|
 |
Philippines on brink of new Internet legislation
Author: JJ Disini
Source: International Internet Law Review
Date: June, 2000
The Philippine government is in the last stages
of passing a wide-ranging e-commerce bill. J J Disini looks at the legislation
proposed
Although the development of electronic commerce or
e-commerce in Asia can’t be compared to the industry’s phenomenal
growth in the United States, law-making bodies in the region are enacting
or contemplating the enactment of laws designed not only to regulate but
to encourage the advance of the New Economy. The Philippines is no exception.
The Philippine legislature is now in the final stages of passing an e-commerce
law while the national government is developing an attractive package
of incentives for Information Technology (IT) related investors.
Even in the absence of government support, the Philippines
has become a center for back-office operations in the region. In the Clark
Development Zone, America Online employs over 700 Filipinos providing
technical and other support to AOL customers. Other multinational companies
such as Andersen Consulting, Caltex, and Proctor & Gamble, also outsource
part of their back-office operations in the Philippines. Fifty (50) years
of American rule have secured English as a common national language in
a country divided along groups of various dialects. Furthermore, the music,
values, movies, books and trends in American culture continue pervade
the lives of ordinary Filipinos. It is widely believed that this cultural
kinship with the United States places the Philippines in a uniquely advantageous
position to provide technical as well as content-driven products and services
geared towards the New Economy. It is hoped that with the passage of laws
promoting e-commerce, the Philippines can become a major IT center in
the region.
The Need for New Legislation
Although the Philippine Congress is currently in
the process of enacting an e-commerce law, some questions have arisen
whether such a law is necessary from the standpoint of existing Philippine
law.
Philippine Contract Law (Spiritual System). It has
been said that the main objective of the e-commerce law is to legalize
electronic contracts and transactions. However, under Philippine law,
“a contract is a meeting of minds between two persons whereby one
binds himself, with respect to the other, to give something or to render
some service” (Art. 1305, Civil Code). Contracts are consensual
in nature and therefore perfected upon the absolute acceptance of a definite
offer (Asuncion vs. Court of Appeals, 238 SCRA 602 [1994]). Additionally,
the Philippine Civil Code adheres to the spiritual system where contracts
are valid if made in any way that indicates that the party wished to be
bound. In contrast, a formalist system considers contracts non-binding
if they fail to comply with prescribed ceremonial requirements. Article
1356 of the Civil Code states that “(c)ontracts shall be obligatory,
in whatever form they may have been entered into, provided all the essential
requisites for their validity are present” (italicized). In fact,
the adherence to the consensuality of contracts has led the Philippine
Supreme Court to rule that Article 1358 of the Civil Code (which provides
that certain contracts “must” be in writing or in a public
document) does not validate or invalidate contracts but merely insures
their efficacy (Tapec vs. Court of Appeals, 237 SCRA 749 [1994]). On the
basis of the foregoing, the High Court has repeatedly upheld the validity
of contracts evidenced only by testimonial evidence (Thunga Chui vs. Que
Bentec, 2 Phil 561; Alcantara vs. Alineo, 8 Phil. 111; Peterson vs. Azada,
8 Phil. 432). Generally, therefore, a contract under Philippine law will
be valid in whatever form it may be found whether it be oral, paper-based
or for that matter, electronic.
Recognition of Electronic Contracts. There is also
some basis to say that Philippine law already recognizes electronic contracts.
Article 17 of the Civil Code provides that the forms and solemnities of
contracts shall be governed by the laws of the country where the contract
was executed. By codal provision, therefore, the Philippines follows the
lex loci contractus rule. In this regard, the Supreme Court has had occasion
to rule that a power of attorney executed in Germany, must be tested as
to its formal validity by the laws of that country and not the Civil Code
(German & Co. vs. Donaldson, Sim & Co., 1 Phil 63 [1901]). In
other words, if the law where the electronic contract was entered into
recognizes such form of agreements, those electronic agreements are extrinsically
valid in the Philippines. Assuming further that such agreements are likewise
intrinsically valid, then those electronic contracts would be valid in
all respects under Philippine law.
