2010.
23 Tain-Jy Chen. Globalization and E-commerce: Growth and Impacts in Taiwan, (Center for Research on Information Technology and Organizations (CRITO),
University of California, November 2001.
24 E., Brousseau. Globalization and E-Commerce: Growth and Impacts in France, (UC Irvine, Center for Research on Information Technology and
Organizations) 2001.
11
number of connection hours rose from 25,265,000 to 64,460,000.25 69 percent of all
companies had Internet access by the end of 1999, which represents an increase of
53 percent since the end of 1998. There were 15 Internet users per 100 inhabitants
by the end of 1999, which was an increase of 77 percent since the end of 1998.26
Topping the chart, as expected, is the US, The US has been the quickest to develop
and adopt new e-commerce business models. In 2000, according to one estimate,27
the US represented three quarters of all B-2-B and B-2-C e-commerce trade within
the Organization for Economic Cooperation and Development (OECD) countries. The
Internet by itself as merely an infrastructure for electronic commerce, a more telling
indication of the extent and volume of growth of electronic commerce can be seen by
examining the comparative presence of sites with particular Top Level Domains
(tlds). The .com tld that designates a US commercial site which currently accounts for
approximately half of all sites the world over.28
2.4 Conclusion
This chapter aims at providing some insight on the nature, scope and growth of ecommerce. It particularly attempts to provide, although in a concise form, what is
actually meant by Electronic Data Interchange. Be that as it may, there is no doubt
that E-commerce is spreading like a virus and to a large extent transforming the way
business is transacted thus influencing a great deal the legal regime. In subsequent
chapters, I shall be evaluating how these various means of communication (contract
formation) have provided a veritable setting in the legal environment for intellectual
discourse.
25 International Data Corporation, 2000; International Telecommunication Union 2001; Reed Electronic Research, 2000 all three cited in E. Brousseau,
Globalization and E-Commerce: Growth and Impacts in France (n 22).
26 Ibid. pg 7 – 9.
27 Tracking the Growth of Internet Access (Forrester Global E-commerce Model) 2000. At http://ecommerce.hostip.info/pages/615/Internet-AccessTracking-Growth.html [accessed on the 14th of March, 2010]. See also”At the Epicenter of the Revolution."BusinessWeek Online, September 16, 1999.
Available from www.businessweek.com. [Accessed on the 14th of March, 2010].
28 S. McGann, J. King and K. Lyytinen, Globalization of E-commerce: Growth and Impacts in the United States of America, university of Michigan (in
Sprouts) Working Papers on Information Environments, Systems and Organizations, Volume 2, Issue 2, 2002.
12
13
3 SYNOPTIC METAMORPHOSIS OF
THE LAW OF CONTRACT
3.1 Definition of Contract
This chapter shall attempt to evaluate and transcribe the traditional method of
contract formation into this prevalent online system with emphasize on the
infrastructural changes that have come by way of enhanced communication via the
Internet. The function of computers in contract formation is Computers primary act as
a vehicle of communication. Fundamentally, contract formation will be between
persons in law; who are capable of being held liable for any breach. Although there
are arguments, that innovative use of computers (legal personality) may have kindled
a call for a radical approach with respect to what should encompass contract
formation. This argument seems to have found expression in Automation i.e.
Electronic Data Interchange.
3.2 Contract formation through Telephone and Fax
A contract is basically an agreement, which is enforceable by law. It comes into life
when offer, a definite promise to be bound on specific terms, is accepted without
modification of the content of the offer, otherwise it becomes a counter offer which
needs to be accepted for there to be a contract.29 These offer and acceptance
backed up by the requisite intention is the agreement; the actual contract. Agreement
entails the transformation of negotiations into a settled bargain or deal. The
negotiating process is obviously not contract and the law needs to determine when
that process has ceased and the parties have reached finality in their commercial
arrangement. The traditional approach to answering the question if the parties have
reached agreement is to apply the rules of offer and acceptance. When a properly
constituted offer has been made by one party and accepted by the other, then there
is an agreement at the moment of acceptance or, more precisely, at the moment of
29 Carlill v. Carbolic Smoke Ball Co (1893) 1 QB 256 (CA)
14
communication of acceptance. This reduces the determination of point of contract to
tracking down the point at which acceptance is duly communicated.
30
The offer has to be specific in order to actually constitute an offer. 31 It must be a
clear, unequivocal and direct approach to another party to contract. For this reason,
advertisements, catalogues or store flyers are not offers.32 A valid acceptance must
agree in all material particulars with the offer. If the offer stipulates terms for
acceptance (e.g., that it be in writing) then the acceptor must expressly agree to be
bound as such for the contract to be valid.
The communication of acceptance is imperative for a number of reasons; it facilitates
negotiation to help in determining when a valid contract has been entered into.
Further, the acceptance is used to clearly ascertain what constitutes the terms of the
agreement. An example of acceptance is its use to find out if there is a contract
provided by the court. For example, in the case of Gibson v. Manchester City Council
33
there were so many papers and conversations passing back and forth that it was
impossible to break the interactions down into discrete acts of “offer” and
“acceptance.” In Gibson, Manchester City Council was being run by the Conservative
Party, which was running a policy of selling council houses to the occupants. Mr.
Gibson applied for details of his house price and mortgage terms on a form of the
council. In February 1971, the treasurer replied,
“The corporation may be prepared to sell the house to you at the purchase price of
£2,725 less 20% = £2,180 (freehold)… This letter should not be regarded as a firm
offer of a mortgage. If you would like to make formal application to buy your Council
house please complete the enclosed application form and return it to me as soon as
possible. ”
In March 1971, Mr. Gibson completed the application form, except for the purchase
price and returned it to the council. In May, the Labour party came back to power and
30 Carlill v. Carbolic Smoke Ball Co (1893) 1 QB 256 (CA)
31 Furmston, M. P., Cheshire, Fifoot and Furmston’s Law of Contract, 14th edition London (Butterworth), 2001.
32 Fisher v Bell [1961] 1 QB 394, Partridge v Crittendon [1968] 2 All ER 421. Pharmaceutical Society of Great Britain v Boots [1952] 2 QB 795.
33 [1979] 1 WLR 294.
15
halted sales. Mr. Gibson was told that he could not complete the purchase. So Mr.
Gibson sued the council, arguing that a binding contract had already come into force.
The court held that two offers, identical in terms, made at the same time or which
cross in the post, will not create a contract because neither offer counts as an
informed acceptance of the other. So, at the Court of Appeal, Lord Denning, said that
the analysis of the relationship in terms of offer and acceptance was not so
important, but reliance should be had to the whole transaction, the “global approach”.
However at the House of Lords Diplock and Edmund-Davies, LL.J, did not
particularly adopt the reasoning of Lord Denning, they placed less relevance on the
importance of clarity of offer and acceptance, and definiteness of the communication
mechanism at every stage towards the formation of a contract. Lord Diplock thought
that the correct approach was to examine the correspondence and see whether it
contained an offer by either party, accepted by the other. While Lord Edmund-Davies
thought that it would not indicate a contract in this case for the same reasons that an
offer and acceptance could not be found. He concluded that the correspondence did
not disclose at any stage that the parties considered themselves contractually bound.
Oliver Wendell Holmes once said: “the making of a contract depends not on the
agreement of two minds in one intention, but on the agreement of two sets of
external signs - not on the parties having meant the same thing, but on their having
said the same thing.”34Indeed this deposition is worth noting as it brought the
established rule of communicating acceptance into clearer limelight– not just what is
intended but what is said as intended.
The rule on communicating acceptance is that acceptance must be communicated
unless it is displaced by the clear intention of the parties. In Latec Finance v Knight,35
a finance company had set up its operations so as to take advantage of these rules
of offer and acceptance. The purchaser was required to fill in the form and send it
back to the finance company as the offer. The finance company can then accept the
offer in their office by signing the appropriate section on the form - when the credit
reports check out. It was held that the signing of the form was to be seen as an
34 Oliver, Wendell Holme. Collected Legal Papers. Michigan, (Harcourt, Brace and Howe), 1920, at 178.
35 (1969) 2 N.S.W.R. 79, N.S.W. Court of Appeal. See also Robophone Facilities Ltd v Blank [1966] 3 All ER 128.
16
essential step in the procedure, but it was not to displace the normal requirements of
acceptance i.e. that it be communicated. Furthermore, the contract indeed takes
effect at the communication of the acceptance.
In Cooke v Oxley36 The defendant proposed to sell some goods to the plaintiff. The
plaintiff asked to be allowed until 4pm to decide. Before 4pm, the plaintiff gave notice
to take the goods. It was held that there was no contract on the basis that the
information communicated should take priority over the conduct of the parties where
no contrary agreed intentions are established. However this position was rejected in
the specific context of negotiations by post in Adams v Lindsell37 which formed the
basis for the rule that an acceptance by post is effective from the time of posting, not
the time of delivery. In Adams the defendants, who were dealers in wool, at St. Ives,
in the county of Huntingdon in England had, on Tuesday the 2nd of September 1817
written a letter of offer to the plaintiffs, who were woollen manufacturers residing in
Bromsgrove, Worcestershire. This letter was misdirected by the defendants to
Bromsgrove, Leicestershire, in consequence of which it was not received by the
plaintiffs in Worcestershire till 7pm on Friday, September 5 th. On that evening the
plaintiffs wrote an answer, agreeing to accept the wool on the terms proposed. The
course of the post between St. Ives and Bromsgrove is through London, and
consequently this answer was not received by the defendants till Tuesday,
September 9th. On the Monday September 8th, the defendants not having, as they
expected received an answer on Sunday September 7th (which in case their letter
had not been misdirected would have been in the usual course of the post), sold the
wool in question to another person. The defendants contended that they were not to
be held liable, even though it be now admitted that the answer did come back in due
course of post. They argued further that till the plaintiffs’ answer was actually
received, there could be no binding contract between the parties; and before then,
they had retracted their offer, by selling the wool to other persons. But the court said
that if that were so no contract could ever be completed by the post. For if the
defendants were not bound by their offer when accepted by the plaintiffs till the
answer was received, then the plaintiffs ought not to be bound till after they had
received the notification that the defendants had received their answer and assented
36 100 ER 785.
