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The emergence of EDI (Electronic Data Interchange) in modern trade has created the need for newarrangements in trade practices which can regulate adequately the relations between the tradepartners. The replacement of the manual way of conducting trade with the electronic one gives riseto particular legal problems. When using electronic trade the upcoming legal questions can threatento destabilise of the relations of the parties. The parties must provide answers to these questions ifthey wish to build up their trade relations on solid grounds and avoid future disputes.
It is paramount for the parties to try to view the problem in its real dimensions. The answers to thelegal questions must fulfil two basic requirements, that is security of the transactions andflexibility. Security of the transactions can help the parties maintain good relations and conducttrade for a long period of time. On the other hand flexibility can allow the parties negotiate asfreely as possible and advance their market positions.
This essay has been based on the presupposition that a contract pursuits the "rightful regulation" ofthe relations of the parties. As contents of a contract I consider rules which regulate the relationsof the parties on the basis of a long-lasting relation seeking to obtain the absolute minimum ofconflicts. According to W. Schmidt-Rimpler the essence of the contract is its nature as a mechan-ism which, due to the mutual approach of the interests of the parties, has the ability to produce at acertain extent a rightful regulation. This regulation is rightful when on one hand corresponds tojustice and on the other it is socially accepted [As it can be found in Papanicolaou 91]. In the EDIfield an interchange agreement which regulates rightfully the upcoming legal issues can be of agreat assistance for the widespread use of EDI.
Interchange Agreements in the EDI context are the agreements which take place between twoparties who wish to conduct trade electronically. They exclusively govern the obligations and therights of the trading parties in respect to the use of EDI. Interchange Agreements in principle donot deal with trade issues. The parties though may include clauses which contain provisionsirrelevant to those necessary for the electronic trade, however very useful for their trade relationsin general. They can be called mixed agreements and they can include provisions such ascommencement and termination of trade relations, terms and conditions under which the tradepartners wish to conduct trade etc. There are different views over the issue of mixed agreements.
Walden [Walden 90] notes that: in the US, the ABA "Trading Partner Agreement" (TPA) covers a wide range of basic contractual issues; while the UK EDIAssociation’s "Standard Interchange Agreement" (SIA) is seen as separate from the underlying commercial contract, andavoids conflict with its terms.
Dealing with electronic trade issues is completely distinct from dealing with the current businessones so it is better for the parties to keep their usual transaction issues separated from theinterchange agreement thus draft at least two contracts i.e. one for their electronic commercerelations and one for the current business issues. However there are some more issues which thetrade partners may find useful to deal with additionally. If for instance one of the trade partners 1Andreas Mitrakas is sponsored in his research by a grant of the Commission of the European Communities in the framework of the program "Human Capital and Mobility".
has based his/her EDI system on a proprietary network then he/she replaces up to a certain levelthe functions of a telecommunications provider. In the past EDI systems had been based onproprietary systems but this practice has started fading away long ago. However remote the chanceto contract with such a trade partner leaves a question about the regulation of several telecommuni-cations issues which are not related to the mere regulation of the exchange of electronic documentswhich falls within the interests of any couple of EDI trade partners. Thus the party which controlsthe network will probably have the initiative to address these issues in a separate contract. Theissues which a telecommunications service contract with the trade partner may deal with caninclude but are not restricted to the following: equipment of the trade partner, the operatingenvironment of the system, the telecommunication rates charges, the technical assistance for theuse of the system, the installation and maintenance of the system, various termination of contractissues, security procedures etc.
This essay does not deal with the contracts of current business issues. Neither it deals with thecontracts for the regulation of the network. The aim is to give a view of the possibilities which thetrade partners irrespective size have in order to address the conduct of electronic trade. The essayaims to give an horizontal survey of the various ways to draft an interchange agreement. Addi-tionally it deals with some outstanding legal issues as they are addressed in the european modelEDI agreement which has been prepared by the Commission of the European Communities.
Basically there are two ways which lead to an EDI agreement. On one hand there is an informalway in which case there is no drafted agreement as such and on the other there is a formal one.
The formal way may take two different forms. First the model agreement which is produced by anindependent third party and second a self drafted agreement in which case the parties can lookafter their own interests by drafting their own agreements.
1. Informal agreements
In the informal agreements the trade parties agree to conduct trade electronically and they arrangebasic points of their transactions. They do not follow though any formality. The parties neitherdraft nor sign any contract. The whole process is arranged informally. The paper contract isreplaced by the mutual trust the contracting parties have to each other.
There is a number of trade partners who do not really appreciate the benefits of formal agreements.
