Electronic Contracts in the United States and the European Union:
Varying Approaches to the Elimination of Paper and Pen1
W. Harry Thurlow2
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Abstract
This paper examines enacted and proposed legislative attempts to validate contracts in
electronic form and the prospects for international harmonization between North America and
Europe. Taking UNCITRAL’s Model Law on Electronic Commerce as a baseline, the
approaches found in the United States and the European Union (including the examples of
France, Germany and the UK) are compared and analysed. The paper is divided into a basic
research section identifying the various positions on electronic contract enforceability, and a
comparative analysis section dealing with the underlying reasons for diverging opinions and
impediments to harmonization. The recognition of an electronic contract is mainly supported
by functional equivalence requirements in the United States (although there are exceptions in
certain states). This means that if a contract is able to meet the traditional purposes of writing,
it is valid. The European Union has put forth similar initiatives but the latitude states enjoy at
the implementation stage allows for significant divergence and in some cases rigid
requirements for specific technology and form. Thus, a valid contract in one country is not
necessarily going to be recognised as such elsewhere. The different approaches to enabling
electronic contract enforcement revolve around the question of whether to legislate a type of
form or a type of result. The main differences in the various positions do not, however,
prevent electronic contracting. At most they increase transaction costs and reduce potential
efficiency while ensuring consumer protection in a way that best fits the individual legal
environments. Ultimately, the prevalence of digital signatures as the leading security device in
Europe and the United States appears to make the form of harmonization less important as the
results appear the same. From that standpoint, it is the e-commerce industry that is in a
position to dictate harmonization, since governments will naturally look to it for advice on
standards and international comparison.
Contents
1. Introduction
1
The author would like to thank Professor Catherine Walsh of McGill University Faculty of Law and
Professor Norman Seibrasse of the University of New Brunswick Faculty of Law for their valuable advice on
this paper.
LL.B., 2001, University of New Brunswick Faculty of Law; Articled Clerk, Cox Hanson O’Reilly
Matheson, Halifax, Nova Scotia, Canada.
2
2. UNCITRAL Model Laws
3. The Current US Position
4. The Current EU Position
4.1 Germany
4.2 France
4.3 United Kingdom
5. Comparative Analysis
6. Conclusion: Prospects for Harmonization
1. Introduction
Electronic commerce is based on speed, convenience and efficiency. These elements drive the
business and technology communities to constantly upgrading and developing the art of trade
with cutting-edge innovations. The problem with business models that evolve at a fast pace is
that they often outrun the regulatory regimes which they are bound by. The result is either
unnecessary transaction costs or commerce without certainty while governments lag behind.
This is made abundantly clear by the ongoing debates surrounding the removal of paper and
pen from the contract equation. Contractual writing and signature requirements are found in
most legal jurisdictions. These rules were developed before the contemplation of electronic
commerce, and in many ways do not facilitate it. As a result, governments around the world
are now scrambling to address this issue.
States are particularly cautious about harmonization of electronic-commerce-related
laws because many view the area as so new that no laws currently exist to harmonize. In fact,
the lack of detailed rules in the US and EU member countries until recently shows the void in
substantive law and the absence of general principles which can be elevated to an
international standard.3 Although many argue that electronic contract standards should evolve
from the business community through practice and self-regulation, legislative attempts to
strengthen consumer and industry confidence are emerging. The United Nations Commission
on International Trade Law (UNCITRAL) is currently addressing electronic-commercerelated issues through framework legislation ready for adoption by states. Most relevant to
writing and signature requirements are the Model Law on Electronic Commerce and the
Model Law on Electronic Signatures.4 The Model Law and its background documents are
recognized as influencing law reform in many nations.5 This influence has not produced a
coherent uniform standard, however, whether at the domestic level in the US or
internationally. Even within the European Union, which has as its object the creation of a
single market with a free flow of goods services and capital, contains significant divergence in
approaches to binding electronic contracts. In both regions, there is debate over the issue of
whether the state should tie new legislation to specific existing technology, thereby defining
‘writing’ and ‘signature’ as including a certain type of communication. Those who oppose
that approach feel that electronic documents and signatures can be addressed through the
application of a functional equivalence analysis. That is, if the form of communication
Amelia H. Boss, ‘Electronic Commerce and the Symbiotic Relationship Between International and
Domestic Law Reform’, (1998) 72 Tul. L. Rev. 1931, at 1943-1944.
3
4
Both of which are available through the UNCITRAL website at http://www.uncitral.org/en-index.htm.
Christopher T. Poggi, ‘Electronic Commerce Legislation: An Analysis of European and American
Approaches to Contract Formation’, (2000) 41 Va. J. Int’l L. 224, at 227.
5
substantially fulfills the traditional role of handwriting (i.e. evidence of intentions,
identification, authentication, to force parties to recognize the seriousness of the undertaking,
etc.), there is no reason not to accept it as binding.
The debate over technology-specific versus technology-neutral legislation is well
illustrated by the US experience. For the time being, and in the foreseeable future,
replacements for pen and paper will likely be accompanied by electronic or digital signatures.
These two are often used interchangeably, but a key difference exists. Electronic signatures
are unique identifying marks electronically attached to a communication (which technically
include digital signatures). The problem is that not every form of electronic signature provides
assurance of who affixed it and when. Digital signatures on the other hand, do just that. The
process, based on asymmetric cryptography, involves a public and private key to decode the
message. The sender uses a ‘private key’ to encode a message that can be decoded by the
corresponding public key. The backbone of this system is the participation of independent
third parties, known as certificate authorities, who supply digital certificates to the recipient of
the sender’s message. A digital certificate is an electronic record, verifying the sender’s name
and public key as well as the time and unaltered state of the message. With a properly
authorized certificate, the recipient can be reasonably certain that message and signature are
authentic. While there are currently no specific technology requirements for electronic or
digital signatures in the existing federal legislation, many states have focussed on
public/private key cryptography with digital certificates supplied by designated certificate
authorities.6 Utah, for example, was first out of the gate enacting the Utah Digital Signature
Act in 1995, which equates electronic form with writing only if it is coupled with a digital
signature provided by a licensed certificate authority.7 By choosing the public/private key
approach, Utah is not only technology specific, but is relying on the deemed writing as
opposed to the more flexible functional equivalence approach. This can be contrasted with the
1997 amendment to section 2.108 of the Texas Business and Commercial Code. This section
recognizes electronic or digital signatures as meeting the signing requirements if they are
merely identifiers intended by the person to have the same force and effect as a manual
signature.8
Some argue that, in the interest of certainty, digital signatures using certificates should
be adopted because there is already a growing infrastructure, and its reliability would
encourage more widespread adoption by states.9 In theory, the transaction benefits derived
from a technology-specific Act will enhance commerce by alleviating fears between parties
by providing certainty in obligations.10 On the other side of the debate it is argued that
technology choices should be left to the market because legislation always develops slower
than technology.11 Furthermore, specifying technology forces businesses to use methods that
Kate Marquess, ‘Sign on the Dot-Com Line: Electronic Signature Act Facilitates Commerce over the
Net’, (Oct. 2000) 86 ABA J. 74.
6
7
Utah Code Ann. § 46-3-101 (1995) et seq.