37 (1818) B & Ald 681.
17
to it. And so it might go on ad infinitum. This, also called the mailbox rule, however, it
is an exception to the general rule on communicating acceptance . As I shall discuss
subsequently, the rule of communication appears to remain the cornstone of contract
formation in EDI.
The mailbox rule or the postal acceptance rule is a creation of common law contract,
which determines the timing of acceptance of an offer when mail is contemplated as
the medium of acceptance. The general principle, that preceded the creation of the
mailbox rule, is that a contract is formed when acceptance is actually communicated
to i.e. receive by to the offeror. This rule is however an exception to the general rule,
that contract formation is deemed completed upon the deposition of letter of
acceptance in the mailbox. The leading case on is Henthorn v. Fraser,38 which was
based largely on the earlier case of Adams v. Lindsell, the locus classicus of the rule.
In Henthorn v. Fraser, the claimant received a note from the defendant with an offer
to purchase a certain property within 14 days. The claimant responded to the offer
with an acceptance posted the next day via mail. The defendant withdrew the offer
before receiving the acceptance, but after the acceptance was posted. The Court of
Appeal ordered that the claimant was entitled to specific performance. Lord Herschell
opined: "Where the circumstances are such that it must have been within the
contemplation of the parties that, according to ordinary usage of mankind, the post
must be used as a means of communicating the acceptance of an offer, the
acceptance is complete as soon as it is posted.”
The summary implication of the operation of the mailbox rule is that acceptance is
complete once the letter of acceptance is posted; it makes no difference whether the
offeror actually receives the letter. The court in Byrne v. Van Tienhoven39 held that a
subsequent revocation does not affect the efficacy of preceding posted acceptance,
irrespective of receipt. If a letter of acceptance were to be lost, acceptance has still
taken place. An exception to this would be if the offeree knows or has reason to know
that the letter of acceptance never reached the offeror. For example, if A brings a
38 [1892] 2 Ch 77.
39 [1880] 5 CPD 344.
18
letter of acceptance to the local post office and A. sees the post office burn down,
there is no acceptance.40
Historically, letter writing and communication by post dates back, assumedly to
Atossa, the daughter of Cyrus,41 around 500 BC. But it was not until quite recently
that it became a matter of importance to use letter-writing communication to transact
business. Although it will follow that as a means of communication, letter writing
found its way into contract formation as a facilitating tool, more like word of mouth
transferred from one person to another. For contract formation to be effective, no rule
was necessary until the case of Adams v. Lindsell, which became the threshold for
the examination of this means of communication in contract formation.
The postal communication rule did extend to more complex means of communication
like the telegraph and fax, but not to telephone or the Internet. Its applicability was
dependent on the symbiotic use of facilities of these modes of communication and
the possibility of the court seeing them as governed by the same principles. Courts
have accepted telegraph communications as a writing, but what makes the postal
rule applicable is not just the fact of it being a written form of communication, but the
method of delivery – both the post and telegraph being non-instantaneous means of
communication, and the sender losing control of the letter once it has been sent until
it is received at the other end. On the second limb here is the bedrock on which a
United States Federal Court rested their judgment42 holding that the mailbox rule did
not apply if postmasters were authorized to stop delivery of a letter when contacted
by the sender. This reasoning was not accepted in other courts and it therefore could
not hold water in American law, but this did not rip from it the merit of opening an
argument that is relevant for the purpose of modern day Internet communication. In
Entores Ltd. v. Miles Far East corporation43 the court held that the mailbox rule did
not apply to an acceptance by telex as the Court regarded it as an instantaneous
form of communication – the forms of communication as if they were in each other’s
presence. This interpretation was further built on in Tenax Steamship Co Ltd v The
40 Ibid.
41 Not much is known about her life, except that she witnessed the reign of the four first Achamenian kings and played a decisive role in the long
period of turbulence and significance in ancient Iran. See Roberts, W., History of Letter-writing, W. Pickering, 1843 at 1.
42 Dick v. U.S. (1949) C1.94, 82 F. Supp. 326.
43 [1955] 2 QB 327.
19
Brimmes44 where it was decided that instantaneous forms of communication are as if
they were in the presence of each other as far as it is within a business day. Thus, if
they did not receive the acceptance within a working business day then they would
not be in the office, hence it would not be instantaneous.
On the other hand, means of communication like the telephone, facsimile and telex
are not governed by this rule, as they are instantaneous and consequently not
restricted to the within-a-business-day rule. In Brinkibon Ltd v Stahag Stahl,45 a case,
which involved a contract for the sale of steel, bars between an English company, the
buyer, and an Austrian company, the seller. The English company made an
application to issue the writ and to serve notice on the other party out of the
jurisdiction. The issue was whether England was the correct jurisdiction. Two
grounds were stated: firstly, the contract was made in England; the buyer in London
accepted a counter-offer by telex issued from England - or the counter offer was
accepted by the conduct of the buyer in England. And secondly, the breach of
contract was committed in England. Lord Wilberforce held that where there are
successive telephone calls, it might be artificial to ask where the contract was made.
If the telex was sent from London to Vienna where is the contract made? If seen as a
postal acceptance, then on posting - in London. If seen as a telephone acceptance,
then on reception in Vienna. Entores says that a telex is to be treated like a
telephone message for this purpose.
In this area, it is difficult to have a universal rule. One should have regard to
intentions, business practice and where the risk should lie. In the case of instant
communication between principals, the contract is made when and where the
communication is received, indicating the time at which the deal is clinched and the
jurisdiction and law which apply. The place of the postal rule was underscored by the
court in Brinkibon Ltd where it said:
“[…] the use of Telex communication has been greatly expanded, and there
are many variants on it. The senders and recipients may not be the principals
to the contemplated contract. They may be servants or agents with limited
authority. The message may not reach, or be intended to reach, the
designated recipient immediately: messages may be sent out of office hours,
or at night, with the intention, or on the assumption that they will be read at a
44 [1975] 1 QB 929.
45 [1983] 2 AC 34 House of Lords
20
later time. There may be some error or default at the recipient’s end which
prevents receipt at the time contemplated and believed in by the sender. The
message may have been sent and/or received through machines operated by
third persons. And many other variants may occur. No universal rule can cover
all such cases; they must be resolved by reference to the intentions of the
parties, by sound business practice and in some cases by a judgment where
the risks should lie”.46
Not only does this show the non-universality of the rule and its inherent limitations as
an exception to the general rule on communication of acceptance, it flags up the
question of the place of hard and fast rules in contract formation. While they are
necessary to give basis for agreements and contracts generally, they should in fact
come after due consideration for the intention of parties, sound business practice and
evaluation of where the risks should rightly lie. But in the field of Internet aided
contracts and the cyber world, consideration for these variables are far between as
the automated nature of the transactions coupled with the fast pace, with the
intention of saving time and money, confine these hypothetical considerations to the
back burner. Perhaps more tellingly is the effort of standard form contracts to
overwhelm these considerations, and Internet contract a majorly standard form in
pattern.
3.3 An overview of Communication online
The practical problem created by where email acceptance belongs can be illustrated
in the following: A may offer goods by email to B and B replies via email with his
acceptance, but then A revokes her offer after B had sent his email of acceptance,
but before A had received it. The time at which acceptance is effective is crucial here,
but is it when B sent his email of acceptance, when that email enters A’s system, or
when A actually reads the email? If it is when the email was sent then B cannot
legally take back his offer, but if it is when A receives the email, then A’s revocation
of his offer will be valid. Besides the fact that the time of acceptance may establish
where it was accepted and give an indication as to where the contract is formed. This
will, in turn, help in determining what law will be the relevant law of contract.
46. Brinkibon Ltd. v. Stahag Stahl [1983] 2 A.C. 34, and [1982] 1 All E.R. 293 per Lord Wilberforce
21
How should acceptance by email be analysed - either in the light of the general rule
or the exceptional instance of the mailbox rule? Is it governed by, as Chitty47
suggests that they should be dealt with in the same way as faxes, and like faxes are
a form of instantaneous communication, the general rule? Or, to the contrary, in an
advice on electronic commerce produced by the Law Commission in December
2001,48 as a non-instantaneous means of communication, hence the mailbox rule?
Chitty describes email as being instantaneous, and if this is the case then of course
the postal rule cannot apply by virtue of the reasoning in Entores v Miles49 that the
postal rule does not apply to instantaneous methods of communication. The United
Nations Convention on Contract for International Sale of Goods, The CISG-Advisory
Council (AC) Opinion No. 150 supports this position when it described an email as
one of the fastest means of communication: “[...] in relation to electronic means of
communication, [...] there are rarely any practical means of faster communication
than electronic messages sent by e-mail or communicated over websites or other
EDI-arrangements.” Whether this is a statement of fact or merely a view will depend
on the context in which they analyzed possibilities in electronic communication.
