- The new Electronic Trade Documents Act is a welcome intervention, encouraging parties to adopt new technologies to reduce practical difficulties with hardcopy documents, to streamline trade, shipping and finance, and to generate growth.
- The Act permits electronic trade documents to be “possessed” in the same way as hardcopy documents, provided they are held on a “reliable system”.
- It will take time and investment from market participants to build confidence in the infrastructure, necessary to make digital international trade operate smoothy, but the Act is a positive step towards that transition.
The Electronic Trade Documents Act received royal assent on 20 July 2023 (the Act). Despite its succinct form (comprising only eight sections) and relatively simple premise, the Act has the potential to transform shipping and international trade.
The fundamental legal change brought about by the Act is that electronic trade documents can now be “possessed”, something that was not previously possible as a matter of English law. This change opens the way for the rights that accompany the possession of paper trade documents, such as bills of lading, to be exercised in the same way by holders of electronic trade documents. The majority of the Act therefore concerns the requirements for an electronic trade document to have the same legal status as a paper trade document – in particular that electronic trade documents be held on a “reliable system”, so that their authenticity, singularity and integrity can be verified.
This simple but fundamental change in English law, which forms part of a much wider legislative shift in the recognition of trade documents in electronic form (such as Singapore’s adoption of the UNCITRAL Model Law on Electronic Transferable Records), is expected to have far-reaching consequences for shipping, international trade and trade finance. The International Chamber of Commerce (ICC) estimated that digitalising trade documents could generate £25 billion in new economic growth by 2024 and free up £224 billion in efficiency savings. The UK government estimates that the Act could generate a net benefit of £1.14 billion in the British economy over the next decade for UK businesses trading across the world.
However, practical questions remain as to how quickly market participants will adopt digital processes. Paper documents and electronic documents are therefore likely to co-exist for some time.
This client alert examines the scope and implications of the Act.
Why is the Act important?
The ICC estimates that 80% of all bills of lading, as well as a majority of trade documents generally, operate under English law.
Current international trade and trade finance practices therefore reflect in many ways the traditional English law position that physical possession of certain paper trade documents, such as bills of lading, generally determines who is legally able to exercise the rights and obligations the document grants.
This legal position, and the obvious lack of speed it entails, has often been at odds with the practical challenges of physical possession in international trade and trade finance transactions. This conflict exposes market participants to additional risks when workarounds – such as requiring a letter of indemnity to release goods when the original bills of lading are not available or use of electronic trade technology systems1 – are developed to compensate for these practical challenges. Even with the increasing development of blockchain technology, when the Digital Container Shipping Association (DCSA) said, in February 2023, that “nine major ocean carriers had committed to issuing half of bills of lading electronically within five years and 100% in ten years”, it admitted that “at the moment electronic bills of lading account for only about 1.5% of all bills of lading that are issued”.