Overview (October 2000)

Background
Definition and Status of Service Providers
Trading Restrictions
Online Contracts
Liability of Internet Service Providers
Self-Regulation
Dispute Resolution
Comment

Background

In the European Agreement concluded between Hungary and the European Community and in government decrees, Hungary undertook to ensure that its existing legislation is harmonized with EU norms and requirements. An appraisal of EU law is thus important when analyzing Hungarian legal regulations that relate to electronic commerce. Among other legislation, Hungary will consider EU Directive 2000/31/EU on E-commerce when passing specific laws in this field.

In line with this undertaking, the government plans to improve the competitiveness of small and medium-sized enterprises by establishing a harmonized legal framework for e-commerce by the end of 2000.

The government's most recent legislative plan concerns the regulation of electronic signatures. A resolution issued in August sets forth the principles governing this planned legislation.

Legislative activity in this area cannot be regarded as lagging behind actual practice, since according to economic sources only about 1.5% of private households are using the Internet, due to its high associated costs. However, these costs are expected to drop once the single nationwide telephone service provider's concession expires. In the economic sector, the estimated number of internet users stands at around 10%, a figure which is also expected to grow rapidly once costs become lower and certain specific regulations are introduced.

This overview outlines the main aspects of e-commerce dealt with in Hungarian law in light of the EU Directive on E-commerce.

Definition and Status of Service Providers

According to the rules of the Telecommunications Act (Act 72 of 1992), internet access providers and internet service providers are considered to be public telecommunication service providers. ('Public telecommunication service' is defined in the Annex of the Telecommunications Act as the transmission of signals or provision of access to subscribers and users in exchange for a certain fee). Internet services may be provided from among public telecommuications services once the Communication Authority has issued an official service licence.

The activities of an internet content provider are not subject to any specific licence (this has been confirmed in legal practice, eg, by Decision 135/1998 VJ of the Competition Authority). However, if the activity (on or off-line) is subject to a licence or notification irrespective of the technical means involved, the content provider must obtain the necessary operation licence. Thus, for example, electronic newspapers are subject to the rules of the Press Act (Act 2 of 1986); like the establishment of actual newspapers, their establishment must be reported to the relevant ministry.

An important question that arose in the European Union was which law should apply to service providers (ie, internet service and content providers) within the sphere of e-commerce, including their commercial operation and the contents of their home pages. Options include the provider's private law, the private law of the consumer and the applicable law of the place where the service provider's server is located.

In Hungary, this question arises primarily in connection with international international sale and purchase, supply and commercial contract and with the the liability of foreign or Hungarian advertisers under international private law. In the absence of a unified, consolidated, legal framework, the rules of Law-Decree 13 of 1979 on international private law, especially its Chapter III on the Law of Intellectual Property and Chapter V on Contracts, apply to agreements with a foreign element.

Trading Restrictions

Several legal regulations on economy and trading, which have been harmonized with EU law, are directly or indirectly applicable to e-commerce in Hungary. These include the laws on Advertising (Act 58 of 1997), Consumer Protection (Act 155 of 1997) and Personal Data Protection (Act 63 of 1992), and intellectual property laws, primarily the Copyright Act (Act 76 of 1999). However, some modification of these rules may be necessary for their application to internet-specific elements such as the following.

Spam
Although not specifically related to the Internet, Hungarian law provides for some restrictions regarding unsolicited commercial communication. According to the Act on Advertising, an advertisement may only be published if it is clearly identified as such by means that remain separate from the rest of the communication.

Government Decree 17/1999 (2.5) on distance selling provides that unless the consumer explicitly objects, a business may use a means of telecommunication that allows for direct contact between parties, but that is not an offer made by telephone or fax. Therefore, spamming is not permitted if the consumer explicitly objects to it.

The Banking Act (Act 112 of 1996) also sets out an opt-out solution. It provides that a financial institution is not authorized to send a client advertisement material via direct mail if expressly prohibited by the client (Article 201).

