The Electronic Trade Documents Act 2023 – the framework we’ve been missing?

For centuries, paper bills of lading have dominated international trade. Due to their physical form, however, paper bills of lading are susceptible to forgery, may be delayed in arriving at discharge ports, and sometimes simply disappear altogether. While several attempts have been made to digitalise bills of lading, until recently, a regulatory framework (in English law) was missing. The question now is whether the new Act can provide the necessary assurances to the market to have a meaningful effect and scale up the use of electronic bills.

Legal framework

A bill of lading has three primary functions: 

1. as evidence of the contract of carriage;
2. as a receipt for the goods; and 
3. as a document of title to the goods. 

Background and the need for reform

There have never been any issues regarding the digitalisation of the first two functions of a bill of lading. We are all familiar with electronic contracts and receipts. However, the digitalisation of the third function has been more problematic. A bill of lading can operate as a ­transferable document of title to the goods in the sense that transfer of the bill transfers constructive possession of the goods. Pursuant to the Carriage of Goods by Sea Act (COGSA) 1992, the right to sue the carrier and the liability of the cargo owner to the carrier is transferred from holder to holder when the bill of lading is transferred from one lawful holder to another, irrespective of any transfer of property in the goods themselves.

However, until the Act came into force, English law did not recognise the concept of “possessing” electronic documents. The holder of an electronic bill of lading would therefore not have the right to demand delivery of the goods in the same way that the holder of a paper bill of lading would have.

Early versions of electronic bills of lading therefore relied on all parties signing up to an electronic platform and being subject to that platform’s contractual framework. Whilst these contractual frameworks generally gave the parties to a transaction similar rights to those enjoyed pursuant to a paper bill of lading, it was recognised by the Law Commission of England and Wales that there were a number of issues with platforms’ contractual frameworks, including that the contractual framework increased the complexity of transacting, that the contractual framework did not sit easily with the English law of bailment and liens, and that the legal validity and interpretation of the contractual frameworks were untested and therefore uncertain.

How the Act resolves the issue

The Electronic Trade Documents Act resolves this issue as an “electronic trade document” will now be capable of possession. Section 3(1) of the Act provides that “a person may possess, indorse and part with possession of an electronic trade document” whereas section 3(2) provides “an electronic trade document has the same effect as the equivalent paper trade document”. This means that the electronic bill of lading can operate as a document of title, and will constitute a bill of lading for the purposes of COGSA 1992. 

In order to be an “electronic trade document”, an electronic bill of lading will need to include the information that would be included in a paper bill of lading and be on a “reliable system” that is used to do the following:

1. identify the document so that it can be distinguished from any copies; 
2. protect the document against unauthorised alteration;
3. secure that it is not possible for more than one person to exercise control of the document at any one time; 
4. allow any person who is able to “exercise control” of the document to demonstrate that the person is able to do so; and 
5. secure that a transfer of the document has effect to deprive any person who was able to exercise control of the document immediately before the transfer of the ability to do so. 
6. The Act provides that a person exercises control when the person “uses, transfers or otherwise disposes of the document”. 
7. It is not specified how one “uses” an electronic trade document but the Act does provide that simply reading or viewing the document does not amount to “use” of the document.

Looking to the future

The potential benefits of electronic bills of lading are well known. It is suggested that the transition from paper to electronic bills will lead to costs savings, increased efficiency, better supply chain transparency, and enhanced security. Despite this, to date, stakeholders in the shipping industry have been slow to adopt them. It is widely hoped that the Act will change this and provide industry stakeholders with further confidence to use electronic bills of lading and finally lead to their widespread adoption.

The Act has been championed by the International Group of P&I Clubs (IG) and the IG clubs’ P&I rules provide that liabilities arising under electronic bills are covered provided that the system used to use and transfer the electronic bill has been approved by the IG. To date, the IG has approved 10 such systems. Furthermore, industry bodies, large container lines and miners have also launched campaigns to increase the uptake of electronics bills of lading. 

We will be closely monitoring developments in this area and wait to see whether the Act lives up to its full potential.