Russia Ratifies the U.N. Electronic Contracts Convention – A Step Toward Market-Based Legal Principles? – Newsletter 3

I. The Purposes and Rules of the Electronic Contracts Convention
II. Three Differences Between Common Law and Civil Law Legal Systems
III. The Russian Federation Civil Law System Preference for Written Contracts
IV. The Russian Federation and Other Ratifications of the CISG Requiring Written Contracts
V. The Lithuanian Elimination of Domestic and CISG Written Contract Requirements Follows a Shift From a Planned to a Market Economy
VI. The Russian Federation Ratification of the Electronic Contracts Convention – A Step Toward Market-Based Legal Principles?
VII. Conclusion

The United Nations Convention on the Use of Electronic Communications in International Contracts (the “Electronic Contracts Convention” or “ECC”) establishes rules for the formation of international commercial contracts through electronic communications. The ECC was adopted by the U.N. General Assembly in 2005. It entered into force (became effective) on March 1, 2013, when it was ratified by three nations (Dominican Republic, Honduras, and Singapore).

On January 6, 2014, the ECC was ratified, by acceptance, by the Russian Federation, making Russia the fourth nation to ratify this multilateral commercial treaty. The Russian ratification will become effective on August 1, 2014.

The Russian declaration accompanying its ratification states that “The Russian Federation understands the international contracts covered by the Convention to mean civil law contracts involving foreign citizens or legal entities, or a foreign element.” (See Status – United Nations Convention on the Use of Electronic Communications in International Contracts (New York, 2005)).

Fourteen other nations have signed the ECC (indicating their intention to consider its ratification), but have not yet ratified it. These nations include China, Republic of Korea, and Saudi Arabia.

Ratification of the ECC, like other United Nations commercial treaties, may be done with limitations on the application of specific treaty rules in the ratifying nation. Although this power to limit treaty rules encourages widespread ratification, it might reduce the value of a treaty with various national versions. The Russian Federation ratification of the ECC, and its accompanying declaration, appears to be a step toward the market-based legal norms of other developed economies.

I. The Purposes and Rules of the Electronic Contracts Convention

The Electronic Contracts Convention was originally proposed by the United States delegation to the United Nations Commission on International Trade Law (UNCITRAL). (See Every1’s Guide to Electronic Contracts, Part C, Section II, Chapter 2.) Similar legal rules and principles have been widely enacted in national legislation, including, in the United States, the federal Electronic Signatures in Global and National Commerce Act (“E-SIGN”), and the Uniform Electronic Transactions Act (“UETA”) model state legislation.

Many of these national laws (affecting only contracts formed within national borders) are based on the 1996 United Nations Model Law on Electronic Commerce (“MLEC”). (See Every1’s Guide to Electronic Contracts, Part B, Chapter 2.) The Electronic Contracts Convention is designed to apply the same basic MLEC rules and principles to validate international commercial contracts formed through electronic communications.

The failure, to date, of the United States to sign or to ratify the ECC does not indicate a U.S. retreat from the legal rules and principles of the ECC.  It represents only the slow pace of deliberations of all treaty ratifications within the current arena of U.S. domestic politics. No significant objections have been raised to the substance of the ECC by U.S. political interest groups.

U.S. and other nations’ ratifications of the ECC are inevitable. An analysis of the Russian Federation ratification is useful for understanding the different varieties of ECC ratification that can be produced by the application of different national legal cultures to a single treaty.

II. Three Differences Between Common Law and Civil Law Legal Systems

There are two major types of legal systems operating within the nations of the world. The “common law” legal system operates mainly within nations that are predominantly English-speaking, and/or were colonized by the United Kingdom. The “civil law” legal system operates within most other nations.

The laws of common law nations are a mixture of statute or code (a collection of related statutes) laws enacted by legislatures, and the opinions of appellate courts that explain their decisions. These opinions on applicable law are “precedents”, which bind appellate and trial court judges within the same jurisdiction, unless and until overruled by the highest appellate court within the same jurisdiction. In addition, these opinions may be used as “persuasive”, but non-binding, precedents by the appellate courts of other jurisdictions to help them to decide issues of law that were previously not addressed in their jurisdiction.