On the contrary they consider flexibility as more important an issue for their business. Baker[Baker 91] notes that: Some wonder if it is necessary. These in doubt take the position that EDI does not sufficiently alter the existing rules thatgovern the relationships of the trade partners. Neither it creates any additional risk. Problems should be negotiated notlitigated they say.
The supporters of the informal interchange agreements option begin their EDI transactions withouthaving signed a drafted interchange agreement. They are aware that they undertake the risk to slidein a dispute without having the appropriate legal aid to resolve it safely. They are confident thoughthat when in dispute the can negotiate the problem away. This approach is quite popular among theparties who are already using EDI. The fact is that although several steps have been made towardslegal security in electronic transactions some of the reasons which have made the trade partnersadopt this attitude still remain.
1.1 Why informal interchange agreements
There are several reasons why the trade partners prefer to transact on the basis of an informal interchange agreement. EDI agreements may sometimes require surprisingly lengthy negotiationsbefore they can be put it into force. Time is an important issue to take in consideration whennegotiating an interchange agreement. Lengthy talks can cause delays in the implementation of EDIand cost a lot in legal fees. It is in the interest of the parties to seek ways to diminish the longnegotiation time. As a result they can expect a serious reduction in the legal fees. Informalagreements need no or very short negotiations before the parties put them into force. Practicallythere are neither legal fees to pay, nor time dedicated to negotiations. Thus the cost is moderatedconsiderably. Baker [Baker 91] gives an example of what lengthy negotiations can mean in termsof time to the adequate implementation of EDI: At one conference on EDI law, James Pitts, a purchasing manager at R.J.Reynolds, said he spent 18 months negotiating asingle trading partner agreement. That left him with only 349 other trading partners to go.
An informal agreement is quite flexible in the sense that there are no drafted rules which arebinding for either parties. Some trade partners have mixed motives about the formal agreements.
On one hand they want to protect their interests against their counterparts. On the other they do notwant to be very much protective of their own interests and consequently scare potential customersoff. An informal agreement leaves them enough space to negotiate the problems when they arise.
They believe that they can avoid disputes with a fair attitude towards their counterparts. On theother hand if things go sour they believe they can resolve the disputes with negotiation.
1.2 Why refrain from an informal agreement
However a trade relationship is not always so much straightforward and disputes may arise indeed.
An informal agreement does not offer the kind of legal security the parties would prefer to enjoy.
There is a number of reasons which answer to the question why the parties should refrain fromendorsing an informal agreement.
The dilemma of adopting a formal or an informal agreement has been based on the concept thatthe parties should not be too prohibitive in their agreement so as to scare potential customers off.
Many trade partners feel they cannot waive their own rights and leave their interests unprotected.
An informal interchange agreements may create several problems to the parties. Informality cancause confusion about the intentions of the trade partners and undermine the implementation ofEDI. An informal agreement usually contains no written clauses upon which the parties haveagreed. This can result to confusion as to the exact intentions of the parties on each particular issuewhich may arise. Informal agreements can become quite confusing either for the parties or for thearbitrator or for the judge who undertakes the task to sort out the legal relations of the parties andtrace down their true intentions. Any solution to an arising dispute must be negotiated. Such anapproach can bring the trade partner relations to a deadlock. In order to resolve the dispute theparties will probably seek legal aid. The lack of fixed terms mutually agreed upon can undercertain conditions become a threat for the security of the transactions.
The informal agreement approach requires the fulfilment of a number of parameters. An informalagreement may be enforced between trade partners who have been transacting for a very long time.
A long, well established relationship fosters durable links between the trade partners. Things canwork out better if the parties can mutually trust each other in trade. They can cooperate in order toreplace the paper method with the electronic one. However it is questionable as to how many tradepartners can one expect he/she can trust. Mutual trust is not always substantial enough as a basisfor doing business. Non drafted agreements can pose a threat for the stability of the relations of theparties. The possibility that either party will take advantage of the agreement and will try to bluffthe other cannot be ruled out. Mutual trust of the trade parties in principle can be proved to be avery volatile base for business. If things work out wrong it will be quite difficult for the parties to sort out the problem without ending up in a court room or an arbitration office. Informalinterchange agreements can as a result destabilise the future of the trade relations of the parties.
Thus it cannot be suggested that this is a legal base solid enough to accommodate the traderelations of the parties at a large scale.
1.3 When endorse an informal interchange agreement
Informal interchange agreements offer certain advantages to those who prefer them to other kindsof interchange agreements. But is it all that bad for the informal agreements? Is there any space toapply them in real life? Despite their disadvantages informal agreements continue to gain support.
In fact there is a limited number of cases where informal agreements can serve better than otherkinds of interchange agreements.