The CISG-AC Opinion No. 1 illustrated with instances that may result in the speed of
an email being interfered with, these they called Situations A – D. In Situation
A, the receiver may have problems reaching his server due to internal
problems within his "sphere of influence" in his network system. They reckon
that it is not appropriate to put the risk on the offeror for the offeree's technical
problems. And by way of advice, the offeree may reduce the risk by choosing
appropriate Internet service providers or designing an adequate technical
infrastructure to make sure that the internal communication functions
satisfactorily. The risk must not lie with the sender.
In Situation B the CISG-AC paints the background of trade usage against
which the communication takes place, stating that if the parties have
established a practice in their business which the parties knew or ought to
have known and which in trade are widely known to, and regularly observed
by, parties to contracts of the type involved in the particular trade concerned,
47 Chitty on Contract 28th ed., London, (Sweet & Maxwell), 1999.
48 Available on the Law Commission's website at http://www.lawcom.gov.uk.
49 (Supra), and Brinkibon Ltd v Stahag Stahl und Stahlwarenhandels GmbH (supra).
50 CISG-AC Opinion no 1, Electronic Communications under CISG, 15 August 2003. Rapporteur: Professor Christina Ramberg, Gothenburg,
Sweden.
22
an email entering the offeree's server but not accessed by the offeree will be
taken as delivered.
Situation C involves when the address is not correctly stated in the message,
such messages may enter the addressee's server - but never reach the
addressee personally, so that it cannot be accessed by the addressee but gets
stuck in the server.
And Situation D, deals with what may be tagged the omnibus ground ”reaches" is whether the offeree is able to process and understand the
electronic communication. Due to incompatible computer programs, the text
appearing at the offeree's computer may be incomprehensible. The situation is
rather close to the problem of a message being written in a language that the
offeree is unable to understand. The question at issue here is whether an
electronic [message] that cannot be accurately processed by the offeree has
"reached" the offeree when it has entered his server. The crucial issue is to
what extent the offeree has indicated that he is willing to receive that type of
electronic communications. It is not sufficient that the offeree has agreed to
generally receive electronic communications. He must have consented to
receiving electronic messages of that type, in that format, and to that
address.51
The Law Commission considers that an email message is communicated when it is
available to be read52, this does make it instantaneous, as it would be from the time it
was transferred to the recipient’s ISP. Unfortunately, there is not yet any case law on
this issue and therefore this is a matter of private interpretations only.
In the same vein, other views hold email communication as non-instantaneous
deserving of the postal rule. In the view of Deveral Capps53 emails are, in most
cases, exceptionally quick, however, they may on occasion take hours or even days
to reach their intended recipient. As they use mail servers operated by third parties
that are not located at the recipient's location, even after receipt by the mail server,
the recipient has to take steps to connect to their “mailbox” on the mail server before
the communication is complete. Since the offeror is partially responsible for ensuring
delivery, it may not be appropriate to allocate the entire risk in the delivery of
electronic mail to the offeree. It is only fair to say that this view is hinged on the
appropriateness of risk allocation rather than the actual fact of the receipt of the
51 See Articles 8 and 9 of CISG.
52 See the Commission’s propositions on electronic communication in contract http://www.lawcom.gov.uk for accessed on 12th of May, 2010.
53 Deveral Capps. Electronic Mail and The Postal Rule (I.C.C.L.R). 2004, 15(7), 209
23
message which should determine the instantaneousness or otherwise of an email.
Consequently, it falls short of convincing that email is indeed non-instantaneous.
A very practical way of proffering a solution to this dilemma, that is, what is
instantaneous from what is not probably rest on an understanding of the context in
which the term "instantaneous" is appreciated. If we interpret instantaneous in the
sense of a real time communication depicted by telephone, chat room instant
messaging, etc., an email would greatly fail the test here – it not real time, it is not
instant and does not have the essential features of an instant message. Yes, it is
considerably faster that the postal mail. But they are caught by the same principles. If
one attempt to send an email from one email account to another while still logged
into both, the result can demonstrate how non-instantaneous emailing is as time of
delivery will span from a few seconds to several hours, and even days in a few
cases. Click-wrap, browse-wrap and shrink-wrap - are examples of other forms of
online contracts formed via programmes that are mostly either interactive or active.
Interactive computers will not constitute much of a problem, as they are basically
instantaneous in communicating messages. And a great part of the active ones give
instantaneous feedbacks as well.
3.4 An overview of Communication in Online
Contract Formation
The question of control is a crucial consideration in resolving where emails belong –
between instantaneous and non-instantaneous. This question will not arise for active
and interactive systems and programmes. Considering the traditional postal rule,
when a letter is put into the hands of the postal services, the sender has no further
control over the item. The sender - the offeree - has done all that is reasonable to get
the letter of acceptance to the offeror. In Household Fire Insurance Co Ltd v Grant,54
Thesiger L.J. stated that “the acceptor, in posting the letter has … put it out of control
and done an extraneous act which clenches the matter.” This view therefore appears
to favour the person who “trusts the post”, the same principle should apply to email,
as once an email is dispatched; the sender has no control over ensuring that the
email reaches the person to whom it was addressed. If this factor alone were all
54 (1879) L.R. 4 Ex. D. 216, 223.
24
required to determine the applicability of the postal rule, it will apply to acceptance by
email. But further considerations are necessary, as the rule is not hinged on this
alone.
The reason behind the creation of the postal rule included creating certainty in
contract formation at a time when the communication system involved unavoidable
delay. While email is not instantaneous, I submit that, it is quicker, and although
delays are inevitable they are rare. Recourse also has to be made to the fact that it
was the only form of distance communication available in the early nineteenth
century; it would have been difficult to check whether an acceptance had been
successful. In the twenty-first century, an offeree can easily check whether any
emailed acceptance has been received, possibly using an instantaneous or a more
efficient method of communication, such as the telephone or fax. Were such methods
available in 1818, it is doubtful whether the postal rule would have been formulated
abini tio.
In addition to delivery and read receipts, it is now standard for the sender of an email
to be informed if the email is not delivered. This may occur when there is a mistake in
the recipient’s address or when the recipients or even the sender's email system is
experiencing problems. If a non-delivery message is returned, it will be unthinkable
that anyone could allow a contract to be created when the offeree knows that
acceptance has definitely not been communicated! This brings to mind the timetested illustration of Byrne v Van Tienhoven:55
If a letter of acceptance were to be lost, acceptance has still taken place. An
exception to this would be if the offeree knows or has reason to know that the letter
of acceptance never reached the offeror. For example, if A brings a letter of
acceptance to the local post office and A, sees the post office burn down, there is no
acceptance.
The question that follows then is as it is now often possible to confirm whether or not
an email has been successfully delivered, is there really a need to stretch the postal
rule to encompass email?
Indeed, determining when an email is sent and or
received is also helpful in unravelling the haze surrounding the applicability of the
55 [1880] 5 CPD 344.
25
postal rule to emails. Emails are sent when the message leaves the compose page
of the sender at the point the “sent” button is clicked. From this point the sender does
not have control over how and when it is received by the recipient. If the address is
correctly typed, and the recipient’s email address is still active, the mail will certainly
be received; but when it will be received depends or a whole lot of factors – speed of
delivery by the server and when the recipient logs in to the system to open his own
email box, are two major considerations. The basic assumptions of the postal rule
are that:


There will be a substantial delay in delivery of the letter, depending on
where the letter is to be sent.
There is a small risk that due to difficulties the message may be delayed
further, or not reach its destination at all.
There might never be an end to confirmation of receipt, as the confirmation has to be
confirmed as received, ad infinitum.
Lord Wilberforce in Brinkibon Ltd v Stahag Stahl set out a number of guidelines,
which could be used to assess whether a form of communication might have the
postal acceptance rule applied to it:
The message may not reach, or be intended to reach, the designated recipient
immediately: Messages may be sent out of office hours, or at night, with the intention,
or upon the assumption, that they will be read at a later time. There may be some
error or default setting at the recipient's end which prevents receipt at the time
contemplated and believed in by the sender. The message may have been sent
and/or received through machines operated by third persons. Many other variations
of these technical issues may occur. No universal rule can cover all such cases. This
drew the distinction between instantaneous communication and non-instantaneous
communications. While the postal rule establishes beyond doubt the rule for noninstantaneous communication, other instantaneous communication means are not
caught by it. The following circumstances show how similar the email regime is to the
picture painted by Lord Wilberforce in Brinkibon.
For many users of email and the Internet, a constant connection is not financially
viable, and although the popularity of broadband Internet connections is increasing,
many users still only connect to the Internet sporadically using a dial-up connection
26
or even via their mobile phones. The first stage of an email journey to the recipient is
when the sender clicks the “sent” key on the computer. The second stage is when
the person who wishes to send the email connects to an ISP and the email begins to
travel along the network of computers to its recipient. This view would correlate well
with the view that the communication must leave the control of the sender as stated
by Thesiger L.J. in Household Fire Insurance Co Ltd. After all, prior to the email
leaving the outbox of the sender, he is in full control of the email and is able to alter
and even delete it. This is the position that was adopted by the United Nations
Commission on International Trade Law (UNCITRAL) when it published the Model
Law on Electronic Commerce56. This Model Law was created for the purpose, as per
its Preamble, of assisting […] all States significantly in enhancing their legislation
governing the use of alternatives to paper based methods of communication and
storage of information and in formulating such legislation where none currently exists.
Article 15 deals specifically with the time and place of dispatch and receipt of data
messages57 and states in Paragraph 1 that: Unless otherwise agreed between the
originator and the addressee, the dispatch of a data message occurs when it enters
an information system outside the control of the originator or of the person who sent
the data message on behalf of the originator.
