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HARMONISED GLOBAL INTERCHANGE? - UNCITRAL's DRAFT MODEL LAW FOR ELECTRONIC DATA INTERCHANGE

Gregor Heinrich*

A member of the Legal Service of the Bank for International Settlements, Basle, Switzerland

< 100303.100@compuserve.com>

*Please note that this text has no official character and merely represents the personal views of the author.

Summary

Traditionally, companies have always conducted and documented a large part of their business on paper. Paper transactions went along with well-developed mechanisms and legal concepts for proving origin, preventing repudiation and maintaining confidentiality. Now, this paper-based tradition is increasingly being abandoned in favour of 'electronic data interchange' (EDI). However, it is generally accepted that electronic exchange of trade data between companies, across business branches and even across borders is ultimately inconceivable without a high degree of standardisation. A recent initiative by the United Nations Commission on International Trade Law (UNCITRAL) is now trying to fill this gap by creating a set of rules that aim at establishing a global legal framework for EDI.

Web JCLI | [1995] 3 Web JCLI | Download this file.

Contents

I EDI Developments: A. Technical Standardisation; B. Legal Standardisation
II The UNCITRAL draft Model Law: A. General Provisions; B. Form Requirements; C. Communication of EDI Messages
III Outlook

Footnotes

EDI Developments

(1)

Traditionally, companies have always conducted and documented a large part of their business on paper. Paper transactions went along with well-developed mechanisms and legal concepts for proving origin, preventing repudiation and maintaining confidentiality. This paper-based tradition is increasingly being abandoned in favour of EDI. EDI is changing the way major companies conduct business, both nationally and across international boundaries. This development is based on the advent of computers, the vast increase in the amount of business transactions, and new concepts such as 'just-in-time' production and delivery of goods, improved supply chain management and effective corporate cash flow management. EDI, it is felt, can make business more efficient, more productive and more competitive.

EDI is a technique which replaces the paper medium on which trade data were traditionally communicated by computer-to-computer transfer of structured information. Such trade data may comprise, as on paper, contractual or trade-related information, such as orders, invoices, specifications or parts lists, and increasingly also the information required for 'electronic funds transfer' for the settlement of invoices. An electronic exchange of such trade data between companies, across business branches and even across borders is inconceivable without a high degree of standardisation. Standardisation and harmonisation are not only required with respect to the communications technology that is currently available, but may also be desirable in the legal field.(2)

Contents

Technical Standardisation

Technical standardisation addresses on the one hand the hardware and computer programs, their ability to be linked and to communicate with one another and the technical means to safeguard security. On the other hand, standard forms are required for the messages themselves. Such standardisation is a sine qua non for end-to-end computer-processing. Some trade branches have developed effective standards for information exchange, such as SWIFT in the banking business.(3) However, such standards are restricted to the specific business branch.

Therefore, worldwide message standards are being developed under the auspices of the UN, and constantly expanded. UN/EDIFACT (United Nations/Electronic Data Interchange for Administration, Commerce and Transport) aims to enable the worldwide exchange of large volumes of data regardless of the language of origin or the communications and computer systems employed. Even though it cannot yet be said that UN/EDIFACT is the only standard used in EDI, it appears that current harmonisation efforts are clearly in favour of UN/EDIFACT.(4) Also the American National Standards Institute (ANSI) recently voted to move to the international UN/EDIFACT standard.

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Legal Standardisation

Legal Standardisation tries to solve problems that arise on two levels, in parallel with the technical issues: on the one hand, contractual issues between parties who directly exchange EDI messages, and on the other hand, the legal framework that should serve for all trading partners who use or are affected by EDI messages.(5)

So far, most attempts to solve legal problems arising out of the use of EDI have relied on a contractual approach.(6) It was left entirely to the trading partners to define their mutual rights and obligations within an existing national framework. This created a need for standard contractual arrangements.