(a) Informal agreements can work better in a trial period when the product or service is not knownto the trade partner. The offeror may allow the offeree to use the product or service for a shortterm free of charge. The parties can agree upon the time period they wish to use an informalagreement.
(b) Informal agreements can serve the trade partners better in case of short term transactions orrandomly exchanged messages. The same applies when there is only a very limited number oftransactions to make. However if in spite the initial estimations there are many messages tointerchange it would be sensible to review the whole position and endorse a formal agreement.
(c) Informal agreements are better in case there are many interchanged messages but their value issmall. In this category can fall information about samples without value or catalogues or generalnon confidential information. The small value of the merchandise does not justify the high litigati-on costs in case of a dispute, thus the parties will probably avoid to do such so.
(d) There are communications between the trading parties which have no commercial value. Theycan only serve an informative purpose and they create no legal commitment. For example statisti-cal information, general information about markets, details of export and import formalities and thelike. While transmitting such information there is no real need for a formally signed contract.
(e) It is sensible to use an informal agreement when electronic trade transactions are just beginningbut they have not reached an agreement in respect to the issues the parties wish to address. Aslong as it is hoped that an agreement can be reached at a later stage it is sensible to begintransactions without it.
(f) Another opportunity to use an informal agreement is when the parties prefer to understand theirreal needs before they address them formally. They may mutually agree on a trial period on thebasis of their own risk in case of an arisen dispute. Later they may resume all the issues in oneformal agreement.
Business practice as well as general rules can develop a number of ways which can give an ideaabout the intentions of the parties. Together with long tested, hard to get mutual trust they canserve the trade partners for a long time. Thus even when there is no formal agreement as suchthere is still some legal certainty in case things turn out wrong. It is not surprising that partiestransact without signing any agreement at all. However this is not the only danger as long asunclear or confusing clauses drafted formally can be as much controversial as any informalagreement can be. In case of a dispute all the material which is related to the transactions shouldbe judged as a whole. The parties may use informal agreements as a legal basis for quite some time before a dispute arises. Their conduct can be an additional indicator of their true position.
Informal letters confirming the conditions under which the parties trade can have some effect inrevealing the intention of the parties. Baum [Baum 91] notes that: An informal letter to a trading partner may evidence the parties’ intentions.
General conditions set in a standard form can fulfil partially the need to reach an agreement.
According to Baum [Baum 91]: General conditions such as those appearing in the back of a standard-form purchase order, may address, although not necessarily artfully, some typical TPA issues, such as risk of loss.
However this is not a particularly secure way to address an issue which requires more attention bythe parties. Industrial sector guidelines which address issues which the parties are interested in cangive an indication of the intentions or the parties or the customs which are used in their businesssector. Baum [Baum 91] notes that: Industry implementation guidelines, which are typically incorporated by reference in a TPA, increasingly address audit,legal and security issues. When EDI implementation appears to conform to evidences the parties’ intent for such guidelines to apply, the guidelines’ provisions will likely control. Additionally, theUNCID rules may have bearing.
2. Formal Agreements
Formal trade partner agreements scope to the establishment of trade relations between the tradepartners based on solid grounds. The main characteristic of these agreements is the written formthey get. Basically they are not very much different in structure than any other kind of contract theparties may have done in the past. The clauses they contain usually correspond to the need fordrafting fair agreements and secure trade transactions. The issues they address become increasinglystandardised. However variations cannot be ruled out. They mainly occur because of the differ-ences in the interests between the trade partners. In general there are two kinds of formal tradepartner agreements, model interchange agreements and self drafted interchange agreements.
2.1 Model Interchange Agreements
Model agreements are drafted by the experts of the legal departments of national or internationalorganisations which are involved in dealing with the various aspects of EDI. Their aim is to givethe trade partners a solid legal base upon which they can build their trade relations. Modelinterchange agreements are the trade partner agreements which instead of being drafted by onecontracting party or another are drafted by an independent third party. The latter has neither directinterest in the use of the agreement nor takes part in the interchange at all. There are two mainaims of modelling the interchange agreements. First, the standardisation of the legal framework ofan interchange can lead to a uniform approach in the legal questions that EDI poses. Second,modelling of the agreements can add up in the legal security of electronic trade transactions.
Electronic trade is a new field and some legal barriers can still inhibit its widespread use. Theseproblems require legal solutions which only an expert can give. Some of these issues would bebetter regulated with the introduction of new law or case law. Some other can be merely solved onthe basis of a mutual agreement. Thus model agreements have quite an important role to play inelectronic trade.
