Arbitration Agreements in online business to business transactions

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Book Chapter

Reference

Arbitration Agreements in online business to business transactions

KAUFMANN-KOHLER, Gabrielle

KAUFMANN-KOHLER, Gabrielle. Arbitration Agreements in online business to business

transactions. In: Briner, Robert. Law of international business and dispute settlement in the 21st century = Recht der internationalen Wirtschaft und Streiterledigung im 21.

Jahrhundert : Liber Amicorum Karl-Heinz Böckstiegel : anlässlich seines

Ausscheidens als Direktor des Instituts für Luft-und Weltraumrecht und des von ihm gegründeten Lehrstuhls für Internationales Wirtschaftsrecht . Köln : C. Heymanns, 2001.

p. 355-369

Available at:

http://archive-ouverte.unige.ch/unige:44078

Disclaimer: layout of this document may differ from the published version.

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Arbitration Agreements in Online Business to Business Transactions

Gabrielle Kaufmann-Kohler''-

1. Introduction: figures and issues

for al! of those, including this author, who have had the privilege of sitting on an arbitral tribunal with Karl-Heinz Bockstiegel, and for many others, he is a ,,grand maître" of international arbitration. At the same time, he is also a jurist who through his early invol- vement in space law, has shown an exceptional interest in technological change. This contribution in his honor seeks to address the growing interaction between these two fields - arbitration and technology.

A random survey of commercial websites carried out by this author showed that online arbitration agreements, i.e. arbitration agreements entered into electronically, are not yet a common phenomenon.¹When surfing on the Net, one finds very few dispute resolution clauses of any type: few choice of court provisions and even fewer arbitration clauses.

This is bound to change as site operators become more sophisticated about the terms of their online agreements, as online arbitration develops, and as e-trade accelerates into so-called ,,hypergrowth". Intercompany trade in goods is expected to surge from $43 billion in 1998 to $1.3 trillion in 2003. If services carried out online are added, the increase would be even more staggering. 'These figures relate to the US only, but com- panies in Europe and Japan are anticipated to enter the ,,hypergrowth" stage of e-commerce about two to four years later. Sorne industries will reach that stage earlier than others. Computer and electronics are the most advanced, but aerospace, telecommuni- cations and automobile industries are not far behind. Compared to these projections, the figures for the evolution of business to consumer e-commerce over the same period are considerably lower, $8 billion to $108 billion²^.Hence, one should beware of equating, as

::- Professor, University of Geneva; Partner, Schellenberg Wittn1er, Geneva.

Gabrielle Kaufmann-Kohler, Choice of court and choice of law clauses in electronic contracts, in Vincent J eanneret (ed.), Aspects juridiques du commerce électronique, Zurich 2000, p. 11;

the survey covered business to consumer and business to business transactions. For a court case involving online arbitration clauses, Lieschke et al. v. Realnetworks, !ne., 10 February 2000, Northern District of Illinois (http://pub.bna.com/eclr/99c7274.htm), in which the Court enforced a domestic online arbitration agreement und~r the Federal Mitration Act, without having, however, to address the issues of writing or incorporation by reference discussed in this paper.

2 Forecasts by Forrester Research, reported in The Economist, A survey of business and the Internet, 26 June 1999.

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GABRIELLE KAUFMANN-KOHLER

some do, e-commerce with consumer issues. It is obvious that the two are not equivalent.

In this contribution, we will focus on business to business transactions and leave aside business to consumer arbitration clauses. Indeed, consumer transactions primarily raise arbitrability issues, which we will not address here.

Are online arbitration clauses in business to business transactions valid? Are they made ,,in writing"? How are they properly incorporated into the contract? These are the main issues that arise in connection with arbitration clauses in the open electronic environment.3 In order to resolve these issues, we must first address certain Internet-specific questions regarding the determination of the law governing electronic arbitration agreements.

2. Applicable rules: localizing actors and actions on the Internet

An international arbitration agreement is governed by national law, predominant!y that of the place or seat of arbitration, subject to the following exceptions: (i) a court in a New York Convention Member State ruling on enforcement of an arbitral award will determine the enforceability of the arbitration agreement by application of Article V(l)(a) of the New York Convention which is deemed to incorporate Article II;⁴and (ii) a court in a Member State ruling on an a!Jeged breach of an arbitration agreement will determine the validity of that agreement pursuant to Article II of the New York Convention, at least when the place of arbitration is located abroad;⁵in particular, the court will assess the existence of a ,,writing" pursuant to Article II(2).⁶

3 This contribution does not deal with arbitration agreements entered into by business partners in longstanding EDI relationships. The individual contracts emered into between such partners are generally governed by a written, signed paper-based frame agreement, which contains the dispute resolution clause. Therefore, no Internet-specific issues arise.

4 Because of the express reference to ,,the agreement referred in Article 2", courts consider that the lack of a written agreement pursuant to Art. II(2) constitutes a ground for refusing enforcement under Art. V(l)(a) (Albert Jan van den Berg, New York Convention of 1958, Consolida- ted Commentary, Cases reported in volumes XXII (1997) - XXIV (1999), no. 504, publication forthcoming) (with thanks to the author for providing access to hjs manuscript prior to publication).

