1. Electronic Contracts and the CISG Presentation John M. Adams, J.D., L.L.M. LUNA Lao Expert February 1, 2016

2. VIRTUAL/ REMOTE DATA (COMPUTER DATABASE ) NO DELAY NO WITNESSES FACE-TO- FACE PHYSICAL - ON PAPER ORIGINAL SIGNATURE WITNESSES DELAY 2 The Internet and ICT allow transactions to be completed electronically, at great speed without regard to geography Traditional TransactionsElectronic Transactions ELECTRONIC SIGNATURE Internet Growth

3.  The use of electronic transactions for sales of goods and services both in consumer transactions and for sales of goods and services between businesses is the wave of the future  Global business-to-consumer (B2C) e-commerce sales reached $1.5 trillion in 2014, increasing nearly 20% over 2013, with the EU and the United States leading the way, but with the fastest growth expected here in Asia and in Oceania (Nielsen and eMarketeer)  Global business-to-business (B2B) e-commerce sales (wholesale sales of goods and services between businesses) sales are also increasing and are forecast to be worth $6.7 trillion by 2020, when China will take the lead based on the pioneering B2B initiatives by Alibaba (Forbes)  Businesses of all sizes and across industries in developing countries are will be forced to adapt to e-commerce in order to take advantage of these trends to become  Additionally, Governments – both on a national and regional basis – must work to remove the impediments to both B2C and B2B e-commerce development International Use of Electronic Transactions

4. How Electronic Transactions Work – B2C Source: A. Mahapatra  E-commerce legal regime must provide clear legal rules for each step in the process  Transaction security built into the ICT system  Rights and responsibilities for each actor governed by contracts (payment, intermediary responsibility, etc.) Key Factors

5. 5 How Electronic Transactions Work – B2B  Different from B2C because bulk shipments and longer term relationships involved instead of single product transactions in B2C  Traditional B2B model based on a one-to-many model, where buyers had to established system connections with multiple suppliers  Legacy systems involved use of electronic data interchange (EDI) that was expensive to establish and cumbersome to handle  Supply chain did not become fully automated in many cases until after contractual relationship was established and order specifications, delivery, and payment details could be entered to EDI system  Order fulfillment in the case of sales of goods handled through traditional delivery methods  Conflicting tax and customs laws often complicated efforts to fully automate the process Source: Frost & Sullivan One-to-Many

6. 6 How Electronic Transactions Work – B2B  B2B e-commerce growth is stimulated by the migration from EDI systems to web-enabled Internet-based systems  Over the Internet, all buyers, suppliers, freight forwarders, and financial institutions are connected to each other through a single e- market place  This reduces the time periods and minimizes delays between each step in the supply chain process  Order fulfillment in the case of sales of goods handled through traditional delivery methods, but inclusion of freight forwarders accelerates the process  Contract formation is also more efficiently handled electronically in the fully-automated, many-to-many process Source: Frost & Sullivan Many-to-Many

7.  The Convention on the International Sales of Goods (CISG) consists of 101 articles and covers sales of goods across borders between businesses residing in State parties that have ratified the Convention  The CISG is the default law for the great majority of global cross-border sales of goods  The CISG mentions the specific use of a “writing” in the formation or administration of contracts three times in (Arts. 13, 21(2) and 29(2)) and numerous articles refer to notices and messages, and how these communications may be “dispatched” by the sender to “reach” their intended recipient  The Internet did not exist when the CISG was drafted in the 1970s so the use of electronic communications was not nearly as widespread and limited to phone, telefaxes and cables  But since then, under basic CISG principles and interpretations of the text the use of electronic contracts has become universally accepted under the CISG – these rules and interpretations are explained in Appendix 1  The contract parties, or the States where they reside, may expressly require a physical written contract, but the number of States that do so is growing fewer and fewer B2B E-Commerce in Goods – Electronic Transactions Under the CISG

8.  Laos adopted its electronic transactions law in 2012 and joined a list of more than 120 countries that have adopted laws to recognize the equivalence between traditional paper-based contracts and electronic transactions  This facilitates the use of electronic contracts and communications by traders under the CISG by eliminating the possibility that Lao national law may preclude the use of electronic contracts and communications under the CISG derogation provisions  Bank Lao has established rules for electronic transfers and payments between financial institutions and the use of electronic payment devices by merchants and is developing rules for electronic payments in consumer transactions over the Internet  Regional efforts to improve Customs procedures are improving the order fulfillment and delivery processes, though more work is required in this area  Awareness raising for businesses in the opportunities that e-commerce provides is a critical factor  Consumer protection and dispute resolution for online commerce – as well as consumer education on the importance of authentication and security – will require more effort The Situation in Laos