Third party interested to draft a model agreement is the Commission of the European Communities at an international level and EDI organisations like EDIFORUM in the Netherlands, EDIa in theUK and American Bar Association at a national level. The model interchange agreements contain aseries of clauses which refer to the most crucial technical, legal and security issues of EDI. Themodel agreements are intended to be used unmodified as they actually are, however the partiesmay find it handy to cut them down to fit their own needs. Viewed in comparison to other kindsof agreements the model interchange agreements offer considerably more advantages.
(a) They are drafted by an independent party therefore their fair approach to the various issues isguaranteed.
(b) They address the most crucial legal issues which would be in the interests of the contractingparties.
(c) In case the parties prefer to modify them a model agreement can be used as a landmark for thefair regulation of the regulated issues.
(d) The immediate availability of a model agreement saves the users the trouble to draft their ownagreement. In the period during which the trade partners can define their needs in order to draftthem they will possibly have to transact without an agreement at all. Immediate adaptation of amodel agreement to their needs on one hand helps them avoid the risk of transacting without anagreement at all and on the other helps them protect their interests. Entering electronic tradetransactions without an agreement can be a rather risky move. In case of a dispute over a minorissue the lack of a draft which contains the will of the parties can be crucial for their relations.
Mistrust can damage the relations of what it was thought to be a fruitful cooperation.
(e) Model interchange agreements can be used by a large number of trade partners.
(f) They are easy to get and simple to use. The parties do not need to put valuable resources andtime to get legal advice. If they run into legal problems they can seek legal advice at a later stage.
The parties do not need any trial periods in order to define their needs. They can undersign anagreement immediately. As a result the cost for the trade partners is minimised. There are onlysome specific technical and security issues which the parties have to work out themselves.
(g) EDI users in a European Union member state can be sure that the problems they may come upwith will be in the interest of a bigger group of users. Thus they can support the fair settlement ofthese problems in the framework of a cooperation. Model agreements can help the users resolvelegal disputes in a uniform way.
The problems which a model interchange agreement can create to its users are not always relatedto the agreement itself. Sometimes it depends on the way the trade partners use it in order to getthe most out of a deal. A model interchange agreement is drafted to correspond to the needs of alluser categories. It does not correspond to the particular needs of one user but rather to the needs ofa large number of trade partners. It is a generic example of acceptable solutions to legal questions.
It is not always clear though as to how well a model agreement can accommodate the particularneeds of trade partners in more industrial sectors. Some cases may not fit in the limits which theagreement sets. The situation can result to disputes. The parties may need to spend some time afterthey endorse an agreement to modify it so as it can fit their own needs. Modifications in the legalclauses of the agreement may result to the adaptation of a different approach of the legal issueswhich are addressed. Consequently model interchange agreements can lose some of their appeal tothe users. After the modification it is questionable if the agreement will keep up with the principlesof fairness and simplicity according to which model agreements have been made. It is very muchpossible that the will of the more powerful party will prevail and that such an approach will showup in the agreement.
There is a number of issues which almost all model interchange agreements contain. Recently theeuropean model EDI agreement (EMEDIA) was released in the framework of the program TEDISII which was set up by the Commission of the European Communities. The following part gives an overview of the main legal issues which are addressed in the agreement.
2.1.1 Definitions
Ambiguity over the exact meaning of several of the terms which are included in the model EDIagreements makes the use of a definitions section paramount. Frequently the parties give differentmeaning to the same term therefore it is sensible to include a definitions appendix in the agreem-ent. In case of a dispute the definitions given in the dedicated appendix will prevail.
2.1.2 Legal validity of contracts effected by EDI
Issues like the admissibility of electronic documents in Court probably still require a legislativechange in order to come to terms with legal certainty in all kinds of transactions between the tradepartners. There is still a number of agreements which cannot be legally concluded electronically.
Van Esch [Van Esch 94] notes that: (.)it appears that the agreements in question are contracts relating to the sale of real estate, to certain consumer sales, andto transport and credit arrangements, especially credits for consumer goods, to securities, to dispute settlement and the For all the rest of the transactions which are legally permitted the european model EDI agreementprovides the admissibility of the electronically transmitted messages in Court. The EMEDIA in thearticle 3.1 provides: The parties, intending to be legally bound by the Agreement, expressly waive any rights to contest the validity of a contracteffected by the user of EDI in accordance with the terms and conditions of the Agreement on the sole ground that it was The agreement guarantees a minimum of the necessary measures in order to ensure that neitherparty will object the validity of the contracts which have been concluded with the use of EDI. Theclause makes sure that the lack of exchanged paper documents will not inhibit the integrity of acontract on the basis that it has been concluded by electronic means. Baum [Baum 91] notes that: (.)trade partner agreements may employ various means to achieve enforceability, but most include one term or acombination of them that (1) acknowledge the integrity and reliability of EDI transactions, (2) state that EDI transactionsshould be treated comparably to paper transactions for both contractual and evidence purposes, (3) acknowledge theimportance of a trading partner’s conduct and performance, and (4) bind the parties to not contest the validity of EDItransactions. Furthermore, trade partner agreements may state that electronic transactions are to be considered in writing andsigned for statutory purposes.