In light of this conclusion, some are of the view
that Philippine law no longer requires any new legislation to accommodate
electronic commerce. Any pending issues should properly be resolved by
the courts as cases on electronic commerce come before them.
Problem Areas
Even if the above conclusion were entirely correct,
there appears to be some areas in the law that will require amendatory
legislation.
Formal Requirements under contract law. Despite the
general rule upholding contracts in any form, Philippine law requires
certain agreements to be in “writing”, be manually “signed”
or be notarized. The Statute of Frauds (Article 1403[2], Civil Code),
for example, requires a “writing” to validate executory contracts
of guaranty, lease of real property and the sale of goods for less than
Five Hundred Pesos (P500.00) – otherwise, these contracts are unenforceable.
A stipulation to pay interest on loans (Art. 1956, Civil Code) and the
authority to sell land (Art. 1874, Civil Code) must also be in writing.
Whether these agreements will be deemed valid in electronic form remains
to be seen as there is currently no jurisprudence on the matter. Clearly,
the issue is whether or not an electronic document and signature is identical
to a paper document and manually signed signature. In the absence of an
amendatory law, it is likely that the courts will rule in favor of paper-based
documents on the ground that there could be no legislative intent to include
electronic documents and signatures in such laws because the same did
not exist at the time of enactment.
Admissibility of Electronic Documents. Apart from
the formal requirements for certain agreements, questions arise with respect
to the admissibility of electronic documents in Philippine courts because
the Rules of Court do not explicitly provide for the manner by which the
same are to be introduced into evidence. For the admissibility of paper-based
documents, the Rules require the presentation of the original (Sec. 3,
Rule 130, Rules of Court) as well as the proper authentication –
usually by the identification of a signature appearing in such document
(Sec. 20, Rule 132, Rules of Court.). Obviously, electronic documents
will not fit neatly into such rules. First, it is difficult to determine
which electronic document is an original when each and every copy is identical
in all respects with the original. Second, since no manual signatures
appear in electronic documents, it renders the same incapable of authentication.
In a recent case, the High Court rendered e-mail
evidence inadmissible because the party proferring the print-outs of the
e-mails failed to establish that they were ever sent or received and furthermore
failed to have the print-outs certified or authenticated by the appropriate
person in-charge of the e-mail system (IBM Phils. vs. NLRC, G.R. No. 117221,
April 13, 1999). Unfortunately, the High Court did not take this opportunity
to lay down specific guidelines for the admissibility of electronic documents.
As such, Philippine law on the admissibility of electronic documents and
contracts remains unsettled.
These unresolved issues relating to the admissibility
and validity of electronic contracts have created an atmosphere of legal
uncertainty which has hindered investment into e-commerce ventures in
the Philippines. It was therefore the concluded that in order to remove
such hindrances, encourage the growth of e-commerce in the Philippines
as well as to maintain a competitive edge vis-à-vis other countries
in the region, an electronic commerce law would be needed.
Electronic Commerce Bills (House Bill No. 9971 and Senate Bill No. 1902)
In response to such calls, the Philippine Legislature
has been considering and is now expected to pass a law governing electronic
commerce by July, 2000. Senate Bill No. 1902 was approved by the Philippine
Senate in April, 2000 while the House of Representatives will likely approve
House Bill No. 9971 by the third week of May, 2000 (as of this writing,
interpellations on House Bill No. 9971 will commence at the lower house).
Both bills are primarily based upon the United Nations Commission on International
Trade Law (UNCITRAL) Model Law on Electronic Commerce.
Electronic Contracts and Signatures. Pursuant to
the proposed law, electronic documents and contracts will enjoy the same
legal status as paper-based documents and be admissible in evidence. In
addition, electronic signatures, including digital signatures, will be
recognized and considered at par with those manually rendered. These provisions
are intended to address situations where the law requires a “writing”
or a “signature” for the validity of agreements.
