E-Contracts in the United Arab Emirates
- Sunil Ambalavelil
- at Trade and Commodities
- on Nov 6, 2021 - 15:57
A contract, in the simplest definition, is a promise enforceable by law. The promise may be to do something or to refrain from doing something. The making of a contract requires the mutual assent of two or more persons, one of them ordinarily making an offer and another accepting. If one of the parties fails to keep the promise, the other is entitled to legal redress. Most often, parties document such relationships in the form of written documents, to ensure compliance of the same, and proof to approach the courts in case of contractual violations. The place of the contract is as stated under Article 19(1) of the UAE Civil Transaction Law No. (5) of 1985, and the place where both parties reside is considered as the place whose courts will hear the case. If they reside in different places, the location where the contract was concluded is the place whose courts will take cognizance of the matter. In recent times, there is a shift from traditional paper documentation and individuals and corporations are taking recourse to online contracts, amid a global pandemic. In the United Arab Emirates, it is Federal Law No.1 of 2006 which enunciated the validity of e-contracts and the prerequisites for validity. This article explores the same law and provides an analysis of the same.
FEDERAL LAW NO.1 OF 2006
In February 2006, the President of the UAE, His Highness Sheikh Khalifa Bin Zayed Al Nahyan issued Federal Law No. 1 of 2006 concerning Electronic Transactions and Commerce Law (“ETCL”). This Law states that contracts cannot be considered invalid for being electronic, however, there is a need for parties to provide evidence of the contract. While previously under Article 132 of the UAE Civil Code, both verbal and written contracts were valid, the scope for e-contracts and online transactions widened in scope post the enactment of this law. This was of particular assistance to business corporations in the Dubai International Financial Centre, as it allowed agreements online, increasing the ease for international agreements.
APPLICATION OF THE LAW
The Law, being a Federal Law, is applicable across the United Arab Emirates. While the act is wide in its ambit and permits electronic contracts in most spheres of commercial agreements and transaction, there are certain contracts to which this law does not apply to, and which have to follow more traditional forms of contracts, as mentioned under Article 2(2), which are as follows-
- Transactions and issues relating to personal law such as marriage, divorce, and wills;
- Deeds of title to the immovable property;
- Negotiable instruments;
- Transactions involving the sale, purchase, lease (for a term of more than 10 years) and other disposition of immovable property and the registration of other rights relating to immovable property;
- Any document legally required to be attested before a notary public; and
- Any other documents or transactions exempted by special provision of law.
VALIDITY OF ONLINE CONTRACTS
Article 11 of the Law states that a contract is not invalid simply for being in an online form, and that parties are allowed to enter partially or completely online contracts.
In recent times, many corporations and retailers such as Amazon and Google do not have employed persons signing and creating contracts, as the function has been delegated to pre-programmed electronic systems and bots. Article 12 permits the usage of the aforementioned systems and holds these contracts to be valid.
In addition, Article 14 and 15 list down the technical requirements for the completion of a contract, with a data message being considered valid once it has been dispatched by the information system. Special provisions for acceptance are laid down if acknowledgment for the message being received has been necessitated, under subclause 4 of Article 14. Moreover, under subclause 1 of Article 15, it is stated that these rules apply only to a designated information system.
VALIDITY OF ELECTRONIC SIGNATURES
For any contract to be valid, all parties concerned must sign the contract demonstrating their consent and approval. Similarly, E-Contracts also require e-signatures. According to Article 2 of the Electronic Transactions and Commerce Law Number 2 of 2002, an e-signature is defined as a signature containing letters, symbols, numbers, voice, or processing systems in an Electronic Form.
Under Article 17(1) of the 2006 statute, an e-signature shall be treated as a ‘Secure Electronic Signature’ only if it can be ascertained that it was unique to the person using it, that the particular person can be identified, and while the creation of the signature, sole control was exercised by the signatory, and that the signature was linked to the electronic record related to the matter.
However, the assumption of validity must not take place in all cases, as Article 18 details the duties of the parties to ascertain the validity of e-signatures and when they should rely on them. Under subclause 1, it is the duty of the relying party to ascertain the validity and enforceability of the contract.
RESTRICTIONS AND PENALTIES
The provisions of the Law also lays down specific penalties for violation of its terms. Under Article 26, a prison term of up to 1 year, coupled with a fine of up to AED 250,000 may extend upon the inclusion of incorrect information in an Electronic Attestation Certificate. Punishments also extend to individuals who provide incorrect information to anyone who deliberately provides incorrect information to a certificate attestation service provider (Article 27), to individuals who obtain access to electronic information and disclose the same(Article 28) and special penalties if members of a body corporate are found to be in contravention to the terms of this law( Article 29 and 30). The courts can direct the confiscation of the tools and devices used in the commission of the offence without prejudice to the rights of bona fide third parties.
As we switch from physical modes of payments, interactions and working spaces towards online means, owing to the pandemic and its exigencies, and also the ease and accessibility of online mechanisms, it is also essential that we adopt the law-making to the evolving world, growing and assisting with the development of the society as a whole. Federal Law No.1 is one such modern law, which brings online contracts into the same fold as verbal and written agreements, thus in the process facilitating business and trade within the region, especially of international nature, in addition to easing up the contract process and making it more accessible. The increased growth of trade in the UAE, in addition to the increased volume of online contract making, is a testament to the success and accomplishment of the objectives of this federal law.
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