Furthermore Baum [Baum 91] calls for a statutory or case law reform for the acceptance ofelectronic documents as means of evidence and such.
2.1.3 Evidential value of electronic messages
To the extent permitted by law, the parties hereby agree that in the event of dispute, the records of Messages, which theyhave maintained in accordance with the terms of this Agreement shall be admissible before the Courts and shall constituteevidence of the facts contained therein unless evidence to the contrary is adduced.
The clause gives credit to the exchanged messages in order to ensure their use in Court in case ofa dispute. Not unconditionally though, because the last part of the article permits the counter evi-dence of facts contradictory to those of the messages. This is considered to be quite an important issue because a model agreement cannot rule out the manipulation of the contents of a message.
There is still a question about the admissibility of electronic records, messages etc as evidence incase of a dispute. In the legislations of the member states usually there is no clearcut provisionabout the admissibility of electronic documents for evidential purposes. Article 4 makes around the problem by making the parties agree that the form of the evidence will not inhibit itsuse in Court. Article 4 is quite valuable in case of a dispute. When one of the parties realises thatthere is no other way to win a case it may decide that it is to its benefit to end the cooperationwith the other party altogether. The means to do it can be an objection against the admissibility ofthe electronic records the other party submits to a Court as acceptable means of evidence. Theclause of article 4 will cease to be necessary when there are such changes in the laws of themember states which will permit the doubtless admission of electronic documents records and thelike as legally accepted forms of evidence. The agreement only gives a framework for action onthe evidential issues. A more consistent approach is left on the contracting parties. They are theones to decide what exactly are the issues they wish to include in the technical appendix and whatkind of procedures to follow in order to make their documents acceptable.
2.1.4 Data Protection
where message which include personal data are sent or received in countries where no data protection legislation is in force,and until a relevant Community legislation is implemented, each party agrees as a minimum standard to respect theprovisions of the Convention of the Council of Europe on the protection of the individual with regard to the automatic pro-cessing of personal data.
It is understood that not all member states have endorsed data protection legislation so far. Asreplacement to that the agreement provides the adoption of the Convention of the Council ofEurope on data protection. The Draft of the EMEDIA refers to another example of a legal require-ment: [it] is the case where messages are sent from a country with no personal data protection legislation to a country whererestrictions exist.
Non existence of data protection legislation is a problem for users in the countries which do nothave it as well as in those which do have it. Lack of legislation on data protection is quite aproblem for trade because trade partners in either countries cannot transact properly.
2.1.5 Place & time of formation of the contract
a contract effected by use of EDI shall be concluded at the time and the place where the Message constituting acceptance ofan offer reaches the computer system of the offeror.
So far several international conventions have set as place and time of the formation of a contractthe place and the time that the message reaches the computer of the offeror. In the commentary ofthe Draft European model EDI agreement it is noted that: the Vienna Convention on the international sale of goods provides for this rule to be applicable to contracts concluded "atdistance.
The conclusion of a study carried out in the first phase of the TEDIS programme supports the viewthat 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 EDI.
2.1.6 Acknowledgement of receipt of a message
an acknowledgement of receipt is not required unless requested. An acknowledgement of receipt can be requested byspecific provision included in the technical appendix or by express request of the sender in the Message.
In the European Model EDI Agreement commentary it is noted that: acknowledgment can be automatically transmitted at the level of the telecommunication network when the message is madeavailable to the receiver, it can be automatically sent upon the receipt of the message at the information system of thereceiver without any verification, it can be sent after some verification has been achieved, it can also at some stage meanacceptance of the content of the message or confirmation that the receiver will act on the content of the message.
Paragraph 5.3 provides for a fixed time limit for the response to the message. That is one businessday after the receipt of the message. The agreement bounds the receiver of a message to waitbefore he takes any action to fulfil the message until he/she sends a response first. Baum [Baum91] warns the partners that: they should not confuse between receipt and legal acceptance, from the underlying requirement for verification prior toeffective receipt or acceptance, and from signatures.
The parties are free to specify any alternative time limit in the technical appendix themselvesdepending on their own particular needs and the conduct of their business. However futureapplications should be taken in consideration. Interactive EDI for example allows parties tocommunicate almost simultaneously. In this case it is important that the acknowledgement ofreceipt of a message must be restricted into narrow time limits.