See Jeff Dodd and James Hernandez, ‘Contracting in Cyberspace’, (Summer 1998) Computer Law
Review and Technology Journal, available online at http://www.smu.edu/~csr/articles.html, at 23-24.
8
9
Marquess (2000), supra note 6, at 76.
10
Dodd and Hernandez (1998), supra note 8, at 23.
11
Marquess (2000), supra note 6, at 76. (While the public/private key infrastructure is currently regarded as
the safest system commercially available, there is no telling where security technology will be tomorrow. For
example, Dr Michael Rabin, a computer scientist at Harvard, says he has found a way to send coded messages
may be out of date, or more expensive than necessary to achieve the goals of such
requirements, not to mention stifling competition and innovation in the online security
industry.
Recognizing the split in legislative attitudes toward these questions, UNCITRAL
created the Model Law on a technology-neutral and functional equivalency basis, but left it
broad enough to be adapted to specific rules by individual states. Unfortunately, this creates
an atmosphere of uncertainty because there is nothing to prevent states from adopting rules
which exclude equivalent methods or even identical methods if foreign.12
The influence of the Model Law and the collaboration of drafting committees are
indicators that at least partial harmonization of approaches to writing and signature
requirements for electronic contracts is considered desirable by law reformers. This does not
mean, however, that business people are presently able to enter agreements with certainty that
is backed by hard law. Industry practice and mutual advantage are the current force behind
faith in the paperless system. The legal regimes in place are not yet uniform. Therefore, this
paper is intended to illustrate two themes in relation to harmonization as recommended by
UNCITRAL through its Model Law. First, I will examine the present systems in the United
States and the European Union (with reference to its dominant constituents) and point out the
key differences. Second, I will show why these differences continue to exist and how this will
affect the substance and timeliness of law reform.
2. UNCITRAL Model Laws
The Model Law on Electronic Commerce was adopted by UNCITRAL in 1996. Its purposes
are to help states enhance their legislation with respect to electronic communications and to
serve as a reference aid for the interpretation of existing international conventions and other
instruments in order to avoid impediments to electronic commerce.13 According to Article 1,
the law ‘applies to any kind of information in the form of data message used in the context of
commercial activities’, but allows for exceptions to be made by individual countries.14
The ‘writing’ and ‘signature’ related provisions are contained in Chapter II, entitled
‘Application of Legal Requirements for Data Messages’. Articles 6 and 7 are intended to take
the focus off of the mode of communication and place it on the fulfilment of traditional
functions of writing.15 UNCITRAL determined that data messages can satisfy the traditional
functions and therefore are ‘functionally equivalent’.16 This is significant because it
that cannot be deciphered, even by an ‘all-powerful adversary’ with unlimited computing power. He and his PhD
student, Yan Zong Bing, have discovered a way to make a code based on a key that vanishes even as it is being
used; New York Times, Feb. 20, 2001.)
Richard Horning, ‘Symposium Presentation: Legal Recognition of Digital Signatures - A Global Status
Report’, (2000) 22:2 Hastings Comm. & Ent. L.J. 191, at 199 regarding the German system.
12
Christoph Glatt, ‘Comparative Issues in the Formation of Electronic Contracts’, (United Kingdom)
(Spring 1998) 6:1 Int’l J.L. & Info. Tech. 34, at 57.
13
14
UNCITRAL Model Law on Electronic Commerce with Guide to Enactment 1996 (with additional article
5 bis as adopted in 1998), online at http://www.uncitral.org/en-index.htm.
15
Ibid., Article by Article Remarks, at paras. 47-61.
16
Ibid.
recognizes that future developments and applications are unforeseeable.17 This is preferable to
deeming specific communications writings because mere definition of terms will be either too
broad to comprehend or too narrow to develop new applications.
Article 6 states that where a law requires information to be in writing, a data message is
sufficient if it is accessible to be used for subsequent reference. Article 7, dealing with
signature requirements, allows for any method that identifies a person and indicates that
person’s approval of the information contained in the data message, so long as that method
was ‘as reliable as was appropriate for the purpose for which the data message was generated
or communicated’. The use of functionally equivalent language such as this leaves the Model
Law requirements broad enough to allow for new technologies and applications which can
meet the traditional purposes of writing and signature requirements. This general ‘framework’
approach is more conducive to broad international acceptance than a detailed regime of
mandatory rules.18
UNCITRAL is attempting to support the functional equivalence supplied by Article 7
with the Model Law on Electronic Signatures, which was adopted from the former Draft
Rules.19 This new law is aimed at harmonizing minimum standards of signature reliability.
Article 6(1) states that where the law requires a signature of a person, that requirement is met
if an electronic signature is used that is as reliable as was appropriate for the purpose, in the
light of all the circumstances, including any relevant agreement. This seems to be in line with
current US initiatives. The Working Group on Electronic Commerce identifies nondiscrimination against electronic signatures of any type as a fundamental objective of the new
law, as evidenced by Article 3.20 The Working Group did give special attention to digital
signatures, however, and the test for e-signature reliability set out in Article 6 seems to
describe that type of authenticating mark.
The Model Law on E-Commerce has influenced many states with respect to legislative
drafting and proposals. Recent enactments and uniform laws now circulating in Canada and
the United States were heavily influenced by the Model Law, and drafting committees from
the two countries are exchanging ideas on the subjects.21 In the European Union, the
17
John D. Gregory, ‘Solving Legal Issues in Electronic Commerce’, (1999) 32 Can. Bus. L.J. 84, at 104.
A. Brooke Overby, ‘Will Cyberlaw Be Uniform? An Introduction to the UNCITRAL Model Law on
Electronic Commerce’, (Spring 2000) 7 Tul. J. Int’l & Comp. L. 219, at 234.
18
19
Working Group on Electronic Commerce 34th sess., Vienna, 25 June - 13 July, 2001, online at
http://www.uncitral.org/en-index.htm (adopted text link).
‘Draft Guide to Enactment of the UNCITRAL Uniform Rules on Electronic Signatures’, 16 August 2000,
UN Doc. A/CN.9/WG.IV/WP.86/.
