Note: TOWARDS UNIFORM ELECTRONIC CONTRACTING LAW

• Published date: 01 December 2006
• Author: TER Kah Leng LLM (Bristol); Barrister (Lincoln’s Inn); Advocate & Solicitor (Singapore); Associate Professor, NUS Business School, National University of Singapore.
• Date: 01 December 2006
• Citation: (2006) 18 SAcLJ 234

Legal uncertainties create huge business costs. Disharmony between national legal systems poses legal obstacles to international trading activities. This prompted the United Nations Commission on International Trade Law to draft the United Nations Convention on the Use of Electronic Communications in International Contracts. These uniform rules seek to remove legal obstacles, enhance legal certainty and commercial predictability, and lower transactional costs. This article considers the implications of these changes on electronic contracting law.

I. United Nations Convention on the Use of Electronic Communications in International Contracts

1 Disharmony between different legal systems and the necessity to determine the applicable law create huge costs for businesses. Thus, basic default rules are needed to govern e-commerce across borders and to create greater legal certainty. The United Nations (“UN”) Convention on the Use of Electronic Communications in International Contracts (“the Convention”)1 which seeks to achieve this is the work of the United Nations Commission on International Trade Law (“UNCITRAL”) Electronic Commerce Working Group (“ECWG”).2 It is regarded as one of the most important recent developments in international e-commerce

law dealing with selected issues on e-contracting and is the result of a comprehensive survey of possible legal barriers to the development of e-commerce.3

2 The purpose of the uniform law is to offer practical solutions to issues connected with the use of electronic communications in international contracting. As the ECWG4 explained, the intention is not to establish substantive rules for matters unconnected with e-communications.5

3 In this regard, the Ad Hoc Expert Group of the International Chamber of Commerce (“ICC Expert Group”)6 has asked the ECWG to carefully consider whether the Convention should apply only to electronic contracts or to commercial contracts in general and to keep in mind the problems in regulating e-contracts separately from all commercial contracts. It has also asked the ECWG to clarify the interaction between the Convention and the UN Convention on the International Sale of Goods (“the Vienna Sales Convention”).7

4 The Singapore Consultation Paper of 22 June 2005, the Joint IDA-AGC Review of the Electronic Transactions Act Stage III: Remaining Issues, proposed the adoption of the Convention and its extension to all contracts. The reason given is that it would be undesirable to have two regimes, one for international contracts and the other for domestic contracts. This is particularly so in the context of e-contracts where the actual location of the parties may not be relevant or known to the parties. Given the aims of UNCITRAL, it appears difficult to align the whole of domestic law to the provisions of the Convention. It would be simpler to confine the scope of uniform law to international contracts, be they electronic contracts or commercial contracts. Appropriate amendments will have to be made to the Convention if it is also to accommodate non-electronic contracts. A uniform law for all international contracts will no doubt provide a useful legal structure and bring increased certainty and confidence in international e-commerce.

II. Scope of the Convention: Article 1

5 The scope of the Convention is exceedingly wide. It proposes to bring within its ambit “the use of electronic communications in connection with the formation8 or performance of a contract9 between parties whose places of business are in different States”. This means that the Convention can apply notwithstanding that one or both States are not Contracting States. This is broader than the scope of other international trade-related instruments such as the Vienna Sales Convention. At the business level, such a default provision may be useful in the interests of uniformity but parties may find themselves inadvertently governed by the Convention. If this is not the intention of the parties, they should include a choice of law clause and expressly exclude the Convention. At the State level, such an excessively wide scope of application would be objectionable as impinging upon the sovereignty of those States which have not ratified the Convention. With this in mind, the Convention allows States, which so desire, to limit the scope of application by declaration under Arts 19 and 21.

6 As for the location of the business, the fact that the parties have places of business in different States will be disregarded if it is not disclosed or apparent from the contract or their dealings. Furthermore, the nationality of the parties or the civil or commercial character of the parties or the contract will be irrelevant in determining the application of the Convention.

III. Declarations on the scope of application: Article 19

7 As mentioned above, any State may declare that it will apply the Convention only when (a) the States referred to in Art 1 are Contracting States or (b) the parties have agreed that the Convention applies.10

IV. Exclusion of the Convention: Article 2

8 Article 2 of the Convention provides that the Convention will not apply to e-communications relating to:

(a) contracts for personal, family or household purposes;11

(b) transactions on a regulated exchange, eg foreign exchange transactions, inter-bank payment systems, etc, for the reason that these transactions are already governed by well-defined regulatory controls and industry standards and to subject them to the Convention would be disruptive to the operation of those rules; and

(c) negotiable instruments, bills of lading, warehouse receipts and similar documents of title, the reason for the exclusion being that the need to ensure their singularity or originality went beyond simply ensuring the equivalence between paper and electronic form which was the main aim of the Convention.

The ECWG explained that finding a solution for that problem would require a combination of technological, legal and business solutions which had not yet been fully developed and tested.

V. Party autonomy: Article 3

9 Central to the Convention is the concept of freedom of contract or party autonomy. This is vital to the functioning of international trade and reflects one of the underlying concepts of the UNCITRAL Model Law on Electronic Commerce 1996 (“the 1996 Model law”).12 Article 3 allows parties to exclude the application of the Convention as a whole or only to derogate from or vary the effect of any of its provisions. This means that no party should be compelled to use electronic means in the formation of contracts with regard to offers and acceptances. The

explanation given is that a party may lack access to electronic communication or the knowledge to use it or is technophobic — often referred to as the “digital divide”— or because of receipt or authentication problems. The Singapore Consultation Paper proposed to include consent requirements on the use of electronic communication and to make them applicable to international as well as domestic contracts for the reasons cited above. The Consultation Paper also considered whether or not to have a general consent provision applicable to the whole legislation or only to specific provisions, and in addition, whether or not consent should also be implicit, ie, inferred from conduct (eg, by parties agreeing to contract terms at variance with the provisions of the Convention). However, it is generally accepted that a party cannot contract out of otherwise mandatory national laws.

VI. Interpretation: Article 5

10 Article 5, the interpretation provision, is a standard provision in UNCITRAL texts for example, the Vienna Sales Convention. Regard is to be had to the international character of the Convention and to the need to promote uniformity in its application and the observance of good faith in international trade. Questions which are not settled by the Convention are to be settled according to general principles or to the law applicable according to the rules of private international law.

VII. Location of the parties: Article 6

11 Article 6 reflects UNCITRAL’s...