The Model Law also states, on when such a data message is deemed to have been
received, Paragraph 2 of Art.15:
“Unless otherwise agreed between the originator and the addressee, the time of
receipt of a data message is determined as follows:
(a) if the addressee has designated an information system for the purpose of
receiving data messages, receipt occurs:
(i) at the time when the data message enters the designated
information system; or
(ii) if the data message is sent to an information system of the
addressee that is not the designated information system, at the time
when the data message is retrieved by the addressee;
56 UNCITRAL Model Law on Electronic Commerce, General Assembly Resolution 51/162 of December 16, 1996.
57 “Data messages” are defined as information generated, sent, received or stored by electronic, optical or similar means including, but not limited to,
electronic data interchange (EDI), electronic mail, telegram, telex or telecopy.
27
(b) if the addressee has not designated an information system, receipt occurs
when the data message enters an information system of the addressee.”
Thus, Article 15 would mean that an email is deemed to have been received at a
designated email address once it has entered a service provider’s email system and
would actually appear in a user’s inbox when he or she logs on to the email
account.58 In the real world, this does mirror as closely as possible the position when
a letter is sent by post. It has been suggested59 that a letter would be deemed as
received when the letter drops through the addressee’s letterbox, and that the fact
that the addressee fails to open the letter would not preclude the letter’s contents
from being effective.
The Model Law did not refer to the postal rule at any time; it may be argued that it
avoided the matter so as not to interfere with national law applicable to contract
formation. That would have exceeded the aim of the Model Law as per the
explanatory notes: “It was felt that such a provision might exceed the aim of the
Model Law, which should be limited to providing that electronic communications
would achieve the same degree of legal certainty as paper-based communications.”60
This piece of legislation, at best, deals a default rule for the time that email is sent
and when it is received. However it is mistaken to suggest that it deals with a
clarification of the postal acceptance rule for electronic communications. Various
local laws have attempted to adapt the rule to how it should apply in their respective
jurisdictions.
58 Which is from the MRAs (Mail Retrieval Agents), a programme or service which fetches messages from a mailbox on a remote server and passes
them to an MUA, Mail User Agent, a programme in which the user sends and receives mail. MRAs simply retrieve messages and/or their headers from
remote mailboxes and deliver them to the MUA on the user's machine. Internet MRAs work using one of two available protocols:
The Internet Message Access Protocol (IMAP) — a complex and powerful protocol which allows all sorts of devices (e.g. NCs, PDAs, PCs, etc) to access
and manipulate server-based mail from any location, from multiple mailboxes, etc. For example, a device with limited local storage capacity could
simply view message headers, to avoid downloading huge binary attachments that it is unable to display anyway. IMAP offers huge opportunities to
exploit email as an e-commerce tool.
The Post Office Protocol (POP3) — A tiny subset of IMAP functions which allows server-based mail to be downloaded, but has extremely limited
remote mailbox management functions (basically, limited to retaining or deleting the messages held on the remote server). POP is favoured by many
ISPs because it is simpler to configure and administer than IMAP.
59 Deveral Capps (Ibid.).
60 Guide to Enactment of the UNCITRAL Model Law on Electronic Commerce (1996), Article 11 Para (1).
28
3.5 Relevant Legislative overview
In the first draft of its E-Commerce Directive (Draft dated 18 November 1998) the
Commission set out specific rules as to how and when an e-contract would be
formed. Article 11 provided that (1) the customer must accept the goods or services,
for example by clicking on an icon; (2) the service provider must acknowledge receipt
of the acceptance; and (3) the customer must confirm receipt of the service
provider’s acknowledgement. The contract would be formed only when the customer
had confirmed receipt of the acknowledgement. This has been established in the final
draft as a third step in contract formation – confirmation. According to Article 11, “In
cases where the recipient of the service places his order through technological
means, the service provider has to acknowledge the receipt of the recipients order
without undue delay and by electronic means.” Thus, a contract is concluded in B2C
transactions only when the recipient of the service has received an electronic
acknowledgement of the recipient’s order from the service provider. Article 11 applies
only in situations where the service provider made the initial offer, not in situations
where the customer is the one who makes the offer. Additionally, the
“acknowledgement requirement” does not apply in contracts “concluded exclusively
by exchange of electronic mail or by equivalent individual communications.”61
The rationale for requiring an “acknowledgement of the receipt of the acceptance” is
to provide protection from accidental contracts. The idea is to give the consumer a
second chance to check whether he/she might have ordered a product that he/she
did not want. It would also give a seller the opportunity to establish whether there
were sufficient stocks available and whether the product has been offered at the right
price. However, the requirement of confirmation seems to duplicate the functions
provided in Art. 10 (1) of the Directive, which requires that a service provider make
available to customers the identification and technical means to handle error. There
are no mandatory requirements concerning the content of the acknowledgement of
the receipt. In order to avoid mistakes, it might be more beneficial if the Directives
ensure a consumer’s right to reviewing the details of his or her contract before
sending his or her confirmation. Thus, according to Article 11, if a service provider
61 11(3) clearly states, “Paragraph 1, first indent, and paragraph 2 shall not apply to contracts concluded exclusively by exchange of electronic mail or
by equivalent individual communications.”
29
fails to send a confirmation to the consumer requesting acknowledgment, no contract
is formed.
The latest proposed Electronic Commerce (EC Directive) Regulations 200262 which
mandate is to ensure the free movement of “information society services” across the
European Community and to encourage greater use of e-commerce by building
bridges across Europe and boosting consumer confidence and trust by clarifying the
rights and obligations of businesses and consumers, however gives some
clarification on the point of receipt of communication. This may be indicative of one of
the purposes the postal rule was meant to serve. Regulation 11(2) (b) states that
where businesses contracts, “the order and the acknowledgement of receipt will be
deemed to be received when the parties to whom they are addressed are able to
access them”. Where email is concerned, this would be the time when the email is
available to be read by the person or business to whom it is addressed and not when
the message is actually read.
By providing that emails are deemed to be effectively communicated when the
parties to whom they are addressed are able to access them, the use of email to
contract is made unequivocally reasonable and driven to certainty. It would be
horrendous to state that the content is not conclusively communicated until it is read,
as the person to whom the message is addressed may never actually read the email.
Of course, this does make email as close as possible to postal mails as in a similar
vein, once a letter has been delivered to an address, there is no certainty that it will in
fact be opened and read. Regulation 11(2) (b) makes reference to an
“acknowledgment of receipt”, whereby a seller is required by Regulation 11(1) (a) to
“acknowledge receipt of the order [...] without undue delay and by electronic means”.
The apparent aim of this requirement is to ensure that those who have made
electronic orders know with certainty that these orders have been received. In this
situation, Regulation 11(2) (b) could suggest that acceptance would be deemed
communicated at the time when the email is available to be read, that is, at the time
when the email enters the information system of the person who has made an order.
62 The Electronic Commerce (EC Directive) Regulations 2002 (SI 2002 No. 2013) transposed into UK law the majority of the provisions of the
Electronic Commerce Directive (2000/31/EC).
30
In the United States, the point at which an emailed acceptance becomes effective
can be clearly seen in the Uniform Computer Information Transactions Act 2000
(UCITA).63 Here, under the sectional subtitle of “Offer and acceptance in general”, s.
203(4) states that “if an offer in an electronic message evokes an electronic message
accepting the offer, a contract is formed [...] when an electronic acceptance is
received”. Receipt is defined in s.102 of UCITA as “coming into existence in an
information processing system or at an address in that system in a form capable of
being processed by or perceived from a system of that type by a recipient”. This
again simply means that an emailed acceptance is deemed effective from the time
that it is successfully delivered to a person’s mailbox, not when it is actually read.
Sadly, UCITA applies to computer information transactions only. Uniform Electronic
Transaction Act, UETA, by contrast, is a statute with broader reach – focusing on all
types of electronic transactions. It is however quite apparent that UCITA is intended
to operate in a similar fashion to UNCITRAL’s Model Law on E-Commerce through
reliance on functional equivalence and avoiding specific technological requirements.
UETA made provisions for default rules regarding when and from where an electronic
record is received. Section 15 states that:
b) Unless otherwise agreed between a sender and the recipient, an electronic
record is received when:
(1) it enters an information processing system that the recipient has
designated or uses for the purpose of receiving electronic records or
information of the type sent and from which the recipient is able to
retrieve the electronic record; and
(2) It is in a form capable of being processed by that system.
In contract formation, UETA brought to light only one new issue – contracting with
machines that have something resembling discretion, and underscores the place of
trade usage between contracting parties. It is explicitly clear that UETA has not
introduced anything radically different from what UCITA provides nor is there a
change in the requirement for the offeror to receive the mail in his service system
technically in the form that is accessible to him.
63 UCITA is the first uniform contract law designed to deal specifically with the new information economy in America.
31
By way of emphasis, it is suggested that emailed acceptances should be deemed
effective from the moment that they are available and accessible to the recipient, akin
to the case of traditional posts. Among the relevant laws, help could be found in the
Convention relating to a Uniform Law on the Formation of Contracts for the
International Sale of Goods.64 But I must first mention the limitations associated with
using this law for resolving e-contract formation: Article 1 of the Convention states –
The present Law shall apply to the formation of contracts of sale of goods entered
into by parties whose places of business are in the territories of different States, in
each of the following cases:
where the offer or the reply relates to goods which are in the course of
carriage or will be carried from the territory of one State to the territory of
another;
where the acts constituting the offer and the acceptance are affected in the
territories of different States;
where delivery of the goods is to be made in the territory of a State other than
that within whose territory the acts constituting the offer and the acceptance
are affected.