20
21
Poggi (2000), supra note 5, at 238. The Uniform Law Conference of Canada produced its own model law
based on the UNCITRAL Model. Approved for adoption by Provinces in 1999, the Uniform Electronic
Commerce Act (UECA) relies on the functional equivalence approach without requiring authentication from a
specified technological source. Saskatchewan’s Electronic Documents and Information Act, S.S. 2000, c. E-7.22,
for example, contains similar and in some cases identical provisions to the UECA. Nova Scotia’s Electronic
Commerce Act, S.N.S. 2000, c. 26, received Royal Assent November 30, 2000, and also mirrors the UECA
approach to writing and signatures, as does Ontario’s Electronic Commerce Act, S.O. 2000, c. 17. Several other
provinces have Bills before their legislatures with common approaches along the lines of the UECA. (See
Michael Geist, Internet Law in Canada, (York University: Captus Press, 2000) at 493-499). This approach is not
necessarily dependent on a common law system of interpretation as evidenced by Bill 161 now before the
Quebec National Assembly, entitled An Act to Establish a Legal Framework for Information Technology,
introduced first as a draft in June of 2000 and later as a full-fledged bill on November 14, 2000. The object of the
Draft Bill is stated in s. 1(3) as including the ‘functional equivalence of documents and the recognition of their
Electronic Commerce Directive and the Electronic Signatures Directive were also influenced
greatly by the Model Law and Draft Rules.22 Furthermore, drafting committees for the
implementation of these proposed laws appear to be directly influenced by each other’s work,
thereby reducing diverging interpretations.23 In spite of this influence, however,
harmonization lags well behind technology. This is a product of differing legal systems and a
tendency toward comprehensive, detailed law reform in some EU nations contrasted by the
less hands-on approach in the US.24
3. The Current US Position
The traditional writing and signature requirements found in the United States have steadily
been eroded by legislation and judicial interpretation.25 For example, the Uniform
Commercial Code defines ‘writing’ as ‘any intentional reduction to tangible form’.26 There
are also cases in which electronic substitutes for pen and paper have been found to meet
Statute-of-Frauds-type legislative provisions.27 Some authors argue that slight changes in
various legislative schemes, such as using the term ‘record’ instead of ‘writing’, coupled with
the ability of US courts to adapt a body of case law through analogy between past authority
and present conditions is entirely sufficient to keep law abreast with technology.28 The
expansion of statutory definitions by the courts through interpretation and analogy may
eventually establish a coherent set of rules; however, a more pro-active approach is to
legislate in the area taking into consideration the broad picture of efficiency and consumer
protection. When dealing with the validity of agreements, and in particular those with an
international aspect, the business community needs positive legislation to feel secure.29
This last point is made in the international business context. There is certainly a case to
be made for self-regulatory measures; however, in light of the varying degrees of legal
recognition of electronic forms and signatures discussed below, universal acceptance will
require some legislative support. After states will have agreed that electronic documents and
signatures are legally enforceable, the procedures and standards of care in maintaining the
infrastructure will no doubt be industry led.
The need for a coherent set of rules that would promote certainty, predictability and
security gave rise to action by US authorities at both state and federal levels. Proposed and
legal value, regardless of the medium used, and the interchangeability of media and technologies’. Therefore, the
civil law is also able to contemplate the UNCITRAL Model basic principles. (The text of Quebec Bill 161 can be
found online at http://www.assnat.qc.ca/archives-36leg1se/eng/Publications/Projets-loi/publics/00-a161.htm.)
22
See Poggi (2000), supra note 5, at 238.
23
Ibid.
24
See generally Overby (2000), supra note 18.
25
Dodd and Hernandez (1998), supra note 8.
26
UCC § 1-201 (46).
27
Dodd and Hernandez (1998), supra note 8, at 14-15.
See, for example, Donnie L. Kidd and William H. Daughtrey, ‘Adapting Contract Law to Electronic
Contracts: Overview and Suggestions’, (2000) 26 Rutgers Computer & Tech. L.J. 215.
28
29
Horning (2000), supra note 12, at 195.
enacted legislation to respond to electronic contracting capabilities are heavily influenced by
the UNCITRAL Model Law on E-Commerce and reflect the functional equivalent method to
writing requirements.30 At the national level, the Electronic Signatures in Global and National
Commerce Act, known generally as E-Sign, took effect October 1, 2000.31 E-Sign grants
electronic contracts the same legal validity as written ones by stating that form may not be the
sole basis for denying the document or signature validity.32 E-Sign preempts state laws to the
contrary as an interim measure ensuring that electronic documents and signatures have equal
legal standing with handwritten signatures and records until such time as the individual states
have adopted uniform legislation.33
In July of 1999, the National Conference of Commissioners on Uniform State Law
(NCCUSL) approved the Uniform Computer Information Transactions Act (UCITA) and the
Uniform Electronic Transactions Act (UETA) as model laws to be adopted by the states.34
UCITA applies to computer information transactions and has been adopted in several states.35
With respect to contract formation, UCITA recognizes ‘authentication’ even if in electronic
form,36 and provides that electronic contracts are valid if it is shown that ‘the party against
which enforcement is sought authenticated a record sufficient to indicate that a contract has
been formed and which reasonably identifies the copy or subject matter to which the contract
refers’.37
UCITA takes contract validity liberalization further by supporting the ability of
electronic agents to make binding contracts for their human masters. This includes, for
example, electronic data interchange (EDI), networks which allow computer-to-computer
exchanges of information in order to create contracts without human involvement during the
formation process.38 Acceptance and validity are satisfied if the medium is ‘reasonable in the
circumstances’.39 It is quite apparent that UCITA is intended to operate in a similar fashion to
UNCITRAL’s Model Law on E-Commerce through reliance on functional equivalency and
avoiding specific technological requirements.
UETA broadly applies to electronic records and signatures in commercial or
government transactions.40 While its starting point for contract validity is first a matter of
functional equivalence, UETA goes beyond the UNCITRAL Model Law on E-Commerce by
30
Boss (1998), supra note 3, at 1933.
31
Pub. L. No. 106-229 , 114 stat. 465, (codified at 15 USC §§ 7001 et seq. (2000)).
Jeffrey P. Cunard, Jennifer B. Coplan and George Vradenburg, ‘Selected Topics in Internet and ECommerce Law’, (Nov. 2000) 627 PLI/Pat 381, at 464-465.
32
33
Poggi (2000), supra note 5, at 239.
34
Ibid., at 238. The NCCUSL Model Acts are available online at
http://www.law.upenn.edu/bll/ulc/ulc_frame.htm.
35
Cunard, Coplan and Vradenburg (2000), supra note 32, at 460.
36
UCITA § 102 (a)(6).
37
UCITA § 201 (a)(1).
38
Kidd and Daughtrey (2000), supra note 28, at 227-229.
39
UCITA § 203 (1).
40
Cunard, Coplan and Vradenburg (2000), supra note 32, at 463.
explicitly deeming electronic signatures and documents to be in satisfaction of laws requiring
signed and/or written contracts.41 It is important to note that again the proposed law is not
technology specific and therefore, just like the UNCITRAL Model Law on E-Commerce,
leaves the door open to functional equivalence. The provisions of UETA are meant to
compliment existing state laws rather than supercede them as in E-Sign, as well as to provide
a more comprehensive scheme.42
Legislation based on UCITA has been adopted in Maryland and Virginia, with
introductions scheduled in eight other states in 2001.43 UETA is infiltrating state legislatures
at a much faster rate with the number of states that adopted similar legislation with minor
amendments approaching 40 as well as several more scheduled to introduce it this year.44
Despite the widespread influence UCITA and UETA have over US law reform, the approach
of the individual states remains somewhat ‘ad hoc’.45 Some states recognize an open class of
electronic authentications if they meet certain functional equivalence criteria, while others
require digital certificates provided under specific rules.46
Interestingly, the fact that a specific type of signature is not imposed has not stifled
attempts by various non-governmental groups to take the lead in establishing a code of best
practices. The American Bar Association Information Security Committee, for example, has
just released its PKI Assessment Guidelines for public comment.47 This was the result of a
five-year effort, and addresses issues such as controls, procedures and policies to ensure
trustworthy digital signatures.
