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Published: Fri, 02 Feb 2018
The role of the internet
The role of the internet in today’s world has unexpectedly fast evolved from a medium of pure communication and information derivation to one additionally facilitating the direct sale and purchase of goods and services. Welcome to the era of electronic commerce in which, human wants and needs ranging from foodstuff, property, electronic gadgets to shares listed on the Nairobi Stock Exchange, delivery services, books, clothes and many more in this day and age, can be satisfied with a mere click (or two). The phenomenon has not been lost on the Kenyan populace with some of the popular local online shops providing internet based transactions being: Rachel’s bargain corner; N-soko; Eastafricanized; Gadgetsguru; and Onlineduka. However, as much as e-commerce derives its upward growth rate and prides itself from and in, respectively, the ease and convenience in the conduct of business transactions, it is not bereft of the legal pitfalls associated with internet based transactions and internet use in general.
This work studies the major legal issues in electronic commerce and their proposed resolution via regulation. Specifically, it addresses the question of the appropriate level of control the Government of Kenya and its agencies may enforce on internet based transactions.
1.1 THE PROBLEM
1.1.1 BACKGROUND OF THE PROBLEM
Electronic commerce involves the use of information technology to enhance communications and transactions with all of an organisation’s stakeholders. Such stakeholders include customers, suppliers, government regulators, financial institutions, managers, employees and the public at large. In brief, it is the carrying out of commercial transactions on the internet.
Websites offering internet based commercial transactions may be classified either as business to consumer (B2C), business to business (B2B) or consumer to consumer (C2C) the last of which is the latest entry in the said classifications.
Electronic commerce generally affords users improvement of organisational performance, increased profitability, increased market share, improved customer service, faster product delivery, round the clock utility, global reach, minimal costs of acquiring serving and retaining customers, offers an extended enterprise that is easy to build, dispenses with the need for intermediaries due to directly approaching customers, improved customer service, knowledge of customer behaviour, defiance of distance limitations, defiance of time limitations, larger markets, increased economic productivity, less advertising costs among numerous other benefits associated with the electronic age. In this light, the internet promotes trade, both local and international, in a way and to an extent not previously envisaged.
Its main stumbling block however, is the sluggish pace at which government regulators are keeping abreast with the information technology revolution in addressing the arising legal issues such as the protection of consumer privacy, the security of consumer payments, contract regulation, protection of intellectual property, the borderless nature of the internet and dispute resolution mechanisms especially for parties in different geographical jurisdictions.
The internet has therefore been often regarded as a wide frontier in which regulation, policies and conventions lag behind developments. The making of case law which demonstrates how laws and regulations are likely to be interpreted also lags behind the specification of laws and regulations. Because the internet and electronic commerce are fairly new in the legal perspective, it is extremely difficult to predict the legal consequences of any action.
Governments the world over know that the internet has become a vital tool in the modern business environment but are not sure whether it deserves their attention and if so how. The aim of this study is therefore to assess the need for government regulation of internet based transactions in Kenya and suggest the extent to which the same may take.
1.1.2 STATEMENT OF THE PROBLEM
With the arrival of fibre-optic cables to East Africa, electronic commerce in Kenya is poised for exponential growth due to the increased web traffic and accessibility offered by this infrastructure that is pegged on affordable and fast access to the internet. This requires an accurate policy and regulatory framework to shape the environment into which the new bandwidth arrives. However, despite an increase in internet based transactions, little has been done to analyse and formulate a clear structure of the extent of regulation to address the legal issues arising from internet based transactions.
Currently the indication of it is to be found in the National Information and Communications Policy 2006 at 3.3.2 ‘Electronic Commerce’ which states that,
In recognition of the important role e-commerce plays in economic development, the use of e-commerce in trade and investments as a means of integrating Kenya into the global economy will be promoted.
To this end, the Government will:
a) Support the development of e-commerce by enacting appropriate legislation to support e-business…
Certain issues are left unresolved in this provision such as, what is the legal framework to ensure the entrenchment of the policy’s provision? What timeframe should be given to enact such legislation? Which issues is such legislation to address? What is the role of the private sector in developing internet based commerce regulations? What kind of restrictions should the government avoid in coming up with a regulatory framework?
If these questions are not seriously addressed and acted upon urgently, opportunities that would otherwise have been available to the business community and the general public due to the increased internet accessibility, will become foreclosed due to the lack of a substantive and procedural framework to address the everyday issues arising in electronic commerce previously highlighted such as the protection of consumer privacy, the security of consumer payments, contract regulation, protection of intellectual property, the borderless nature of the internet and dispute resolution mechanisms especially for parties in different geographical jurisdictions.
