E-contracts in UAE
In today's modern E-world, it should come as no surprise that businesses prefer communicating officially online. From arranging meetings to agreeing on legally binding contracts, this trend of electronic business is fast growing. This trend of communicating through emails and applications led to the formation of ‘electronic contracts’. E-contracts are treated in the same way as a written or oral contract, even though they are formed online. These contracts can be formed via emails or special computer programs or electronic agents that are programmed for this specific matter. This article is tailored to discuss the concept of e-contracts in the United Arab Emirates (UAE).
How an E-contract is formed:
The UAE, to keep up with this trend of E-contracts, has its law now governing the same. Firstly, as per the UAE Federal Law Number (5) of 1985 with regards to the Civil Code, Article 125, a contract is formed when there is an offer made by one contracting party and acceptance provided by another contracting party so as far as the parties intend to create such a contract. So, in essence, there needs to be three elements:
With regards to E-contracts, the law remains the same as Article 132 of the UAE Civil Code, states that intention can either be in writing or just verbal; both of which does not allow or prohibit this being carried out electronically.
How an E-contract is valid:
The Electronic Transactions and Commerce Law Number 2 of 2002 was brought about to govern electronic transactions; E-contracts fall under this bracket. Chapter III, Article 13 states that it is permissible for offer, acceptance, and intention to be carried out electronically for the contract to still be valid (Article 13(1)) and that the validity of the contract in question should not be subjected to a dispute based on such a formation (Article 13(2)).
Article 14 further speaks to the above by adding and extending that if a contract is formed through an automated electronic medium (Automated Medium) such as electronic information systems that are programmed to perform such tasks, then such a contract would still be legally binding despite there being no communication between real people. Furthermore, it states that if a contract is formed via an Automated Medium with a natural person, it will be valid only if that person knows that the other party he/she is contracting with is an Automated Medium (Article 14(2)).
It is common knowledge that for a contract to be valid, all parties involved must sign the contract indicating their consent and approval. Similarly, E-Contracts may require e-signatures. As per Chapter I of the Electronic Transactions and Commerce Law Number 2 of 2002, an electronic signature is defined as a signature containing letters, symbols, numbers, voice, or processing systems in an Electronic Form. Additionally, this must be connected to electronic communication and stamped with the intention of authentication. An E-signature can be carried out in the following ways:
- By clicking a button and agreeing to the terms and conditions as seen in applications, software, updates, etc.;
- Typing his or her legal name in a box at the end of a contract indicating their intention;
- Using cryptographic signatures – a concept similar to that of a bank PIN or a PIN-protected document;
- XML based signature, which is commonly used. This requires digitally recorded fingerprints.
Article 10 of Chapter I further reinstates that an e-signature is as reliable and equivalent to a hand signature, just as long as the parties are fully knowledgeable about their actions. However, reliance on these signatures must be reasonable. There is a list of factors to be considered with regard to the reasonableness of the reliability of e-signatures. For instance, the parties who rely on the signature must take reasonable steps to verify the identity of the signatory. They should check for any evidence that indicates that the contracting party has been rejected due to the e-signatures. If the parties have contracted before, it is their duty to verify that the contract is performed in a similar manner. In addition to these factors, any other factor relevant to the contract, and the circumstances surrounding it must be taken into consideration.
Do the UAE Courts acknowledge E-contract as admissible evidence?
Federal Law Number (10) of 1992 On Evidence in Civil and Commercial Transactions regulate and govern evidence in the UAE. Article 17, Section 1, which was added by the Federal Law No. (36) of 2006 dated 9 October 2006 widens the definition of the electronic signature by stating that any symbols, signs or letters which have unique characteristics which would allow persons to distinguish it from regular symbols, signs or letters would be considered as e-signatures. It further goes on to state that Sending, receiving, shifting, or storing of signs, symbols, inscriptions, pictures or voices, or any other information of any nature made via Informational Technology Medium shall be considered as an electronic document (Section 2). It is to be noted that an e-signature is to have the same ethnicity as the definitions contained in this legislation (Section 3(1)) and that electronic documents and records (as well as scripts) are to have the same authenticity as defined for the official and customary inscriptions and documents (Section 4(2)).
Thus, an electronic document cannot be rejected on the ground that it is electronic. There need to be specific requirements to negate the validity of such a document to reject it. For instance, the authenticity of the information source, the credibility of the method used to secure the information, the trustworthiness of the presenting, saving and sending process, and the legitimacy of the identity of the author who serves/produces the information.
Prohibited subjects of E-contract
Although the trend of E-contracts is widespread and still growing, specific categories of contracts are not acceptable in electronic copy due to the threat of misuse of such documents and/or the vulnerability of the content. Following categories of contracts are generally not acceptable in electronic copy:
- Documents associated with personal issues, such as marriage, divorce, child adoption, etc.;
- Wills and trusts;
- Deeds of title to immovable property;
- Any transaction which involves purchase, sale or lease (for the term exceeding ten years), or any other disposition of immovable property;
- Registration of any rights related to immovable property;
- Any document which is required to be attested before the Notary Republic;
- Any other document which is exempt by the provision of the law.
What the courts have to say:
The courts in UAE have always been strict about the validity of any contract. When it comes to E-contracts their outlook is still the same. As the validity of the contract makes it binding, it is inherently prudent that the contract is formed correctly. For instance, Dubai Court of Cassation 35, 2008 held that electronic records and documents hold the weight of its physical counterpart so as long as it is authentic. Furthermore, with evidence, the Dubai Court of Cassation (Matter 277 of 2009 and decided on 13 December 2009) held that e-signature is acceptable as evidence even if it is not in its original form. This is generally the case as courts accept e-signatures to be valid unless proven otherwise (Dubai Court of Cassation passed a similar decision (Matter 241 of 2007 and decided on 28 January 2008)).
In the Dubai International Financial Center (DIFC), matters relating to electronic transactions are now governed by the new DIFC Law Number (2) of 2017. As per this new law, any contract cannot be deemed invalid solely on the ground that it is in an electronic form (Part 3, Section 10 (13)). The validity of these e-contracts can be found in Part 4 sections 15 and 16 which follows the same principle as the UAE Federal laws. Section 19 states that any contract made via Automated System cannot be denied its validity or enforceability on the sole ground that there is a lack of personal involvement by parties.
With regards to the signatures being in electronic form, Part 5(22) of the Law states that an electronic signature is held valid if the e-sign used is appropriate for the document generated and it has proved to satisfy the required functions without further evidence. E-signatures are considered admissible evidence in the DIFC as well (Section 24).
On the whole, the rules and regulations governing E-contracts in the DIFC free-zone seem to mirror and uphold the laws across UAE. In general, the contract, electronic or not, is valid and binding so as long as it is signed appropriately by permitted authorities who possess the necessary understanding.
Overall, it appears that regulations in DIFC free-zone are similar to those across the UAE: electronic contracts are valid and legally enforceable, an electronic signature is recognized as an equivalent to a hand-written signature and is legally binding.
In the ultimate analysis, electronic contracts in the UAE are recognized by both local UAE law and DIFC free-zone law. As mentioned above there are three components governing any contract: offer, acceptance, and intention. So as far as these three components are upheld with accordance with the necessary legal requirements a contract will be deemed valid and binding regardless of the contract being electronic or not. Therefore, if parties through electronic communication have come to an agreement and formed an electronic contract, such contract will be considered as a valid and enforceable agreement that parties will have to adhere. Overall, the area of e-commerce is growing, and the legal system shall develop together with it to be able to manage current uncertainties and face future challenges.