4. The Current EU Position
It should be noted before proceeding with this section that the ‘current EU position’ involves
special considerations not present in the US - mainly, the implications of developing uniform
laws between sovereign nations with vastly different legal traditions at the same time. The
difficulty in predicting EU behaviour as opposed to that of the US is heightened because it is
a novel and not yet fully understood entity. Although the EU borrows ideas, concepts and
institutions from existing legal systems, it is incomplete and expanding, thereby leaving its
relationship with domestic laws of member countries not yet fully determined.48 To
41
UETA § 7.
For an excellent comparison of E-Sign and UETA, see Patricia Brumfield Fry, ‘A Preliminary Analysis of
Federal and State Electronic Commerce Laws’, 2000, Baker & McKenzie, Global E-Commerce Law Website,
http://www.bmck.com/ecommerce/topic-esignatures.htm.
42
Uniform Law Commissioners’ Website, visited Oct. 21, 2001 at
http://www.nccusl.org/nccusl/uniformact_factsheets/uniformacts-fs-ucita.asp.
43
44
Ibid., at http://www.nccusl.org/nccusl/uniformact_factsheets/uniformacts-fs-ueta.asp .
45
Poggi (2000), supra note 5, at 254.
46
Ibid.
47
See Baker & McKenzie Global E-Commerce Law Website at http://www.bmck.com/ecommerce/topicpki.htm .
Noreen Burrows, ‘European Community: The Mega Mix’, in Esin Örücü, Elspeth Attwooll and Sean
Coyle, eds., Studies in Legal Systems: Mixed and Mixing (Boston: Kluwer Law International, 1996) 297-312.
48
comprehend the difficulty, one must remember that the goal of the Union is not to create a
uniform legal order as such, but to facilitate trade, investment and the mobility of citizens.49
Therefore, although harmonization of laws is present in some cases, it is merely one of several
means to achieving the overall goal, and therefore is not itself a goal.50 Despite this, common
approaches are necessary at times to facilitate Community goals. The most important
legislative tools used by the EU to give effect to its decisions are regulations or directives. 51
Regulations are binding on states when adopted with no internal legislative action necessary.
They immediately become part of the member states’ laws and may not be amended by
domestic legislation. The total surrender of sovereignty required for regulations tends to limit
their use, so the more common method is the directive. This sets out a binding result that must
be achieved within a set time period through member state domestic legislation, but leaves the
form and method up to the individual states.52 Use of the directive, therefore, is a far more
desirable solution in a union of states containing some very different legal traditions.
Harmonization amongst member states appears inevitable given the tools available; however,
since the choice of how to implement directives is left to each member, it is minimum
harmonization of underlying principles and not specific technical rules. Thus, transaction
costs may not be optimized by the electronic commerce community because they still have to
respond to different criteria for contract validity in different countries. The recognition of
electronic contracts as a general principle after all, does not prevent differing opinions on
implementation questions such as whether to use specific rules tied to existing technologies,
or if Statute-of-Frauds-type legislation need be rewritten or merely reinterpreted to allow for a
functional equivalence exception.
In order to examine the European experience, it is necessary to review the recent use of
electronic-contract-related directives and the subsequent treatment by key member states.
There are two directives relevant to this study: the Electronic Commerce Directive 2000
(ECD), which must be implemented by member states before January 17, 2002,53 and the
Electronic Signatures Directive 1999 (ESD), which must be implemented by July 19, 2001.54
Although transactions made under the purview of the Distance Contracts Directive 1997 will
certainly involve electronic forms, it is geared to monitoring the content of contracts from a
consumer protection standpoint, rather than setting out standards of legally recognized
media.55 Indeed, it does not specify the type of communication to be used and therefore will
be subject to the ECD and the ESD. Whereas this paper is confined to the formal validity of
electronic forms, it is not concerned with the content of the Distance Selling Directive, which
is directed toward the rights of parties after formation.
49
Ibid., at 306.
50
Ibid.
51
See ibid., at 307-310, for a summary of EU methods of unifying and harmonizing laws through the use of
regulations and directives.
52
Ibid., at 308.
53
Council Directive 2000/31/EC, [2000] OJ L178/1, available online at EUR-LEX site
http://europa.eu.int/eur-lex/en/lif/dat/2000/en_300L0031.html (implementation Art. 22(1)).
54
Council Directive 1999/93/EC, [2000] OJ L013/12, available online at EUR-LEX site
http://europa.eu.int/eur-lex/en/lif/dat/1999/en_399L0093.html (implementation Art. 13(1)).
55
Council Directive 1997/7/EC, [1997] OJ L144/19, available online at EUR-LEX site
http://europa.eu.int/eur-lex/en/lif/dat/1997/en_397L0007.html .
The ECD applies to all Information Society services provided by service providers in
the EU Information Society services are defined under Article 2 as including any service
‘normally provided for remuneration, at a distance, by electronic means and at the individual
request of a recipient of services’.56 This Directive is meant to be a general electronic
commerce framework under which the individual member states are left considerable
discretion with respect to its implementation.57 Article 9 requires states to give effect to
electronic contracts and forbids the creation of barriers to their use or the denial of legal
validity based solely on form. The obligations and benefits flowing from the ECD apply only
within the EU, however, and therefore trade with non-member-country businesses is not
particularly facilitated by the Directive.
The ESD is a far more detailed directive and sets out a framework for the recognition of
electronic signatures and certification service requirements for member states. Article 1 states
that the objective of ESD is to facilitate the use of electronic signatures and to contribute to
their legal recognition while ensuring the ‘proper functioning’ of the internal market by
implementing a legal framework. If this is the case, the ESD will promote cross-border
electronic commerce within the EU by encouraging electronic contracts.58 Article 5 provides
that ‘electronic signatures which are based on a qualified certificate and which are created by
a secure-signature-creation device’ are equivalent to those in handwritten form. The Article
goes on, however, to state that electronic signatures are not to be denied legal effect solely on
the basis that they are not produced by a ‘qualified’ source or a secure device. Although the
definitions of ‘qualified certificate’ and ‘qualified service provider’ create high standards, the
language is essentially technology neutral. The requirements appear to be aimed at ensuring
that the security features are as reliable as possible rather than forcing member states to agree
upon a single device. The ESD does not name a specific technology, but falls short of
neutrality. The definition of ‘advanced electronic signature’ found in Article 2 calls for the
following features:
(a) it is uniquely linked to the signatory;
(b) it is capable of identifying the signatory;
(c) it is created using means that the signatory can maintain under his sole control; and
(d) it is linked to the data to which it relates in such a manner that any subsequent change of
the data is detectable.
This goes beyond functional equivalence by requiring a higher standard than one could
achieve with handwriting. It does not go so far as to name a specific technology, but it seems
to describe a digital signature. Certainly if technological advances lead to a form of
identifying mark other than a digital signature that meets the requirements of Article 2, it will
be acceptable. That fact may on its face lead to the conclusion that the EU is following the
UNCITRAL Model Law on E-Commerce to a certain extent. In any event, harmonization of
acceptable marks is the goal, first between member states and then on to those countries such
as Canada and the US, where digital signatures are being used. That conclusion, however, is
56
Art. 2 incorporates this definition by reference to Art. 1(2) of Council Directive 98/34/EC as amended by
Council Directive 98/48/EC which can be found on the EUR-Lex site at http://europa.eu.int/eurlex/en/consleg/main/1998/en_1998L0034_index.html .
