@eLaw.com.hk 葉謝鄧律師行

Types of Risks of E-Business

According to Marsh, Inc. a leading provider of cyberinsurance services to e-businesses, the following are most obvious types of risks for conducting online businesses:

Damage, Theft, or Disclosure of Electronic Information. Information security (data integrity, confidentiality, and availability) is critical to the expanding e-Financial Services industry. Sensitive transactions, such as customer payments via credit or debit card, health care information, etc. require a high degree of security and confidentiality.

Loss of Service. In cyberspace, the reasons for Web outages are largely the result of "intangible" or human events, and less likely due to uncontrollable causes such as fire or earthquake.

Authentication and Non-Repudiation. Especially in business to business e-commerce, both parties must be properly authenticated. A digital signature may be required to form a binding contract and two essential questions must be answered electronically: Can we with confidence confirm whom we are dealing with and can we prove that they did in fact make the transaction?

Computer Fraud. The costs of network/Internet fraud extend far beyond the fraud or crime itself. Financial losses alone may result from the need for network downtime while locating and fixing the security breach, the need for an emergency audit, public relations damage control, increased fraud insurance premiums, and loss of business.

Privacy. Concerns about privacy are increasing daily from regulators worldwide. The issue bridges confidentiality of information from a security standpoint and electronic protection of sensitive digitized data. The critical issue is protection of information from an identifiable person.

Malicious Code. Despite the advances in anti-virus software, this remains a serious global cause of data damage and destruction, disruption in service, and destruction of computer components.

Legal and Regulatory Uncertainty. At present, the extent to which banking, insurance, securities, and other laws will be affected by the Internet is largely unknown.

Intellectual Property, Content, and Advertising Infringement. Everything on a Web site can be copyrighted as intellectual property. Even business processes over the Web today can be patented. The Internet creates new exposures for content and advertising that are unlike any other medium; although it is complicated by lack of global uniformity in managing these issues.

UNCITRAL Model Law on Electronic Commerce Law

The Model Law, adopted in 1996, is intended to facilitate the use of modern means of communications and storage of information, such as electronic data interchange (EDI), electronic mail and telecopy, with or without the use of such support as the Internet. It is based on the establishment of a functional equivalent for paper-based concepts such as "writing", "signature" and "original".

By providing standards by which the legal value of electronic messages can be assessed, the Model Law should play a significant role in enhancing the use of paperless communication. In addition to general norms, the Model Law also contains rules for electronic commerce in specific areas, such as carriage of goods. With a view to assisting executive branches of Governments, legislative bodies and courts in enacting and interpreting the Model Law, the Commission has produced a Guide to Enactment of the UNCITRAL Model Law on Electronic Commerce.

Laws of Contract and Online Contracts

The laws of contract are governed by common law cases. E-commerce relates to the making of contracts are made through electronic communications. The messages are exchange electronically over the Internet or other point-to-point terminals such as ATM machines, hand-held devices such as EPS terminates. Where transactions are made, it has to go through 2 basic processes: first is the entering into a valid and enforceable contract; second is making payment. Despite the widespread use of Internet and adoption of telecommunication devices such as phone terminals (either fixed line desktop telephones or cell phones), these 2 processes are not always done in a “straight-through” manner mature E-commerce web-sites may have the 2 processed combined so that an online customer may agree to a purchase of a certain stock e.g. a bank or CD and at the same time pays through the credit card payment gateway. Some goods such as a digital photo or software can be delivered online though downloading but most require physical delivery e.g. a book or a CD.

Merchants and a buyer must ensure that an online transaction must be valid and enforceable so that merchants buyers cannot easily deny the contract's existence. Buyers get the goods order and sellers get pay.

Fundamental Questions on E-Commerce: Security Concerns in E-Commerce

1. Authentication: is a person really who he claims to be?

2. Message Integrity: has the communicated content been tampered with?

3. Privacy and Confidentiality: can I rely on the Internet to transmit the content without fear of losing confidentiality?

4. Repudiation: will electronic contracts be binding and not repudiated by the parties?

E-Commerce Trend

Many trades and industries have in the past benefited from the use of electronic transactions or trading without the Internet. This similarly happens in Hong Kong. The EDI (electronic data interchange which has been moderated and promoted by Tradelink in Hong Kong's situation), electronic banking through public telephone and private ATM network and credit card transactions are the most obvious and prominent examples. The associated networks are costly and by nature a private network and hence their communications protocols are proprietary.

