Practice Areas Review: E-Commerce

E-Commerce in Ukraine: Novelties in Legal Regulation

Oleg PANTIIA

Oleg PANTIIA

Counsel, ECOVIS Bondar & Bondar

PROfile

ECOVIS Bondar & Bondar

Address:
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Office 10, Kiev, 01004
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ECOVIS Bondar & Bondar is a boutique full-service law company, member of ECOVIS International, a leading global consulting firm operating in over 50 countries around the world.

Tailored solutions, high quality, focus on details, promptness, responsiveness, flexibility, out-of-the-box thinking, practical approach to resolving clients issues, cost and time effectiveness — these are the principles that guide us in delivering our legal services. Among our strengths are:

Market Knowledge

We have been operating in Ukraine since 1998 and know the Ukrainian market and people in it. We have long-established and continuous working relations with the Ukrainian state authorities.

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As a member of ECOVIS International, we have permanent access to the international and interdisciplinary knowledge in different jurisdictions, which ensures that our clients receive the most realistic and balanced advice on cross-border and local matters.

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Our lawyers are highly qualified in diverse areas of law and possess an excellent knowledge of Ukrainian legislation and international legal standards in the provision of legal services.

ECOVIS Bondar & Bondar is a recognized law firm in Ukraine and its partners are named among leading lawyers in their respective practice areas according to  international and Ukrainian legal directories.

ECOVIS Bondar & Bondar focuses its practice on Corporate & Commercial Law, Mergers & Acquisitions, Antimonopoly & Competition Law, Litigation & International Arbitration, Labor Law and Tax. The company represents clients in diverse economic sectors, including aviation and transportation, insurance, energy, sport, real estate, banking and finance.

 

Basics of E-Commerce Legal Regulation

With the development of the infrastructure of communication networks in Ukraine the penetration of tools offered by the Internet, into society and private and public relationships is growing. According to estimates made by local researchers in 2013 the number of Internet users came to 39.51% of the country’s population, approximately 18 million people. The development of mobile platforms and wireless data transmission technologies is expected to increase the number of this audience. Thus in 2016, despite the tragic events of the last two years, Ukraine shall have at least 18 million potential clients who either already used the advantages of E-commerce or are ready to use it.

Within the last few years Ukrainian society and the State have been seeking ways to facilitate the implementation and development of electronic technologies into different spheres. A number of legislative acts were adopted to regulate the spheres of e-governance, public procurement, distrained property auctions, online business registration, access to public registers and other information. The development of such systems is carried out both by the State and independent volunteers’ projects (for instance, the project ProZorro — a pilot electronic public procurement system, which was implemented by volunteers financed by non-governmental organizations, including international organizations, and which is expected to be accepted by the State as the basis for handling public procurements).

Moving in this direction, on 3 September 2015 the Ukrainian Parliament adopted the On Electronic Commerce Act of Ukraine, which is absolutely new to Ukraine. We cannot say that the new Act was passed in the complete absence of legislation on E-Commerce. Both prior to and after the adoption of this Act, the participants of the E-Commerce were subjects to the Civil and Commercial Codes of Ukraine, On Electronic Documents and Electronic Document Control, On Electronic Digital Signature, On Consumer Protection, On Payment Systems and Money Transfer in Ukraine and other Acts of Ukraine. However, E-Commerce businesses were forced to adapt or mimicry in the face of the rules which were designed without the consideration of E-Commerce realities and were mostly based on two basic forms in civil law transaction: oral and written.

The new Act was drafted with the essential participation of market players and, to a great extent, it reflects existing Ukrainian best practice and uses the forms that business has already chosen for the sale of goods and the rendering of services with the use of information and communication systems. Thus, the On Electronic Commerce Act of Ukraine has become the fundamental piece of legislation that rendered to business transparent “rules of the game” that have been adapted to its particularities. The Act neither forces them to change their existing business models nor restricts them in implementing new business models.

The Act is of a rather general nature and its provisions may be further developed. Nevertheless, it is an important step in the legal regulation of E-Commerce in Ukraine.

Key Provisions of the Law

The Definition of the Contract

The key provision of the new Act is the definition of an electronic transaction and an electronic contract that was established at the level of the law and is equal to the provisions of the Civil Code of Ukraine.

In particular, an e-transaction is defined as an action of a person focused on the acquisition, modification or termination of civil rights or obligations, conducted with the use of information and communication systems. The e-contract is defined as an agreement of two or more parties executed with the use of electronic means.

 

Participants of the Relations in the Field of E-Commerce

The Act has defined the following parties of the transactions in the field of E-Commerce:

— The Seller — a person who sells goods, performs works or provides services using electronic and communication systems;

— The Buyer — any person who orders the goods, works or services;

— The Supplier of the services of intermediate character — a person who provides data transmission and/or data storage services and assigns network identifier services.