This will in the long run impede Kenya’s goals in its search for dominance in the world’s dynamic economic environment. The expediency with which the regulation on this front is required cannot therefore be stressed enough. It therefore becomes the intention of this work to suggest a regulatory framework for the same in Kenya.
1.1.3 RESEARCH QUESTIONS
Main Research Question
As a guide in formulating a solution to the stated legal problem, the question that begs an answer is:
What appropriate level of control may the Government of Kenya and its agencies enforce on internet based transactions?
Specific Research Questions
Specific questions without which the foregoing cannot be answered are formulated as hereunder:
- To what extent are differences between electronic commerce and traditional modes of transactions existent that justify separate regulation?
- To what extent do legal issues arise in electronic commerce bringing about the need for regulation?
- To what extent do the laws of Kenya currently in existence act as barriers to electronic commerce?
- To what benefit is a comparative study to the United Kingdom’s system in coming up with Kenya’s regulatory framework?
1.2 POINTS OF DEPARTURE, SIGNIFICANCE, PRESUMPTIONS AND HYPOTHESIS
1.2.1 THEORETICAL FRAMEWORK
There are three main aspects that underpin the question on whether or not to have various governments regulate internet transactions within their respective jurisdictions. The first of these is the economic theory which looks to the various economic merits and demerits that are associated with having either a controlled business environment (planned economy) or an economy subjected solely to the market forces of demand and supply (free market system). The other is the argument for and against the libertarian theorywhile the last considers the position of state sovereignty versus the borderless nature of the internet. This section considers all these points of view and attempts to derive a point of convergence for the current research agenda.
1.2.1a Economic Theories
A free market system is where the decision about what is regulated is the outcome of millions of separate individual decisions made by consumers, producers and owners of productive services. The decisions reflect private preferences and interests.In addition, the system elevates the principle of party autonomy which is considered essential in the conduct of business transactions. Apart from playing its traditional role of providing defence, police service and such infrastructural facilities as roads for public transport, a government plays a very limited role in directly economic profit making activities.
The free market system affords various advantages to the parties involved. Firstly, people are given the incentive to work hard because opportunities exist for individuals to accumulate high levels of wealth via unlimited means. Secondly, people are afforded the opportunity to spend their money in whichever manner they wish. Thirdly, a free market is flexible in that it responds adequately to changes in consumer wishes. Finally,because the decisions are made in response to market demands, there is no need to use additional resources to make decisions, record them and check on whether or not they are being carried out. The size of the civil service is therefore significantly reduced.
A planned economy on the other hand is a system where all major economic decisions are made by a government ministry or affiliated planning organisation. Here all questions about the allocation of resources and mode of operation in transactions are determined by the government.
A major benefit associated with this kind of intervention is the promotion of public policy given the government’s position of being best placed to know and protect the interests of its populace.One of the disadvantages associated with this kind of economy is the lack of choice for the transacting parties on the conduct of their activities or the erosion of party autonomy. Further, since the state makes all the decisions, there must be large influential government departments which may lead to inefficient planning and to communication problems. Government officials can become over privileged and use their position for personal gain, rather than for the good of the rest of the society. This is in addition to the colossal costs of maintaining such a system.
1.2.1b Libertarian and Governance Theories
Are individuals the best judges of their own interests, or does the state, acting on behalf of society, have the right to set limits on what it regards as acceptable? This question defines the ongoing conflict between the rights of the individual and the rights of society.
The debate was initiated in 1957 when the Wolfenden Committee made recommendations for the legalisation of private prostitution and private male homosexual activities. What was of particular importance was the Wolfenden view of the function of criminal law which was stated as the preservation of public order and decency, the protection of citizens from what is offensive or injurious and to provide safeguards against the exploitation and corruption of others. It was further stated that this excluded the intervention in the private lives of citizens or the enforcement of particular patterns of behaviour.
The findings of the Wolfenden Committee were clearly based on John Stuart Mill’s statement:
The sole end for which mankind is warranted, individually or collectively, in interfering with the liberty of action of any of their number, is self protection. The only purpose for which power can be rightfully exercised over any member of a civilised community, against his will, is to prevent harm to others. His own good, either physical or moral is not sufficient warrant.