Cookies
The use of cookies raises issues of consumer protection due to the collection and processing of data. When dealing with these issues, the laws of personal data protection (eg, Act 63 of 1992 on personal data protection and Act 119 of 1995 on the use of names and addresses for research and direct marketing purposes) must be taken into consideration. In line with the practice in other European countries, these follow the 'safe harbour' principle. According to this principle, the collection, processing and transmission of data is only admissible with the prior approval of the authorized person. In addition, the purpose for which the data will be used must be made known to the authorized person and the data must be deleted at his request. If data is to be transmitted abroad, the parliamentary commissioner on data protection (ombudsman) must be informed. Further, the right to to request the deletion of personal data from the database, and the right to be informed of the purpose and method of data processing and use, must be made available to the the person whose data is concerned.

It is advisable to follow the recommendations of the parliamentary commissioner on data protection, which provide legal analysis of several internet-related personal data protection issues, for example, whether an e-mail address constitutes personal data (627/K/1998, 693/K1998).

Meta-tags
If unfair advantage is taken due to the use of meta-tags, the competitor may commence legal action on the basis of the Competition Act (Act 57 of 1996) against the unfair trade practice of the meta-tag user.

Links
Links may only be applied in accordance with intellectual property laws (primarily Act 4 of 1959 on the Civil Code, Trademark Act 11 of 1997 and the Copyright Act), and laws on competition and advertising.

Online Contracts

The general rules concerning the conclusion of contracts is set forth in the Hungarian Civil Code (Act 4 of 1959). In international trade relations, these rules are supplemented by Act 3 of 1994 on Foreign Trade, the Council of Ministers Resolution 1053/1974. (10.17) and Decree 7/1974 (10.17) of the minister of foreign trade on its enforcement. Depending on the nature of the contract, the rules of the Vienna Convention (July 23 1969), which were enacted in Law Decree 12 of 1987, may also apply.

These regulations are further supplemented by the specific rules of Government Decree 17/1999 (2.5) on distance selling. The regulations set forth in this decree cover consumer contracts with the exception of those relating to certain areas (eg, financial, investment and insurance services, the transfer of real estate and public auctions). Its specific provisions include:

• the duty to provide information about the content of the offer, specifically information that identifies the provider and the product;
  
  
• the duty to provide information on cancelling the contract;

• the enforcement of warranty claims; and
  
  
• the termination of a contract, if the term of the contract is a definite period or exceeds one year.

The scope of the decree does not only cover communication via electronic means. It is only applicable to consumer contracts.

The general rules of the Civil Code provide that a contract between persons who are not simultaneously, physically present is concluded once the acceptance of the offer reaches the offeror. The acceptance of the offer only constitutes a contract if it does not contain any provisions that differ from those contained in the original offer. If the acceptance constitutes a counter-offer, the original offer becomes ineffective.

The date of the conclusion of the contract depends on the way (ie, verbal or written) in which the offer was made. The Civil Code provides that a contractual declaration made in writing becomes effective once it reaches the other party. Legal commentary supplements these rules by further specifications: between parties who are not physically present, the contract is concluded once the acceptance - which may be in a form of a letter, fax or telegram - reaches the offeror.

If the acceptance is in the form of an electronic message, the question is what act constitutes a valid acceptance of the offer. One answer is when the offeror first has the opportunity to access the message. Another option is to record the time at which the message containing the acceptance first appears on the screen of the recipient's computer and is acknowledged by an acceptance confirmation message by the sender. The European Union attempts to resolve this issue in favour of consumers. Under the E-commerce Directive, the provider is obliged to acknowledge receipt of the acceptance of the offer by a return message. The party accepting the offer is thus able to prove the time and date on which the offeror received the acceptance. Hungarian legislation will probably follow this principle.

According to Section 216(1) ) of the Civil Code, unless otherwise regulated, a contract may be entered into orally, in writing or by conduct. The problem of proving that a contract was concluded by conduct may arise in e-commerce transactions, particularly if the contract has already been concluded by acceptance of the offer but no performance has occurred.

Certain formal requirements for the valid conclusion of a contract contained in the Civil Code may raise problems in the field of e-commerce. According to Section 218(1) of the Civil Code, if the law or the parties' agreement calls for a written form, a substantial part of the contract at the least must be executed in writing (this relates to the conclusion, modification and termination of the contract). If the contracting party is unable to write, the contract will only be valid if it is in notarial form or in the form of a private deed with conclusive effect.

