Charles Darwin had a point. It was not, he said, the strongest of the species that survived, nor the most intelligent, but that most adaptable to change. So too with the law and digital transformation. The UK government recognises this well.
As the G7 President, the UK has been actively leading the process to achieve the legal environment for the full digitisation of trade documents. The Electronic Trade Documents Bill was first introduced in the House of Lords on 12 October 2022 (See the previous blog post here: PAPERLESS TRADE: ANOTHER STEP FURTHER – The Institute of International Shipping & Trade Law (IISTL) Blog). Following intense efforts and different stages, the Bill has now the status of law with Royal Assent swiftly received on 20 July 2023. Hence, the UK is the first G7 country to achieve an act to ensure transformation of trade and cement the legal recognition of electronic trade documents, including most importantly bills of lading, mate’s receipts, ship’s delivery orders, warehouse receipts, marine insurance policies, and cargo insurance certificates same as their paper equivalents.
Digitisation is an inevitable part of today’s global economy, with big data and cloud-based computing the driving force of industry and its supply chains and the smooth running of trade dependent not only on commercial operations but also to a great extent on the instantaneous turnaround and exchange of the relevant documents. Yet a huge number of the underlying processes and operations still rely “on practices developed by merchants hundreds of years ago.” This matters for us: under the latest statistics from the Department of Trade, international trade is worth around £1.266 trillion annually to the UK. Now as we have a law to these ends that is awaiting enforceability in September 2023, the Act will undoubtedly facilitate cross-border commerce by cutting unnecessary costs and reducing processing times and delays adding over £1bn to the British economy over the next decade as estimated. This will also contribute to sustainability, eco-efficiency, and environmental values by mitigating harmful carbon emissions, quite apart from boost the UK’s reputation as a global centre for international commerce and trade.
The Act is commendably brief, consisting of only seven sections. It starts with definitions of “paper trade document” and “qualifying electronic document” before presenting a non-exhaustive list of trade documents affected by it (excluding some more exotic instruments subject to the Uncertificated Securities Regulations 2001, and curiosities such as bearer bonds). Among others, the Act brings clarity to the concept of possession, transfer and indorsement of electronic documents, and deal withs the change of a paper form to an electronic one or vice versa. The provisions assure their functionality and reliability for the right to delivery of goods or payments of sums of money similar to paper counterparts.
It is worth noting that the Act does not contain any provisions on the procedural aspects of digitisation of documents, the use, and exploitation of digitised documentation, or the mechanics of changing its form. In addition, the effectiveness of the gateway criteria might be achieved only upon the adoption of the specific protocols regarding the digital systems, their control mechanisms, and accreditation standards. Indeed, a detailed commentary will become essential for the practical application of the Act. This matters: unless such concerns are satisfactorily sorted out, an electronic trade document that is effective in one jurisdiction might not be treated in the same way in another. Moreover, while trade documents are being transferred across borders, cross-border disputes are at least to some extent inevitable. This means that we will need to give attention to the private international law rules specific to such documents: even if they contain an English choice-of-law clause, this will not necessarily ensure the application of English law to all their aspects. The Law Commission, to its credit, has recognised this. It has already launched a follow-up project on the Conflict of laws and emerging technology to ensure the rules of applicable law and jurisdiction in an increasingly digitised world (the latter is still at the pre-consultation stage).
Needless to say, the Act is a very important development not only for the UK but also globally; most likely, its adoption will become a significant example and the best practice for other jurisdictions. As put by Nigel Huddleston, UK’s Minister for International Trade, “It’s exciting to see the power of technology being harnessed to benefit all industries, reduce paper waste and modernise our trading laws.” It is for us to welcome it!