In case the sender of the acknowledgement message fails to fulfil the fixed time limits the originalsender of the message may treat it as void from the expiration of the time limit. He/she must ho-wever notify the receiver about the nullification of the message. Afterwards he/she may consider amutually agreed recovery process for the restitution of the message. The parties must have agreedupon such an alternative recovery procedure which can be part of the technical appendix.
Baum [Baum 91] notes that as additional term trade partner agreements can contain: time parameters within which trading partners must check their respective mailboxes (.) this is particularly important injust-in-time quick response, and transaction- processing environments.
Of all these options the european model EDI agreement supports the one of a message which con-firms the receipt and the integrity of the syntax and the semantics. However due to variationsamong company procedures it would be better for the parties if they review their particular needsand act accordingly by specifying in the technical appendix their requirements for the acknowl-edgement of their messages.
2.1.7 Confidentiality
the parties shall ensure that Messages containing information specified to be confidential by the sender or agreed mutuallyto be confidential between the parties, are maintained in confidence and are not disclosed or transmitted to any unauthorisedpersons nor used for any purposes other than those intended by the parties. When authorised, further transmission of such confidential information shall be subject to the same degree of confidentiality.
In the commentary of the EMEDIA it is noted that: the level of confidentiality of a message should be maintained whenever a message is subject to subsequent transmission.
However partners should come across the contents of the exchanged messages carefully and ensurethat they do not contain such information.
In case they contain confidential information indeed it is better to advise so on the message. Theparties have an interest to ensure that confidentiality provisions are enforced. Additionally to themutually agreed clauses which the EMEDIA contains they can advise the personnel who haveaccess to the system to refrain from all actions that could possibly lead to a breach of confidentiali-ty. In relation to that the parties can take additional security measures, both physical and technicalin order to ensure confidentiality. As such can be considered personnel access restrictions,passwords etc.
There is a certain danger though that parties may call confidential information which is not so byno means. In the commentary of the UK model interchange agreement it is stated that: Confidentiality is an obvious requirement in certain cases but it needs some qualification in order to avoid one partyunreasonably using it to describe information which is not really confidential.
Confidentiality measures cannot apply on information which is understood to belong in the publicdomain. In the article 7.2 the EMEDIA provides that as such should be considered (.)any information which is commonly known and to which a member of the public might have easy access.
The parties may require a specific form of encryption in order to enhance the confidentiality of themessages. They should be aware however that under some national laws exist restrictions onencryption. In the EMEDIA it is noted that: (.)if parties wish to agree to use such a method of encryption, appropriate authorizations or declarations should be arrangedfor by them, where required.
2.1.8 Liability
In case a party fails to fulfil certain obligations it has from the agreement it is liable to its tradepartner. Van Esch [Van Esch 94] notes that: Failure to comply with one of these obligations can lead to liability for any damage that may ensue. For instance, failure onthe part of the receiver to meet the obligation to pick up messages at the arranged time from the mailbox could causedamage to the transmitter. The receiver would, in principle, be liable for this damage.
2.1.9 Dispute Resolution
The article 12 of the EMIA provides that: Any dispute arising out of or in connection with this Contract, including any question regarding its existence, validity ortermination, 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 ., in accordance with and subject to the rules of procedure of. .
The EMEDIA clearly favours arbitration rather than the procedure in Court. It is sensible for theparties to prefer arbitration as long as it poses certain advantages. These advantages can be mainlydescribed in terms of speed to reach a decision, secrecy of the procedure, less constraints in evidence, the ability of the parties to define the place of the arbitration, the ability to name thearbitrators themselves [Kaisis 89].
2.1.10 Applicable law
Without prejudice to any mandatory national law which may apply to the parties regarding recording and storage ofMessages or confidentiality and protection of personal data, the Agreement is govern by the Law of . .
The agreement leaves it to the trade partners to decide what will be the applicable law in case of adispute. The provision of the article 13 is useful to trade partners who reside in different countries.
In case they fail to indicate it clearly the general provisions of the EEC Convention on the lawapplicable to contractual obligations will apply. The commentary on the EMEDIA however warnsthat this kind of approach: (.)may lead to uncertainty regarding the governing law of the contract as the law will be decided at the time of dispute by determining the law with which the contract is most closely connected.
Further down it notes about the determination of the applicable law that: This will be determined by looking at the country where the party who is to effect the performance which is characteristicof the contract has, at the time of conclusion of the contract, his habitual residence or in the case of a company its centraladministration. If the contract is, however, entered into the course that party’s trade or profession, that country will generally be the country where the place of business is situated. Certain exceptions exist to this rule and are listed in Article4 of the Convention.