Such Model Trading Partner Agreements have been either developed by national EDI Associations, such as the EDI Council of Canada or the EDI Association of the United Kingdom. But they may also be developed by specialised commercial entities. For instance, in Switzerland a standard EDI contract, to be used between banks and their customers, has recently been published by 'Telekurs AG', the firm which also performs the technical operation for the Swiss Interbank Clearing (SIC) system.(7)

But even if in some countries standard 'EDI contracts' will come into existence, the various standard contracts will vary from country to country. Therefore, groups have been created to consider the elaboration of global standard communications agreements for universal use.

In maritime commerce, for example, the Comiti Maritime International (CMI) set up an international subcommittee on Electronic Transfer of Rights to Goods in Transit, which has produced a set of voluntary rules entitled 'CMI Rules for Electronic Bills of Lading'.(8)

On an international level, the International Chamber of Commerce, Paris, published 'Uniform Rules of Conduct for Interchange of Trade Data by Teletransmission ('UNCID') in 1988.(9) This is a set of non- mandatory rules of conduct which users of electronic communications technology and suppliers of network services can incorporate by reference into their communication agreement. Its primary provisions cover: required care for transferring and receiving messages; identification of the parties; acknowledgement of receipt; verification of completeness of a received message; protection of the information exchanged; maintenance of records and storage of data.

At the level of the European Union, a special programme is dedicated to EDI: TEDIS, Trade Electronic Data Interchange Systems.(10) In this framework a report on the legal position of the EU member states with respect to EDI was published in 1989. A 'European Interchange Agreement' was elaborated and a draft published in 1991. It forms the basis for many national contract models, which, of course, require some adapting to the specific national legal framework.

However, even the most refined contractual clauses cannot solve certain problems that arise with EDI, in particular whenever EDI messages are communicated across national borders. Depending on the jurisdiction, very different rules may be applicable, say, with regard to the requirement of 'writing'.(11) Certain legal transactions, like pledges or guarantees, may require 'writing'; and the criteria which need to be fulfilled in order to pass the test of 'writing' are by no means uniform: is it necessary to present a hand- written original, is a written signature enough, is a telex or telefax accepted? Does a written trade document need to be presented in writing or will its 'presentation' on a screen or in the form of a computer printout suffice? Finally, in the event of a dispute, problems of evidence may arise: Will computer data be admitted and recognised as evidence or even as a valid legal 'document'? (12)

It is felt that the existing national legal frameworks often cannot provide the answers to these questions that arise in conjunction with the increasing implementation of EDI. The existing legal conditions are at times even considered to be inadequate or an obstruction to the implementation of EDI. So far, only very few countries have introduced legislation that is specifically tailored to EDI, and these initiatives are often limited to procedural questions such as the admissibility of 'electronic' documents as evidence.

Contents

The UNCITRAL draft Model Law

The author has prepared an unofficial version of the draft text.

A recent initiative by the United Nations Commission on International Trade Law (UNCITRAL), that is based in Vienna, is now trying to fill this gap by creating a set of rules that aim at establishing a legal framework for EDI. It is still not decided whether these rules should take the form of a convention or be model rules. In the light of past experience with the Model Law on International Funds Transfers, it appears likely, however, that the outcome of the drafting sessions will be a model law, rather than 'uniform rules' or 'model statutory provisions' as it had earlier been envisioned. The text could then be presented to national Governments as a model for national legislation. Even though the exact wording of the Model Law is still open to change, the major outline of the Uniform Rules is already visible.

In May 1992, its twenty-fifth session in New York, UNCITRAL entrusted the Working Group on International Payments with the preparation of 'possible uniform rules on the legal aspects of EDI'. The Working Group that had just presented its final text of Model Rules for Electronic Funds Transfers was subsequently renamed 'Working Group on International Data Interchange'. The first session of the Working Group was held in January 1993.(13)

The following countries are represented in the Working Group -

From Africa: Cameroon, Egypt, Kenya, Morocco, Nigeria, Saudi Arabia, Sudan, Togo, Uganda.
From America: Argentina, Canada, Chile, Mexico, Uruguay; USA.
From Asia: China, India, Iran, Japan, Singapore, Thailand.
From Europe: Austria, Bulgaria, Denmark, France, Germany, Hungary, Italy, Poland, Russian Federation, Slovakia, Spain, United Kingdom.