5 Most Member States also apply Art. II(3) to agreements providing for arbitration in the forum state, provided the arbitration is international, but there are exceptions such as Sweden, Italy (van den Berg, referred to in footnote 4 above, nos. 214-216) and Switzerland (Decisions of the Federal Tribunal, Fondation M. v. Banque X of 29 April 1996, ATF 122 III 139, 141 and N. v. Fédération Equestre Internationale of 31 October 1996, reported in Matthieu Reeb (ed.), Digest of CAS Awards 1986-1998, Berne 1998, pp. 577, 578 and 580).

6 It is considered here that Art. II(2) does not set a generally applicable standard, but only go- verns in the two situations covered by the New York Convention, i.e. in cases of (i) the enforcement of an arbitral award and (ij) an arbitration defense raised in court (e.g. jean-François Pou- dret, Le droit applicable à la convention d'arbitrage, in ASA Special Series No. 8, The Arbitration Agreement - Its Multifold Critical Aspects, 1994, p. 25). This issue !oses much

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ArulITRAT!ON AGREEMENTS IN ÜNLINE BUSINESS TO BUSINESS TRANSACTIONS

Many national laws have different rules for international and domestic arbitration.⁷In- ternationality is defined either objectively by reference to the domicile or place of business of the parties⁸or subjectively by reference to the subject matter of the contract.⁹ To apply the above rules in the electronic environment, it may be necessary to identify:

the domicile or place of business of a party, to define objective internationality;

the place of performance of the contract, to define subjective internationality;

the place of arbitration, to assess the applicability of a given national law or of the New York Convention in the context of an arbitration defense;

the place of issuance of an award, to determine the applicability of the New York Convention in the context of an enforcement action.

In attempting to define these geographical locations for an electronic arbitration agreement, one may encounter a number of difficulties:

the domicile, residence or place of business of a party may be unknown, as e-mail addresses or demain names do not always show a geographical location (or not necessarily a location that corresponds to reality);¹⁰

many e-contracts are performed online by downloading information onto the client's computer. Where does such performance take place? Though one may answer at the domicile of either one of the parties, which would refer us back to the first difficulty, it is obvious that this answer does not reflect the true nature of online performance;

in an arbitration held exclusively online, what is the place of arbitration and where is the award issued?

The last question is the easiest one. In most cases, the parties will agree on a physical place of arbitration. Even though it may be a mere fiction, the parties' agreement on a specific place of arbitration will carry its usual legal consequences, including the

of its relevance if one takes into account that courts increasingly hold Art. II to set only maxi- mum, and no minimum requirements (by application of Art. VII(l) or otherwise) (van den Berg, referred to in footnote 4 above, nos. 203 and 204).

7 E.g. Switzerland (Chapter 12 PIL Act); France (Art. 1492-1507 NCPC); Italy (Art. 832-838 CPC); Sweden (Sections 46ff. Arbitration Act 1999).

8 E.g. Art. 176 Swiss PIL Act.

9 E.g. Art. 1492 NCPC. Art. 1(3) UNCITRAL Mode! Law provides for both tests to apply alternatively. The same internationality tests are sometimes applied in the context of Art. II of the New York Convention (van den Berg, referred to in footnote 4 above, nos. 214-216).

10 For a discussion on ,,geographic indeterminacy", e.g. Burk, Jurisdiction in a Borderless World, 1 Virginia Journal of Law and Technology (1997),

http://vjolt.student.virginia.edu/graphics/voll/voll_art3.htrnl.

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GABRlELLE KAUFMANN-KOHLER

application of the local arbitration laws and the determination of the nationality of the award. Where the parties have not so agreed, default rules, generally included in insti- tutional rules agreed upon by the parties, will permit one to determine the place of arbitration.

The other difficulties mentioned above are less easily resolved. They were addressed at the Geneva Roundtable on Electronic Commerce and Private International Law, a col- loquium organized by The Hague Conference and the University of Geneva on Septem- ber 2-4, 1999,¹¹which was attended by about 100 experts from 26 countries representing all sectors interested in electronic commerce: industry operators, consumers, gover- nments, international organizations, both regional and worldwide, governmental and non-governmental, and academics and practitioners specializing in this area of the law.

As a solution to the difficulty of localizing actions and actors on the Net, the Round- table recommended¹²that performance that takes place online be disregarded as a con- necting factor and that only the location of each of the parties involved be considered. It further recommended a presumption of internationality, ,,unless all parties are habi- tually resident in the same country, and this fact is known to the parties or clearly iden- tified at or before the time of contracting." ¹³

Serious players will undoubtedly satisfy the need for identification of the parties to contracts concluded on the Net as a way of building confidence.¹⁴For the others, the presumption of internationality will provide a solution.

3. Written form 3.1 Functional equivalence

Under most national laws, an arbitration agreement must be in writing.¹⁵The same is true under the UNCITRAL Mode! Law and the New York Convention.