The justification for accepting the choice of law clause lies with the additional services whichmodern systems can offer. For example if there is a buyer in the UK and a seller in Germanythings are rather straightforward. Things can get very much complex though in case the serviceprovider is based in Holland. If the service provider is authorised to process the messages andaccordingly delete some and accept some others the legal consequences in case of a dispute cannotalways be insignificant. Together with the choice of law clause the parties would better add achoice of language clause. In the european trade environment the probability of confusion over thisissue is quite high.
2.1.11 Termination notice
Any part may terminate the Agreement by giving not less than .[one] month’s notice either by registered post or by anyother 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 toin the Articles 4,5,6,7 and 8 shall survive termination.
The default contract termination notice of one month is the minimum period that the parties areadvised to set on the agreement. They may modify it according to their real needs. However verylong notice periods may make the electronic transactions inflexible and thus they should beavoided. It seems that it is rather early to talk positively about the notice period. In order tointerrupt their EDI transactions the parties may (1) either consider it inconvenient to use it and thusthey prefer to return to the paper-based ways or (2) they interrupt their trade transactionsaltogether. It appears to be sensible to say that developing practices in the electronic trade will helpthe determination of a time limit within which the parties can give their notice to their counter-parts.
2.2 Self Drafted Agreements
Self drafted agreements are those which draft the parties themselves. They are usually tailor madeto fit the needs of the particularr trade partners who drafted them. Usually the parties can draftthem themselves without the help or the interference of other EDI related bodies. Self draftedagreements are mainly drafted by the legal departments of users which are dedicated to provide themost appropriate contract terms to secure their company interests. The trade partners which draftthem usually run their own proprietary networks and they transact with many trade partners. Inorder to obtain full benefits that a self drafted agreement can offer it is sensible to use it in casewhen the market position of the trade partner can guarantee the unconditional acceptance of allterms from the counterpart.
Trade partners who plan to use a self drafted agreement may be surprised by the high cost.
Lawyers time comes at a price thus the lengthy negotiations and the expensive consultation timemay be proved an obstacle for the desired quick endorsement of an interchange agreement. A largenumber of trade partners can guarantee the value for money of this kind of trade partner agreem-ent. A small or medium sized company could hardly ever afford to draft one. Even if it could it isdubious if it would be of any use to them due to their inability to impose their opinion on theirtrade counterparts. The lack of substantial negotiation power can make it hard for a small user todraft one and use it properly.
Although small companies do not usually have access to the huge resources as a large trade partnerdoes easier they still have specific needs and specific problems to solve. In this case full benefitsmay not be obtained but a self drafted agreement can be a better solution. Quite often smallcompanies are more reluctant than the big ones to get reorganised and be innovative. If on top ofthat they do not get what they need some of them will put off the implementation of EDI for thefuture. In case a small company transacts exclusively with others of a similar size it is worth it totry to draft its own agreement. In principle the position it will adopt cannot be fundamentallydifferent from the interests of its counterparts thus the fairness of the self drafted agreement ismore or less guaranteed. Consequently the balance of interests can be maintained. A self draftedagreement can help EDI spread.
Usually the trade partners make a survey of the trade procedures they use in order to define theirreal needs. After they outline them they can draft an agreement. In some cases however help fromalready drafted model agreements is not ruled out. There are three kinds of self drafted agreements: 2.2.1 Made from scratch
One of the contracting parties, usually the one with the biggest negotiation power takes theinitiative to draft an agreement. There is a question however as to how much protective it will bein respect to its own interests. As long as it has the power to impose its own terms on its tradepartners it is not so important to take into account their interests as well. Companies which followthis practice usually restrict their trade partners to conduct trade by exclusively using electronicmeans.
The parties intent to draft their own agreement. Thus they make an analysis in order to specifytheir real needs and they proceed accordingly. This can be proved a time consuming task though,for various reasons. The parties may not consider the same reasons as equally important to addressin the agreement. There can be disputes about the outline of specific topics. The removal of theseobstacles may take a long time. Thus this kind of agreement should be more appropriate for partieswho have already a preliminary accord or a common approach on the issues in question.
2.2.2. Model agreements as a basis
The trade partners can cut down substantially in the budget for drafting their agreement in casethey use a model agreement as a basis for their own draft. They can save in both, negotiation timeand legal fees. The major requirement in this case is to make the appropriate modifications to fitthe particular needs of the users. The modifications can be for individual use between the usershowever after an agreement others may use the modified product.
Boards which supervise industrial sectors can cut down to fit model agreements so as to serve theparticular needs of the industry. Later they can let their members use them. In general it is legallysafer to modify an existing model agreement. It can guarantee some uniformity in the approach tocrucial issues. In the long run it can help the creation of customs in the particular segment of themarket.