The laws of civil law nations are mainly statutory codes enacted by legislatures. The opinions of judges on applicable law, which accompany their decisions in trials or appeals, are not precedents that bind judges making future decisions on similar facts. The main exception in civil law nations has been the binding effect of the opinions of constitutional courts on later cases with similar facts.

Common law nations often believe that their legal systems provide greater flexibility to accommodate changing social, scientific and cultural norms. Civil law nations often believe that their legal systems provide greater certainty in legal rules, and induce less national spending in litigation.

A second major difference between these legal systems is in the character of their trials. In the United States and some other common law nations, some trials are conducted with fact-determining juries of citizens.

The United States is famous for its jury trials, the rights to which are guaranteed by the Sixth Amendment (criminal trials) and the Seventh Amendment (civil trials) to the U.S. Constitution. Trials by a jury of citizens can be traced back at least to ancient Athens. They continue mainly in common law, but also in civil law, countries. Enthusiasm for the jury trial is greater in the U.S. than elsewhere, despite attempts by businesses to restrict its availability in civil cases through mandatory arbitration.

A third major difference is in the role of lawyers in trials. In common law nations, and in the U.S. especially, trials are conducted as “adversary proceedings”.  These are like courtroom contests in which lawyers for each side argue for their version of the truth of contested facts.

In an adversary proceeding trial, evidence of the facts is presented by the parties’ lawyers according to legal rules and procedures. The judge applies those rules and procedures to the fact presentations as an impartial “referee” or “umpire”. The parties’ lawyers make arguments as to why their version of the facts should be accepted by the fact-finder(s). The judge, or a jury in a jury trial, determines which view of the facts is the truth (for purposes of the trial). Then, the trial judge applies the law to the determined facts to reach a judgment, or instructs the jury how to do so to reach a verdict on which party wins the trial.

In civil law nations, and in judge-only trials in common law nations, the trial judge alone usually determines the truth of the versions of facts argued by the parties, and then applies the law to the facts to reach a judgment. In addition, a civil law judge may also investigate the facts by requiring the parties to present specific evidence to the court. Lawyers are much less active in questioning witnesses in this so-called “inquisitorial” trial proceeding.

III. The Russian Federation Civil Law System Preference for Written Contracts

The civil law system of the 19th century Russian Empire was based, in part, on Roman/Byzantine civil law (for example, the Code of Justinian) and Western European civil law (for example, the Napoleonic Code). As might be expected for a legal system that gives supremacy to written legislative law, contracts were required to be embodied in signed writings in both the pre-Soviet and post-Soviet Russian civil codes.

Beginning with the enactment by the English Parliament of the Statute of Frauds in 1677, only a few categories of contracts have been required to be in writing and signed in order to be enforced in the U.K. The states of the U.S. generally incorporated these Statute of Frauds rules.

IV. The Russian Federation and Other Ratifications of the CISG Requiring Written Contracts

One of the major multilateral commercial treaties is the United Nations Convention on Contracts for the International Sale of Goods (CISG). Article 11 of the CISG provides that a contract subject to the CISG rules is not required to be in writing. Article 12, however, provides that any ratifying nation may make a declaration that excludes the Article 11 rule from the version of the CISG that applies, if one of the contract parties has its place of business in a nation making such an Article 12 declaration.

As of February 2014, eighty nations have ratified the CISG. Nine of those nations have ratified the CISG with an Article 12 declaration that the Article 11 rule, eliminating the writing requirement, will not apply to their version of the CISG, if a contract party has its place of business in that ratifying nation.

The Russian Federation, Hungary, four former Soviet Republics (including Lithuania), Chile, Argentina and Paraguay are nations that have made such Article 12 CISG declarations. Each of them has a civil law legal system.