The overall scope of this Convention makes it too restrictive for application to
transactions that are outside international sale of goods because applying it will
assume the proposition, howbeit questionably, that e-commerce parties are in
different states. But if we pretend to uphold this presumption, the application of the
rule is a beauty to behold.
In Article 8, the Convention provides that:
A declaration of acceptance of an offer shall have effect only if it is
communicated to the offeror within the time he has fixed or, if no such time is
fixed, within a reasonable time, due account being taken of the circumstances
of the transaction, including the rapidity of the means of communication
employed by the offeror, and usage. In the case of an oral offer, the
acceptance shall be immediate, if the circumstances do not show that the
offeree shall have time for reflection.
64 UNIDROIT Conventions, The Hague, 1 July 1964.
32
Cognizance must be taken of the fact that the communication mechanism in the
online environment is neither concrete-cast nor robotic. Email communications, for
instance, cannot be classified with certainty and accuracy as either instantaneous or
otherwise. In this regard, Khan and Cerf,65 the authors of the article, what is the
Internet and what make it work WorldCom.co; think that unlike the traditional rules on
contract the architecture of the Internet and the evolving state of technology, the
determination of ‘meeting of minds’ or consent becomes less than straightforward.
Indeed, software becomes the primary facilitator of choices, expectations and
autonomy – a form of techno-regulation or the determination of law by technological
functions.66
So then, when will an e-commerce contract be formed? A contract is formed when
one party makes a binding offer to the other party, which is accepted. Contract law
requires an element of intent, but the E-Commerce Directive rather requires an
information obligation, in order to help consumers reach intent. By following the
technical steps to conclude a contract, the consumer indicates his intent to enter into
a contract.67 In contrast, UETA is more explicit and focuses on the party’s intention to
be bound. UETA however supplements existing substantive law on contract.68
Contract formation under UCITA requires an offer and acceptance: “A contract may
be formed in any manner sufficient to show an agreement, including offer and
acceptance or conduct of both parties or operations of electronic agents which
recognize the existence of a contract.”69 Section 203 (1) provides that an offer to
make a contract invites acceptance in any manner and by any medium reasonable
under the circumstances. It went on to outline in the same section thus:
65 Robert E Kahn and Vinton G Cerf, What is the Internet And What Makes it Work WorldCom.co. December, 1999 at
http://www.worldcom.com/generation. [Visited on the 12th September 2010].
66 Robert E Kahn and Vinton G Cerf, What is the Internet And What Makes it Work WorldCom.co. December, 1999 at
http://www.worldcom.com/generation. [Visited on the 12th September 2010].
67 See Council Directive 2000/31 art. 10(1)(a).
68 Comments on the scope of UETA reads:
“2. This Act affects the medium in which information, records and signatures may be presented and retained under current legal requirements. While
this Act covers all electronic records and signatures which are used in a business, commercial (including consumer) or governmental transaction, the
operative provisions of the Act relate to requirements for writings and signatures under other laws.”
69 S. 202 (a).
33
If an offer in an electronic message evokes an electronic message accepting the
offer, a contract is formed
(a) When an electronic acceptance is received; or
(b) If the response consists of beginning performance, full performance, or
giving access to information, when the performance is received or the access
is enabled and necessary access materials are received.
A confirmation would merely be repeating what the parties are intending to be bound
to perform, an opportunity to review the essence of the contract, and would have no
legal effects under the U.S. law. The need for a coherent, uniform body of law has
never been greater
3.6 Conclusion
Expectedly, the law has responded slowly but certainly, to the online environment in
which contracts may be formed and particularly rules involving the communication of
acceptance. When the postal rule was created it provided a reasonable answer to a
genuine problem, in that the inherent delays in the principal method of
communication led to uncertainties in contract formation. That answer has been
adapted to suit subsequent developments in instances of communication via
facsimile, telephone and most recently email. The bottom-line is that the essentials
are retained and the law strives for certainty in the principles of contract formation.
The postal rule, while we still wait for certain decisions on it, has been over and again
constrained to apply to the new regime of e-commerce as emails are equated with
postal mails. The rule should be limited to postal situations where delays still occur
and the rationale for the postal rule’s creation is arguably still present. With the email
as arguably a non-instantaneous method of communication, the conclusion that the
postal rule should be limited and not extended to cover email would seem
questionable.
From the discussion above it becomes very easy to concur with Reed when he
observes that the basic principles of contract formation are still the same, so that the
existence of a contract and its terms are discovered by identifying the
communications which pass between the parties, identifying the offer, and then
determining whether that offer has been accepted and indeed when it was
34
accepted.70 It is then the unchanged principles with changed mechanism-particularly the mechanism for communicating the fact of acceptance in the online
environment. The question for evaluation is whether this above scenarios will do
justice to contract formation in Electronic Data Interchange.
70 C., Reed. Internet Law: Text and Materials, London. (Butterworth), 2000.
35
4 CONTRACT FORMATION IN
ELECTRONIC DATA INTERCHANGE
4.1 Introduction
Paper has been for a century the one of the major means for recording and carrying
out commercial information. For many legal purposes, a contract must assume a
written or printed form in order to gain legal validity and be enforceable [...] Contract
law consideration, such as the Legal validity, enforceability, and the formation of
contract can affect the capacity to prove that a transaction has indeed taken place.
Commercial practice has made paper a safe and reliable means of recording
information. Legal doctrine and practice have both acknowledged the validity of
documents that embody on paper the performance of an action. Courts accept the
information on paper as reliable evidence. Legal doctrines suggest that the properties
of paper in combination of an ink provide enough guarantee for the accuracy of the
recorded information […] Paper is the modern standard information carrier and it
holds a very strong position as such.71The dematerialization of document and the
conclusion of contract in electronic form require a reconsideration of our approach to
fulfilling legal requirements of contracts.72 This chapter shall exclusively evaluate
formation of contract in the light of Electronic Data Interchange under the backdrop
that contract formation in EDI falls within the circumference of electronic contracting.
4.2 Sequence of Electronic Data Interchange
Transaction
A typical EDI transaction would flow as follows. Information for a purchase order is
keyed into the system that produces an electronic purchase order. Most of the
information is only keyed once, since the same information is the basis for all
remaining documents. The electronic purchase order is sent either directly to the
seller […] or through an electronic mailbox provided by a communications network.
The seller receives the electronic purchase order and translates (reformats) the data
71 Andreas, Mitrakes. Open EDI and the law in Europe, volume 3, The Hague, (kluwer law internatonal) 1997,pg.38
72 Deloukas. The Concept of the Form of a Document. (1980) p.18
36
into the form needed by the seller’s order entry application. At this time, an electronic
acknowledgment is sent back to the buyer indicating that a transmission has been
received. This is called a functional acknowledgment. It is also possible for the seller
to read the purchase order and send the buyer a purchase order acknowledgment
reporting on the availability of specific items in the order. The seller’s order entry
system then generates internal instructions to the warehouse, plant, or service centre
regarding the filling of the order. The order entry application may also feed into
"bridge into," the invoicing application so that an electronic invoice can be prepared.
The remaining steps are similar. The translation process formats data so that it can
be sent to or received from a trading partner. The bridging process couples two
separate applications.73
4.3 Contract formation through Electronic Data
Interchange
To determine at what point a contract comes to fruition consideration must be made
to when a valid offer is considered accepted. The time and place of acceptance is of
enormous importance as it is often used to determine the applicability of the rule of
law and relevant jurisdiction. This principle is not alien to Electronic Data
Interchange. Traditional or closed EDI is structured in such a way that parties
engaged in communication are linked by a network service provider (VAN), while
Contemporary or Open EDI is exclusively based on Internet connectivity74. To
appreciate this debate, it is imperative to state that EDI system are generally
designed to be automated, however there is the possibility, that this option can be
waived to allow for manual verification. Technically, it is a counter offer.
In Electronic Data Interchange, communication of purchase order and the
subsequent acknowledgement by the recipient or the computer system serves as
conclusive proof that the entire elements that should suffice to constitute the
description of a valid offer and acceptance exist because a contract comes into life
73
Ned
C.,
Hill.
Electronic
Data
Interchange:
A
Definition
and
Perspective
http://scholar.google.com/scholar?start=20&q=how+does+Electronic+data+interchange+work&hl=en&as_sdt=2000 [23.November.2010]
74
G,
Zekos.
EDI:
Electronic
Techniques
of
EDI,
Legal
Problems
and
European
Union
Law
Greece
[1999]
at
http://webjcli.ncl.ac.uk/1999/issue2/zekos2.html [Visited on the 17th of October, 2010].
37
when an offer, a definite promise to be bound on specific terms, is accepted without
modification of the content of the offer75. As already exhaustively discussed in the
previous chapter, the transition of the Postal box rule into the newer developed mode
of communication of contract appears effortless and reasonable. Will EDI be a
different ball game?
4.4 A Critique of Communication of Contract in
Electronic Data Interchange
Trade practice has developed a number of rules for the time and place of the
formation of a contract.
If there is certainty about the identity of the will of the trading partner and the offeror
is not certain whether the recipient has accepted the offer, the practice has
developed the following rule;
a. The declarative rule, according to which a contract is concluded the time
and place the offeree accepted the contract.
b. The postal rule, accordingly, to which a contract is concluded at the time
and place the offeree hand his or her acceptance to the post office or an
independent third party assigned to deliver the mail.