David M. Gourlay and Jeremy Warner, ‘Further Developments in Electronic Commerce in the EU and the
UK’, (United Kingdom) (Aug. 2000) Copyright World 13-17.
57
Caroline Copeland, ‘Digital Signatures: Throw Away Your Pens’, (European Union) (May 2000) 11:5
Ent. L. Rev. 112, at 113.
58
not yet supported by the practical realities that appear when comparing the actual approaches
taken by the individual EU member states at the implementation stage. Furthermore, while the
US generally recognizes electronic documents containing evidence of identity, none will be
provided under the ESD. If the EU and the US were to adopt similar positions on digital
signatures, the harmonization of standards would surely appear based on current industry
methods. This, however, may not be the case while electronic signatures remain broadly
defined in the US.
4.1 Germany
The German approach to giving legal effect to electronic contracting in areas requiring written
signatures is through the use of a rigid regime.59 In 1997, the German Digital Signature Act
(DSA) entered into force as Article 3 of the Information and Communication Services Act. 60
Recently annulled, this act supported the legal validity of digital signatures in electronic
commerce. Further technical regulations followed later that year in the Digital Signature
Ordinance.61 The two enactments combined to form an administrative framework for the
assignment and verification of digital signatures by state-licensed certification authorities.62
The German Government at that time was heavily involved in the certification process
through the regulation of public/private key cryptography and certification authority technical
regulations which had to be met in order to obtain legal recognition.63 The thrust of the act
was to set up the digital signature infrastructure rather than to specifically authorize electronic
contracts. The failure of this attempt is the absence of specific provisions dealing with the
validity and use of digital signatures in electronic transactions. Instead, it contained technical
rules for certification authorities to meet in order to obtain a license.
Since recognition of electronic documents as valid ‘written’ contracts was not
guaranteed by the Act, as in the ECD and the UNCITRAL Model Law on E-Commerce, two
obstacles to harmonization appeared. First, the absence of formal legal recognition of
electronic documents in general leads to the need for guidance as to which transactions will be
covered. There are currently numerous statutory requirements for which electronic or digital
signatures are insufficient.64 Thus, determining which contracts may be in electronic form
requires legal research and increased transaction costs. The second obstacle was created by
sections 14 and 15 of the Act. These set out the applicability of digital signature standards to
foreign certification authorities. Digital signatures created by an authority from another EU
member will be recognized only if the same level of security can be shown. How to show this
is not clear, but presumably a similar testing and regulating regime can be required under this
provision. As for non-member states of the EU, section 15(2) declared that digital signatures
59
Horning (2000), supra note 12, at 199.
60
Federal Law Gazette I S. 1870, 1872. Available online in English at the German Government Information
Society Initiative, http://www.iid.de/iukdg/gesetz/iukdge.html#a3 .
61
http://www.iid.de/iukdg/gesetz/sigve.html
Christine Rohnke and Valerie S. Beck, ‘Germany: News - New Digital Signature Act’, (EU) (1997) 8:7
Ent. L. Rev. 133, at 135.
62
63
Horning (2000), supra note 12, at 199.
See Brunhilde Steckler, ‘Current Legal Aspects of Electronic Commerce Regarding German Contract
Law’, (1999) 21:5 Eur. Intell. Prop. L. Rev. 248, at 252 for several examples.
64
will only be considered equivalent if supranational or intergovernmental agreements exist,
even if they were just as reliable.65
The rigidity of the now repealed DSA system therefore accomplished just what the
UNCITRAL Models attempt to avoid, a system dependent on an infinite number of
international agreements to ensure legal recognition amongst states. The omissions and overly
rigid standards caused the 1997 initiatives to fall short of requirements imposed by the two
EU directives. In response, the German Government developed additional legislation to
replace the existing Act and implement the ESD.66 The German Proposal for a Framework for
Electronic Signatures Bill of August 16, 2000, passed the Bundesrat on March 9, 2001,67 and
came into force May 21, 2001 (Signaturgesetz - SigG).68 The SigG does not place electronic
signatures on par with handwritten ones; rather it mainly creates a framework to allow for
ESD compliance. There remains a stringent set of rules for the creation and issue of
certificates to create signatures qualifying for recognition pursuant to the ESD; however,
electronic signatures are defined widely enough to evidence the formation of a contract in
various forms. Part 1 of the law states the purpose as creating a framework for electronic
signatures. It appears to correspond much more closely to the ESD than its predecessor.
Rather than applying to electronic signatures generally, the law goes on to detail the operation
of a digital signature infrastructure. The detailed requirements for authorized certification
create a strong likelihood of acceptance in German Courts based on the ECD’s influence, and
the Legislature is currently considering an update to Article 126(a) of the Civil Code to grant
legal status to qualified certificates.69 The provisions relating to foreign signatures are far
more receptive in the new law of non-EU member states provided they are accredited and can
prove equivalent security.70 The new and improved SigG is certainly a softening of the
traditional German position, but falls short of full-fledged legal recognition of electronic
contracts.
4.2 France
On March 13, 2000, the French Government enacted a law amending Chapter VI of the Code
civil which deals generally with form and proof of contracts.71 The main thrust of the
amendments is to make electronic records and signatures equivalent to handwritten forms in
65
Rohnke and Beck (1997), supra note 62, at 134.
66
See Baker & McKenzie Global E-Commerce Law website at
http://www.bmck.com/ecommerce/germany.htm and the German Government Information Society site at
http://www.iid.de/iukdg/gesetz/engindex.html for English versions and commentary.
Federal Republic of Germany, ‘Signature Law Passes Bundesrat and Can Take Effect Without Delay’,
(March 2001) Bundesregierung Background Information - Germany in the Global Economy, Fr 2001/03/09.
67
68
Law Governing Framework Conditions for Electronic Signatures and Amending Other Regulations,
BGBl. Teil I S. 876 vom 21. Mai 2001.
69
Doing E-Commerce in Europe: European Country Reports - Germany, Baker & McKenzie (2001), online
at http://www.bmck.com/ecommerce/germany.htm, p. 84.
70
71
Article 1 § 6 (23).
Loi no. 2000-230 du 13 mars 2000, JO, 14 Mars 2000, 3968, online at
http://www.legifrance.gouv.fr/citoyen/jorf_nor.ow?numjo=JUSX9900020L; Code civil available online at
http://www.legifrance.gouv.fr.
the law of obligations. Article 1316 of the Code civil now recognizes written proof of
obligations as a continuation of letters, characters, figures or any other sign or symbol
equipped with an understandable significance, whatever their support or method of
transmission. For greater certainty, Article 1316-1 was added to provide that writing in
electronic form is admissible as proof provided it can be duly identified with the person from
whom it emanates and it is established under conditions which are likely to guarantee its
integrity. This adherence to functional equivalence is far more liberal than the German
approach of deeming only a specific type of electronic signature valid. Article 1316-2 states
that where conflicts occur between electronic and hard copy, a judge can determine which is
the most probable authority based on all the circumstances and regardless of the medium
used. These sections ensure that electronic documents enjoy a presumption of validity and
allow assessment of reliability by a judge without reference to one specific technological
source of the document.