The welcoming trend of the use of the Internet as an alternative which carries little cost and wide openness has caused a lot of security concerns, name on authentication of the parties, on preserving message or data integrity made during communications. The most widely accepted technology presently is the Public Key Infrastructure (PKI) . The use of PKI as a security safeguard is at the same time reinforced by the availability of an trusted third party (TPP), namely certification authorities. Hong Kong has given effect to the Electronic Transactions Ordinance, which is expected to govern transactions adopting the electronic channels as a means of communications.

Basic Legal Framework in Hong Kong

Electronic means, including the Internet, is one of the media for conducting commercial and trading activities. In general, legislation regulating the various aspects of commercial and trading activities (such as the use/collection/storage of personal data, trade description, consumer goods safety and copyright) is also applicable to commercial and trading activities conducted through electronic means. If criminal activities are involved, they can be dealt with by the Crimes Ordinance or other relevant legislation.

Moreover, with a view to facilitating the development and adoption of e-business, the Electronic Transactions Ordinance (Cap. 553) was enacted in 2000 to provide a clear legal framework for the conduct of electronic transactions. For instance, the Ordinance accords electronic record and digital signature the same legal status as that of their paper-based counterparts. We also introduced the Electronic Transactions (Amendment) Bill 2003 into the legislature last year with a view to updating and improving the Ordinance, and thereby facilitating the adoption of electronic transactions. The Amendment Ordinance, if enacted, will come into operation on June 30 this year.

Mode of E-Commerce

Regarding the mode of e-commerce utilisation, this can be based on the research and survey findings of e-commerce adoption in 2002 and 2003 published by the United Nations Conference on Trade and Development, European Commission, National Statistics of the United Kingdom, University of California and Census and Statistics Department of the Government of the Hong Kong Special Administrative Region.

In general, online shopping is most popular in the United States and European countries, in particular the United Kingdom and Germany. Enterprises in the European Union member states tend to be active in adopting e-procurement and participating in e-marketplace transactions, as well as exchanging business and product information through the Internet with their business partners, suppliers and customers. Among the firms in the United Kingdom and United States, popular e-commerce utilisation includes the use of e-mail and electronic data interchange (EDI), establishment of website and intranet/extranet, as well as electronic fund transfer and payment.

As regards the Mainland, some enterprises in the manufacturing, distribution and financial sectors have set up websites and extranets and adopted EDI. Exchange of operational data through the Internet with their customers and suppliers is also quite common. In Hong Kong, receipt of goods, services and information through electronic means has been the most commonly cited e-commerce utilisation among enterprises. Some firms have also offered product and service information through their websites, and sold their products and services through various electronic means.

Hong Kong's International Ranking

Since 2000, the Census and Statistics Department has been conducting annual surveys on information technology (IT) usage in the business sector. The survey findings have recorded a steady increase in the adoption of IT and e-commerce in the business sector over the past three years. The penetration rates of personal computer and the Internet have increased respectively from 51.5 per cent and 37.3 per cent in 2000 to 54.8 per cent and 47.5 per cent in 2003. In addition, more and more business establishments have started to order/purchase, receive, sell or deliver goods, services or information through various electronic means.

With a view to encouraging more small and medium-sized enterprises (SMEs) to adopt IT, Information Technology Services Department has been cooperating with the relevant trade associations and IT industry organisations to promote IT adoption by SMEs in specific sectors. We have already started two sector-specific programmes to promote IT adoption by travel agents and private medical practitioners. We expect that e-commerce adoption in Hong Kong will continue to grow steadily over the next few years.

Hong Kong ranks ninth overall (10th and 14th respectively in 2003 and 2002) in the Economist Intelligence Unit's 2004 e-readiness rankings, which covers over 60 economies. The rankings are based on criteria in six categories and Hong Kong comes 11th in the category of consumer and business e-commerce adoption.

Those ahead of Hong Kong in the 2004 e-readiness rankings are mainly the United States and European countries leading in IT adoption, including Denmark, the United Kingdom, Sweden, Norway and Finland, etc. The Mainland ranks 52nd.