Legal vacuum

While the Middle East’s internet infrastructure continues to grow, its legal equivalent remains far from developed. As such, local companies wishing to work within the knowledge economy frequently find themselves operating in a legal limbo

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By  Neil Denslow Published  July 27, 2003

I|~||~||~|The Middle East is laying a strong technical framework for it entrance into the knowledge economy, as evidenced by region’s rising internet penetration rates and various e-government drives. However, while this infrastructure is vital, the local market is lagging behind in terms of the legal framework required to make e-business both truly feasible and secure. Furthermore, few countries in the region currently have functioning e-commerce laws, which means that many e-business transactions are taking place in a legal vacuum.

Across the Middle East, only a few jurisdictions currently have e-commerce laws in place. Dubai’s Electronic Transactions & Commerce Law (ETCL), Number 2, 2002, is by far the most comprehensive in the region, but it has a limited scope. The only other jurisdictions to have implemented any form of e-commerce laws are Bahrain and Jordan.
“Legislatures in the Middle East are currently working on laws that would regulate e-commerce, but the current state of the laws is still immature,” says Samer Qudah, legal consultant, Al Tamimi & Company.

Even those countries that do have e-commerce laws on the statute books have yet to provide a strong legal framework for e-commerce. Bahrain, for instance, has only passed a limited e-signature law, which doesn’t cover wide swaths of e-commerce activities.
Elsewhere, Jordan’s E-Commerce Law, number 85 of 2001, covers a wide scope of activities, but it is short on specific rules. Furthermore, the regulating agencies that local organisations have asked for have yet to be established.

“[Jordan’s] is a very general law, but there is no corresponding regulation to implement it,” explains Rima Al Fahl, manager, commercial & legal affairs, Gulf Data International (GDI). “So, you have this law, but there is no way to make it happen.”

Dubai’s ETCL also suffers from a lack of implementation agencies. Even more problematic, however, is the fact that much of the ETCL conflicts with UAE federal law, which leaves many rules unenforceable. For instance, as digital signatures are not recognised by UAE federal laws, the ETCL’s recognition of them is meaningless.

“Effectively, it is only going [to] work inside the TECOM free zone, [which is exempt from federal law], mainly because in the rest of Dubai you can’t just pass a law that conflicts with the federal law. Any federal provisions will override it,” explains Paul Davies, a lawyer with Clifford Chance.

While this may seem likely arcane wrangling by lawyers, the lack of e-commerce laws greatly affects businesses in the region, as it means that electronic communications, the basis of e-business, may not be admissible in court in the event of a dispute.

The UAE provides a clear example of this problem, as the country has yet to pass a federal e-commerce law, although it has had a draft under review since last year. As such, all contracts agreed between businesses in the UAE need to be in the form of hard copies with handwritten signatures and company stamps. Electronic documents or communications are simply not recognised by the court, and are not admissible under the federal rules of evidence.

“Anything that comes out of a computer is considered to be a draft,” says Al Fahl. “Even if there is an e-signature on it, it’s not the original... and it’s not valid, so it won’t be accepted [by the court]. If it’s not accepted, there’s no way to validate the contract. As such, it’s really risky to do business [online], as there is nothing in place to protect you legally speaking,” she adds.

||**||II|~||~||~|To bypass this problem, companies are being forced to wrap their supposedly paperless online transactions with documentation and signed contracts. For instance, the online marketplace, Tejari, does not support online contracting. Instead, once a company has found a trading partner via the virtual exchange, the two are forced into the real world to sign the contract and do business.

This need to go offline clearly impacts on the efficiency of using an online marketplace, although Saqib Iqbal, chief operating officer of Tejari, contends that businesses can still benefit from joining an exchange.

“What Tejari is doing is bringing buyers and suppliers together, and helping them communicate to find the best deal. Once they have agreed to it, they can put pen to paper and sign a final contract. That is still done on paper, which is not really the time-consuming part… that’s more an administrative kind of thing,” he says.

The use of digital signatures in the Middle East is also hindered by this need for paper contracts, as only Jordan and Dubai have legislation giving them automatic recognition. “If a digital signature that complies to the regulations under [Dubai’s] law is used to sign a contract, it is equivalent to a normal paper-based signing,” explains Tariq Habib, senior manager business & technology, Comtrust.

However, in jurisdictions without such legislation, the two parties contracting through digital signatures need to first sign and stamp a paper document agreeing to their use. This contract, which is usually signed by each party directly with the certification authority, states that the applicant will not repudiate having sent a message secured by their private key.