This became known as the no-harm principle according to which, there is no justification for the use of the law against citizens for any other purpose other than the prevention of harm to other citizens.
The objections to government interference were listed to be of three kinds. Firstly, the thing to be done is likely to be better conducted by individuals than by the government based on the premise that, there is no one so fit to conduct any business as those who are personally interested in it. Secondly, it is desirable that a thing should be done by individuals, rather than by the government, as a means of exercising their judgment, and giving them a familiar knowledge of the subjects in question. Thirdly, the avoidance of adding unnecessarily to a government’s power is considered to be desirable.
1.2.1c State Sovereignty versus ‘Borderless Nature of the Internet’
Apart from the economic considerations given to regulation of business transactions, the issue of jurisdiction arises given the ‘borderless nature of the internet’.Jurisdiction concerns the power of the state to affect people, property and circumstances and reflects the basic principles of state sovereignty, equality of states and non-interference in domestic affairs. Jurisdiction is a vital and central element of state sovereignty, for it is an exercise of authority, which can alter or create or terminate legal relationships and obligations.
Cyberspace is an amorphous space that does not occupy a set physical or geographic location.It is not a physical object with a tangible existence, but is itself a set of network protocols that has been adopted by a large number of individual networks allowing the transfer of information among them It is therefore a key feature of the Internet that it is set up to operate logically rather than geographically.
Since transactions can involve computers in many countries at once, it is difficult under current jurisdictional analysis to assign liability. It has been argued that a way to regulate the internet is to allow Internet service providers to serve as enforcers and regulators by virtue of the market.
1.2.1d Point s of Convergence
Despite the argument for self-regulation and party autonomy as expressed under free market thinking, consideration for public policy as best protected by the state should be given primary concern.This is because the state is under an obligation to uphold the best interests of the greater populace given the mandate which has been entrusted upon it by the people who have submitted their power and sovereignty to the state. In this way, the public order, safety, health, morals or the fundamental rights and freedoms of others are upheld to the benefit of having an enhanced society.
It therefore becomes necessary to formulate a system embodying both the free market and planned economies to mitigate against their individual demerits. To this end, a mixed economyis utilised. It includes elements of both free market and planned economies with the ratio of such mix depending on a particular set of circumstances. Transactions between a citizenry either using traditional methods or the internet are influenced by the market forces and self regulation but also subject to some further government control, such as through data protection, pollution, consumer protection, safety, employment and dispute resolution regulations and laws. This effectively cushions against the negative effects of exclusively free market and planned economies.
The operation of an optimal market depends upon parties having the confidence that they will be able to transact in an enabling environment. If they see the risk as being unacceptable, they will not employ resources, including labour and the general standard of living of the country will fall. It is for this reason that the mixed economy is utilised to dictate certain minimum standards in the conduct of transactions both over the internet and those that rely upon purely traditional methods.
The libertarian theory discussed above gives credence to the need to find an elusive balance between government regulation and the liberty of persons to do as they wish. Specifically, the thin line is described as that point at which government regulation and interference is needed for the prevention of harm to others. This could be interpreted to mean that a government can step in to protect consumers from harmful products or unethical business practices, to uphold an individual’s dignity by affording data protection laws, to protect consumers from fraud by affording payments protection among other measures which would be non-existent if the internet transactions were left purely to the mechanisms of self-regulation.
As much as the borderless nature promotes self-regulation, it becomes necessary for a state in the exercise of its sovereignty to govern certain aspects arising in internet transactions for the sake of public welfare as described in the foregoing.
1.2.2 SIGNIFICANCE OF THE STUDY
This study is of potential usefulness to the ICT Board of Kenya and Ministry of Information and Communication in their endeavour for a regulatory framework for electronic commerce in Kenya and in the achievement of the ambitious Vision 2030 agenda.
It can also be utilised in the impartation of knowledge on the legal aspects of Information Technology-an upcoming area of law-to the entire legal fraternity via continuous legal education and basic undergraduate learning.
Further, it can be used for the sensitization of legal issues in internet based commercial transactions and how to effectively tackle them to the business community and the public at large.
1.2.3 PRESUMPTIONS OF THE STUDY
The following presumptions are made regarding regulation of internet based transactions limited to the scope of this study;
- That the internet is gaining ever-increasing importance in commercial transactions conducted in Kenya.
- That ‘electronic commerce’ for the purposes of this work refers to internet based transactions. It is not the intention of this paper to cover mobile money transfer services such as M-Pesa, Yu Cash, IkoPesa and Zap offered by various telecommunication service providers.