9. 9  The CISG fully accommodates the choice by contract parties to use electronic contracts and electronic communications  CISG Advisory Committee opinions and commentary for the large part resolve ambiguities in the treaty language related to electronic communications issues, but in the few cases where the interpretation of electronic communications issues is not completely clear, the parties should define the terms for how notices and other communications that are dispatched and received using electronic means will be treated  Parties to contracts under the CISG should determine whether the State parties where they have their places of business have taken a reservation under Art. 96 to preserve provisions from more traditional national contract law that are less favorable to electronic communications and craft “choice of law” provisions accordingly  Laos is in a good position for the use of electronic contracts under the CISG because it has enacted the Law on Electronic Transactions  Consideration should be given by government to acceding to the CUECIC  In future, as online dispute resolution mechanisms mature, trades in Lao PDR may wish consider selecting them for the resolution of CISG contract disputes Summary

10. Thank You Questions and Comments Please! 10

11. Appendix 1 Electronic Contracts Under the CISG 11

12. 12 Article 11 A contract of sale need not be concluded in or evidenced by writing and is not subject to any other requirement as to form. It may be proved by any means, including witnesses. Article 12 Any provision … that allows a contract of sale or its modification or termination by agreement or any offer, acceptance or other indication of intention to be made in any form other than in writing does not apply where any party has his place of business in a Contracting State which has made a declaration under article 96 of this Convention.  The CISG is based on the principles of “party autonomy” (Art. 6) and “freedom of form” (Art. 11)  Art. 11 provides that contracts may be informal, oral, written or in any other form the parties decide, including the freedom for parties to elect to use electronic contracts and electronic communications  These CISG rules override national laws requiring certain contracts, or elements of contracts, to be in writing  However, Art 12 of the CISG provides for a State party to preserve its national law requirements for written contracts by making a declaration under Art. 96 of the CISG to that effect Key CISG Principles – Freedom of Form

13. 13 Article 96 A Contracting State whose legislation requires contracts of sale to be concluded in or evidenced by writing may at any time make a declaration in accordance with article 12 that any provision of article 11, article 29, or Part II of this Convention, that allows a contract of sale or its modification or termination by agreement or any offer, acceptance, or other indication of intention to be made in any form other than in writing, does not apply where any party has his place of business in that State.  Under Art. 11, a contract may be proved to be the legal commitment of a party without proving the party’s signature to the contract or the “original” character of the contract document  But if one of the CISG States where the parties to the contract have their places of business takes a derogation under Art. 96 to preserve national law that requires a signature or the original paper contract, than those rules will apply  This will not make a difference in Laos, which has enacted the Electronic Transactions Law  It could make a difference if one of the parties to a contract is from a State with a more traditional contract law, and that State has reserved under Art. 96 Key CISG Principles – Reservation

14. 14 Article 13 For the purposes of this Convention "writing" includes telegram and telex. CISG-AC Opinion no 1 Electronic Communications under CISG (15 August 2003) “Unless the parties have limited the notion of writing, there should be a presumption that electronic communications are included in the term ‘writing.’ This presumption could be strengthened or weakened in accordance to the parties’ prior conduct or common usages.” (CISG Art. 9(1) and (2), COMMENT ) “The term "writing" in CISG [Art. 13] also includes any electronic communication retrievable in perceivable form. (CISG Art. 13, OPINION) “CISG Arts. 11, 12, 13, 21, 29 and 96 contain the term "writing". … The prerequisite of "writing" is fulfilled as long as the electronic communication is able to fulfil the same functions as a paper message. These functions are the possibility to save (retrieve) the message and to understand (perceive) it. (CISG Art. 13, COMMENT)  Art. 13 of the CISG provides that telegrams and telexes comply with the requirement of a “writing”  The rule does not mention EDI, email, or other electronic communications since only telegrams and telexes were in wide use when the CISG was adopted.  But the rule is “inclusive”, not “exclusive,” so the meaning of the term “writing” can be expanded by trade usage  The CISG Advisory Council has opined that a “writing” under Art. 13 includes electronic communications unless an Art. 96 reservation is in place prohibiting this definition  Advisory Council opinions are non-binding but have been deemed to persuasive authority in interpreting the CISG Key CISG Principles – Case Interpretations

15. 15 Article 24 “ … 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.” Article 27 “ … if any notice, request or other communication is given or made by a party [under] this Part and by means appropriate in the circumstances, a delay or error in the transmission of the communication or its failure to arrive does not deprive that party of the right to rely on the communication.”  The time of dispatch and receipt of electronic communication can be important to determining contract-related issues  In the CISG, “reach” and “received” are used for the recipient of a communication and “send,” “give,” “made,” and “dispatch” for the acts of a sender  CISG Arts. 47, 48, 63, and 79 require that communications be “received” to be effective  The CISG Advisory Council has opined and offered commentary on the meaning of each of these terms that is consistent with the UNCITRAL Model Electronic Transactions Law  There may still be uncertainty as to the applicability of CISG terms to electronic communications so parties to a contract should agree on these issues in their agreement Key CISG Principles – Times of “Dispatch” and “Receipt”