11 http://cui.unige.ch/-billard/ipilec.

12 The main recommendations of the Roundtable are published on the Roundtable site referred to in footnote 11 above and on The Hague Conference's site, http:///www.hcch.net. The general report on the works and conclusions of the Roundtable is incorporated in Preliminary Docu- ment No. 7 of April 2000 for the attention of the Special Commission of May 2000 on general affairs and policy of the Conference, also on the Conference's site.

13 Recommendation of Commission III, for which t!lis author acted as Rapporteur, no. 2(b).

14 This was recognized for instance when the ICC Guidelines on Marketing over the Net were drafted (http://www.iccwbo.org/home/ statements_rules/ rules/1998/internet_guidelines.asp ).

It is equally emphasized in the OECD Consumer Protection Guidelines for E-Commerce of 8 December 1999, Art. II and III.A (http://www.oecd.org/news and events/release/guideli- nesconsumer.pdf). Similarly, extensive identity disclosure requirements have made their way into legislative texts, such as the European Distance Selling Directive (Art. 4 and 5) and the European Electronic Commerce Directive (Art. 5).

15 Art. 178(1) Swiss PIL Act;§ 1031 German ZPO; Art. 1677 Belgian Code judiciaire; Art. 1021 Dutch Arbitration Act. French law (Fouchard/Gaillard/Goldmann on International Commer-

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ARBITRATION AGREEMENTS IN ÜNLINE BUSINESS TO BUSINESS TRANSACTIONS

Sorne believe - rightly, we submit - that the writing requirement is outmoded because the written form is no longer in keeping with contemporary business practice.¹⁶As with choice of court clauses under the Brussels and Lugano Conventions, as well as under the Hague Preliminary Draft Convention on Jurisdiction and Foreign Judgments, it may be time to accept the validity of an arbitration agreement created by a course of conduct or trade usages.17 Be this as it may, for the time being, the writing requirement is alive and well. Hence, the question: Is a data message a ,, writing"?

Generally, the writing requirement does not imply the need for a signature.¹⁸Therefore, the issue here is not one of digital signature, but merely whether an electronic message complies with the less restrictive requirement of the written form.

In today's world, a data message should be considered the equivalent of a writing, provided that it is retrievable for later reference. Sorne existing legal texts are clear in this respect:

under Article 7(2) UNCITRAL Mode! Law, an agreement is in writing if ,,it is contained [ ... ] in an exchange of letters, telexes, telegrams, or other means of telecommunication which provide a record of the agreement [ ... ]". This wording was intro- duced to widen the means of communication referred to in the New York Convention ,,in order to caver modern and future means of communication".¹⁹

cial Arbitration, The Hague 1999, nos. 608-609) and Swedish law (Sigvard Jarvin/Briana Young, A New Arbitration Regime in Sweden - the Swedish Arbitration Act 1999 and the Rules of the Stockholm Chamber of Commerce, J. Int'l Arb. 1999, p. 91) have no writing requirement.

16 Neil Kaplan, Is the Need for Writing in the New York Convention and the Madel Law Out of Step with Commercial Practice?, Arb. Int'l 1996, p. 44; Gerold Herrmann, Does the World Need Additional Uniform Legislation on Arbitration? The 1998 Freshfields Lecture, Arb. Int'l 1999, pp. 214ff.; Marc Blessing, Introduction to Arbitration - Swiss and International Perspec- tives, Basle 1999, pp. 184-185; Pieter Sanders, Quo Vadis Arbitration, The Hague 1999, pp. 157158.

17 Art. 17 Brussels and Lugano Conventions on Jurisdiction and Enforcement of Judgments in Civil and Commercial Matters; Art. 23 Council Regulation (EC) on Jurisdiction and the Recognition and the Enforcement of Judgments in Civil and Commercial Matters, OJ L 12, 16. 1. 2001, p. 1; Art. 4 Preliminary Draft Convention on Jurisdiction and Foreign Judgments in Civil and Commercial Matters, of 30 October 1999; Art. 17 Revised Meeting Document No 18, Working Party on Revision of the Brussels and Lugano Conventions, Brussels 19-23/

4/1999.

18 In connection with Art. II(2) NY Convention, e.g. Alan Redfernl Martin Hunter, Law and Practice of International Commercial Arbitration, 3rd ed., London 1999, p. 141 with citations;

Klaus Peter Berger, International Economie Arbitration, Deventer, p. 137; with respect to national law, e.g. Section 5(2)(a) English Arbitration Act 1996 or Art. 178(1) Swiss PIL Act.

19 Seventh Secretariat Note, Analytical Commentary on Draft Text, A/CN. 9/264 of 25 March 1985, reprinted in Howard Holtzmannl]oseph Neuhaus, A Guide to the UNCITRAL Madel Law on Commercial Arbitra tian: Legislative His tory and Commentary, Deventer 1989, p. 291;

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An agreement is recorded even if no paper copy has been printed, provided that the data message appears on the screen or is stored in the computer's memory;²⁰

§ 1031 (1) of the German ZPO adopts the same language as the UNCITRAL Mode!