- That this work shall not deal with cyber-crimes unless the same relate to commercial transactions over the internet.
- That based on the dynamism of the internet, boundaries have to be clearly set out.
- That the work shall be limited to the extent of regulation rather than the specific legislative technical form the same shall take given the writer’s lack of legislative drafting skill or experience
The work will dedicate a significant amount of its time and resources in an endeavour to analyse the accuracy of the following statement:
The purpose for which power can be rightfully exercised over a citizenry is to prevent harm to others and facilitate amicable transactions.
1.3 RESEARCH DESIGN
A comparative analysis will be conducted between various jurisdictions which have regulation of electronic commerce in place and the efforts made in Kenya. This will seek to establish whether and how the issues related to electronic commerce can be resolved. An examination is also conducted into why the different jurisdictions tackle the issue as they do in addition to utilising common elements to suggest a solution to the issue at hand.
A comparative study given the present case finds its suitability on the premise that it will contribute to deeper or expanded insights and a better understanding of the work. Further, given the fact that Kenya’s efforts on this front have been largely unsuccessful or vague at best, it becomes prudent to seek some form of clarity if this work is to effectively answer its main research question. Finally, regard must be had to defiant nature of the internet towards geographical borders which restricts the use of a single national system in this work.
The study will be undertaken mainly with reliance upon a diverse range of text books and various academic articles derived from various documents and electronic sources.
1.4 LITERATURE REVIEW
Regulation takes the form of public law in the form of constitutional criminal and administrative law and private law in the form of tort law, property and contractual law. A further aspect is competition law whereby public law instruments are used to intervene in free contracts ruled by private law when the market fails. This occurs when the players in the market threaten to abuse dominant positions, negative externalities arise and information inadequacies such as the lack of information on the side of the consumer to make a well informed and free choice in the market rear their ugly head. The government may use different instruments to achieve its goal to redress such market failure. The list of available instruments ranges from command and control (under public law) to self regulation and enforcement of rights and liabilities (under private law).
Transactions taking place between a supplier in one jurisdiction and one in another is a difficulty in the determination of disputes. The internet promotes international trade in a way not previously envisaged and has therefore become a wide frontier in which regulation policies and conventions lag behind developments while the making of case law which demonstrates how laws and regulations are likely to be interpreted also lags behind the specification of laws and regulations. Because the internet and e-commerce are new, it is very difficult to predict the legal consequences of any action.
On the local front, it is noted that the ICT policy is silent on the security challenge, the pricing issue, the intellectual property issue, protection of harmful content among others.
The same is galvanized by pointing out that the laws of Kenya at present do not recognize electronic transactions with some of the requirements in place acting as clear indications of this. These include giving information in writing, providing a signature, producing a document, recording information and retaining a document all of which must be in material form.
1.5 CHAPTER BREAKDOWN
In the achievement of the foregoing objectives, this work follows the order as described hereunder.
The first chapter covers the introductory phase of the study by expressing the background to the problem and statement of the same that necessitates the study, highlighting the major legal issues involved and outlining the scope of the work. The chapter further stipulates how the work is to be tackled.
The secondchapter considers the legal issues involved that have been highlighted in the first chapter. Specifically, it conducts an in-depth examination of: the differences between electronic commerce and traditional modes of transactions that justify separate regulation for the internet; the legal challenges arising in electronic commerce; and the extent to which the laws of Kenya currently in existence act as barriers to electronic commerce.
The third chapter conducts a comparative study of the United Kingdom’s regulatory system on internet based transactions with the aim of deriving lessons from it.
Finally, the fourth chapter suggests an appropriate level of control the Government of Kenya and its agencies may enforce on internet based transactions with consideration to the legal issues and the United Kingdom’s system. The chapter includes the role of the private sector towards the formulation of said level of control and the kind of restrictions the government should avoid in coming up with a regulatory framework. It concludes the conduct of this work.
This chapter considers the differences between the internet and other forms of technology necessitating its own form of regulation. It further delves into the legal issues that have to be dealt with given the nature of the internet and finalises with a commentary on the laws that act as barriers to the conduct of electronic commerce in Kenya.
2.1 DIFFERENCES BETWEEN THE INTERNET AND OTHER FORMS OF TECHNOLOGY NECESSITATING ITS OWN FORM OF REGULATION
A nagging challenge is existent in regulating ICT given its uniqueness as compared to other forms of technology. This section of the paper seeks to examine the extent to which this is manifested.