16. 16 CISG Advisory Council Opinion Number 1 states:  The term “reaches” corresponds to the point in time when an electronic communication has entered the addressee’s server, provided that the addressee expressly or impliedly has consented to receiving electronic communications of that type, in that format, and to that address (CISG, Arts. 15(1) and 24)  The term “orally” includes electronically transmitted sound and other communications in real time provided that the addressee expressly or impliedly has consented to receive electronic communications of that type, in that format, and to that address (CISG, Arts. 19(2) and 24)  A notice, request or other communication may be given or made electronically whenever the addressee expressly of [sic] impliedly has consented to receiving electronic messages of this type, in that format, and to that address (CISG, Art. 27)  An offer, even if it is irrevocable, can be withdrawn if the withdrawal enters he offeree’s server before or at the same time as the offer reaches the offeree. A prerequisite for withdrawal by electronic communication is that the offeree has consented, expressly or impliedly, to receive electronic communications of that type, in that format and to that address (CISG, Art. 15(2)) Key CISG Principles – Advisory Council Opinion no. 1 (1/3)

17. 17 CISG Advisory Council Opinion Number 1 states:  An offer may be revoked if the revocation enters the offeree’s server before the offeree has dispatched an acceptance. A prerequisite is that the offeree has consented, expressly or impliedly, to receiving electronic communications of that type, in that format, and to that address (CISG, Art. 16)  An offer is terminated when a rejection enters the offeror’s server. A prerequisite is that the offeror has consented expressly or impliedly to receiving electronic communications of that type, in that format, and to that address (CISG, Art. 17)  An acceptance becomes effective when an electronic indication of assent has entered the offeror’s server, provided that the offeror has consented, expressly or impliedly, to receiving electronic communications of that type, in that format, and to that address (CISG, Art. 18(2))  The term “notice” includes electronic communications provided that the addressee expressly or impliedly has consented to receiving electronic messages of that type, in that format, and to that address (CISG, Art. 19) Key CISG Principles – Advisory Council Opinion no. 1 (2/3)

18. 18 CISG Advisory Council Opinion Number 1 states:  A period of time for acceptance fixed by the offeror in electronic real time communication begins to run from the moment the offer enters the offeree’s server; a period of time for acceptance fixed by the offeror in e-mail communication begins to run from the time of dispatch of the e-mail communication; and, “means of instantaneous communications” includes electronic real time communication (CISG, Art. 20)  The term “writing” covers any type of electronic communication that is retrievable in perceivable form. A late acceptance in electronic form may thus be effective according to this article (CISG, Art. 21)  Regarding the rule enabling the seller to make specifications in the event the buyer fails to make them, “specifications and communications may be electronic provided that the addressee expressly or impliedly consented to receiving such communications” (CISG, Art. 65)  For notices under the CISG, “the term ‘notice’ includes electronic communications, provided that the addressee expressly or impliedly has consented to receiving electronic communications of that type, in that format, and to that address” (CISG, Arts. 26, 32(1), 39, 43, 67, 71, 72, 79, and 88(1) and (2)), or “the term ‘notice’ includes electronic communications” without regard to the addressee’s acceptance (CISG Arts. 47 and 63 (notices of nonperformance) and 79 (notices of force majeure)) Key CISG Principles – Advisory Council Opinion no. 1 (3/3)

19. 19  CUECIC was completed and approved by UNCITRAL in 2005; it entered into force in March 2013 after ratification by three State parties, Honduras, Singapore, and Dominican Republic. The CUECIC has now been ratified by, and entered into force for, four additional countries: Congo, Montenegro, Russia, and Sri Lanka  Article 20 CUECIC lists several treaties prepared by UNCITRAL as treaties that will be "electrified" by its adoption  Unlike the CISG, the CUECIC, does not require that the concerned parties both have their places of business in States parties to the ECC  With respect to sales of goods, the CUECIC builds on and fits within the CISG framework: -Party autonomy - Art. 3 CUECIC/Art. 6, CISG -Duty of uniform interpretation, and ancillary criteria therefor - Art. 5 CUECIC/Art. 7, CISG -Place of business - Art. 6 CUECIC/Art. 10, CISG (location of equipment and technology supporting an information system, or location where system may be accessed by other parties, are not, as such, decisive to determine the place of business) UNCITRAL Convention on the Use of Electronic Communications in International Contracts (CUECIC)

20. 20  The CISG is commonly applied by arbitration tribunals instead of by national courts  Even though CISG rules require uniform interpretation, the place of arbitration and the composition of the panel can lead to variations outcome  Many traders still refrain from using fully electronic contracts fearing difficulties with actions to enforce performance or recover contract damages because of differing interpretations of electronic contracting rules  The advent of a global electronic dispute resolution system – where the procedures and evidence rules are fully accommodated to electronic transactions – would ameliorate these concerns  UNCITRAL study groups are evaluating proposals for a global online dispute resolution system Electronic Dispute Resolution