If the contract is concluded when both parties are notified of the will of each other,
there are two rules to determine the exact place and time of the formation of a
contract;
a. The reception rule, according to which a contract is concluded at the time
and place where the acceptance was delivered to the premises of the offeror.
b. The information rule, according to which a contract is concluded, if the
contract is concluded at the time and place where the offeror actually become
informed about the offeror acceptance.76
4.4.1 Automated EDI
The rule established in Latec Finance v Knight77 on communicating acceptance is
that acceptance must be communicated unless it is displaced by the clear intention of
75 Carlill v. Carbolic Smoke Ball Co (1893) 1 QB 256 (CA)
76 Andreas, Mitrakes. Open EDI and the law in Europe, volume 3, The Hague, (kluwer law internatonal) 1997,pg.4
45 m9
77 (1969) 2 N.S.W.R. 79, N.S.W. Court of Appeal. See also Robophone Facilities Ltd v Blank [1966] 3 All ER 128.
38
the parties. In order words there must be absolute certainty that what is being
communicated get directly to the offeror. With respect to Telex In Entores Ltd. v.
Miles Far East Corporation
78
the court held that the mailbox rule did not apply to
communication of acceptance the Court regarded it as an instantaneous form of
communication – the forms of communication as if they were in each other’s
presence. The CISG Law Commission considers that an email message is
communicated when it is available to be read this does make it instantaneous as it
would be from the time it was transferred to the recipient’s ISP i.e. reaches the mail
box of the offer.79 Furthermore, the United Nation Convention on the Contract for the
International Sale of Goods Vienna Convention 1980 Article 24, also referred to as
the Vienna convention provides for the purposes of this part of the Convention, an
offer, declaration of acceptance or any other indication of intention “reaches” the
addressee when it is made orally to him or delivered by any other means to him
personally, to his place of business or mailing address or, if he does not have a place
of business or mailing address, to his habitual residence.
Finally, European Model EDI Agreement paragraph 3.3 “ [...] a contract effected by
the use of EDI shall be concluded at the time and place where the EDI message
constituting acceptance of an offer reaches the computer system of the offeror.80”
“A majority of member states approve for contracts concluded where parties are not
in the presence of each other, the application of the "reception rule" which ensures
that acceptance takes place at the place and at the time of receipt of such
acceptance by the offeror. The Vienna Convention on the international sale of goods
provides for this rule to be applicable to contracts concluded "at distance".
The conclusion of a study carried out in the first phase of the Tedis programme
supports the view that this rule is the best to apply to EDI contracts, in particular as it
avoids, to a large extent, the risks of conflicts of laws in connection with the use of
EDI81 These elements justify the endorsement of that rule in the EDI Agreement. The
78 [1955] 2 QB 327.
79 CISG-AC Opinion no 1, Electronic Communications under CISG, 15 August 2003. Rapporteur: Professor Christina Ramberg, Gothenburg, Sweden.
80 94/820/EC: Commission Recommendation of 19 October 1994 relating to the legal aspects of electronic data interchange (Text with EEA relevance)
Official Journal L 338 , 28/12/1994 P. 0098 – 0117 http://eurlex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:31994H0820:en:HTML accessed on
the 13th of January 2011
81 Telecommunications for Europe, Volume 2. Edited by H. Ungerer, C. Berben, P. Scott (The CEC sources), and 1992 p 498.
39
reception rule, in the case of the European Model EDI Agreement, is to be
understood as the rule whereby an EDI message is received at the time and the
place where the message reaches the computer of information system of the
offeror”.82
The drafters of the model agreement made clear in the scope of the agreement that
unless the parties agreed to the provisions of this model agreement they are not
intended to govern the contractual obligations arising from any underlying
transactions effected by the use of EDI. It seems that the applicability of the model
agreement as mandatory law has been ruled out from its genesis.83
Juxtaposing, the procession of automated EDI with the rule established in Latec
Finance v Knight84 etc, it is doubtful that there is no resemblance. What is obtainable
is that upon the despatch of the purchase order, the message is transmitted vie VAN
or the Internet to the system of the proposed recipient; whose system is programmed
to respond automatically. The system automatically generates a response instantly
on the order of the offeror thereby sending an acknowledgment.85 This
acknowledgment serves as an indication of a notification of the contract it. That is to
say that the reception of this notification constitutes acceptance. It must be stressed
that the general rule applies only to automated EDI. It is justified therefore, to strongly
opine, that the argument of the declarative, reception rule and instantaneous rule has
some resonance with automated EDI contracting.
4.4.2 Non-Automated Electronic Data Interchange
For the purpose of emphasis, non-automotive EDI does not in effect derogate in any
form the quality of EDI. It only means that human action is required to effect
confirmation and verification as this is fundamental to the smooth running of the
contractual process. Whereas in the automotive systems, human influence is only
relevant at the first moment when the first set of data are keyed into the automated
82 http://www.vereon.ch/upload/whitepaper/Engel-Flechsig_Anhang_2_20_26.pdf [Assessed on the 23 November 2010] Commentary on Electronic
data Interchange Model Agreement
83 http://webjcli.ncl.ac.uk/1999/issue2/zekos2.html#fnB25 [Assessed on the 28th of November 2010]
84 [1955] 2 QB 327.
85
Ned
Hill.
A
Definition
and
Perspective
http://scholar.google.com/scholar?start=20&q=how+does+Electronic+data+interchange+work&hl=en&as_sdt=2000 [23.November.2010]
40
programme.86 It will appear justifiable to relate the point at which acceptance is
communicated and fulfilment of contract with the Postal rule, which is an exception
to the general rule on communicating acceptance.
The postal rule accordingly, refers to a situation in which a contract is concluded at
the time and place the offeree hands in his or her acceptance to the post office or to
an independent third party assigned to deliver the mail. Adams v Lindsell87 formed
the basis for the rule that an acceptance by post is effective from the time of posting,
not the time of delivery. This is also called the mailbox rule. The ratio decidendi of
this rule has found judicial expression in the case of Household Fire Insurance Co
Ltd v Grant,88 The signatory, L.J. stated that “the acceptor, in posting the letter has
[…] put it out of control and done an extraneous act which clenches the matter.” that
is to say, from the moment the acceptance is posted it leaves the regime of the
control of the offeree.
The United Nations Commission on International Trade Law (UNCITRAL) can be
summarized thus, particularly; Article 1589 would mean that an email is deemed to
have been received at a designated email address once it has entered a service
provider’s email system and would actually appear in a user’s inbox when he or she
logs on to the email account.
“ […]Unless otherwise agreed between the originator and the addressee, the
dispatch of a data message occurs when it enters an information system
outside the control of the originator or of the person who sent the data
message on behalf of the originator.”
The United States, position is not different from the views expressed above. The
point at which an emailed acceptance becomes effective can be clearly seen in the
Uniform Computer Information Transactions Act 2000 (UCITA). Here, under the
sectional subtitle of “Offer and acceptance in general”, s. 203(4) states that “if an
offer in an electronic message evokes an electronic message accepting the offer, a
86
G,
Zekos.
EDI:
Electronic
Techniques
of
EDI,
Legal
Problems
and
European
Union
Law
Greece
[1999]
at
http://webjcli.ncl.ac.uk/1999/issue2/zekos2.html [Visited on the 17th of October, 2010].
87 (1818) B & Ald 681.
88 (1879) L.R. 4 Ex. D. 216, 223.
89 http://www.jus.uio.no/lm/un.electronic.commerce.model.law.1996/15.html
41
contract is formed ... when an electronic acceptance is received”. Receipt is defined
in s.102 of UCITA as “coming into existence in an information processing system or
at an address in that system in a form capable of being processed by or perceived
from a system of that type by a recipient”.
Interestingly, the only legislation enacted directly aimed at to EDI, is the South
Korean Regulation. Article 15. (Transit Times for Electronic Documents) posited thus:
“When electronic documents used for application or for approval, are processed
through a trade automation network by traders or trade-related institutions, the
electronic documents shall be recorded in the computer files of the contractor or
designated contractor. Such documents shall be regarded as having reached the
[counter party] identified receiving party at the moment they are recorded in the
computer files of the contractor of designated contractor”.
Adreas Mitrakas90 opined that “[…] the time of the formation of a contract is the time
of the receipt of the massage by the network service provider. The place of the
formation of the contract is the premises of the network provider.”
An example of the application of the postal rule is a situation where, a Belgium buyer
places an order with an English supplier, using the service of a network service
provider based in the Netherlands. In this case the time of the formation of the
contract will be the moment that the acceptance from the British counterpart reaches
the computer system of the network service provider in the Netherlands. Hence, the
Dutch law will apply. He further asserted that there is a radical shift from the Postal
rule by other international rule. The reasons he claim is the impracticable nature of
the rule compared with the preferred Reception rule. Applying the postal rule can
create a situation in which contract created will be formed in a jurisdiction completely
different from the one that the trading partner directly involved in the transaction
reside. In his example, a localised solution would either be the application of the
English law or the Belgium law. His argument can be better illustrated supposing that
the network service provider is not located in the Netherlands but in the US. Litigation
cost in this case can rise sharply. Other reasons advanced are that;
90 Andreas, Mitrakes. Open EDI and the law in Europe, volume 3, The Hague, (kluwer law internatonal) 1997
42



the reception rule takes into account the possible delay between the
transmission and the reception of a message [....] this is negligible but the
danger from a technical failure cannot be eliminated.
the reception rule applies to most continental legal systems and it has been
used in the Vienna convention and the European model law, hence it has
acquired some international acceptance.
the postal rule applies in the common law countries; therefore it has a
limited influence in the European context.