Law;

Article 5( 6) of the English Arbitration Act 1996 specifies that ,,references [ ... ] to anything being written or in writing includes its being recorded by any means";²¹ Article 178(1) of the Swiss Priva te International Law Act provides that an arbitration agreement is valid with respect to form ,,if made in writing, by telegram, telex, telecopier, or any other means of telecommunication which permits it to be eviden- ced by a text" .²²

With respect to other legal texts, one can arrive at the same conclusion through basic principles of statutory interpretation. This is true in particular for Article II(2) of the New York Convention and for national laws which require a writing without other forms being mentioned.²³

Article II(2) of the New York Convention requires that an arbitration clause either be embodied in a single document signed by both parties, or ,,contained in an exchange of letters or telegrams". One may reasonably argue that the drafters have included the fastest means of communication known in 1958 and that they thus had no intention of

see also Aron Broches, Commentary on the UNCITRAL Mode! Law on International Com- mercial Arbitration, Deventer 1990, p. 41.

20 Holtzmann/Neuhaus, referred to in footnote 19 above, p. 263. For the same conclusion, i.e. that an electronic arbitration agreement satisfies the writing requirement under Art. 7(2) Mode]

Law: ]asna Arsic, International Commercial Arbitration on the Internet, Has the Future Come Too Early?, J. Int'l Arb. 1997, p. 215.

21 ,,Recorded by any means doubtless includes magnetic and electronic recording, such as tape or e-mail and other forms of computerized record" (Robert Merkin, Arbitration Law, London 1996 updated, no. 2.7, pp. 2-3 to 2-4); V.V Veeder, England, Handbook ICCA 1997, p. 15.

22 On Art. 178(1) and electronic form, Michael Schneider/Christopher Kuner, Dispute Resolution in International Electronic Commerce, J. Int'l Arb. 1997, p. 14; Werner Wenger in Honsell/

Vogt/Schnyder (eds.), Kommentar zum Schweizerischen Privatrecht, Internationales Privat- recht, Basle 1996, pp. 1440-1441.

23 The new Italian provisions expressly added telex and telecopy to the written form, at a rime when electronic contracts were already well known in practice (Art. 807, 808 and 832 CPC).

Bearing in mind the traditionally restrictive approach of Italian courts, there is a possibility that online agreements may be held unenforceable. As long as the issue is not tested in court, some doubts might also arise in connection with Art. 1021 of the Dutch Arbitration Act (Schneider/ Kuner, referred to in footnote 22 above, p. 14 ), which requires evidence of the arbitration agreement to be produced in writing, without other forms being mentioned. However, considering that Dutch law is rather liberal - in particular, it considers arbitration agreements accepted tacitly to be valid - any reasonable approach would lay to rest such doubts.

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excluding any future developments in communications.²⁴Indeed, courts have broade- ned the language of this provision to caver telexes and telecopies.²⁵On this basis, a number of commentators advocate a liberal construction of Article II(2) which includes data messages.²⁶With respect to a telecopy, the only difference lies in the non-automatic materialization of the data flow. In an electronic message, an additional stage is needed ro print the document. This does not warrant a different legal solution.²⁷Moreover, the Swiss Supreme Court has held that Article II(2) of the New York Convention must be interpreted by reference to Article 7(2) UNCITRAL Mode! Law.²⁸If this approach were adopted by other courts, it would provide an opportunity to adapt the language of the New York Convention to technological evolution. To support such an evolutive interpretation of Article II(2) and of similar national law provisions, one may also rely upon the following considerations:

first and foremost, consistent with the general principle of functional equivalence, Article 6 of the UNCITRAL Mode! Law on Electronic Commerce²⁹stipulates that the writing requirement ,,is met by a data message if the information contained therein is accessible so as to be usable for further reference";

similarly, Article 1.10 of the UNIDROIT Principles of International Commercial Contracts defines the term ,,writing" as ,,any mode of communication that preserves a record of the information contained therein and is capable of being reproduced in tangible form";

Article 9(1) of the European Electronic Commerce Directive³⁰also adopts the principle of functional equivalence in requiring that the Member States must ,,ensure that the legal requirements applicable to the contractual process neither create obstacles for the use of electronic contracts nor resu!t in such contracts being depri- ved of legal effectiveness and validity on account of their having been made by electronic means";

24 Arsic, referred ^toin footnote 20 above, p. 215; also of the opinion that the validity of an online arbitration clause can be dealt with by way of imerpretation of Art. II, Albert jan van den Berg, The 1958 New York Arbitration Convention Revisited, Paper presented at the ABA/IBA Con- ference, Zurich, 28 January 2000, pp. 11 and 13.

25 E.g. decision of the Swiss Federal Tribunal, Tracomin SA v. Sudan Oil Seeds Co. Ltd. of 5 No- vember 1985, ATF III lb 253, 255.

26 E.g. Klaus Peter Berger, referred to in footnote 18 above, pp. 137ff. ("reality-oriented interpretation ").

27 Peter Mankowski, Das Internet im Internationalen Vertrags- und Deliktsrecht, RabelsZ 1999, pp. 215-216; see also Richard Hill, On-line Arbitration: Issues and Solutions, Arb. Int'l 1999, pp. 202-203.

