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Legal aspects of e-commerce

Date: November 04, 2003
Source: Computer Crime Research Center
By: Andrey Belousov

The Internet is the most important achievement of the last century. It influences the development of e-business and, in particular, e-commerce. Thus, the e-commerce has been generated by the most up-to-date technologies of the passed century. According to the e-Marketer, in 2000 the Internet commerce made $233 billion. The Forrester Research predicts that by the end of 2004 the e-commerce will be $6,8 trillion what will exceed the existing level nearly by 30 times! These transactions are consummated between companies and business institutes, as well as between firms and average clients.

The rapid development of the Internet commerce is stipulated by:

- Quick expansion of PC sales;

- Brisk increase in efficiency of computer processors, memory and data channels;

- Lack of customs dues on e-sales;

- Speedy distribution of alternative Internet access means – mobile telephones and interactive television;

- Convenience and simplicity of Internet purchasing technologies (interested goods can be bought without leaving the apartment);

- Information on goods and services offered by Internet-shops is available in the real-time mode;

- Attractiveness of e-commerce due to the reduction of overhead costs on establishing business.

The national legal systems have no uniform interpretation of e-commerce. For example, European countries have some restrictions. Contracts that require notary’s certification and government bodies’ registration or cover family and inheritance laws cannot be made through the Internet. Nevertheless, the e-commerce embraces Internet relationships including e-sales and e-services (medical, juridical, banking, financial and others).

The approach to the Internet legal regulation is being revised now. Numerous works (mainly written by American scientists) on the Internet as a new info-social space having its own normative regulating system and requiring to work out a special conception of legal regulation have been abandoned. The practice has picked the way of “involving” the Internet into the national jurisdictions. In this connection, the assumption of other lawyers that there will be a jump in the development of international laws and intensification of their role in unifying national legislations has not proven to be correct. Such tendencies can be noticed in Europe because the European Council strives to create a uniform legal space including that of e-commerce and, as a result, to protect interests of e-commerce participants [1].

The legal force of transactions depends on conditions, under which the state considers that or other deal capable of entailing related legal consequences. According to the current legislation, those conditions are as follow [2]:

- Availability of legal capacity and competence on the part of subjects to make the deal;

- Legality of transaction contents;

- Conformity of inner will of parties with declaration of their intention;

- Transaction concluded in the law-established form.

All the above conditions should be naturally observed to make any deals including those effected through the Internet. However, the specific character of Internet transactions consists in that the intention of the party is declared and brought to the addressee by means of computing technique and communication e-channels. Therefore, the law-required form of Internet transactions should be observed to settle the question of their validity.

Today some legal problems make it difficult to use the Internet commerce. For example, until January 1, 2001 there was a special case in the Russian Federation (RF) legislation. The law “On banks and banking activities” did not refer plastic card operations to banking ones what stipulated their taxation. Only tricks of law connected to the extensive interpretation of banking operations on the base of some precedents allowed exempting them from taxation. On January 1, 2001, the second part of the RF Taxation Code that changed the situation came into effect.

The RF Central Bank’s Provision 23-P “About order of issuing bank cards on the part of credit establishments and effecting settlements for plastic card transactions” allows concluding transactions to pay for Internet goods by credit cards. Its Part 1 permits to draw up “document for bank card transactions” by using not only the bank card itself but also its requisites as it happens when purchasing goods through the Internet. However, bankcard requisites reported by its holder to the trading company cannot pretend to be the analogue of his/her own signature. Therefore, the standard of the settlement document that should be attested with the buyer’s own signature or its analogue according to the current civil legislation (Paragraph 1, Items 1 and 2, Article 160, Civil Code) is often violated when concluding e-purchases.

Provision 23-P does not provide that the violated form of the bankcard transaction document causes its invalidity, as well as other consequences, which should be found in the civil legislation.

According to the Civil Code, the violation of the simple writing form of transaction entails the impossibility to appeal to testimonies confirming it and its conditions during the dispute rather than the invalidity of the deal itself. The parties have a right to appeal to writing and other evidences (Item 1, Article 162, Civil Code) including a notification of goods delivery signed up by the cardholder or other documents confirming the fact of delivery. However, the lack of such documents will make it impossible to prove the conclusion of transaction.

Therefore, it is necessary to forward goods to the client by insured parcel and to keep delivery receipts signed by him/her for some time. It will allow winning a dispute in the arbitration court of payment system or in the civil one. When selling on-line goods the conflict cannot be resolved under the legislation currently in effect.

The situation can be changed by using protocols of e-commerce that operates analogues of the own signature (for example, SET). The use of own signature analogues to make Internet transactions will bring them to conformity with current legislation requirements.

Since any payment means to fulfill liabilities, the norms of clearing settlements contained in Chapter 46 RF Civil Code should be applied to Internet payments. This chapter uses a term “form of clearing settlements” that is not defined by the Civil Code. According to it, the form of clearing settlements is a definite method of performing liabilities, it being provided with a particular set of obligation relations.

Thus, that or other model of Internet payments is a specific form of settlements that can be a clean sheet or correspond to already existing forms.

According to Item 1, Article 862 Civil Code, the form of clearing settlements can be considered legal if stipulated by law and related bank rules or it falls under the category of “a bank habit of business payments”.

Let us dwell upon these two terms: “bank rules” and “bank habit of business payments”. The former seems to be more evident. “Bank rules” established in accordance with the law present normative acts of the RF Central Bank that is a competent body to set rules of effecting payments in Russia.

The single question that can arise in connection with this term is how legitimate the form of clearing settlements is if established by Russian Bank’s normative acts and the relevant law has not been passed yet. The practice of Russian norm setting, according to which the regulation of by-law acts of law-regulated relations can be admitted as a temporary measure, can give an answer to it.

The second term “bank habit of business payments” is more difficult to analyze. The current legislation interprets it as an “established and widely used business rule of conduct that is not envisaged by laws independently of that whether it was fixed in any document or not” (Item 1, Article 5 Civil Code). This definition contains three important features. The habit of business payments is such a rule of business conduct that is:

- Formed i.e. constant and sufficiently defined;

- Widely used;

- Provided by no current legislation.

Since these criteria are too general in every particular case, it can be difficult to fix the availability or lack of the habit of business payments. Therefore, the practice focused on fixing a potential habit in acts of home and especially international chambers of commerce and other authoritative organizations.

It can be said with confidence that payment card transactions being also a special form of clearing settlements fall under the definition of “bank habit of business payments”.

At last, what is necessary to mention as to general provisions on clearing settlements is the rule from Part 3, Article 861 Civil Code, according to which “clearing settlements are made through banks and other credit establishments where related accounts are opened if otherwise is not specified by law or form of settlements”. According to the current legislation (except credit institutions), settlements can be effected by:

- Offsetting mutual claims;

- Using bills.

The former is not applied to Internet payments. As for the latter, Article 4 of the Federal law “About promissory note and bill of exchange” specifies that any bill...


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