DEMYSTIFICATION OF CONTRACT FORMATION IN

ELECTRONIC DATA INTERCHANGE;

A critical assessment of a course for legal activism

Candidate: # 8019Supervisor: 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

Content1 INTRODUCTION..................................................................................................1

1.1 Background....................................................................................................1

1.2 Legal qestion: Is there a course for legal activism?........................................2

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

3 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

4 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 INTRODUCTIONThe 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 BackgroundWhat 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

between trading partners2. Electronic Data Interchange is used for the transmission

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 http://webjcli.ncl.ac.uk/1999/issue2/zekos2.html [Visited on the 17th of October, 2010].

2

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?

• 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?

3

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 InterchangeElectronic 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

regulates and standardizes EDI in Europe and other parts of the world.5 Some of the 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 Electronic Data Interchange: An Overview of EDI Standards for Libraries. The Hague, 1993

5

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 E-commerce in briefThe 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;

• 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;

(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

• 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.

2.3 EDI; The bedrock for the development of E-Commerce.

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

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.”

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

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

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 e-

commerce. 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.com17 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.

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

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.

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].

9

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.

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, 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

£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 14-

fold 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

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

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.

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.

11

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 ConclusionThis chapter aims at providing some insight on the nature, scope and growth of e-

commerce. 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.

27 Tracking the Growth of Internet Access (Forrester Global E-commerce Model) 2000. At http://ecommerce.hostip.info/pages/615/Internet-Access-Tracking-

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

3 SYNOPTIC METAMORPHOSIS OF THE LAW OF CONTRACT

3.1 Definition of ContractThis 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 FaxA 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)

13

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.

14

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

essential step in the procedure, but it was not to displace the normal requirements of 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.

15

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

to it. And so it might go on ad infinitum. This, also called the mailbox rule, however, it

36 100 ER 785.

37 (1818) B & Ald 681.

16

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

letter of acceptance to the local post office and A. sees the post office burn down,

there is no acceptance.40

38 [1892] 2 Ch 77.

39 [1880] 5 CPD 344.

40 Ibid.

17

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

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

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.

44 [1975] 1 QB 929.

18

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 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

45 [1983] 2 AC 34 House of Lords

19

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 onlineThe 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.

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

46. Brinkibon Ltd. v. Stahag Stahl [1983] 2 A.C. 34, and [1982] 1 All E.R. 293 per Lord Wilberforce

47 Chitty on Contract 28th ed., London, (Sweet & Maxwell), 1999.

20

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, 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.

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.

21

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

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 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

22

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 FormationThe 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

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

54 (1879) L.R. 4 Ex. D. 216, 223.

23

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 time-

tested 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

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

55 [1880] 5 CPD 344.

24

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 non-

instantaneous 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

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

25

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;

(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

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.

26

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.

3.5 Relevant Legislative overviewIn 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

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).

27

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

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 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.”

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).

28

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.

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

63 UCITA is the first uniform contract law designed to deal specifically with the new information economy in America.

29

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.

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 –

64 UNIDROIT Conventions, The Hague, 1 July 1964.

30

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.

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

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].

31

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:

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

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).

32

3.6 ConclusionExpectedly, 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

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.

33

4 CONTRACT FORMATION IN ELECTRONIC DATA INTERCHANGE

4.1 IntroductionPaper 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 TransactionA 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

34

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 InterchangeTo 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

when an offer, a definite promise to be bound on specific terms, is accepted without 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].

35

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 InterchangeTrade 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

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. 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.

36

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

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

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.

37

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

programme.86 It will appear justifiable to relate the point at which acceptance is

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]

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].

38

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

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

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

39

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;

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.

90 Andreas, Mitrakes. Open EDI and the law in Europe, volume 3, The Hague, (kluwer law internatonal) 1997

40

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 ConclusionSubstantive 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:

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

91 Andreas, Mitrakes. Open EDI and the law in Europe, volume 3, The Hague, (kluwer law internatonal) 1997

41

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

42

RecommendationsJudicial 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.

43

ReferencesBOOKS 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

G, Zekos. EDI: Electronic Techniques of EDI, Legal Problems and European Union

Law Greece [1999]

J. W., Verity. Invoice? What's an invoice? (Business Week) June 10, 1996.p 110-

112.

M, Cooper. ANSI Position Statement on Reference to Standards and Building Codes,

New York (ANSI Public Document Library) 2008.

44

Ned C., Hill. EDI: 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]

Roberts, W., History of Letter-writing, W. Pickering, 1843 at 1.

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.

Telecommunications for Europe, Volume 2. Edited by H. Ungerer, C. Berben, P.

Scott (The CEC sources), and 1992 p 498.

The Popular Encyclopaedia: Being a General Dictionary of Arts, Sciences, T.

Literature, Biography, History, and Political Economy, (University of Michigan

Library), 2007

The Machine That Changed the World: The Story of Lean Production, P. Womack ...

[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 E-

Commerce: 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

CONVENTIONThe 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

45

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.

WEBSITEShttp://www.ifla.org/VI/5/reports/rep4/42.htm#chap2 [Visited on the 17th of October 2010].

http://webjcli.ncl.ac.uk/1999/issue2/zekos2.html [Visited on the 17th of October, 2010].

http://www.nytimes.com/1989/04/10/business/for-artificial-reality-wear-a-computer.html [accessed on the 17th of March, 2010].

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].

http://www.ecommercetimes.com/story/4085.html [accessed on 29th of June, 2010].

http://www.technologyreview.com/Infotech/14504/?a=f [accessed on the 26th of June, 2010].

http://money.cnn.com/2000/01/10/deals/aol_warner/ [accessed on 26th of June, 2010].

46

http://www.statistics.gov.uk/pdfdir/ecomnr1108.pdf [accessed on the 14th of March, 2010.]

http://en.euabc.com/word/620 [assessed 10th january 2011 http://www.lawcom.gov.uk.

http://www.lawcom.gov.uk [accessed on 12th of May, 2010].

http://www.worldcom.com/generation. [Visited on the 12th September 2010].

http://www.businessweek.com.[Accessed on the 14th of March, 2010]

47

Annex IEUROPEAN 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.

48

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

49

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

50

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

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:94 Convention No 108 of the Council for Europe of 28 January 1981.

51

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, -

Recording and storage of EDI message

time limits, -

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.

52

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

....................98.

Alternative 2

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.

98 A "choice of procedure of commercial arbitration has to be completed by the parties.

53

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.

99 A "country" has to be completed by the parties.

54