Gates Opening for the Digitalisation of Trade Documents

Client Alert
October 21, 2022

It is a watershed moment in English law, but no-one has anticipated it more than those working in international trade. The (sometimes painful) process of trying to get trade documents from location A to B has been the source of frustration for many, exacerbated by the many lockdowns during the COVID-19 pandemic. Those who have advocated heavily for digitalisation of trade have been faced with one overriding problem: the inability to possess an electronic trade document under English law.

The crux of the problem is this: in order to exercise rights and demand performance in respect of certain trade documents (such as bills of exchange and bills of lading), it is necessary to show possession of those trade documents. While this can typically be easily done with a paper version of the trade document, English law has not recognised the ability to possess electronic versions of these trade documents as they are intangibles. This has significantly hindered the development of electronic versions of these types of trade documents, notwithstanding a number of initiatives to do this acting under a contractual framework rather than under English legislation.

The Electronic Trade Documents Bill is specifically focused on addressing this possession problem. Although it is a short piece of legislation, its impact when passed would be significant.

Put simply, the Bill puts electronic versions of trade documents on the same footing as their paper equivalents, subject to satisfaction of certain conditions. The benefits would be substantial, including a reduction in the reliance on paper and the time taken to get these documents from one party to another (and the inherent risk of documents being lost in transit) and, it is hoped, a significant step in combatting fraud in trade transactions.

The Bill will also allow smart technology solutions to come into their own. Previously, what we have seen on the market is a reluctance to take up these solutions because of the lack of legal certainty surrounding electronic trade documents, which can sometimes lead to a stalling of a transaction in development. The Bill offers great optimism that the trading process will be revolutionised by the scaling-up of technology solutions and the standardisation of trade platforms, processes and systems.

Among the relevant conditions, the Bill requires that, in order to have an electronic trade document, there must be a "reliable system" that is used to:

(a) identify the document so that it can be distinguished from any copies;

(b) protect the document against unauthorised alteration;

(c) ensure that it is not possible for more than one person to exercise control of the document at any one time;

(d) allow any person who is able to exercise control of the document to demonstrate that the person is able to do so; and

(e) secure that a transfer of the document has the effect of depriving the transferor of control of the document upon the transfer of the document.[1]

The Bill is "tech-neutral," offering significant flexibility in the implementation of the Bill into practice. Although the Bill has only just started the process of being passed into English law, it is expected that the legislative process should be relatively straightforward with the Bill passed without any significant issue.

While the Bill will offer significant new opportunities for the trade finance industry, it will not be without its challenges. There will undoubtedly be some issues to resolve as the Bill is implemented, particularly in interpreting and applying the requirements for a "reliable system" to be used.

It also needs to be understood that, to be truly effective, electronic trade documents will need to be recognised and enforced across the globe. It is hoped that the Bill, once passed, will provide additional impetus in this area for other jurisdictions to follow. However, there needs to be a push from both private and public actors (including trade participants themselves) to achieve this.

Until there is more widespread recognition and enforcement of electronic trade documents, paper trade documents will continue to prevail. The Bill marks a significant and positive step in addressing this issue.

[1] https://bills.parliament.uk/publications/47901/documents/2301

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