If the law or the parties' agreement requires the written form for the validity of the contract, unless regulated otherwise, an agreement reached through an exchange of letters, telegrams or telex will be considered as a contract concluded in writing according to Section 38(2) of the Commentary of the Civil Code. The Decree on the Enforcement of Foreign Trade (Section 6) makes identical provisions. According to this decree, all foreign trade agreements must be concluded in writing.

In the light of these legal requirements, no formal requirement exists whereby an original, signed document is needed for the validity of a contract concluded by parties who are not physically present, unless otherwise indicated by law or agreement of the parties.

As a matter of evidence, however, the printout of a mail message cannot be considered equivalent to a deed with conclusive effect if it does not contain the other party's signature. According to Section 38 of the Commentary of the Civil Code, if several copies of a document are prepared, the contract will still become valid if each party signs only the copy prepared for the other party.

In the case of a dispute, the court will only consider printouts of e-mails without a signature as evidence as part of its residuary discretionary power. It will only take a printout into account if it is a presumptive proof, containing all the essential elements of the contract, and can be shown to derive from the other party.

A legal regulation on electronic signatures and the acknowledgement of electronic documents is expected to be established relatively soon in Hungary to solve these problems. In the meantime, however, due to the difficulties of evidence, consumer contracts should be concluded in writing as a private deed with conclusive effect (ie, signed by both parties), primarily with respect to the following regulations:

• The decree on distance selling explicitly provides that a business is not entitled to demand performance by the consumer if it provides a service or sells goods which have not previously been ordered by the consumer. An example is the delivery of books or newspapers if the consumer does not explicitly return a refusal notice stating that he/she does not wish to have them delivered after receipt of an offer. Even if the consumer fails to make this statement, the presumption that the business organization's offer has been tacitly accepted cannot be made.
  
  
• In most consumer contracts a business must obtain the consumer's explicit consent in order to use automatic dialling or fax systems in order to conclude a contract. The Government Decree on the Mandatory Provisions of the General Business Terms of Brokerage Companies 205/1996 (12.23) includes a duty to inform investors in detail whether the brokerage company uses sound recorders to provide the service. While in these cases it is usually the consumer who bears responsibility for giving false or unclear information according to the general terms and conditions of the content providers, such provisions may be deeemed unfair and, therefore, invalid.
  
  
• According to the decree on distance selling, a business bears the burden of proving that it has fulfilled its duty to inform the client, and that it has complied with all information obligations and statutory deadlines, and has obtained the consumer's approval to conclude the contract via telephone or fax.
  
  
• With respect to consumer protection, the business bears the burden of proving that no provision of the general terms and conditions is unfair or unilateral.
  
  
• If, according to existing legal regulations, a contract's conclusion in writing is a formal requirement of validity, a contract that does not fulfil this requirement is void. These contracts include, for example, real estate sales. According to Section 71 of the Act on Securities, contracts concluded between a brokerage company and the consumer must be confirmed in written form in accordance with the general terms of business.

Along with the difficulties in proving the content and conclusion of electronic contracts, security of payments is one of the key problems within the e-commerce sector.

Government Decree 77/1999 (5.28) on the issue and use of electronic payment instruments governs the following issues in accordance with EU norms:

• transfer of funds;
  
  
• cash withdrawals (ie, transactions made via remote-access payment instruments but not via electronic means); and
  
  
• rules that apply to the contractual relationship between the holder of the electronic payment instrument and the issuer.

The most relevant rules regarding liability for the safety of the electronic payment transactions are as follows:

• Both parties must keep records of secret passwords and codes which are needed for the use of the electronic payment instrument.
  
  
• The contract must include a clause whereby the holder is obliged to notify the issuer or the institution mandated by him/her immediately once he/she becomes aware of (i) the loss or theft of the electronic payment instrument; (ii) access gained by an unauthorized third person to the personal identification number or other code of the electronic payment instrument; or (iii) the recording on his/her bank account of any unauthorized transaction.
  