V. The Lithuanian Elimination of Domestic and CISG Written Contract Requirements Follows a Shift From a Planned to a Market Economy

On November 1, 2013, however, Lithuania deposited with the United Nations an instrument withdrawing its 1995 Article 12 CISG declaration. (See United Nations Information Service Press Release of 1 November 2013.) As described in a related press release, “Lithuania’s action is part of a current trend for States to reconsider declarations made upon signing or acceding to the CISG. Withdrawal of these declarations increases the level of legal uniformity in the scope of the application of the convention.”

Lithuania’s withdrawal of its CISG writing requirement appears to have been prompted by its new Civil Code, enacted in 2000. Lithuania ratified the CISG in 1995. The 2000 Lithuanian Civil Code addressed contract law for the first time. It had been ignored by the 1964 Civil Code, because “the main role in the planned economy belonged not to the contract but to the plan.” (See “The Main Features of the Lithuanian Contract Law System Based on the Civil Code of 2000” by Valentinas Mikelenas.)

In order to promote a market economy based on private property and private initiatives, the 2000 Lithuanian Civil Code adopted transnational contract law principles, such as freedom of contract, which generally permits party freedom of choice as to contract form. This party choice principle includes the choice of a non-written contract.

VI. The Russian Federation Ratification of the Electronic Contracts Convention – A Step Toward Market-Based Legal Principles?

In contrast to the 2000 Lithuanian Civil Code, the current Civil Code of the Russian Federation requires, in Article 434, The Form of the Contract, that “The contract may be concluded in any form, stipulated for making the deals, unless the law stipulates a definite form for the given kind of contracts.” This language might be interpreted as permitting the parties to conclude a non-written contract. However, it is immediately followed by two provisions describing rules for contracts in written form, including contracts “by the electronic or any other type of the means of communication, which makes it possible to establish for certain that the document comes from the party by the contract.” (See Civil Code of the Russian Federation, Article 434.) Russian law is often interpreted to require all contracts to be written. Oral contracts are permitted in limited circumstances by “natural persons”. Notarized and state-registered written contracts are required in other circumstances. A contract offer with terms transmitted in the body of an email and the email attachment has been validated by a Russian commercial court.

Most civil law nations have, to date, ratified the CISG without Article 12 declarations that require written contracts. Many civil law nations with advanced economies, such as France, Germany, Spain, the Netherlands, China and Japan generally permit domestic contracts, especially commercial contracts, to be formed without a writing. Their CISG ratifications allow international sale of goods contracts to be formed without a writing by parties with places of business in their nation.

The Russian Federation ratification and declaration maintains the requirement of a writing for “civil law contracts” that the Russian Civil Code requires to be in writing. Like the Civil Code, however, it permits an electronic writing.

Either a (at least one) foreign contract party (citizen or legal entity), or a foreign element of the contract (such as goods or services or a place of contracting), is necessary for the Russian ECC version to apply to a contract. (My thanks to Suren Gomtsyan of Tilburg University for his help in the translation and analysis of these Russian Civil Code provisions.)

The first paragraph of the Russian declaration states that the Russian Federation will apply the ECC only by party choice “when the parties to the international contract have agreed that it applies”. Without such a declaration, the ECC would automatically apply to a contract between parties with places of business in different ratifying nations.

VII. Conclusion

The Russian ECC ratification moves Russian law closer to the market-based principles of other economically developed civil law nations. It does this by permitting party freedom of choice of the ECC as applicable law, and by enforcing ECC-governed international contracts that are written in electronic form. By enforcing international contracts that are written in electronic form, the Russian ratification also indirectly modifies the written contract requirement of the Russian CISG declaration.

The Russian Federation has moved toward harmonization of its domestic commercial laws and its legal system with regional and international norms in recent years. For example, Russia has joined the World Trade Organization. The Russian Federation could promote further harmonization of its contract law with the freedom of contract norms of other major civil law nations. It could follow the Lithuanian example by making domestic non-written contracts generally enforceable, with only specified exceptions.