28 Decision of the Federal Tribunal, Compagnie de Navigation et Transports SA v. Mediterranean Shipping Company SA of 16 January 1995, ATF 121 III 38, 44.

29 http://www.uncitral.org, with Guide to Enactment, Comments nos. 47ff.

30 Directive 2000/31/EC on certain aspects of information society services, in particular electronic commerce, in the Internai Market, OJ L 178, 17. 7. 2000, p. 1.

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the newly drafted international civil procedure instruments ail expressly provide that a data message is the equivalent of a writing in connection with choice of court clauses. In the words of the Regulation which will replace the Brussels Convention:

,,any communication by electronic means which provides a durable record of the agreement shall be equivalent to 'writing"' .³¹The Draft Hague Convention provides: ,,[a choice of court] agreement [ ... ] shall be valid as to form if it was entered into [ ... ] by any other means of communication which renders information accessible so as to be usable for subsequent reference";³²

it is an increasingly common phenomenon in many areas of international trade to replace paper documents by data messages. So for instance, Article (1)(4)(b) of the UNIDROIT Convention on International Factoring provides that a notice in writing includes ,,any telecommunication capable of being reproduced in tangible form". Similarly, the Inter-American Convention on Contracts for the International Carriage of Goods by Road stipulates in Article 4(3) that a non-negotiable bill of lading may be issued by electronic means. Further, even negotiable bills of lading are in the course of being replaced by an electronic system called BOLERO, spon- sored by the Society for Worldwide Interbank Financial Telecommunication (Swift) and the Through Transport Club (TTC),³³and the Incoterms generally provide that transport ,,documents" may be in electronic form.³⁴

In light of such a sweeping general movement, there can be litde question that arbitration must follow suit. This was well understood by the UNCITRAL Working Group on Arbitration, which in its 32d session of March 2000 agreed that Article II(2) of the New York Convention should be interpreted to caver the use of electronic means of communication and that it required no amendment for this purpose.³⁵

3.2. What does the data message have to caver?

Based upon the above analysis, it is clear that a data message meets the writing requirement if it can be made available for future reference. This raises two questions: how can a data message be made available later in an unaltered form and what must be made available?

From the legal texts reviewed, the answer to the second question is obvious: the ,,agreement". The ,,agreement" is composed of an offer and an acceptance. Thus, the message or messages must cover (i) the offer and acceptance or the declarations of intent of each

31 Art. 23(2) Regulation referred to in footnote 17 above; the same wording is found in Art. 17(4) of the Draft Revised Lugano Convention, referred to in foomote 17 above.

32 Art. 4(2) Draft Hague Convention referred to in footnote 17 above.

33 jan Ramberg, ICC Guide to Incoterms 2000, Understanding and Practical Use, p. 31.

34 AS Clauses Incoterms 1990 and 2000, provided the parties agree on electronic communication.

35 Report, A/CN.9/468 of 10 April 2000, no. 101, http://www.uncitral.org/english/sessions/unc/

UNC33/acn9-468.PDF.

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ARBITRATION AGREEMENTS IN 0NUNE BUSINESS TO BUSINESS TRANSACTIONS

party, which includes (ii) the identity of parties, and (iii) the contents of the arbitration clause.³⁶

The contract terms and arbitration agreement set out on the site can be regarded either as an invitatio ad offerendum or as an offer.³⁷In the first case, when the client clicks on ,,I agree" or similar wording, he or she makes the offer, and the supplier's e-mail confirmation is the acceptance. In the second case, the site content is the offer and the client's click constitutes the acceptance.³⁸

Under both alternatives, two technical issues may create difficulties. On the one hand, if a client disputes being the issuer of a given data message (be it an offer or an acceptance), it may not be possible to trace his/her/its identity, unless some form of electronic identification, for instance by way of a digital signature, is used.³⁹On the other hand, the contents of the general conditions, including the arbitration clause, may be changed at any time after contract conclusion. There is thus a risk of manipulation,⁴⁰which may be avoided by making the general conditions available to the client in such a way that he/she/it can store and reproduce them.⁴¹The durability and hence the written form requirement will only be fulfilled if these issues are addressed by appropriate technological means.

36 Gabrielle Kaufmann-Kohler, Internet: mondialisation de la communication -mondialisation de la résolution des litiges? in Katharina Boele-Woelki/Catherine Kessedjian (eds.), Internet - Which Court Decides? Which Law Applies?, The Hague 1998, p. 129 notes 185 and 186, with references, with respect to choice of court clauses, relied upon here by analogy.

37 Michael Gisler, Vertragsrechtliche Aspekte elektronischer Markte - nach schweizerischem Ob- ligationenrecht, Bamberg, pp. 111-113; most authors are of the view that the site is an invitatio (loc. cit. with citations); Thomas Hoeren, Rechtsfragen des Internet, Koln 1998, p. 119; David Rosenthal, Projekt Internet, Was Unternehmen über Internet und Recht wissen müssen, Buchs 1997, pp. 329ff.), but dus may be too categorical a view. Hence, to ensure that the site contents are not regarded as an offer, a supplier should indicate so, e.g. by stating ,,without commitment"

or similar language.

