UK: Electronic Trade Documents Bill

Overview of the Electronic Trade Documents Bill

On 12th October 2022, the Electronic Trade Documents Bill was introduced in the House of Lords, and in a next phase will be discussed at the House of Commons. The bill, in its current format, includes 7 sections imposing legal recognition to electronic versions of trade documents, allowing the ability for traders to possess electronic documents as well as switch the form of trade documents by choice. The bill is expected to “reduce transaction costs associated with paper trade documents, increase efficiency and encourage business growth, deliver environmental benefits, and increase security and transparency in documentation”.[1]

Type of trade documents covered (and excluded)

The bill first sets out the definition of “paper trade document” before moving on to its electronic equivalent as the key subject of the bill. Clause 1(1) identifies three criteria for “paper trade document”, being (a) paper form; (b) of commonly use in connection with trade, transport, or trade finance; and (c) possession [of the document] is required for a person to claim performance of an obligation, either as a matter of law, commercial custom, usage or practice. This final criterion under Clause 1(1)(c) allows for the inclusion of trade documents that are not currently documents of title under the law (such as warehouse receipt or ship’s delivery orders), but possession of these documents may be required in certain circumstances for them to fulfil their legal and commercial functions.[2]

Clause 1(2) provides a non-exhaustive list of documents that are commonly used in connection with trade in or transport of goods, or financing such trade or transport as indicated in Clause 1(1)(b). These include:
(a) a bill of exchange;
(b) a promissory note;
(c) a bill of lading;
(d) a ship’s delivery order;
(e) a warehouse receipt;
(f) a mate’s receipt;
(g) a marine insurance policy;
(h) a cargo insurance certificate.

It should be noted that these documents will only be covered by the bill if they meet the criteria set forth in Clause 1(1)(a). The bill also does not cover instruments regulated by the Uncertified Securities Regulations 2001 (S.I. 2001/3755), or other document or instrument of a type specified in regulations made by the Secretary of State [Clause 5(2)(a)]. The Secretary of State has the power to amend this coverage by issuing regulations following the procedure set forth in Section 5 of the bill.

Criteria for electronic trade documents

Previously without the current technological solutions to ensure the exclusive control and divestibility, possession as in its general notion of “dominion and control” over an object, or the ability to differentiate original and copy of electronic documents would not be possible.

Section 2 identifies the criteria for an electronic document to qualify as “electronic trade document” and that it can function as its paper equivalent.

In terms of content, an electronic document must contain the same information as would be required in a paper trade document.

In terms of form, Clause 2(2) requires that an electronic trade document must be supported by a “reliable system” to ensure its originality (the ability to distinguish original versus copy), integrity (protection against unauthorised changes); exclusive control (not more than one person to exercise control of the document at any one time); the ability to identify the persons who are able to exercise control; and divestibility (the ability to transfer both of the document and control). The last criterion is supposed to deal with the issue of double spending, that is, the transfer of electronic trade document shall deprive the original possessor the capability to possess and control that electronic trade document.

Possession of electronic documents

One key provision of the Bill is that it allows the ability to possess an electronic trade document. Under the current law of England and Wales, only tangible objects are recognised as possessable. Electronic trade documents, which are considered to be intangible, and therefore cannot be held or possessed to carry function in the same way as their paper counterparts.

The Electronic Document Bill therefore aims to address this possessability issue by recognising that “a person may possess, indorse and part with possession of an electronic trade document”. However, what comprise the power of possession of an electronic trade document is not defined in the bill, but rather left assessed as a matter of common law.[3]

As the possession question is resolved, the bill further emphasises the legal effect of electronic documents like that of paper equivalence.

Changes of form for electronic and paper trade documents

The bill allows the possibility to convert paper trade documents into electronic form and vice versa. The change of form will not affect the rights and liabilities hold under such document. In order to ensure the exclusive control of electronic trade document and avoid the double spending problem, the bill requires that where a document is converted in form, the document in its old form ceases to have effect, and all rights and liabilities relating to the document continue to have effect in relation to the document in its new form (Clause 4(2)).

The bill is compatible with the MLETR

While the UK has not formally adopted the Model Law on Electronic Transferable Records (MLETR), the bill embraces several principles and aspect of the UNCITRAL Model Law. The tech neutrality principle is signified where no particular technology is prescribed in the bill. Instead, Clause 2(5) sets out various factors to be considered in assessing the reliability of an electronic trade document system. This list is aligned with the provisions of Article 12(a) of the MLETR. The language used under Clauses 2(1) and 2(2) of the Electronic Trade Documents Bill on criteria for electronic documents reflects the content of the MLETR Article 10, though the Electronic Trade Documents Bill does not provide much clarity on the integrity of electronic trade documents.

As indicated by the Law Commission, the bill is supposed to serve as a statutory framework, while the courts would be “central in interpreting and applying the provisions” of the proposed legislation in “light of the existing common law applicable to paper trade documents, adapted for digital subject matter”.[4]

Implications for trade

The Electronic Trade Documents Bill is considered a leap for trade digitalisation in the UK as the country strive to be “the best place in the world to start and grow a technology business.”[5] In addition to the UK, currently there are only seven jurisdictions that have singed off for the UNCITRAL MLETR (i.e., Bahrain, Belize, Kiribati, Papua New Guinea, Paraguay, Singapore, and the Abu Dhabi Global Market). The US is working on changes to its legal framework to align with the MLETR, and France just recently announced its regulatory review project toward electronic trade document reforms.[6] However, the impact of the bill, and of digitalising trade documents, could only be realised if a critical mass of countries, including the UK’s major trade partners, also provide for legal recognition of electronic trade documents.

Authors:

Loan Le |+84 763 281 367 | le@tradeeconomics.com

Paul Baker |+230 263 33 24 | baker@tradeeconomics.com

Alistair Elder |+44 7492230668 | elder@tradeeconomics.com

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about specific circumstances.

References: 

[1] House of Lords, Electronic Trade Documents Bill [HL], Explanatory Notes, October 2022, p 4.

[2] House of Lords, Electronic Trade Documents Bill [HL], Explanatory Notes, October 2022, p 6.

[3] House of Lords, Electronic Trade Documents Bill [HL], Explanatory Notes, October 2022, p 11.

[4] Law Commission, ‘Electronic trade documents: Summary,’ March 2022, p 5.

[5] Department for Digital, Culture, Media & Sport, UK’s Digital Strategy, July 2022.

[6] Jacob Akins, France sets sights on electronic trade document reforms, Global Trade Review, 30 November 2022.

This article has also been published on the Mondaq website

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