Definition of Electronic Document. Notably, the electronic
documents subject of the law are not limited to computer files but extend
to all electronic data in similar devices. Hence, the following will be
considered to be electronic documents: faxes, voice mail, telex, teletype,
pager messages, cellphone text (SMS) messages, and electronic entries
in personal digital assistants (PDAs), to name a few. The expansive definition
contemplates situations where the electronic data will travel from one
medium to another (e.g., from e-mail to fax) while remaining within the
scope of the proposed law. In this respect, the act is “media neutral”
and encompasses all technologies. Furthermore, it does not exclude non-Internet
commerce such as those done in “closed” electronic data interchange
(EDI) systems or between parties transacting in private networks.
Incorporation by Reference. The proposed law also
validates information contained in electronic documents which are incorporated
by reference. This provision is important because it is expected that
much of e-commerce will be conducted through data messages that contain
references to some other electronic or even paper document. For example,
in EDI messages parties and items are referred to by code numbers and
under this law, the fact that the message is composed entirely of numbers
should not detract from its status as a binding contract. In addition,
allowing incorporation by reference also serves to facilitate the inclusion
of standard terms and conditions or common definitions in electronic contracts.
An electronic contract could for example include a hyperlink to a page
containing the said information.
Electronic Signatures. Contrary to popular belief,
electronic signatures are not scanned or graphical images of handwritten
signatures. The proposed law defines electronic signatures as any distinctive
mark in electronic form or any procedure employed by a person to authenticate
or approve an electronic document. This hews closely to the real world
function of a signature – to identify the signer and signify his
approval. In this respect the law is again media neutral and includes
electronic signatures made through mobile phones and smart cards. A simple
text string on an e-mail would likewise suffice. The law will also validate
digital signatures – a process which utilizes public key encryption
technologies to ensure the integrity and source of electronic documents
to a point where the sender will be unable to repudiate the contents and
effect of the same.
Admissibility of Electronic Documents. Congress,
through the e-commerce law, will amend the Rules of Evidence to allow
for the admission of electronic documents. Originally, both bills were
silent on the manner by which such documents were to be authenticated
in court. In response to this, the Senate in its version included a provision
for the authentication of electronic documents (Sec. 12, Senate Bill No.
1902) whereby the party presenting the document has the burden of proving
its authenticity as well as its integrity in accordance with stated requirements.
Furthermore, the proper identification or point of origin of an electronic
document must be disclosed; otherwise, it will render the same of no value
under the law.
Retention of Electronic Documents. If the bill passes,
all documents, records, or information required by law to be retained
may be stored in electronic form. This provision of the proposed bill
is expected to spark the growth of digital imaging and encoding companies
in the country as companies and other businesses reclaim expensive office
space used for filing cabinets and records in favor of digital files stored
in hard drives or CD-ROM.
The Philippine e-Government. The proposed law also
encourages all departments and agencies of the Philippine Government to
conduct its official business and perform its governmental functions electronically.
In fact, the Senate version of the bill gives the Government a deadline
of two (2) years to comply (Sec. 25, Senate Bill No. 1902). Apart from
the acceptance, processing and release of permit applications, all government
agencies are also required to allow electronic payments for all transactions.
Lead Agency. Under the proposed law, the Department
of Trade and Industry (DTI) will supervise and direct the promotion and
development of electronic commerce in the Philippines. Pursuant to this
mandate, the DTI will be granted broad powers to issue regulations affecting
the proper implementation of the e-commerce law.
Hacking and Cracking. Finally, the law penalizes
hacking and cracking with a minimum fine of P100,000.00 (US$2,500.00)
and mandatory imprisonment from six (6) months to three (3) years. In
the wake of the ILOVEYOU virus incident which allegedly originated from
the Philippines, Congress is contemplating the imposition of heavier penalties.
Although there is some divergence in the definition of “hacking”
in both bills, it involves the unauthorized access into computer systems
in order to corrupt, destroy, alter or steal electronic documents. The
Senate version also includes the introduction of computer viruses in the
definition of hacking (Sec. 29[a], Senate Bill No. 1902).