38 Though it requires the supplier ,,to acknowledge the receipt of the recipient's order without de- lay and by electronic means", the European E-Com Directive is silent on whether that aclmow- ledgment is an acceptance or merely a confirmation of the (already concluded) contract (Art.

11(1)). This requirement does not apply to contracts emered into exclusively by e-mail (Art. 11(3)) and can be waived in business to business transactions (Art. 11(1)).

39 Whereas Clause no. 35 of the European E-Com Directive States that the Directive does not affect the Member States' ability to maintain or establish requirements concerning secure electronic signatures.

40 Pietro Graf Fringuelli/ Matthias Wallhauser, Formerfordernisse beim Vertragsschluss im Inter- net, CR 1999, p. 99.

41 This is specifically required under Art. 10(3) of the European E-Com Directive. This requirement also applies to contracts concluded exclusively bye-mail and cannot be waived in business to business transactions (Art. 11 (1) and ( 4) a contrario). The same requirement is further found in the OECD Guidelines for e-consumer protection, referred to in footnote 14 above.

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4. Incorporation by reference 4.1 Internet practice

ln the site survey referred to at the outset of this paper, it was found that online arbitration clauses are always contained in general contract terms. lt was also found that most sites do not display the general terms automatically. They merely have a short reference to general terms at the bottom of ail or some of the pages, or the user can click on a field to scroll through the terms. On most sites, it is not necessary for the client to indicate acceptance of the terms of contract before placing an order. On a limited number of sites, the client must expressly accept the general terms, e.g. by clicking on a block ,,1 agree with/accept the terms and conditions ... ",or else he cannot proceed to place an order.

4.2 Specific versus global reference

To be valid, an arbitration clause contained in the general contract terms must be made part of the contract. How is this achieved in an electronic environment? To answer this question, one must first review the rules on incorporation by reference for traditional arbitration agreements, before transposing these rules to online transactions.

Traditionally, one distinguishes between incorporation by way of a specific reference to an arbitration clause and incorporation by way of a global reference to standard terms containing an arbitration clause, but without a specific mention of that clause. The for- mer is generally acceptable. The latter, however, is valid under some legal regimes, but questionable or dependent on particular circumstances under others, including the New York Convention and some national laws.

A global reference is enforceable, first and foremost, pursuant to Article 7(2) of the UN- CITRAL Mode! Law, which provides that ,,[t]he reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement provided that the contract is in writing and that the reference is such as to make that clause part of the contract." The legislative history shows that this wording does not require an explicit reference to the arbitration clause contained in the document which is incorporated by reference.⁴²The further specific requirements for the incorporation are governed by the national law which is applicable to the arbitration agreement.⁴³

42 Fifth Work.ing Group Report, A/CN.9/246 of 6 March 1984 and Seventh Secretariat Note, Analytical Commentary on Draft Text, A/CN.9/264 of 25 March 1985, bath reprinted in Holtzmann!Neuhaus, referred to in footnote 19 above, pp. 285 and 291.

43 Karl-Heinz Boeckstiegel, Das UNCITRAL-Modell-Gesetz für die internationale W.irtschafts- Schiedsgerichtsbarkeit, RIW 1984, p. 672; Philippe Fouchard, La loi-type de la CNUDCI sur l'arbitrage commercial international, Clunet 1987, p. 884; Gabriele Husslein-Stich, Das UNCI- TRAL-Modellgesetz über die internationale Handelssch.iedsgerichtsbarkeit, Cologne 1990, p. 42; Holtzmann/Neuhaus, referred to in footnote 19 above, p. 264, merely mention that it is the parties' intent to incorporate the document that matters.

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Furthermore, Belgian law,⁴⁴Dutch law,⁴⁵and German law⁴⁶consider arbitration clauses by way of global reference to be valid. Under German law, the language of the Mode!

Law has been adopted with a view to eliminating any uncertainty about the validity of an arbitration clause by reference.⁴⁷One should, however, be aware that § ²of the AGBG is applicable to an arbitration agreement.⁴⁸Accordingly, the reference to the general tenus must be an express one, which suggests that the parties' intent to incorporate the terms be ,,unmissverstandlich und klar erkennbar" .⁴⁹The same provision also requires that a contracting party be given a reasonable opportunity to review the contents of the general terms.