2.2.3. Recycled material
An efficient way to get a self drafted agreement at the minimum of its real cost is to share it withsomebody else who has already done it. It can save the user trade partner time and the costs oflegal fees to define its own needs and draft them properly in a contract. However it is hard tocome up with a trade partner who will be willing to give away its expertise at a reasonable cost. Ifthe enquiry ends up successfully the user company must be very careful to modify the agreementaccording to the requirements or the margins of bargaining power he/she has. This technique canbe better used between users who are not competitive to each other but they are some howaffiliated and there is a requirement to diminish operation costs.
If compared to the model agreements those which have been drafted out of them can serve theneeds of their users better. They are tailor made to fit the particular needs of the industry they areapplied in. From a user point of view it means that a higher level of security is guaranteed.
Modified agreements cost more than the model ones. The drafting cost has to be divided in manyparts in order to get value for money. If they are developed or used by a conglomerate the largenumber of counterparts can moderate costs considerably.
There is usually a requirement to draft an agreement as regulative as possible for the party whichinitiates it. The agreements which are modified by one of the trade partners can be too restrictivefor the interests of their counterparts. For instance a limitation of liability clause can create aserious threat to the interests of the other party. The party which drafts the agreement can be easilytempted by anti-competitive practices and include such clauses in the agreement.
3. Future directions
Electronic trade has been based so far mainly on proprietary systems i.e. a closed network whichonly proprietary system subscribers can use. This practice is fading already. The tendency for thefuture is towards open systems. It is paramount to establish legal security for the users of the opennetworks.
A common agreement good for global trade with a focus on the standardisation of the applied legalrules can be developed. A watchdog body for electronic trade can be conformed in order tosupervise the lawful operation of the networks. It can also serve as an attendant of the implementa-tion of the common agreement which can replace the current interchange agreements. The movetowards open systems with the formation and implementation of common EDI rules for each sectorof the industry or geographical regions can guarantee uniformity in the solutions of the legal problems which EDI poses. The particular needs and the special arrangements in each particularsector of the industry can be filled in with the use of appendices. The agreement can be endorsedby the involved parties upon contact. A reference to the agreement will be enough to make iteffective. Such a uniform agreement can regulate restricted practices better in both the tradepractice and the use of the network.
A considerable advantage of this approach is the reduction of the cases which at the moment aredirected to the Courts of Justice. Instead they can be diverted to the administration of the network.
This will increase efficiency because there can be a dedicated body to supervise the transactions.
Another positive point is the option to alternative dispute resolution for the trade partners. AsRendell [Rendell 91] notes: Whilst this is not always cheaper or quicker than going through the courts for general litigious matters, complex disputesinvolving the working of an EDI system may be better resolved by an expert than a judge.
A serious task will be to persuade the trade partners about the benefits of such an agreement andmake them move from the practices they have already accepted to new ones.
Law can already offer a wide range of solutions to the legal problems which the trade partners whoare willing to commence EDI transactions may face. Admittedly the size of a trade partner reflectson the treatment he/she will get from his/her counterpart when drafting an agreement. Thecontracting parties can choose between drafted or more informal ways the one that serves thembest. It is up to the trade partners to get the most out of their use. The parties must make sure thatthe selection of any option fulfils the requirements for legal security and flexibility in the transac-tions. Bearing in mind that trading with EDI does not change the basic concept of trade as it hasbeen conducted this far the parties should make sure they refrain from endorsing in their agree-ments clauses which pose a threat for the future of the transactions and the stability of their traderelations. On the other hand lawyers must carry on seeking ways which can make it easier for theparties to contract and increase the level of security of the electronic trade transactions. Suchagreements will help substantially the widespread use of EDI.
R. Baker, EDI, what managers need to know about the revolution in business communi-cations, TAB books, 1991 Baum, Perritt, Electronic contracting publishing and EDI law, Wiley Law, 1991 A. Kaisis, Annulment of arbitration decisions, Saccoulas 1989 P. Papanicolaou, On the limits of the protective intervention of the judge in a contract,Saccoulas, 1991For Walter Schmidt-Rimpler Grundfragen einer Erneuerung des Vertragsrechts, AcP 147(1941) and Zum Problem der Geschäftsgrundlage, Festschrift für Nipperdey, 1955.
S. Rendell, Paperless Trade: Is it "Legally Secure", International Computer Law Adviser,pp 15-16, September 1991 R. Van Esch, Interchange Agreements, The EDI Law Review, pp 3-41, Number 1, Volume 1, January 1994 I.Walden, Drafting an interchange agreement, EDI Analysis, pp 10-11, August 1990 Draft European Model EDI Agreement, Commission of the European Communities, January 1994 The legal position of the member states with respect to electronic data interchange, Commission of the EuropeanCommunities, September 1989


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