Regulation takes the form of public law in the form of constitutional, criminal and administrative law and private law in the form of tort law, property and contractual law. Competition law can also be discussed whereby, public law instruments are used to intervene in free contracts ruled by private law when the market fails because players on the market threaten to abuse dominant positions, negative externalities and information inadequacies such as the lack of information on the side of the consumer to make a well informed and free choice in the market.
The government may use different instruments to achieve its goal to redress the market failure. The range of available instruments ranges from command and control under public law to self regulation and rights and liabilities under private law.
Use of the internet is growing rapidly every year, due to the decrease in computer costs and availability of free internet access.
The first of the main differences between fixed telephony and the Internet is that the former has been shaped by parastatals which follow state guidelines in the strict sense while the latter has been subject to a negotiating process of self regulation derived from various private company boardrooms. The real worries about design and standardization on the internet therefore relate to the instance at which push comes to shove in the never-ending search for dominance in the marketplace.
Second , the anonymity option and applications enables commercial transactions to flood the internet. Such anonymity is not usually guaranteed in other forms of technology thereby bringing in the need for separate regulation.
Technical devices (in the form of software) which enable the formation of legal relationships are increasingly important. Electronic commerce needs its own set of regulations separate from the conventional law of contract in order to maintain financial transactions, anonymity, and verification of accounts and parties to transactions.
Third , given the internet’s description as ‘a network of networks linked to many national territories’ an implication for the need of special regulation is made given ICT’s international nature which differs from that of other technologies. Enforcement of law is hardly conceivable without the enforcement on national territories. It is from this point that international law regarding ICT develops.As far as trade is concerned the international law as it was formed in the physical world of international trade on the basis of trade customs, general conditions and agreements, develops as easily on the internet as in the traditional physical world.
Fourth , is the lack of authority on the internet. The internet is without a clear controlling body. It lacks in a mechanism to guide its processes since it exists as a network of computers. This causes all sorts of problems especially in fields that should not be left to self regulation by stakeholders with their own interest, but should rather be covered by a more democratic form of regulation under public law. This is especially given the lengths individuals go to protect their own selfish interests to societal detriment. These include constitutional values such as the freedom of expression, right to privacy and protection of proprietary interest.
Finally , the constant clash of different schools of thought regarding the privacy and its protection necessitate the creation of separate regulations for ICT. These are the utilitarian and dignitarian notions. The former enhances protection in the manner of a mere interest as opposed to the latter which views such protection to be that of an inherent right. These are discussed further below.
Privacy is an issue that concerns the computer community in connection with maintaining personal information on individual citizens in computerized record keeping systems. It deals with the rights of the individual regarding the collection of information in a record-keeping system about his person and activities and the processing dissemination storage and use of this information in making determinations about him. This last aspect is a long-standing legal and social problem that has become associated with the computer field mainly because computerised record-keeping systems are much more efficient than the manual systems they have replaced and because they permit linkages between record-keeping systems and correlations of records on a much greater scale than previously possible in manual systems. Thus threats to individual privacy from manual record-keeping systems are potentially amplified in computerised system.
Given the wide ranging differences between the two in their definition and application it becomes necessary to create a form of separate regulations for the internet since it cannot be based on physical territory, physical objects and physical persons.
2.2 LEGAL ISSUES ARISING IN INTERNET TRANSACTIONS
Privacy has had varied definitions and significance attached to it. Technology, especially the internet phenomenon, has had quite an impact in this field. It is the purpose of this section to delve into the intricacies of privacy: its definition; significance; the role of technology in the field; and the role of law in its safeguarding.
“ The right to decide how much knowledge of his personal thought and feeling and how much knowledge therefore of his tastes and habits of his own private doings and affairs and those of his family living under his roof, the public at large shall have is as much as one of his natural rights as his right to decide how he shall eat and drink, what he shall wear and in what manner he shall pass his leisure hours”
Those who attempt to define privacy seek to describe what privacy constitutes. Academics have defined privacy as a right to personhood, intimacy, secrecy, limited access to the self, and control over the information. The term privacy is used to denote a condition or a state in which a person is less inaccessible to others, either on the spatial, psychological or informational plane. In short, it denotes a state of limited accessibility. The notion of related interests denotes interests which privacy helps to promote and which help to promote privacy. The principal such interests are autonomy (that is, self determination), integrity (that is, a person’s state of intact, harmonious functionality based on other persons
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