The English Arbitration Act 1996 does not specifically address this issue and leaves it to the courts to decide.⁵⁰English courts will apply general principles of contract construction. Generally, an express reference is regarded as binding, whereas a global reference is a matter of construction on the facts of each case.⁵¹

Swiss law follows a similar line. The Swiss Supreme Court has held that specific references are enforceable,⁵²but the validity of a global reference will turn on the specific circumstances of the case. Global references are, for instance, valid in situations involving business partners active in a trade in which recourse to arbitration is common.⁵³

44 Art. 1677 and cases cited by Lambert Matray, Belgium, Handbook ICCA 1995, p. 6.

45 Art. 1021, pursuant to which ,,[ ... ]an instrument in writing [ ... ] which refers to standard conditions providing for arbitration is sufficient, provided that this instrument is expressly or im- pliedly accepted by or on behalf of the other party"; accordingly a global reference is sufficient and there is no need for ,,specific mentioning of the arbitration provision in the reference clause in the contract by which the standard conditions are incorporated into the con tract", Albert Jan van den Berg, Netherlands, Handbook ICCA 1987, p. 5.

46 §1031(3) ZPO.

47 Peter Schlosser, La nouvelle législation allemande sur l'arbitrage, Rev. arb. 1998, p. 296.

48 Lachmann/Koenig, Handbuch der Schiedsgerichtspraxis, Cologne 1998, nos. 126ff.

49 Josef Mehrings, Verbraucherschutz im Cyberlaw: Zur Einbeziehung von AGB im Internet, BB 1998, p. 2374.

50 DAC (Department Advisory Committee on Arbitration Law) Report, February 1996, para. 42;

Section 6(2) simply States that the reference must be ,,such as to make that clause part of the agreement"; Sutton/Kendall/Gill, Russell on Arbitration, 21st ed., London 1997, no. 2-034, p. 45.

51 According to Mustill and Boyd (Commercial Arbitration, 2d. ed., London 1989, p. 106), it must be clear that the parties intended the arbitration clause to apply. For a discussion of recent cases, D. Mark Cato, Arbitration Practice and Procedure, Interlocutory and Hearing Problems, 2d.

ed., London 1997.

52 Decision of the Swiss Federal Tribunal Tradax Export SA v. Amoco Iran Oil Co. of 7 February 1984, ATF 110 II 54 (rendered in the context of Art. II New York Convention).

53 Decision referred to in footnote 52 above, p. 60, and decision of the Zurich Handelsgericht of

30 August 1993, Bull. ASA 1993, pp. 531, 535.

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Other national laws focus on the parties' intent to be bound by the arbitration agreement, whatever the practicalities of the conclusion and incorporation. For example, French law relies on the principe du consensualisme.⁵⁴For the arbitration agreement to be binding, the parties must have known about it and accepted the reference to the document of which it is part. The difficulty here becomes one of proof, which is not a problem in the case of a specific reference.

Similarly, the parties' intent and their actual awareness of the arbitration agreement play an important role in Italian law, which has substantially loosened its previously stringent requirements for international arbitrations. 55 Article 833 of the Italian Code of Civil Procedure provides that ,,an arbitration clause contained in general conditions accepted in a written agreement between the parties is valid on the condition that the parties were aware of the clause or should have been aware of it exercising usual dili- gence".

Finally, under Article II(2) of the New York Convention, the enforceabi!ity of the global reference appears unsettled. In his review of court cases handed clown in the years 1997 to 1999, van den Berg notes that the decisive test appears to be whether the contract partner was in a position to verify the existence of an arbitration clause. This is certainly so for arbitration agreements printed on the back of the contract. Where the clause is contained in a separate document, however, a specific reference is generally required, unless the general conditions have already been communicated to the contract partner, or the parties are engaged in an ongoing business relationship in which they always use the same general terms, or the general terms are so well-known in the international trade in which the parties are involved that the latter are deemed to be aware of their contents.56

From the foregoing review, one may draw the following main conclusions with respect to the incorporation by reference of arbitration clauses:

a specific reference is generally valid;

a global reference may or may not be valid depending on the circumstances, including

54 Decisions Bomar Oil NV v. Entreprise Tunisienne d'Activités Pétrolières (E. TA.P); Court of Appeals Paris, 20 January 1987, Rev. arb. 1987, p. 482; Court of Cassation, 11 October 1989, Rev. arb. 1990, p. 134; Court of Appeals Versailles, 23 January 1991, Rev. arb. 1991, p. 291;

Court of Cassation, 9 November 1993, Rev. arb. 1994, p. 108; see also Xavier Boucobza, La clause arbitrale par référence en matière d'arbitrage commercial international, Rev. arb. 1998, p. 495.

55 By virtue of Art. 833 of the new Chapter VI on international arbitration, Art. 1341 and 1342 of the Italian Civil Code are inapplicable to international arbitration; see also Piero Bernardini, L'arbitrage en Italie après la récente réforme, Rev. arb. 1994, p. 486.

56 van den Berg, referred to in footnote 4 above, no. 209, with citations to cases; sce also Berger, referred to in footnote 18 above, p. 153 with references.

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ARBTTRATION AGREEMENTS IN ÜNLINE BUSINESS TO BUSINESS TRANSACTIONS

the commercial nature of the parties and of the activities involved;

the fact that the parties were aware of the reference or even intended to incorporate the arbitration clause;

the fact that they had an opportunity to review it.