“The contract between the person and the certification authority is the legal document, which says that if the private key has been used to sign the transaction it means the owner of the private key did it, so the owner cannot repudiate,” says Habib. “In such a scenario, it is fully protected and applicable almost on a global basis, let alone within the UAE…. It can be used anywhere and it is protected under contract law,” he adds.

Private companies using electronic communications outside Dubai and Jordan also need to draw a paper-based contract in order to mandate the use of electronic evidence in courts. This is key as in the event of a dispute between the trading partners, the majority of courts in the region will refuse to accept electronic evidence, such as e-mails.

The federal UAE court, for instance, has refused to accept such evidence in legal disputes. “We also produced that [electronic evidence] to the Dubai prosecutor on several occasions and he rejected it before the enactment of the Dubai law,” comments Qudah.

As such, if two companies that have predominantly communicated via e-mail fall into dispute, then the court will refuse to accept any of the e-mails as evidence. Instead, the court will only accept original documents with a handwritten signature and a company stamp.

“This can’t apply to e-commerce — it just doesn’t work,” says Al Fahl. “The most important thing is the law of evidence. The countries have to amend those laws to come in line with the current technologies, which hasn’t happened anywhere in the Middle East,” she adds.

||**||III|~||~||~|To try and get around this problem, companies need to sign a paper-based contract saying that they agree that electronic evidence and electronic notices, such as e-mail, would be valid and enforceable. “That specific agreement has to be in writing and produced to the court as a hard copy. When the parties agree to that contractually, and assuming that the content of such electronic document is not disputed by the parties, that would be equivalent to a law that would give admissibility to electronic evidence,” explains Qudah.

However, even then the court would need convincing proof that the electronic evidence had not been tampered with, which may be difficult to provide, especially if one party disputes this.

Aside from the problems of using electronic evidence to settle disputes, the growth of e-business in the region is also being stymied by the lack of cybercrime laws. There are, as yet, no specific cybercrime laws in the region, which greatly hinders the prosecution of cyber-criminals, as prosecutors not only need to prove that the defendant committed the act, but also get the court to accept that the act should be considered a crime.

“[For instance,] the UAE Constitution provides that in the absence of any specific providence that would criminalise a certain act, then anything is permitted. The main problem is that it would be difficult to criminalise an act and penalise it without having specific providence to address that act,” says Qudah.

The much publicised Etisalat hacking case in 2001 demonstrates the problem. In the case, a British computer consultant was identified as the culprit, but there was no specific cybercrime law under which he could be prosecuted.

As such, the prosecutors needed to persuade the court to broaden the existing telecommunications law to cover hacking in order to secure a conviction. In his original trial, the accused was found guilty under the Emirate’s existing telecommunications law of misusing telco equipment.

However, he was cleared of opening employees’ e-mails as the court ruled that the word ‘messages’ in the relevant law did not cover e-mails. On appeal though, the higher court reversed this second decision while upholding the first. However, it would have been easier to secure a conviction if a cybercrime law had been in place.

To close this loophole and other gaps in Dubai’s first ETCL, a second e-commerce law is currently being reviewed. Expected to be approved by the ruler’s office in September, the law would cover areas such as data protection, cybercrimes and hacking. However, this law would still only apply to Dubai, leaving the e-business in the rest of the region in its legal vacuum. As such, there is a need for a region-wide drive towards e-commerce laws in order to both protect transactions within one country and across national boundaries.

“I think there is still a need to provide laws conducive to [each countries’] own local needs, as well as something on a regional basis,” says Habib. “We have agreements in so many other areas that are elements of such transactions, and I think such an initiative would be very conducive [to e-business],” he adds.

Iqbal contends that the growth of online exchanges such as Tejari is not directly dependent on the enactment of e-commerce laws. However, he does suggest that they are important in generating wider confidence in the use of e-business. “We would like more of them, because it does help the e-commerce community in general and the adoption of e-commerce,” he says. “Specifically to us, it’s not really a showstopper, but we are part of a broader e-commerce community… and in that respect we are very keen to have these move forwards,” he adds.

A regional law would also help to resolve many of the jurisdictional questions raised by e-commerce. For instance, model laws such as those drawn up by the UN’s Commission on International Trade Law are already available and they could be quickly enacted and provide the standardised rules needed for conducting business on the world wide web.

“Due to the borderless nature of the internet, I would definitely support efforts to harmonise the laws and have standardised rules globally,” says Qudah.||**||

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