Signature requirements are addressed by the new Article 1316-4. It provides that an
electronic signature is able to satisfy requirements for the perfection of legal documents if it
identifies the party affixing it, and expresses the assent of the party to the obligations arising
from it. The Article defines ‘electronic signature’ as consisting of the use of a reliable process
of identification, guaranteeing its link to the act to which it is affixed. Article 1316-4 goes on
to state that the reliable identification and guaranteed link requirements are to be defined by
décret en Conseil d’État. Said Electronic Signature Décret was adopted March 30, 2001.72
Whereas the code provisions are quite neutral regarding general functionality requirements,
the décret is somewhat more descriptive. It confirms the definition of electronic signature in
code Article 1316-4, but goes on to add that a protected electronic signature is one that is also
exclusive to the signatory, can be created by means which are under the signatory’s exclusive
control and can guarantee that any subsequent modification of communication is detectable.
The issue of a certificate of authenticity is also required from a third-party service provider.
Thus, the thresholds of security and reliability are raised to a level commensurate with digital
signature technology. It is important to note, however, that other technologies and processes
are not excluded. Public key encryption is only used as an example, and so long as similar
security and authenticity standards are met, the signature will meet the protected status
required. As per Article 2 of the décret, the reliability of such a signature is presumed, unless
proved contrary, if it is checked with a ‘qualified electronic certificate’, which is defined in
similar terms to those found in the German SigG and are associated with digital signatures in
general. Therefore, although it appears that presently only digital signature technology
satisfies the requirements, equally effective modes are not excluded so long as they can
incorporate the same level of security and involve a third-party service provider giving a
qualified certificate.
The French position is therefore harmonious with the UNCITRAL Model Law ECommerce insofar as it accords electronic documents the same level of legal recognition as
any other form of communication. Although the electronic signature rules are currently only
satisfiable via digital signature technology, they are not restricted to that single source of
authentication. While not entirely technology-neutral in immediate practice, if it is possible
for another form of electronic signature to meet the threshold conditions set out in the Code
civil and the décret, and uses a qualified certificate, it is acceptable. Therefore, room for
innovation and competition exists. Article 8 of the décret states that non-EU member country
certification service providers can enjoy the same benefits of the law as member states do
under the ESD. It simply requires that they satisfy the provisions of French law and are
Décret no. 2001-272 du 30 Mars 2001 pris pour l’application de l’article 1316-4 du code civil et relatif à
la signature électronique. Available online at http://www.legifrance.gouv.fr/html/frame_lois_reglt.htm.
72
accredited within the meaning of the ESD, or that their certificates are guaranteed by an
accredited member country provider or through an agreement with the EU. Although the
focus is therefore on the quality of the foreign authentication, international agreements may
be required in some cases.
4.3 United Kingdom
Implementation of the two EU Directives begins with the Electronic Communications Act
(ECA), which received Royal Assent on May 25, 2000.73 Falling somewhere between the
French and German initiatives, the ECA proposes to extend legal recognition to electronic
signatures which meet certain general and functional equivalence criteria. However,
individual statutory instruments are necessary to change requirements under existing statutes
that do not recognize such communications. Part I of the ECA is an approval regime for
cryptography service providers. Unlike its German counterpart, the UK Government is
content to stay out of regulating this area if possible and stated that the regime would not take
effect unless self-regulation by the industry is found to be a failure.74 Furthermore, if not
brought into effect before May 25, 2005, those provisions will automatically be repealed.75
This indicates deference to the industry while providing an incentive to keep the UK’s
certification authorities on par with those in countries such as Germany. Under Part II, which
came into force July 25, 2000, electronic signatures incorporated into or logically associated
with a specific electronic communication and any certificate in respect to that signature are
admissible as evidence in any court proceeding in order to establish authenticity or integrity
of the communication. However, the ECA does not create a presumption that electronic
signatures are equivalent to handwritten signatures.76 Therefore, in order for electronic
documents and signatures to fulfill statutory writing requirements, special statutory
instruments, effected under section 8 by the appropriate minister, are needed to modify
individual acts. Critics of the system created by section 8 argue that there is now a risk that
the Government will update only a few statutory definitions which it considers to be a
priority, leaving many others unreformed.77
The ECA is an intermediary between minimum compliance with the two EU directives
and total facilitation of electronic contracts contemplated by the UNCITRAL Model Law on
E-Commerce. That is, electronic documents and signatures are admissible for the purpose of
proving authenticity or integrity of the message, but there is no guarantee of equivalence
when a statute requires a signature in the traditional form. Whether the functional equivalence
doctrine is implemented remains to be seen pending the execution of statutory instruments by
the Ministers in charge of those statutes which cannot be satisfied by communications in
electronic form. Although this process allows for detailed analysis of the effects of electronic
contracting by the relevant department before changes are made, it still places a two-step
research burden on the electronic contractor. First, one must determine whether a writing or
73
Electronic Communications Act 2000 (UK), c.7; available online through the UK Government site at
http://www.uk-legislation.hmso.gov.uk/acts/acts2000/20000007.htm.
74
Gourlay and Warner (2000), supra note 57, at 15.
75
Ibid.
76
Ibid., at 16.
77
Gourlay and Warner (2000), supra note 57, at 16.
signature requirement applies to the area and second, if an amendment has been made via
statutory instrument.
5. Comparative Analysis
This section attempts to identify some of the underlying factors that lead to key similarities
and differences between the legal approach taken in the various countries and regions
discussed above. This will help in assessing the prospects for international harmonization or
at least common solutions to problems arising from similar facts in different countries. The
common baseline of action against which the varying approaches are compared is the
UNCITRAL Model Law on Electronic Commerce. It is from there that concepts such as
taking the focus off mode and placing it on fulfilment of traditional functions of writing are
derived in this paper. The threshold of legal recognition set by UNCITRAL requires that the
identification of the sending party and indication of that party’s assent to the terms within are
present in the electronic contract. This is all made possible by a technology-neutral stance on
authentication which need only be as reliable as appropriate in the circumstances. The legal
systems canvassed above range from near imitation of the UNCITRAL approach to heavily
regulated, detailed requirements for validity. Factors leading to the divergence are certainly
based on different legal structures, cultures and attitudes, and in order to consider the prospect
of harmonization in any form it is necessary to identify these elements and speculate on their
implications.
The dimensions which affect comparative analysis of these issues include culture,
society, economy, history, politics and legal logic.78 Legal logic must be considered in light of
the other factors and also with consideration of legal processes, institutions and actors.79 A
further consideration is whether the legal issue is addressed entirely by the identified statutes
or if there are other rules that supplement the solutions. Given the infancy of the electroniccontract-related statutes, it is not yet possible to accurately predict how other rules will
supplement the proposed and recent amendments to domestic legal systems.
The US is implementing the functional equivalence threshold for legal validity in much
the same fashion as contemplated by UNCITRAL. Moreover, electronic signatures will
satisfy legal writing and signing requirements under a technology-neutral regime.80 The trend
is toward letting the market determine how best to regulate the industry. Governmentimplemented schemes, locking in a particular technology is not consistent with the traditional
freedom-of-contract notion that the parties should govern their activities. With limited
exceptions, contractual parties in the US are deemed to be on a level playing field, deciding
freely on content and medium. The balance of consumer protection with facilitation of
commerce is therefore more receptive in the US of limited standardization of electronic
contracts. The overwhelming opinion in the US is that governments should not mandate
standards in electronic commerce as this will either lock in outdated technology, thereby
78
Hugh Collins, ‘Methods and Aims of Comparative Contract Law’, (1991) 11 Oxford J. Legal Stud. 396,
at 398.