With respect to the South Korean legislation, it is a very commendable approach
taken by that Government indeed an encouragement for other countries to follow. It
must be noted that this is a national legislation as such, the exposition by Andrea
Mitrakes, the author of Open EDI law in Europe; may only hold some credit if the
hypothetical illustration only reflected transaction within South Korea where the
contention may arise as to which local court should exercise jurisdiction.91
4.5 Conclusion
Substantive validity of contractual terms in Electronic Data Interchange does not
pose serious challenge to law. So far bold steps taken to provide an assertive
response to this highly improved method of communication is evident in the South
Korean legislation. The European Model Agreement on Electronic Data Interchange
majorly set out guideline to parties’ interested in insulating themselves against
eventuality subject of course to an uncompromised agreement to be bounded by the
terms of the agreement. The UNCTRAL Modal law presents itself as an excellent
piece of legislation. It is however handicapped by the fact that it cannot be enforced
regardless of that, it influence is quite substantial. There are also plethora of decided
cases which have established this principle of law.
What may be needed is a judicial interpretation of the existing law. I am of the firm
belief that the courts will very much transpose the existing legal principles into EDI.
Fears have been expressed about the imminence of this judicial intervention. Reason
posited for this fears seems credible indeed:
91 Andreas, Mitrakes. Open EDI and the law in Europe, volume 3, The Hague, (kluwer law internatonal) 1997
43

The strength of the business relationships between EDI partners
encourages good faith and negotiation and settlement of disputes.

The existence of EDI trading partnership agreement and the use of an
effective EDI communication standard has substantially reduced the
likelihood dispute. The meaning of EDI communication is less likely than
traditional message technique such as mail or phone call to be ambiguous.

In addition to reducing the likelihood of dispute since EDI eases and the
speeds communicate between the parties, it also reduces the average size
of error. Parties can easily tolerate small, relatively infrequent error.

As a proactive measure substantial investment in time and resources in the
implementation of EDI trading partner agreement to comparatively the
uncertainty of the whether the courts will validate such arrangement.

Some EDI may involve trading partners with unequal trading power. A
major manufacturer may be in a strange position to economically coerce its
suppliers into submission when dispute arise. Disputes in such case may
never get to court for fear of reprisal92etc.
For the sake of emphasis, it is doubtful that the court will jettison existing legal
reasoning in contract formation with regard to disputes involving EDI. After all, it is
still very much old contract formation. Indeed an old wine in a new bottle.
92 Electronic contracting law, EDI and Business transaction Barnard D...[et al] Deerfield (Thomson legal Publishing) 1995 p 4to 95
44
Recommendations
Judicial interpretation is fundamental to the resolution of the main problem of
Electronic Data Interchange; which is the standardisation of its legal effects with the
traditional regulations. This may be a real challenge but giving Model laws,
UNCTRAL and the likes a biting force will indeed have a tremendous effect.
Open Electronic Data Interchange has a peculiarity, which is its cross jurisdictional
nature. Although there are international regulation and convention governing
international commercial practises, as a matter of extra precaution Parties intending
to use Electronic Data Interchange as means of contracting should embark on
extensive research on their counterpart existing legal system so that they are able to
draft an extensive Agreement. It is my recommendation that an adoption from the so
many Models should suffice.
It has been suggested that universal Electronic Data Interchange laws be created; as
a way of proffering solution to perceived problem of open Electronic Data
Interchange. It has also been suggested that new terminology be generated to define
Electronic Data Interchange´s contractual terms. It is my view that there is no need
for that, as universal technical standard has be created and adopted. On the second
suggestion, I am of the view that the suggestion to invoke new terms is not only
ridiculous, but also useless.
As stated in my introduction, standardization must be the watchword and must thus
become the result of the consummation between the marriage of technology and the
law. Standardization has been achieved technically e.g. UN/Edifact. What we await
now is standardization by way of transposition of existing legal principle into the
interpretation of EDI transaction. This may be loosely akin to the governing principle
of the doctrine of function equivalence.
45
References
BOOKS AND JOURNALS
A., Pollack. For Artificial Reality: Wear a Computer in (New York Times), New York,
April 10, 1989.
Andreas, Mitrakes. Open EDI and the law in Europe, volume 3, The Hague, (kluwer
law internatonal) 1997,pg.38
Chitty on Contract 28th ed., London, (Sweet & Maxwell), 1999.
C., Reed. Internet Law: Text and Materials, London. (Butterworth), 2000.
Deveral Capps. Electronic Mail and The Postal Rule (I.C.C.L.R). 2004, 15(7), 209
Deloukas. The Concept of the Form of a Document. (1980) p.18
D., Spar and J., Bussgang. Ruling the Net (Harvard Business Review) May-June
1996, p 125-133.
Electronic contracting law, EDI and Business transaction Barnard D...[et al] Deerfield
(Thomson legal Publishing) 1995 p 4to 95
Furmston, M. P., Cheshire, Fifoot and Furmston’s Law of Contract, 14th edition
London (Butterworth), 2001
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J. W., Verity. Invoice? What's an invoice? (Business Week) June 10, 1996.p 110112.
M, Cooper. ANSI Position Statement on Reference to Standards and Building Codes,
New York (ANSI Public Document Library) 2008.
46
Ned C., Hill. EDI: A Definition and Perspective
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ge+work&hl=en&as_sdt=2000 [23.November.2010]
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Impacts in the United States of America, university of Michigan (in Sprouts) Working
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2, 2002.
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Library), 2007
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[et al.] Chicago, (Harper Business), 2003.
Tain-Jy, Chen. Globalization and E-commerce: Growth and Impacts in Taiwan,
(Center for Research on Information Technology and Organizations CRITO),
University of California, November, 2001.E., Brousseau. Globalization and ECommerce: Growth and Impacts in France, (UC Irvine, Center for Research on
Information Technology and Organizations) 2001.
V., Zwass. Electronic Commerce: Structures and Issues in International Journal of
Electronic Commerce. Volume 1, Number 1, Fall, (1996), pp. 3 – 23
CONVENTION
The United Nations Convention on Contract for International Sale of Goods.
Electronic Commerce (EC Directive) Regulations 2002
Uniform Computer Information Transactions Act 2000
South Korean Act on the Promotion of Trade Business Automation
47
European Model EDI trade partner Agreement
The Uniform Electronic Transaction Act
Convention No108 of the Council for Europe of 28 January 1981
UNIDROIT-International institute for the Unification of Private Law
CASE LAW
Adams v Lindseyl (1818) B & Ald 681.
Byrne v. Van Tienhoven [1880] 5 CPD 344.
Brinkibon Ltd v Stahag Stahl [1983] 2 AC 34 House of Lords.
Cooke v Oxley 100 ER 785.
Dick v. U.S., 82 F. Supp. 326.
Entores Ltd. v. Miles Far East corporation [1955] 2 QB 327.
Fisher v Bell [1961] 1 QB 394,
Gibson v. Manchester City Council [1979] 1 WLR 294.
Latec Finance v Knight (1969) 2 N.S.W.R. 79, N.S.W. Court of Appeal
Partridge v Crittendon [1968] 2 All ER 421.
Pharmaceutical Society of Great Britain v Boots [1952] 2 QB 795.
Robophone Facilities Ltd v Blank [1966] 3 All ER 128.
Tenax Steamship Co Ltd v The Brimmes [1975] 1 QB 929.
Household Fire Insurance Co Ltd v Grant (1879) L.R. 4 Ex. D. 216, 223.
Henthorn v. Fraser [1892] 2 Ch 77.
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http://www.ifla.org/VI/5/reports/rep4/42.htm#chap2 [Visited on the 17th of October 2010].
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March, 2010].
48
http://www.softshare.com/tips/1998/tips27.html[accessed on 14th of March, 2010].
http://www.liaison.com.[accessed on the 29th of November, 2010].
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http://en.euabc.com/word/620 [assessed 10th january 2011
http://www.lawcom.gov.uk.
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http://www.businessweek.com.[Accessed on the 14th of March, 2010]
49
Annex I
EUROPEAN MODEL EDI AGREEMENT
LEGAL PROVISIONS
This European Model EDI (EDI) Agreement is concluded by
and....................................................... between.......................................... hereinafter
referred to as "the parties",
Article 1
Object and Scope
1.1 The "European Model EDI Agreement", hereinafter referred to as "the
Agreement", specifies the legal terms and conditions, under which the parties,
conducting transactions by the use of EDI (EDI), operate.
1.2 The Agreement consists of the legal provisions set out in the following and shall
be completed by a Technical Annex.
1.3 Unless otherwise agreed by the parties, the provisions of the Agreement are not
intended to govern the contractual obligations arising from the underlying
transactions effected by the use of EDI.
Article 2
Definitions
2.1 For the purpose of the Agreement, the following terms are defined as follows:
2.2 EDI: EDI is the electronic transfer, from computer to computer, of commercial and
administrative data using an agreed standard to structure an EDI message.
2.3 EDI message: An DEI message consists of a set of segments, structured using
and agreed standard, prepared in a computer readable format and capable of being
automatically and unambiguously processed.
2.4 UN/Edifact: As defined by the UN/ECE93), the United Nations rules for EDI for
administration, commerce and transport, comprise a set of internationally Agreed
standards, directories and guidelines for the electronic interchange of structured
Data, and in particular, interchange related to trade in goods and services, between
Independent computerized information systems.