As with the Working Group on International Credit Transfers, a number of further States and organisations participate in the capacity of observer.

A first draft of the 'Model Law on the Legal Aspects of Electronic Data Interchange (EDI) and related means of Data Communication' was discussed in the October 1993 session of the Working Group.(14)

The 14 articles of the current draft, as discussed at the Working Group's session from 3-14 October 1994, cover:

Chapter 1 (General Provisions): sphere of application, definitions, interpretation, variation by agreement;
Chapter 2 (Application of Legal Requirements to Data Messages): legal recognition of data messages, writing, signature, original, admissibility and evidential value of data messages, retention of data messages;
Chapter 3 (Communication of Data Messages): variation by agreement, attribution of data messages, acknowledgement of receipt, formation and validity of contracts, time and place of dispatch and receipt of data messages.

A general description of the individual sections, as discussed, is given below.

Contents

General Provisions

Article 1 states that the provisions apply to information in the form of a data message. In the preparatory discussions it was difficult to decide whether such records should be restricted to commercial and administrative messages. It is now apparent, however, that the rules do not, in principle, apply to the substance of the information, i.e. the commercial transaction as such, but merely the exchange and recording of data/messages and the rights and obligations that result. A reference to the substance of the information was therefore deleted from a previous draft.

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Form Requirements

Crucial to EDI are the provisions of the second chapter (Articles 4-9): 'Application of legal requirements to data messages'. Its main goal is to ensure that existing national prerequisites for 'written form' are fulfilled by EDI messages. Therefore, the principle is set down that information shall not be denied legal effectiveness, validity or enforceability solely on the grounds that it is recorded as a data record. In order to achieve this goal, the draft of the UNCITRAL Model Law uses the construction of 'functional equivalent' of 'signature', 'writing' and 'original' respectively. For instance, where any rule of law, custom or practice requires information to be signed, such a requirement will be satisfied if a method of authentication was agreed to and used between the parties; in addition, such methods must be reliable and appropriate for the purpose.

Article 8 addresses the problem that in some legal systems there are obstacles to the admissibility of computer records in judicial proceedings. In particular in some common law countries, parties would first need to prove by means of lengthy and costly personal evidence the integrity and reliability of all computer-related components before the actual content of the EDI message can be scrutinised. This section of the Model Law therefore lays out the principle that in any legal proceeding, nothing in the application of the rules of evidence will apply so as to prevent the admission of a data record in evidence. Nevertheless, the present draft makes the evidential weight of a data record dependent on the reliability of the manner in which the data message was created, stored or communicated and, possibly, authenticated.

Contents

Communication of EDI Messages

In the third chapter, the Model Law tries to establish a framework for the communication of data messages. Article 10 defines under which circumstances the parties are bound by a data message, Article 11 lays down rules for the attribution of a specific message to a specific originator, and Article 12 creates the right to an acknowledgement of receipt.

In legal consequence, Article 13 states that an offer and its acceptance may also be expressed by means of a data record. A contract may thus be formed by means of EDI, and, as stated in the Model Law, 'that contract shall not be denied validity or enforceability on the sole ground that a data message was used for that purpose'. The precise formulation and contents of these articles may, however, still undergo some changes in the drafting process.

For instance, in the previous discussions, a rule that the time and possibly also the place of contract formation are defined by the place where the EDI message containing the acceptance is received, was met with some resistance.

In the course of the drafting process, the various published versions of the draft Model Law contained many words and sentences in square brackets. This expedient by the UNCITRAL Working Group allows discussions to advance while at the same time making it evident that the Working Group has not yet agreed on the substance of the issues in square brackets. For instance, the entire Statutory Provisions may eventually refer to 'data records' instead of 'data messages', as was the case in earlier drafts.

Another item discussed in earlier drafts was whether the Model Law should contain rules on liability. The outcome could depend on whether the Model Law will eventually establish new duties for the parties, beyond those existing under the applicable law and the contractual arrangements of the parties.