Taking in account Ukrainian legislation, which means that a person who sells goods, performs works or provides services using the information and communication systems should, as a general rule, be an individual or legal entity registered as an entrepreneur in accordance with Ukrainian laws. Nevertheless, individuals who are not entrepreneurs may apply the On Electronic Commerce Act to relations between them, provided that they have previously agreed to that.

The buyer shall bear no obligation to define his status.

The Act grants special attention to the provider of services of an intermediate character and distinguishes him from the seller. Such service provider may be an Internet services provider, registrar of domain names, owner of a website hosting private property sale adverts, the owner of online stores, which is the only venue to host sale of goods for the other businesses (a common form in Ukraine) and others. Such a provider is not a party to the contract of sale of goods, works or services of the other vendor and on the basis of Article 9 of the On Electronic Commerce Act is released from liability for its quality if he did not initiate the transmission of data and does not choose its recipient and cannot change the content of the contract.

Thus, the Internet provider, the registrar of domain names, etc, do not bear any liability for the actions of the Internet-user or the owner of the site. The owner of the website for private adverts shall not bear responsibility for the quality of goods supplied by the person who placed an advert on a website, etc.

Foreign participants of the E-commerce market must comply with the provisions of this Act if they sell goods, perform works or render services on the territory of Ukraine.

 

Execution of Contract. Its Form and Notices

The On Electronic Commerce Act has established the order of execution of e-contracts, namely the latter are deemed to be executed by means of exchange of electronic offer to make a contract and electronic notice on acceptance of such an offer.

The Act prescribes the amount of information which must be exchanged by the contracting parties. The contract shall be signed by the parties by means of:

— Electronic Digital Signature;

— Electronic Signature in the form of a single identifier (typically generated by the sale-of-goods system);

— Analogue of a handwritten signature (facsimile reproduction of the signature, another analogue of a handwritten signature — the least common form in Ukraine).

Under the new Act, an E-Contract executed in accordance with the established rules is deemed to be equal to a contract executed in writing. This provision is important for Ukraine, where the written form of contract prevails.

Another positive feature is that the Act practically approved the methods of execution of e-transactions that had been applied by business prior to enactment of the Act.

Nevertheless, some sections of civil law transactions were excluded from the subject of the On Electronic Commerce Act. In particular, the systems of electronic money and payments remain under the regulation of the National Bank of Ukraine. Public procurement, transactions on real estate, rent of real estate for three years or more, as well as any other transaction that should be certified by a notary or registered by the state, matrimonial contracts, transactions in gambling and some other transactions should not be executed in e-form.

What Protection/Remedies are Available in the Particular Area?

The On Electronic Commerce Act does not provide for any special or particular means of remedies for the parties of e-transactions. Thus, these remedies are applied under the general rules that exist for all parties  to civil relations.

Section 3 Article 6 of the On Electronic Commerce Act allows the parties to design their own rules of ethics in this sphere. Moreover, using the provisions of the On Arbitration Courts Act allows one to define the order of dispute resolution between the parties by means of arbitration. However, such form of dispute resolution is not very commonly used in Ukraine.

Another way to seek remedy is for the customer to defend his rights, as infringed by the entrepreneur, by filing an application to the State Customer’s Rights Protection Service in an administrative procedure.

However, the main way to seek remedy is to file a claim to state courts in an ordinary judicial procedure.

Until a few years ago the judicial system of Ukraine was unable to provide good-quality dispute resolution in E-commerce cases or in those related to Internet technologies. In the main courts did not perceive the essence of relations between the parties of a dispute or the technological particularities of E-Commerce.

A separate problem is proof through the use of evidence in a dispute arising from relationships established with the use of electronic means. Neither courts nor the parties of the disputes were ready to use electronic evidence.

Now the courts are increasingly demonstrating familiarity with the peculiarities of this category of disputes and taking into consideration  evidence which had not been accepted in civil dispute earlier.

The essential novelty is that the On Electronic Commerce Act equates the electronic document (notice) associated with an electronic transaction with written evidence in court when considering an issue between the parties of an e-transaction.

Current Legal Trends in the Sector

The On Electronic Commerce Act does not govern issues of electronic and other payment systems whose goal is the maintenance of payments for goods, works, services, etc. However, without reliable operation of E-commerce such systems are not possible. Ukraine has sought in recent years to create the conditions for the development of its own electronic payment systems. But the global players of electronic money and payments market were still partly restricted from doing business in Ukraine. In order to get rid of this obstacle the National Bank of Ukraine, beginning from July 2015, initiated the amendment of its own regulations and requirements on the payment systems in Ukraine. Yet these measures were unsuccessful. Further negotiations with PayPal and the facilitation of entry of other payment systems to the market could significantly revive E-commerce in Ukraine.

Summary

The local E-Commerce market in Ukraine is, to some extent, formed and regulated by the State. The new On Electronic Commerce Act enables entrepreneurs to preserve existing business models and to apply new ones, including those accepted in international business practice. The main driver of the further development of  Ukrainian E-Commerce is the launch of international electronic payment systems like PayPal in the country.