4.3 Application to the electronic environment

4.3.1 Equal treatment of online and offline arbitration agreements, or again functional equivalence

There is no reason to apply different or more restrictive rules than those just reviewed above to electronic arbitration agreements as opposed to agreements entered into offline. This principle of equal treatment of e-commerce and non e-commerce formed the first recommendation of the Geneva Roundtable. Differential treatment should on.ly be adopted when the specificities of online dealings so mandate.⁵⁷

The application of traditional rules also arises out of Article Sbis of the UNCITRAL Mode! Law, which seeks to facilitate incorporation by reference in an electronic environment by removing the uncertainty about the applicability of traditional incorporation rules:

,,Information shall not be denied legal effect, validity or enforceability solely on the grounds that it is not contained in the data message purporting to give rise to such legal effect, but is merely referred to in that data message".

More than in paper-based transactions, electronic commerce heavily relies on incorporation by reference in order to avoid overloading data messages with massive quantities of text. And more than in paper-based transactions, electronic commerce has the resources available to make incorporated documents easily accessible.⁵⁸It would be foolish not to make use of these resources.

4.3.2 How must a site be set up to ensure effective incorporation?

Stating that the traditional incorporation rules apply provides one with few practical in- dications of how to set up a site to comply with these rules. More specific guidance is needed:

express wording stating that the contract is governed by the general terms is required. That wording should be displayed on the screen in such a fashion that it cannot be missed.⁵⁹It should not simply appear in small print at the bottom of some un- related page and it should not just read ,,see general terms". It could, for instance, appear on the order form page just before the field ,,click to proceed with order";

57 General Recommendation no. 1, referred ta in footnote 12 above.

58 Guide ta the Enactment of the UNCITRAL Madel Law on Electronic Commerce (1996), referred to in footnote 29 above, no. 46.

59 Mehrings, referred ta in footnote 49 above, p. 2374.

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GABRIELLE KAuFMANN-KoHLER

a user exercising normal care must be able to review the general terms:

the user must have the ability to click on a field to scroll through the terms;⁶⁰ that field must be well-positioned and easy to locate;

the presentation of the general terms must be clear and simple and the terms should be drafted in the same language as the site because the user is expected to understand that language.

If these requirements are satisfied, it is not necessary to have the general terms appear automatically on the screen in full text.⁶¹

If these requirements are met, an online arbitration agreement in a business to business transaction should be validly incorporated. Depending on the applicable law and the courts in which the issue may arise, prudent site operators may, however, take some additional precautions:

insert an express mention of the arbitration agreement in the reference to the general terms, which may read in the following way ,,this order and ail aspects of the contractual relationship between the parties are governed by the general terms, including the arbitration agreement, which are made part of this contract and can be accessed by clicking here";

and since this wording is not in a contract signed by bath parties but on a webpage set up by one of them and filled in by the other, establish a procedure so that, before being able to place the order, the user must click on a field with the language ,,I accept the general terms" .⁶²

5. Conclusions: an action plan for the Law ta keep pace with technology

For the law to adjust to technological change, the following steps should be taken:

national courts and arbitral tribunals should interpret traditional rules on the validity of arbitration agreements in reliance on the principle of functional equivalence.

On this basis, they should transpose the traditional rules to the electronic environ-

60 M ehrings, referred to in footnote 49 above, p. 23 79, according to whom a hyperlink on an order page allowing to display the general terms on the screen is sufficient and necessary; the mere fact that the client can store and print the terms is not sufficient, because that procedure is too cumbersome.

61 Contra Berger, referred to in foornote 18 above, p. 137, who considers as a reguiremcnt that the agreement ,,appear[s] on a computer screen". Without justification, this reguirement implies a more stringent test than for traditional contracts.

62 Hermann Verbist/Christophe Imhoos, L'arbitrage, les télécommunications et le commerce élec- tronique, Résumé du rapport final d'un groupe de travail de la Commission de l'arbitrage international de la CCI, Bulletin de la Court internationale d'arbitrage de la CCI, 1999/2, p. 23.

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ment, along the lines suggested in this paper, and enforce online arbitration agreements, whenever these rules are complied with;

where interpretation of existing rules is insufficient to implement functional equivalence, national legislators should supplement the relevant legal provisions to this effect, by seeking guidance from the UNCITRAL Mode! Law on Electronic Com- merce or from the new instruments on choice of court clauses;

any forthcoming recommendation, protocol, other uniform legislation, or guidelines with respect to the New York Convention,⁶³presently under consideration by UNCITRAL, should

clarify that a data message is deemed a writing if it is accessible for later reference;

clarify that a global reference is enforceable in business to business transactions, provided that the reference is clear and the general terms are accessible. 64

By taking into account these suggestions, the law will be ready to face the emerging trend towards the use of arbitration agreements in online business to business transactions.

63 With respect to the written form, the UNCITRAL Working Group on Arbitration, at its March 2000 session, was rather in favor of a recommendation (Report referred to in footnote 35 above, nos. 102ff.).

64 In addition to introducing arbitration agreements created by conduct or international trade usage, which are, however, unlikely to play a significant role in Internet transactions, at least in the earlier stages of the development of electronic commerce.