A previous draft article - omitted in the current version - was based on the principle that each party will be liable for damage arising directly from failure to observe any of the rules of the Model Law. Also, if a party engages an intermediary to transmit, log or process a data message he will also be liable for damages relating to the involvement of such intermediary (such as telecommunications companies). In view of the fact that in particular banks try to avoid such liability in their standard terms and conditions, for instance as regards 'home-banking', some debate may still be expected in future Working Group sessions.

Contents

Outlook

UNCITRAL was expected to finalise the draft Model Law at the session of its General Assembly in May 1995. However, owing to a number of renewed discussions and drafting suggestions, the current draft Model Law was not reviewed in its entirety at this May session.

Even if the next session in Autumn 1995 will lead to a final version of the Model Law on EDI, the acceptance of these provisions by national lawmakers, governments and the commercial world will depend to a very large degree on

how close the clauses of the Model Law are to commercial reality and
the degree to which national legal differences are recognised and harmonised in the individual articles.

It is therefore important that lawyers and practitioners specialising in EDI work closely with the respective national delegations at UNCITRAL and provide all the necessary input.

Good collaboration between UNCITRAL and national experts is essential for the success of this Model Law and for any future work envisioned to foster commerce in a computer-based environment. It is felt in the Working Group that in particular the legal aspects of transferring ownership, pledges or other rights in goods will need to be considered and ideally harmonised in order to facilitate the growth of world trade using electronic media. UNCITRAL may therefore focus on rules to achieve recognition of agreements involving negotiability, default standards for the allocation of risks among the parties and designated registries to maintain the integrity of the transfers.

It is a worthwhile exercise to develop worldwide legal rules and even new commercial documents or titles that reflect new developments in information technology. The delegations at UNCITRAL will, however, need every possible support from that technical world so that law, commerce and technology can be mutually beneficial.

Footnotes

(1) See generally, Heinrich G, 'UNCITRAL und EDI-Einheitsrecht', (1994) 10 Computer und Recht, pp 118-121 and Heinrich G, 'Funds transfers, payments and payment systems - International Initiatives towards Legal Harmonisation', in: Cross-border Electronic Banking - Challenges and Opportunities (edited by Norton/Reed/Walden), London/New York etc. (Lloyd's of London Press, London, 1995) pp 233- 270. Back to text.

(2) Whybrow M, 'The storm before the calm - Legal and technical issues continue to thwart the growth of EDI for payments', Banking Technology, October 1992, pp 18-22; UNCITRAL, Legal issues of electronic data interchange - Report of the Secretary-General, UN Doc. A/CN.9/350, in: (1991) 22 UNCITRAL Yearbook pp 381-397. Back to text.

(3) SWIFT, the Brussels-based 'Society for worldwide interbank financial telecommunication' has developed a very secure and widely used system of formatted messages that are used by banks (and some general commercial companies)for the communication or confirmation of cross-border payment orders and other banking transactions. For the time being both format and content of the messages is restricted to the interbank commerce, but SWIFT is in the process of enlarging the scope of the transported and processed information on the basis of UN/EDIFACT. Back to text.

(4) DEEG, EDIFACT - The bank and its EDI link to the customer, Payment Systems Worldwide, Summer 1991, 16-23; Franke E, 'EDI - Ohne Edifact droht die Kleinstaaterei wie anno 1648', Computerwoche, 23 October 1992, pp 43-47.
For EDI in England, see Coathup, 'The basics of EDI', (1992) 6 International Yearbook of Law Computers & Technology pp 37-43; EDI Association, 'Standard electronic data interchange agreement', (3 ed. 1994), (29 Glashouse Street, London W1R 5RG).
In Germany the Minister for Economics (Bundesministerium fuer Wirtschaft) coordinates all EDI issues; see, for example, Bundesministerium fuer Wirtschaft/DEUPRO, Dokumentation Nr. 322: 'Vereinfachung und Vereinheitlichung von Verfahren und Dokumentation im internationalen Handel und Standardisierung des elektronischen Datenaustausches (UN/EDIFACT)', Bonn, Oktober 1992.
In addition, a dedicated EDI society (Deutsche EDI Gesellschaft - DEDIG) was founded in Berlin in June 1993 [e-mail: internet: DEGG9MT9@ibmmail.com, X.400: C=DE, A=IBMX400, P=IBMMAIL, S=DEDIG, G=DEDIG1]. It publishes a specialised journal: 'X-change - Magazin fuer elektronischen Geschaeftsverkehr'. DEDIG was created on the initiative of the German standards institute (Deutsches Institut fuer Normung - DIN).
See also - for the automotive branch - ODETTE (Organisation for data exchange by tele-transmission in Europe), Secretariat: Forbes House, Halkin Street, London SW1x 7DS, and the respective national organisations. Back to text.

