Jhe Law Commission of England and Wales has now published its final report on electronic business documents, together with a draft bill to be presented to Parliament by May 2022.
Current legislation in England and Wales attaches particular importance to the physical possession of certain commercial documents, for example bills of lading, and does not recognize the possession of electronic documents.
However, the emergence of a basket of technologies makes digitization much more financially feasible. There are also a number of benefits (both environmental and financial) associated with the increased use of electronic trade documents.
The release of this report and the bill represents the Law Commission’s final recommendations on how the law should be updated to facilitate the use of electronic business documents in the global shipping industry.
The Law Commission proposes criteria which, if met, would confer legal effectiveness on the possession of an Electronic Trade Document (ETD).
The bill relates specifically to commercial documents, that is, documents commonly used in commerce which, when issued in paper form, operate on the basis of possession. A number of examples are listed in section 1(2)(1) of the draft bill, including bills of lading, bills of exchange and warehouse receipts.
Requirements for electronic documents
To fall within the scope of the bill, an electronic document must contain information that would normally make it a commercial document if issued on paper. If so, it will be an “eligible electronic document”.
Section 2 of the proposed bill sets out the criteria that a qualifying electronic document will need to meet to achieve ETD status: “(1) A qualifying electronic document is an “electronic business document” for the purposes of this Act if a system reliable is accustomed:
• Identify the document so that it can be distinguished from any copies;
• Protect the document against unauthorized modification;
• Ensure that it is not possible for more than one person to exercise control of the document at the same time;
• Allow any person who is able to exercise control of the document to demonstrate that he is able to do so; and
• Ensure that a transfer of the document has the effect of depriving any person who was able to exercise control of the document immediately before the transfer of the ability to do so (except to the extent that the person is able to exercise control that it is an assignee).
These criteria are intended to replicate the effects of owning an original paper trade document. The elements of physical possession that the Law Commission attempted to reflect are discussed in Chapter 6 of the accompanying report and include the following:
• Document Integrity – Establishing the authenticity of a document and protecting it from unauthorized interference or alteration. (See 2(1) (a) and (b)).
• Sole Control – Only one party exercising control over a document at a time; as would be the case with a physical trade document – (see clause 2(1) (c)). Section 2 of the draft bill defines the exercise of control over a record as the use, transfer or disposition of the record, whether or not there is a legal right to do so. Therefore, simply reading or viewing the document would be insufficient.
• Transferability – When the transfer of a document implies that the transferor is deprived of it. This prevents an electronic document from being transferred more than once by the same party and/or being owned simultaneously by two or more parties. (See 2(1) (c) and (e)).
• Document Identification – Protection against the use of copies of electronic documents in place of the original.
• Identification of those who can exercise control – Recognition of the entity in possession of the document.
• When a document meets all the criteria in Section 2, it becomes an ETD that can be possessed, endorsed and transferred – in exactly the same way as its paper equivalent.
The draft bill does not address the recognition of electronic business documents in other jurisdictions. Currently, commercial documents such as bills of lading are generally treated the same all over the world in their paper-only form. If English law is willing to adopt the use of ETDs, it may encourage other jurisdictions to follow suit. However, unless there is global adoption, there remains the risk of inconsistent treatment of ETDs, so that trading continues on paper on the side of caution.
Article 4 of the draft law aims to deal with situations where the holder of an ETD is not certain of the rights granted to him. Specifically, it allows a party to request a change in the form of the document (i.e. from an electronic copy to a hard copy), in order to protect legal rights. The Law Commission also intends to carry out a separate consultation on the issue of conflict of laws.
Although the Law Commission intends that ETDs are created by a “trusted” electronic system that meets certain standards of operation, it does not specify what constitutes a “trusted system”. Instead, the Law Commission seems content to leave this issue open to the interpretation and application of recent case law.
Source: Baltic Stock Exchange