  
• The issuer must ensure that means of communication are available that enable the holder to make these notifications at any time on any day. The decree requires the issuer to keep records of each notification submitted by the holder for five years. The records must be kept in an accurate and unalterable format, which shows the exact time of the notification and its content. The issuer must issue a record on the holder's notification indicating the content and the time of the notification.
  
  
• Until the time of notification, the holder bears the loss sustained; after notification the issuer bears the loss sustained. The issuer is not liable if it proves that the damage was due to the holder's gross negligent or willful breach of contract.
  
  
• Pursuant to the Criminal Code, misuse of a bank card constitutes a criminal offence. As well as the traditional uses of a bank card, shopping via the Internet is becoming more common. In these cases the traditional use is unavailable, since the virtual transaction is based on the bank card's data rather than its physical presence. However, experts can create special software that generates card numbers which will be accepted by a business's safety program and cause a request or command to be met.
  

With respect to electronic money, issuers are trying to combat their strict liability, which accords with EU regulations, by introducing classification proceedings to increase the security and safety of electronic payments. The Secure Electronic Transaction norm developed by Visa International and MasterCard in 1996 is the safest security system, although it is still used mostly in the wholesale and retail trade. Essentially, payment execution takes place via an identification number issued by a financial service provider. Therefore, it does not require any distribution of credit card numbers. Further, browser identifiers used for the purchase identify the contracting parties prior to performance. A more widely used standard in today's e-commerce transactions is the Secure Socket Layer standard. According to this standard, the purchaser's browser encodes credit card data before transmitting it, in order to prevent illegal interference. Both standards have begun to be used in Hungary as well.

Liability of Internet Service Providers

In general contractual relationships, the internet service provider is subject to a general civil law liability. As a telecommunications provider for public purposes, professional liability rests with it. Pursuant to Section 68 of Government Decree 218/1999 (12.28) on specific contraventions, telecommunications services performed for public purposes without permission qualifies as a contravention. The internet provider is also subject to criminal liability if it commits certain offences, which were recently specified in an amendment to the Criminal Code (Act 4 of 1978).

The internet provider's obligations as a telecommunications institution are defined in Act 75 of 1999 on Organized Crime and Related Matters and additional amendments which were incorporated into Act 73 of 1992 on Telecommunications. Section 25(3) of the act provides that at the investigative authority's request in an urgent matter, telecommunications service providers must disclose all telecommunications-related data in their files which is relevant to the case in question. The obligation stands even without the public prosecutor's approval as defined in a separate legal regulation. As in the EU E-commerce Directive, 'notice and take down' liability has not been introduced in Hungary.

Self-Regulation

It is usual practice in Hungary for trade associations and chambers to develop rules of professional ethics. It is expected that through similar self-regulation, so-called 'netiquette' rules will be developed and accepted by online providers.

Examples already in existence are the Rules of the Council of Internet Service Providers, and the Rules of Delegating and Registering Internet Domains under the .hu top-level public domain and under certain second level domains.

Dispute Resolution

In order to speed up dispute resolution procedures, the legislature has introduced the preliminery injunction as a legal instrument (Act 3 of 1952 on Civil Proceedings, Section 156). However, its application in practice is still unconvincing.

In the case of domain delegation disputes in Hungary, the Council of Internet Service Providers is supporting the development of ad hoc arbitration for dispute resolutions. In disputes regarding .com, .net and .org domain registrations, one dispute resolution option is an administrative settlement in accordance with the policy rules.

In international disputes, Law-Decree 13 of 1979 and related conventions apply.

Comment

This Overview does not provide an exhaustive analysis of all contractual and non-contractual legal regulations that relate to the development of legal relationships in the sphere of e-commerce. The aim is to emphasize the most relevant legal issues which participants in e-commerce transactions may encounter. It should be noted that the government is revising existing laws to identify the areas in which the amendment of laws or the introduction of new regulations is necessary in order to promote e-commerce.

For further information on this topic, please contact Judit Budai at Szecskay Law Firm Moquet Borde by telephone (+36 1 353 1255) or by fax (+36 1 353 1229) or by e-mail ([email protected]).