(5) Increasing interest in the legal aspects of EDI is also evident in the creation of a new journal in November 1993, the 'EDI Law Review' (subtitle: 'Legal Aspects of Paperless Communication'; Martinus Nijhoff, Dordrecht/London/Boston). A recent issue ((1994) Volume 1, Number 4), for instance, contained articles on the legality of document imaging, electronic invoicing in Europe, international transport conventions as an obstacle to the use of EDI and on the TEDIS EDIBoL project.
Issues of a more general nature are covered in 'EDI update - the global review of electronic trade' (London: IBC Publishing). Back to text.

(6) Wheble, 'The legal obstacles to efficient use of EDI', in: Del Busto (ed.), 'Funds transfer in international banking - A Compendium on capital adequacy, SWIFT, EDI, bank's liability, and payment systems in the 1990s', (ICC, Paris, 1992), pp 76-81; EC Commission, 'The legal situation in the Member States regarding trade electronic data interchange', 1989. A similar study on the legal situation on EFTA countries was published by the EC in 1990. Back to text.

(7) 'Vereinbarung ueber den elektronischen Austausch von Bankdaten in standardisierten UN/EDIFACT- Formaten ('UN/EDIFACT-Vereinbarung')', 4.93, [Telekurs AG, Hardturmstr. 201, CH-8005 Zuerich, Dokument IBO 920 301].
Also in Germany, a model EDI master agreement - relating to the exchange of messages in the UN/EDIFACT standard - was recently published by the 'Arbeitsgemeinschaft fuer wirtschaftliche Verwaltung e.V. (AWV)' im Fachausschuss 'Internationale Handelserleichterungen'. More on the topic: Kilian W, 'Zweck und Inhalt des deutschen EDI-Rahmenvertrages, (1994) 10 Computer und Recht pp 657- 660; Kilian W, 'Deutscher EDI-Rahmenvertrag mit Kommentar', Eschborn : AWV Eigenverlag, 1994. Back to text.

(8) Chandler G, 'Negotiable transactions using EDI', Dir. del Commercio Internazionale, 1992, pp 505-514: CMI Rules for Electronic Bills of Lading]; Miler C, 'Electronic bills of lading - A simple electronic data interchange application', (1992) 9 Applied Computer and Communications Law, pp 5-6.
On EDI in the United States, see 'Electronic Messaging Services Task Force': (Boss/Ritter), 'The commercial use of electronic data interchange - A report and Model Trading Partner Agreement': (1990) 45 Business Lawyer pp 1645-1716 (Model Agreement and commentary: pp 1717- 1749). Back to text.

(9) ICC Document Nr. 452; also reprinted in (1992) 23 UNCITRAL Yearbook pp 379-382. See also Boss A, 'The international commercial use of electronic data interchange and electronic communications technologies', (1991) 46 Business Lawyer, pp 1787-1802; Cunliffe I, 'Electronic Data Interchange (EDI) and International Trade', (1991) International Computer Law Adviser pp 15-23. Back to text.