93 United Nations Economic Commission for Europe.
50
2.5 Acknowledgement of receipt: The acknowledgement of receipt of an EDI
message is the procedure by which, on receipt of the EDI message, the syntax and
semantics are checked, and a corresponding acknowledgement is sent by the
receiver.
Article 3
Validity and formation of contract
3.1 The parties, intending to be legally bound by the Agreement, expressly waive any
rights to contest the validity of a contract effected by the use of EDI in accordance
with the terms and conditions of the Agreement on the sole ground that it was
effected by EDI.
3.2 Each party shall ensure that the content of an EDI message sent or received is
not inconsistent with the law of its own respective country, the application of which
could restrict the content of an EDI message, and shall take all necessary measures
to inform without delay the other party of such inconsistency.
3.3 A contract effected by the use of EDI shall be concluded at the time and place
where the EDI message constituting acceptance of an offer reaches the computer
system of the offeror.
Article 4
Admissibility in evidence of EDI messages
To the extent permitted by any national law which may apply, the parties hereby
agree that in the event of dispute, the records of EDI messages, which they have
maintained in accordance with the terms and conditions of this Agreement, shall be
admissible before the Courts and shall constitute evidence of the facts contained
therein unless evidence to the contrary is adduced.
Article 5
Processing and acknowledgement of receipt of EDI messages
5.1 EDI messages shall be processed as soon as possible after receipt, but in any
event, within the time limits specified in the Technical Annex.
5.2 An acknowledgement of receipt is not required unless requested An
acknowledgement of receipt can be requested by specific provision included in the
Technical Annex or by express request of the sender in an EDI message.
5.3 Where an acknowledgement is required, the receiver of the EDI message to be
acknowledged shall ensure that the acknowledgement is sent within one business
51
day of the time of receipt of the EDI message to be acknowledged, unless an
alternative time limit has been specified in the Technical Annex. A business day
means any day except a Saturday, Sunday or any declared public holiday in the
intended place of receipt of an EDI message. The receiver of an EDI message
requiring an acknowledgement shall not act upon the content of the EDI message
until such acknowledgement is sent.
5.4 If the sender does not receive the acknowledgement of receipt, within the time
limit, he may, upon giving notification to the receiver to that effect, treat the EDI
message as null and void as from the expiration of that time limit or initiate an
alternative recovery procedure as specified in the Technical Annex, to ensure
effective receipt of the acknowledgement. In case of failure of the recovery
procedure, within the time limit, the EDI message will definitely be treated as null and
void, as from the expiration of that time limit, upon notification to the receiver.
Article 6
Security of EDI messages
6.1 The parties undertake to implement and maintain security procedures and
measures in order to ensure the protection of EDI messages against the risks of
unauthorized access, alteration, delay, destruction or loss.
6.2 Security procedures and measures include the verification of origin, the
verification of integrity, the non-repudiation of origin and receipt and the
confidentiality of EDI messages. Security procedures and measures for the
verification of origin and the verification of integrity, in order, to identify the sender of
any EDI message and to ascertain that any EDI message received is complete and
has not been corrupted, are mandatory for any EDI message. Where required,
additional security procedures and measures may be expressly specified in the
Technical Annex.
6.3 If the use of security procedures and measures results in the rejection of, or in
the detection of an error in an EDI message, the receiver shall inform the sender
thereof, within the specified time limit. The receiver of an EDI message which has
been rejected, or which contains an error shall not act upon the EDI message before
receiving instructions from the sender. Where rejected or erroneous EDI message is
retransmitted by the sender. The EDI message should clearly state that it is a
corrected EDI message.
Article 7
Confidentiality and protection of personal data
52
7.1 The parties shall ensure that EDI messages containing information specified to
be confidential by the sender or agreed mutually to be confidential between the
parties, are maintained in confidence and are not disclosed or transmitted to any
unauthorized persons nor used for any purposes other that those intended by the
parties. When authorized, further transmission of such confidential information shall
be subject to he same degree of confidentiality.
7.2 EDI messages shall not be regarded as containing confidential information to the
extent that such information is in the public domain.
7.3 The parties may agree to use a specific form of protection for certain messages
such as a method of encryption to the extent permitted by law in either of their
respective countries.
7.4 Where EDI messages which include personal data are sent or received in
countries where no data protection law is in force, and until a relevant Community
legislation is implemented, each party agrees as a minimum standard, to respect the
provision of the automatic processing of personal data)94.
Article 8
Recording and storage of EDI messages
8.1 A complete and chronological record of all EDI messages exchanged by the
parties in the course of a trade transaction shall be stored by each party, unaltered
and securely, in accordance with the time limits and specifications prescribed by the
legislative requirements of its own national law, and, in any event, for a minimum of
three years following the completion of the transaction.
8.2 Unless otherwise provided by national laws, EDI messages shall be stored by the
sender in the transmitted format and by the receiver in the format in which they are
received.
8.3 Parties shall ensure that electronic or computer records of the EDI messages
shall be readily accessible, are capable of being reproduced in a human readable
form and of being printed, if required. Any operational equipment required in this
connection shall be retained.
Article 9
Operational requirements for EDI
94 Convention No 108 of the Council for Europe of 28 January 1981.
53
9.1 The parties undertake to implement and maintain the operational environment to
operate EDI according to the terms and conditions of this Agreement, which includes
but is not limited to the following:
9.2 Operational equipment
The parties shall provide and maintain, the equipment, software and services
necessary to transmit, receive, translate, record and store EDI messages.
9.3 Means of communication
The parties shall determine the means of communication to be used, including the
telecommunication protocols and if required, the choice of third party service
providers.
9.4 EDI message standards
All EDI messages shall be transmitted in accordance with the UN/Edifact standards,
recommendations and procedures95 as approved by the United Nations Economic
Commission for Europe (UN/ECE-NP 4) and with European standards.
9.5 Codes
Data element code lists referred to in EDI messages shall include UN/Edifact
maintained code lists, international code lists issued as ISO international standards
and UN/ECE or other officially published code lists. Where such code lists are not
available, preference shall be given to the use of code lists published, maintained
and ensuring correspondence with other coding systems.
Article 10
Technical specifications and requirements
The Technical Annex shall include the technical, organizational and procedural
specifications and requirements to operate EDI according to the terms of this
Agreement, which includes but is not limited to the following:
Operational requirements for EDI, as referred to in Article 9, including, operational
equipment, means of communication, EDI message standards and codes, Processing and acknowledgement of EDI messages, Security of EDI messages, -
95 UN/Edifact Syntax Rules ISO 9735 - EN 29735, UN/Edifact TDED ISO 7372 - EN 27372. The Untdid (United Nations
trade data interchange directory) includes also the UN/Edifact message design guidelines, Syntax
implementation guidelines, Data elements directory, Code list, Composite data elements directory, Standard
segments directory, UNSMs directory and Uncid.
54
Recording and storage of EDI message
time limits, procedures for tests and trials to establish and monitor the adequacy of the technical
specifications and requirements.
Article 11
Liability
11.1 No party to this Agreement shall be liable for any special, indirect or
consequential damages caused by a failure to perform its obligations of this
Agreement.
11.2 No party to this Agreement shall be liable for any loss or damage suffered by
the other party caused by any delay or failure to perform in accordance with the
provisions of this Agreement, where such delay or failure is caused by an
impediment beyond that party's control and which could not reasonably be expected
to be taken into account at the time of conclusion of the Agreement or the
consequences of which could not be avoided or overcome.
11.3 If a party engages any intermediary to perform such services as the
transmission, logging or processing of an EDI message, that party shall be liable for
damage arising directly from that intermediary's acts, failures or omissions in the
provision of said services.
11.4 If a party requires another party to use the services of an intermediary to
perform the transmission, logging or processing of an EDI message, the party who
required such use shall be liable to the other party for damage arising directly from
that intermediary's acts, failures or omissions in the provision of said services.
Article 12
Dispute resolution
Alternative 196
Arbitration clause
Any dispute arising out of or in connection with this Agreement, including any
question regarding its existence, validity or termination, shall be referred to and finally
resolved by the arbitration of a (or three) person(s) to be agreed by the parties, or
failing agreement, to be nominated by ....................,97 in accordance with and subject
to the rules or procedure of
96 A choice is to be made by the parties between Alternative 1 "Arbitration clause" or Alternative 2 "Jurisdiction clause".
97 An "appointing authority" has to be completed by the parties.
55
....................98.
Alternative 2
Jurisdiction clause
Any dispute arising out of or in connection with this contract shall be referred to the
courts of ...................., 99which shall have sole jurisdiction.
Article 13
Applicable law
Without prejudice to any mandatory national law which may apply to the parties
regarding recording and storage of EDI messages or confidentiality and protection of
personal data, the Agreement is governed by the law of.......................
Article 14
Effect, modifications, term and severability
14.1 Effect
The Agreement shall be effective from the date on which it is signed by the parties.
14.2 Modifications
Where required, additional or alternative provisions to the Agreement, agreed in
writing by the parties, will be considered as part of the Agreement as from their
signature.
14.3 Term
Any party may terminate the Agreement by giving not less than one month's notice
either by registered post or by any other means agreed between the parties.
Termination of the Agreement shall only affect transactions after that date.
Notwithstanding termination for any
reason, the rights and obligations of the parties referred to in Articles 4, 6, 7 and 8
shall survive termination.
14.4 Severability
Should any Article or part of an Article of the Agreement be deemed invalid, all other
Articles shall remain in full force and effect.
98 A "choice of procedure of commercial arbitration has to be completed by the parties.
99 A "country" has to be completed by the parties.
56
57