Philippine Government e-Initiatives
Apart from the Electronic Commerce Bill, the government
has undertaken other initiatives at promoting e-commerce in the Philippines.
E-Commerce Promotion Council. Created pursuant to
Executive Order No. 468 (February 23, 1998), the Electronic Commerce Promotion
Council (ECPC) is a coordinating body for the promotion and development
of electronic commerce in the country. Composed of four (4) representatives
each from the government and private sector, the ECPC is chaired by the
Secretary of Trade and Industry and is charged with formulating a national
program and strategy for e-commerce. Recently, the ECPC formed five task
forces named €infrastructure and technology, €legal, €financial,
€manpower, and €niche, which are headed by representatives from
the private sector. The task forces aim to assist in the formulation of
an e-commerce strategy dubbed “ISP.com” or Internet Strategy
for the Philippines.
e-Investment Incentives
Board of Investments. Tasked with implementing Omnibus
Investments Code (Executive Order No. 226, as amended, the “Code”)
granting fiscal incentives to investors in preferred areas of investment,
the Board of Investments (BOI) is currently updating the Investment Priority
Plan (IPP) for 2000 (IPP2000) to include the following IT-related business:
- Software Development Projects which includes the programming of system
software, middle ware and applications software
- IT Enabled Services which encompasses data encoding, digital directories,
legal records, computer aided engineering design, and digital cataloguing.
- Support and Knowledge-Based Services which consist of software maintenance,
information systems planning and related services.
- Business Processes Outsourcing such as technical support services.
Whereas previous IPPs granted incentives only to
export-oriented IT-related service firms, the IPP2000 shall extend such
incentives further to include companies serving the local market. The
incentives under the Code include an income tax holiday for a maximum
of six (6) years; tax credits on domestic capital equipment; and, employment
of foreign nationals.
Amendments to the Code. The Philippine Congress is
currently considering amendments to the Code which will expand the current
menu of incentives in order to make the Philippines a more attractive
site for foreign investment (House Bill No. 10596). In the case of IT-related
projects, the income tax holiday may apply for as long as twelve (12)
years. Moreover, the importation of capital equipment, spare parts and
production consumables shall be free from all taxes and duties. Finally,
qualified enterprises shall likewise enjoy a double deduction for expenses
related to training and research and development.
Philippine Economic Zone Authority. In a bid to encourage
the development of IT-centric special economic zones, the Philippine Economic
Zone Authority (PEZA) recently issued the Guidelines for the Establishment
of Information Technology (IT) Parks (PEZA Board Resolution No. 99-264
dated October 6, 1999). In general, all IT parks should be located outside
the National Capital Region (which includes Metro Manila) and have a minimum
area of Five (5) hectares. IT parks within the National Capital Region
will be allowed only if the locators at said parks do not engage in manufacturing.
Developers of IT parks shall be required to install sufficient infrastructure
and utilities to support their locators. Should the IT park developer
decide to provide the utility requirements (power, telecommunications,
water, etc.) of the IT park, it will be allowed to do so if the same will
be undertaken through a new and separate vehicle. IT park developers and
their locators may, if qualified, enjoy the same incentives granted to
them under the Omnibus Investments Code or, alternatively, under the Special
Economic Zone Act of 1995 (Republic Act No. 7916, as amended). To date,
only one (1) IT park (located in Manila) has been granted incentives by
the PEZA. Finally, the PEZA is deliberating a proposal to allow buildings
or specified floors thereof to qualify as IT parks in order to extend
the fiscal incentives to IT-related companies located in the central business
districts.
Conclusion
In July, 2000, a conference organized by the Global
Information Infrastructure Commission will be held in Manila. At that
event, it is expected that the E-Commerce bills will have been signed
into law and the incentives package will be in place. It would be, to
say the least, a fitting welcome to the delegates – a legal framework
and governmental support to promote and enhance the growth of e-commerce
in the Philippines.
|