79
John Henry Merryman, ‘Comparative Law Scholarship’, (1998) 21:4 Hastings Int’l & Comp. L. Rev. 771-
784.
80
With the possible exception of Utah, which is regulating the use of digital signatures only. It is not clear
how this will mesh with the states adopting the UCITA and UETA.
causing unnecessary transaction costs, or result in non-tariff trade barriers.81 Furthermore, the
US economic culture is apparent from the current political disposition, which is less
interventionist than that of Germany, for example, and prefers to place reliance on a free
market to encourage growth.
The legal institutions and formants in the US further support the competitive use of
electronic technology. Part of the reason that consumer protection through stiff electronic
signature legislation is not as high a priority as in Europe, is that the courts are already
equipped to deal with related issues. There is some evidence that the US common law is
almost ready to accept electronic records and signatures if they perform all the functions of
hard copies and handwriting.82 The use of analogy and judicial interpretation is available in
the US to evolve the common law, albeit at a slower pace, with technology.83 Thus, judges are
encouraged by the system in which they exist to consider the authenticity and weigh
consumer protection through the application of functional equivalence criteria.
The EU directives follow UNCITRAL’s lead by requiring member states to implement
legislation that does not deny legal effect to electronic contracts solely on the basis of their
form. The language in the two instruments is that of functional equivalence, but wide latitude
is given to the individual member states in regulating electronic contracts so long as barriers
to their use in general are not erected. The fact that a directive, rather than a regulation, was
used, is an indication of anticipated divergence in approach within the Union itself. This was
confirmed by statements such as the German Government’s remarks on the draft of the
ESD.84 The remarks were critical of the technology-neutral format and strongly advocated the
use of digital signatures only. The German Government also complained that the Directive
should be limited to the harmonization of digital signature minimum standards rather than
attempt to infiltrate domestic laws concerning evidence and writing. This is not consistent
with the French and UK systems, which now include some deference to UNCITRAL-type
recognition in accordance with the ESD and ECD.
The special problems associated with harmonizing laws between diverse member states
inevitably led to directives which left considerable leeway to the enacting state. All three of
the EU member states considered here felt the UNCITRAL and US approaches provided too
little protection and legal certainty. This in turn produced legislation requiring a higher degree
of state involvement. The UK position appears in that respect to be closer to the civil law
jurisdictions than to its natural legal correlative in the US common law. Surprisingly, even
though there is a strong sentiment amongst some US authors that the common law is capable
and willing to apply old rules to new technologies, the prevailing opinion in the UK is that it
does not.85 This may or may not be a valid opinion, but in any event the barrier is there.
Another factor in assessing the UK position is its relationship with other member states
of the EU and their influence on domestic law. The English approach to comparative law as a
Klaus W. Grewlich, Governance in ‘Cyberspace’: Access and Public Interest in Global Communications
(Boston: Kluwer Law International, 1999), at 117.
81
82
See Horning (2000), supra note 12, at 195-196.
83
See Kidd and Daugherty (2000), supra note 28.
84
Government of the Federal Republic of Germany, Bonn, April 8, 1998, trans. Christopher Kuner,
Morrison & Foerster LLP, Brussels; available online at http://www.kuner.com/data/sig/gov_ger_eu-draft.htm
(hereinafter Remarks on ESD Draft).
Andrew D. Murray, ‘Entering into Contracts Electronically: The Real W.W.W.’, in: Lillian Edwards and
Charlotte Waelde, eds., Law and the Internet: A Framework for Electronic Commerce (Portland, Ore.: Hart
Publishing, 2000), at 19-20.
85
source of legal borrowings or transplants is considerably more utilitarian and positivist than
its neighbours.86 There is a history of comparing techniques from other jurisdictions and
choosing the best solution to a domestic problem. Thus, many transplants have found their
way from Roman and civil law systems.87 This may be where the English system broke ranks
with its common law counterparts in North America in creating a regulatory regime that does
not in itself allow for functional equivalence in electronic signatures. Remembering its place
in the EU and its interest in competing in the common market, the UK is also under pressure
to, if not harmonize, at least resemble the common core of solutions used in the other more
influential member countries.
The apparent departure from the UNCITRAL standard is softened, however, by the
allowance for voluntary regulation by the industry, thereby placing reliance on the
marketplace. This middle ground is natural considering that historically English contract law
was modelled on the commercial transaction.88 Therefore, English law is more economic and
pragmatic than French law, for example.89 The most relevant principles to the less regulatory
scheme found in the UK in relation to the German extreme are the traditional extra weight
given to economic consequences in contract, the willingness to allow each party to take care
of its own interests and a reluctance to take into account the inequalities between those
parties.90 Influence from Continental Europe and the commercial origins of present-day UK
contract law struck a balance whereby electronic contracts and signatures can obtain legal
validity but only after formal recognition by various Ministers. Also, market forces can dictate
security and authenticity regulation, but with the constant ‘parental’ threat of a statutory
regime if the industry fails in its responsibilities.
Across the English Channel, functional equivalence of electronic records is accepted in
closer accordance with the UNCITRAL Model Law on E-Commerce. So long as a document
can be identified with the party creating it and it is established under conditions likely to
guarantee integrity, a presumption of validity attaches. This is a technology-neutral solution.
As for signature requirements, however, the presumption only arises after meeting specified
standards that appear technology-neutral, but as a practical matter require digital signature
technology. More emphasis is therefore placed on government involvement in the third-party
certification of authenticity process. Some of the difference can be accounted for by the civil
law tradition in France. Where common law lawyers look to generalizations of solutions to
individual disputes, civilian lawyers assume the rules precede the solutions.91 Legal
positivism is the character of a code. Since it is assumed (whether correctly or not) that judges
will apply immutable meanings without regard to impractical consequences in order to give
effect to the will of the state, more detail is expected.92
86
Collins (1991), supra note 78, at 397.
87
Ibid.
88
Donald Harris and Davis Tallon, Contract Law Today: Anglo-French Comparisons, (Oxford: Clarendon
Press, 1989) at 386.
89
Ibid., at 386-390.
90
Ibid., at 386.
91
Barry Nicholas, The French Law of Contract, 2nd ed. (Oxford: Oxford University Press, 1992), at p. 4.
92
Ibid., at 21.
Another important influence of legal culture on the various systems includes the higher
regard for consumer protection amongst Continental European states. One manifestation of
such a proposition is found in Article 1341 of the French Code civil. Article 1341 requires
notarial acts or signed documents for consumer transactions exceeding FRF 5,000, but
provides a general exception for transactions governed by the Commercial Code.93 The notary
concept and the division of commercial from consumer contracts are greater than the face
value consumer protection statutes in common law nations. The role of the notary in France is
far more active in the contracting process than in the US. In many cases, the civil law notary
is required to diligently inquire into the identity and legal capacity of the parties, advise the
parties as to the legal significance of the transaction and, where unsophisticated parties are
involved, avoid overreaching.94 If certification authorities are to take the place of the notary, it
is not surprising that their role will attract legislative attention. Here we see the extent of
French regulatory intervention into the freedom of contract between parties in the name of
consumer protection. It is not surprising, therefore, that there is also a perceived need to
ensure that transactions authenticated by certification authorities are as secure as possible with
guaranteed evidence of assent to be binding on individuals.
