Navigating the way for electronic trade documents
This has now changed. From 20 September 2023, the Electronic Trade Documents Act 2023 places certain electronic trade documents on an equal footing as their paper counterparts under English law.
The laws underpinning certain elements of international trade have been built up over centuries and as part of this, handing over “possession” of certain trade-related paper documents was the legal mechanism by which the rights to claim performance of the obligations recorded in those documents was transferred. For example, the person holding the physical, hard copy of a document could claim possession of the related goods or receive a particular payment or require certain obligations to be fulfilled (depending on the contents of the document in question).
The Act is an example of the law seeking to catch up with technology, but it is not without its challenges. The main one being that ‘possession’ of an actual trade document is critical and, until now, possession of electronic trade documents has not been legally recognised. Whilst there are a minority of situations where contractual workarounds have been employed to overcome this, the Act seeks to remove any blockers under English law to using electronic trade documents.
What is in scope?
Helpfully, the Act sets out some examples of what is covered by the Act, namely bills of exchange, promissory notes, bills of lading, ships’ delivery orders, warehouse receipts, mates’ receipts, marine insurance policies and cargo insurance certificates.
However, this is not an exhaustive list and the Act can apply to any trade documents for the trade in, or transport of, goods (or the financing of such trade) where possession of the document is required ‘as a matter of law, commercial custom, usage or practice for a person to claim performance of an obligation’.
So can organisations now just use electronic copies of those documents?
Yes, if the electronic trade documents meet certain criteria prescribed by the Act.
The first is that the electronic trade document should contain the same information that would have been found in its equivalent paper document.
The Act then goes on to require the electronic trade document be operated through a ‘reliable system’ which:
- ensures that the document can be distinguished from any copies;
- protects the document against unauthorised alteration;
- ensures that only one person can exercise control (i.e. ability to use, transfer or dispose) of the document at any one time;
- allows the person to demonstrate their control; and
- ensures that when the document is transferred from one person (person A) to another person, person A can no longer exercise control.
The Act does allow multiple people to read or view the electronic trade document at any given time, provided that only one person is capable of exercising control.
It also allows for the conversion of a paper trade document to an electronic one (and vice versa) provided that the new form of the document states that it has been converted and any contractual or other requirements relating to the conversion of the document are complied with, therefore allowing parties in the supply chain to overcome any issues with the recognition of documents in jurisdictions which do not recognise electronic trade documents.
How do you know if a system is reliable?
The Act sets out factors to consider when determining whether a system is reliable but these are not prescriptive of a particular system or technology. The factors include:
- The rules that apply to the operation of the system
- How the integrity of the system is maintained
- The security of the system’s hardware/software and prevention of unauthorised access/use
- The frequency/extent of any independent audits of the system
- Whether the reliability of the system has been assessed by a supervisory or regulatory body
- Whether any voluntary scheme or industry standards apply to the system
The weight or significance of any particular factors is therefore in the gift of the parties.
Is it worth adopting electronic trade documents?
If the criteria for the operation of electronic trade documents are met, those documents will have the same legal effect as physical hard copies under English law which means that the parties have the opportunity to operate on a (more) paperless basis.
This should allow for greater efficiency in relation to this aspect of the supply chain from a time and cost perspective. It also removes the complication of paper from the process (supporting a shift towards a more sustainable way of operating) and has the potential for better and safer storage of documents (removing the headache of lost or damaged paperwork!).
Sounds too good to be true!
The Act is concise but this allows for a certain degree of flexibility in terms of how it operates on a practical level. As a result, there is room for interpretation, for example, in terms of whether an electronic document system is a ‘reliable’ one.
Further, as technology evolves, the parties will need to keep existing systems under review - what was reliable one day, may be unreliable the next. Customers may well seek to pass on the risk of ensuring that the system meets the requirements through their contracts with suppliers and it will likely fall on those that are operating a paper-based system to determine whether any systems satisfy the requirements of the Act before they move to an electronic one. On the other hand, we may see industry standards emerge to give guidance on what reliable systems look like, which will then give credibility to systems which then meet that standard.
The key, however, to the success of operating electronic trade documents will likely rely on their adoption on a global basis. This may have challenges, especially where parties are operating across jurisdictions where electronic trade documents are not yet recognised. Indeed, there are only a small number of jurisdictions which currently recognise electronic trade documents, although given the widespread digitisation of documents, it is expected that other jurisdictions will follow suit.
Overall, the Act presents a real opportunity for international trade to take a step towards going paperless and those that can crack the nut of presenting a reliable system will pave the way.
 s1(1)(c) of the Electronic Trade Documents Act 2023
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