Electronic trade documents: a bit more detail

At last. A couple of days ago the King signed the Electronic Trade Documents Act 2023, with the result that from 20 September we modernise and join jurisdictions such as Singapore and New York, in giving at least some computerised trade documents equivalent status to paper versions. Yesterday we gave you the heads-up: today we go into some details.

The new Act is in many ways an object lesson in how to legislate for commercial law. It is brief and to the point: aside from incidental powers to pass regulations and other boring stuff, it consists of just four sections. This is good regulation showing (to mix metaphors) both a broad brush and a light touch.

1. The Act and bills of lading

The main import of the new Act concerns bills of lading. The problems of paper bills are well-known. They are increasingly easy to forge. The need to present them in order to get goods, and the carrier’s equal and opposite duty not to release goods to someone who cannot present them, create headaches for carriers, banks and others which in practice cost big money. Also troublesome is the fact that, just as by the laws of physics nothing can move more rapidly than light, by the limitations of business no physical bill of lading can travel faster than DHL. This means that by the time a bill of lading has passed through the hands of a number of cargo owners and banks, it not infrequently arrives at the discharge port considerably after the ship carrying the cargo it relates to.

The statutory solution produced by the Act is neat. Section 2, summarised, provides that a computerised document can stand in for a paper one provided a reliable system is used aimed at ensuring that it can be identified, protected from unauthorised alteration or copying, and is susceptible to control by a single person to the exclusion of others, such that that power of control can be passed to another person who obtains a similar power. (See ss.2(2), 2(3).) The foundations thus laid, s.3 then states baldly (i) that an electronic document satisfying these criteria has the same effect as a written one (s.3(2)); (ii) that such a document can be possessed, endorsed and delivered (s.3(1)); and (iii) that anything done in relation to it has the same effect as the equivalent action as regards a paper document (s.3(3)).

You might say, why is this important? After all, two functions of the bill of lading are that of a contract of carriage and a receipt, and there has never been any difficulty about the enforceability of computerised contracts, or about the efficacy of electronic receipts. The answer is that it does matter, for three reasons.

First, we now know that once the Act is in force ss.2 and 3 of the Carriage of Goods by Sea Act 1992 will be effective to transfer contractual rights and duties under e-bills (which they probably were not before, the power under s.1(5) to extend them to such instruments having languished unexercised by governments with other, doubtless weightier, matters on their plate).

Secondly, there may have been some lingering uncertainty about whether the shipowner’s duty to hand over cargo only to a bill of lading holder, and his protection from liability to a true owner if in good faith he did so, necessarily applied to holders of e-bills. In commerce, such dubiety can be fatal to the adoption of new ways of doing things. The Act now puts this issue beyond doubt. This means that many of the reservations previously entertained by carriers and P&I interests about using e-bills outside closed contractual schemes such as BOLERO and essDocs can now be put aside.

Thirdly, the security provided by e-bills to banks is now greatly strengthened. At common law, it should be remembered, a valid pledge over goods requires a transfer of possession to the pledgee; and while there has never been any doubt that delivery of a paper bill of lading to a financier will suffice for this purpose, it was never very clear whether the same applied to an e-bill. It is now confirmed that it does. As a result, banks can rest assured that as a matter of English law possession of an e-bill gives them a full possessory security, and not some less satisfactory alternative such as a mere equitable charge.

Fourth, there is an intensely practical point. While e-bills will not eliminate the problem of slow transit of bills of lading (bureaucrats working for traders and banks in certain countries can be just as slow handling documents on a screen as they are when shuffling paper), they certainly reduce it. The possibility of transmission over cyberspace rather than by van or cargo plane may greatly reduce the incidence of documents arising after the cargo they represent. (Memo: perhaps this is the time to mull selling your shares in DHL and the banks that currently make large sums issuing bank guarantees allowing delivery to non-bill-of-lading-holders.)

No doubt, as a result of all this, we will see in the near future a flurry of announcements from P&I Clubs – who as the bodies that have to pick up the tab when things go wrong hold the whip hand here, in practice if not in law – that at least in principle they are prepared for their clients to operate with e-bills. We will await these with interest.

2. The Act and other documents relating to good

The Act does not only apply to bills of lading: it alaso applies to ship’s delivery orders, warehouse receipts, mate’s receipts, marine insurance policies, and cargo insurance certificates. Indeed this list is not exhaustive: on principle the statute affects any commercial document used in connection with trade or finance, provided its possession is “required as a matter of law or commercial custom, usage or practice for a person to claim performance of an obligation.”

On first sight, one might wonder why the list of documents was as wide as this. The difficulties with e-bills largely stemmed fromquestions about whether the bill of lading’s function as a document of title extended beyond paper instruments. But none of therse extra documents was ever a document of title anyway: so why bother?