(10) TEDIS, Trade EDI systems programme: Interim report, Bruxelles/Luxembourg 1993. Bertrand A, 'EDI - The final draft of the European Interchange Agreement', (1991) International Computer Law Adviser pp 4-15 [contains the text of the agreement and a commentary prepared by TEDIS]; EC Commission, 'Per una EDI secura - rassegna delle procedure di gestione', Bruxelles 1992 [Document Nr. EUR 13794 I]. More information on TEDIS can be obtained directly at the Commission, Directorate General III, B-1049 Bruxelles (fax: x32-2-2990286). In addition, the European Community Host [Computer], Luxembourg, contains a wealth of further information that can be obtained on-line (accessible via http://www.echo.lu/ :/gopher or direct dial, login:. ECHO ['ECHO', Modem: (+)352/436428; PSDN/PSS/PAD: [0]270448112; RARE/COSINE: 2043703004; tel.info: +352/34981-200)].

See also: De Shze, 'Electronic Data Interchange Developments in Europe', in: Banca d'Italia (editor), 'Proceedings of the Workshop on Payment Systems in the Perspective of European Monetary Unification', Perugia, 22-23.11.1990, Rome 1991, pp 233-241; EC Commission, 'Implementing EDI, an evaluation of 12 pilot projects', 1992; 'Survey of the current level of implementation, use and general awareness of electronic data interchange in all the EC Member States and the EFTA countries', 1989-1990. Back to text.

(11) See for instance Giovanoli M, 'Telcommunications et forme ecrite dans les contrats internationaux', in: Melanges Paul Piotet, Bern 1990, pp 425-449; De Santis F, 'Natura documentale ed efficacia probatoria del telefax', Riv.dir.proc., 1991, pp 1204-1223; Thomas J R, 'Legal responses to commercial transactions employing novel communications media', (1990) 90 Michigan Law Review pp 1145-1177.

It should be noted, however, that in most civil law countries, such as Germany or Switzerland, commercial contracts may in general be concluded without observing any specific form requirement, while in other countries, such as in the US, 'writing' is required whenever the 'value' ot the transaction in question exceeds a certain amount. This may be one of the reasons why legal problems of 'EDI' appear to discussed more in the US than elsewhere. It may also be questioned whether a 'case-related' approach that leads to a multitude of parallel and not necessarily co-ordinated rules and regulations in one country can be used as example for EDI-solutions in another country. Cf. for instance a recent proposal by the American 'Food and Drug Administration' for 'electronic signatures; electronic records', that '... under certain circumstances permit the agency to accept electronic records, electronic signatures, and hand-written signatures executed to electronic records as generally equivalent to paper records and hand-written signatures executed on paper.' [59 Federal Register 45160, 31 August 1994; FDA Docket No. 92N-0251].Back to text.

(12) UNCITRAL, Legal Value of Computer Records - Report by the Secretary-General: UN Doc. A/CN.9/265 (1985). Cimarella C, 'Brevi considerazioni sulla rilevanza delle informazioni contenute su supporti magnetici, Informatica ed enti locali', 1991, pp 21-39; Von Sponeck H, 'Beweiswert von Computerausdrucken', (1991) 7 Computer und Recht pp 269-273.Back to text.

(13) On the Working Group in general, United Nations, Official Records of the General Assembly, 46th Session, Supplement No.17 (A46/17), paras. 306-317; Madrid Parra, 'Sobre los trabajos de UNCITRAL en materia de intercambio electrsnico de datos - EDI (Electronic Data Interchange)', Rev.der.bancario y bursatil (Madrid), 1992, pp 284-288 Back to text.

(14) 'Draft uniform rules on the legal aspects of electronic data interchange (EDI) and related means on trade data communication' (Doc. A/CN.9/WG.IV/WP.57, 9. August 1993).
Texts by UNCITRAL are published in all official languages of the UN: Arabic, Chinese, English, French, Russian and Spanish. Currently it is studied to what degree UNCITRAL documents can be made available on-line. Certain other UN-institutions have gopher or WWW servers on the 'internet' (such as the WHO, the World Bank and the UN headquarters, but they do not contain the legal texts produced by UNCITRAL.
On the on-going discussions of legal aspects of EDI, please refer to articles available on-line or in hard- copy publications. For more information on the UNCITRAL draft Model Law, UNCITRAL in Vienna should be contacted [M. Renaud Sorieul: rsorieul@unov.un.or.at], or the respective national delegations to UNCITRAL and its Working Group on EDI. Back to text.

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