The state which is furthest removed from the UNCITRAL models is Germany. The
establishment of a rigid and technology-specific scheme, excluding foreign participation from
outside the EU without international agreements, started in 1997. A superficial comparison
reveals that, from the beginning, the German Government was unreceptive of the UNCITRAL
Model Law on E-Commerce mainly due to the expense already incurred and existing
infrastructure.95 Why this course was selected in the first place, and other contributing factors
to its continuance, is not so easily explained, however. The general positivist view of formal
law is of course present, as is the consumer protection sentiment seen in France.96 There is no
presumption that contracting parties are on an even playing field in German law and the
willingness to infiltrate the private contract is apparent from the use of the general provisions
of the civil code to rewrite certain obligations.
It is also a natural extension of German contract law that formal rules govern the
formation of contracts. Offer, acceptance and consideration are not the exclusive test for
contract formation in civil law countries due to the higher emphasis on obligations and the
duty to perform, and act in good faith.97 Since this concept is alive and even entrenched in the
German Civil Code, the exact time and implications of formation require an elevated level of
formality. The purposes of writing and signature requirements in France and Germany also
lead to insight about why two civil law systems are differing in approach to electronic
contracts. In France, writing requirements are principally a matter of proof which, if not
observed, do not automatically render a transaction invalid.98 The evidentiary functions in
93
See Ibid., at 59-61 for discussion.
94
Rudolph B. Schlesinger et al., eds., Comparative Law: Cases - Text - Materials, 6th ed. (New York:
Foundation Press, 1998), at p. 21.
95
See Remarks on ESD Draft, supra note 84.
96
The role of the notary, for example, is regarded in much the same way in Germany as in France for
certain transactions. See Schlesinger (1998), supra note 94, at 979-982.
Sjef van Erp, ‘The Formation of Contracts’, in: A.S. Hartkamp et al., eds., Towards a European Civil
Code (Boston: Martinus Nijhoff Publishers, 1994), at 118.
97
98
K. Zweigert and H. Kötz, An Introduction to Comparative Law, 2nd ed., trans. Tony Weir (Oxford:
Clarendon Press, 1992), at 394-399.
Germany are subsidiary to the primary concern, which is the seriousness of the parties’
intention.99 A failure to meet formal requirements will render the contract void even if
intentions are unequivocally proved by other means. Therefore, certainty regarding formal
obligations is essential in Germany and specific regulations are geared toward that result. In
France, on the other hand, proof of validity is more liberally accepted making the specific
formal requirements less important.
Legislative management of the market is present in German historic scholarly doctrine
on law and economics in this century, which focussed on the use of tools with a direct impact
on the market rather than individual autonomy and decentralized thinking.100 Thus, the
German weariness of an unregulated, market-driven electronic signature regime is deeply
rooted in the historic legal culture and the present institutional setting.
The spectrum of responses to electronic contract issues is pulled at one end by marketdriven forces of economics and history, and at the other by the social welfare role of European
states. Where institutions are flexible enough to change the law when technology changes,
there is less demand for specific rules. In states where society demands a formal recognition
of consumer welfare, detailed regulation is prevalent. In Germany, individual autonomy
contemplated by the nineteenth-century-inspired civil code gave way to socialist thought and
legislation following a greater trend in most of continental Europe.101 This change in social
culture renders limits on freedom of contract inevitable where there is danger of undue
advantage in the hands of one party over the other.
6. Conclusion: Prospects for Harmonization
Whether harmonization can be achieved through individual agreements between states, such
as those required by Germany for the acceptance of non-EU certificates, is not as important as
what results from the practical application of each state’s policy. Right now, France, the UK
and the EU appear to have reasonable requirements that do not exclude foreign participation.
It remains to be seen if Germany will apply its right of refusal in a way akin to non-tariff trade
barriers in terms of WTO regulations, or if it will present only a minor inconvenience to states
capable of meeting existing standards. What truly matters is how economic growth follows
technology. This is because the main differences in the various positions do not prevent
electronic contracting. At the most, they increase transaction costs and reduce potential
efficiency while ensuring consumer protection in a way that best fits the individual legal
environments. At the least, they are different ways of achieving identical results since digital
signatures are currently the preferred standard in the Western world.
The likelihood of a complete turnaround by the Germans at one end of the spectrum, or
the US at the other is small, but this does not mean that electronic contracts are stifled. Each
jurisdiction is promoting on some level the use of digital signatures. While some jurisdictions
are more encouraging to innovation in the electronic authentication industry, those that are not
must contemplate the floating nature of competitive advantages in the online world. That is, a
state requiring more stringent rules than competing states will find that growth may be slowed
by the increased transaction costs within its borders. Therefore, while the US is more open to
99
Ibid., at 398.
100
Ugo Mattei, Comparative Law and Economics (Ann Arbor: University of Michigan Press, 1998), at 45-
46.
101
Franz Wieacker, A History of Private Law in Europe: With Particular Reference to Germany, trans. Tony
Weir (Oxford: Clarendon Press, 1995), at 431-438.
experimentation in the online authentication industry, it is presently conforming with
European standards, insofar as digital signatures and certification authorities are being looked
into. Thus, the same solution is used to address the same problems, but by different means of
justification. Requiring functional equivalence to be assessed on a technology-neutral basis
does leave the possibility of inferior security measures, but with valuable consideration
flowing in a competitive marketplace, it is likely that the most reliable source of
authentication will be used. Therefore, while blanket harmonization is unlikely, common
solutions will in practice be quite similar. This is inevitable given the social and legal history,
institutions and culture of the various states, as well as the existing industry standards.
If new and reliable sources of authentication do appear in the future, the more liberal
states will provide the basic research data for comparative purposes to those with more
conservative regulatory regimes, so they can assess the viability of applying the same
technology in their jurisdiction. The threat of enduring a competitive disadvantage will force
states to update their positions by finding new ways to meet goals such as consumer
protection and ensuring clear indications of intent. Therefore, if a desirable process is
developed in the US, and is accepted by French courts, Germany will risk losing some trade
benefits due to the liberal policies in those two countries. Germany has, however, reserved for
the government the duty to investigate and legislatively balance consumer protection with
commercial advantages, whereas the US is much more likely to hear the voice of business in
its courts. The bottom line is that electronic contracts are being accepted as valid. Evidentiary
issues differ from state to state, but that does not mean that the different solutions are
irreconcilable. Ultimately, economic growth and increased interdependence of states will
create a common core of legal solutions, even if by differing means, so that competitive
advantages will not be made permanent. Once there is a common minimum standard in
electronic documents and signatures, there will be even more scope for harmonization through
industry-led regulation of the technical requirements for reliability in a given country. Until
that time, however, such self-regulatory measures remain speculative.