The answer here is varied. With mate’s receipts it is difficult to see that the Act changes anything much. Save very exceptionally these are not only not documents of title, but entirely untransferable instruments relevant largely as evidence of the state and quantity of goods loaded: whether they are embodied on paper or in computer code seems beside the point.

With ship’s delivery orders and warehouse receipts there are two issues of possible significance. First, ship’s delivery orders are covered under the Carriage of Goods by Sea Act 1992, and are often as a matter of practice if not strict law presented to obtain goods: it is thus reassuring to have confirmation that they work as well in electronic form as they do on paper. Secondly, both ship’s delivery orders and warehouse receipts in paper form are regarded as documents of title within ss.24, 25 and 47 of the Sale of Goods Act 1979 such that their delivery can in certain cases of goods in transit or storage defeat the rules of nemo dat and a seller’s lien or right of stoppage. Again, it is reassuring to know that from September on electronic versions will equall;y fir this particular bill.

The extension of the operation of the Act to insurance policies and insurance certificates also looks odd. But it may be worth noting for two purposes. First, s.22 of the Marine Insurance Act 1906 still theoretically requires a contract of marine insurance to be embodied in a “policy;” a term that some, especially international traders not over-familiar with the detailed workings of English law, might think required a paper policy. True, this section is almost entirely a dead letter in practice: but it remains helpful to have an assurance that an e-policy will now indubitably fit the bill. Secondly, documentary sales, especially on a cif basis, very frequently require the provision by the seller of an insurance policy or certificate; althgough this matter can of course in theory be dealt with by specific agreement, there is something to be said for a default rule that a seller under such a contract will satisfy his obligations by providing an e-policy or e-certificate.

3. Other documents

Although the main thrust of the Act concerns carriage and related documents, note that it also applies to bills of exchange and promissory notes. This is a more specialised area, which we do not go into detail about here. Suffice it to say that the burgeoning finance trade, in particular the forfaiting industry, finds it more convenient to deal with electronic than paper negotiable instruments, and that for this reason it very successfully promoted the idea of creating a regime receptive to e-bills of exchange and e-promissory-notes.

4. The future.

Excellent marks to the Law Commission: this is a workmanlike and well-drafted Act, which will solve most of the difficulties over e-documents. Most: but not all. One big shadow hangs over the whole thing, however: conflict of laws, something crucial in transnational trade. Two issues arise in this connection.

First, does the Act apply to claims under bills of lading not governed by English (or Scots or Northern Irish) law? We do not know; but the likely result is that it does not. If parties choose to incorporate a Ruritanian choice-of-law clause, and Ruritanian law does not recognise the validity of bills in other than paper form, it would be to say the least presumptuous for an English court to hold that in English litigation the Act applies willy-nilly, and the betting must be that it would not do so. Similarly if an e-bill is governed by the law of, say, Singapore, which does recognise e-bills, then it would still seem to make sense that claims should be governed not by the 2023 Act, but rather by the Singapore Bills of Lading Act 1992 as amended to incorporate the UNCITRAL Model Law on Electronic Transferable Records in so far as this yields a different result.

Second, while English law will clearly govern contractual claims arising out of e-bills with an English choice-of-law clause (i.e. the majority of claims in practice), what of non-contractual matters such as title conflicts? Imagine an e-bill governed by English law is indorsed to a bank in Utopia which has issued (or confirmed) a letter of credit on behalf of a now-bankrupt buyer B, and the law of Utopia does not recognise that the bank has a valid security. Unless we say that because an e-bill of lading is a disembodied pattern of electrons rather than anything touchable its situs is deemed to be that of the jurisdiction by whose law it is governed, it is hard to avoid the conclusion that the law of Utopia as the lex situs applies to questions of proprietary interests in it. If so, then were litigation to arise in England between the bank and the creditors of B, a court or arbitrator might well be driven to hold that the bank’s security was ineffective despite s.3(3) of the 2023 Act.

On this we will have to wait. But there is at least some relief round the corner: the Law Commission is now hard at work on precisely these questions, and we are promised a consultation paper later this year. Meanwhile, you have two months to bone up on the existing proposals and be ready for at least something of an Big E-bang in September.

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Professor Andrew Tettenborn

Professor Andrew Tettenborn joined Swansea Law School and the Institute of International Shipping and Trade Law in 2010 having previously taught at the universities of Exeter (Bracton Professor of Law 1996-2010), Nottingham and Cambridge. Professor Tettenborn is a well-known scholar both in common law and continental jurisdictions. He has held visiting positions at Melbourne University, the University of Connecticut and at Case Law School, Cheveland, Ohio. He is author and co-author of books on torts, damages and maritime law, and of numerous articles and chapters on aspects of common law, commercial law and restitution.

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