UK’s Electronic Trade Documents Act now in force

The UK Electronic Trade Documents Act (the Act) came into force on 20 September 2023, just two months after the draft Bill received Royal Assent.

This is an important legal and commercial development that is expected to boost the use of electronic trade documents, particularly electronic bills of lading, in global trade. It is predicted that the increased use of electronic trade documents will reduce delays across international trade networks, cut costs, increase efficiencies and reduce the shipping and trade industries’ carbon footprint. The requirement of digital authentication may also reduce the risks of trade finance fraud.

The Act

In broad terms, the Act provides for certain electronic trade documents, including electronic bills of lading, to be accorded the same legal status as their paper equivalents if they meet the relevant criteria.

Prior to the Act, English law did not recognise electronic documents as being possessable. They could not, therefore, function in the same way as their paper counterparts. Among other things, the person who possessed a paper document would be entitled to claim performance of the obligations recorded in the document, for example, the right to delivery of the goods under a bill of lading. Under the Act, an electronic trade document may now be possessed and indorsed in the same way as a paper document where it meets the stated requirements.

A key requirement is that the document must be used under a reliable system. The Act does not identify any specific systems as being reliable or favour one technological solution over another; instead, it lists a number of considerations to be taken into account when assessing whether or not a system is reliable for these purposes. This is because any specific technology or system approved now may in future be overtaken by technological advances.

However, there are already a number of industry standards and systems in place or in the process of being developed. Among others, the International Group of P & I Clubs has so far approved 10 electronic bill of lading systems for use by its members and is expected to approve more in light of the Act. BIMCO has published an eBL Standard for use in the bulk shipping sector. A number of carriers have developed their own electronic bills of lading for use in their digital systems. Additionally, some container lines have reportedly committed to the exclusive use of electronic bills of lading by 2030.

ICC UK’s Centre for Digital Trade and Innovation (C4DTI) is also working on a model for reliable systems as described in the Act, the process of assessment and audit and implementing a registry of reliable systems to assist users in choosing which system to use to trade digitally.

International significance

The Act has global ramifications because of the large number of international shipping and trade contracts that are governed by English law.

It is also anticipated that where the UK leads, other jurisdictions will follow. In particular, commonwealth jurisdictions are being encouraged to adopt digital trade as a way of reducing trade costs and improving access to trade finance. In a Commonwealth report on the Quantitative Analysis of the Movement to Paperless Trade, it is predicted that digitalisation could increase trade in the Commonwealth by US$1.2 trillion by 2026.

Some related developments

Singapore is also demonstrating its credentials as a regional leader in trade digitalisation. In 2021, it passed legislation adopting the UNCITRAL Model Law on Electronic Transferable Records (MLETR) and in May 2023, it was reported to have completed the first cross-border electronic transferable record trade in relation to a shipment from Singapore to Thailand.

In June 2022, the UK-Singapore Digital Economy Agreement came into force. This is a comprehensive digitally focused trade agreement that deals primarily with cyber security, digital identities and the digital facilitation of trade. The goal is to make digital transactions between the two countries safer, cheaper and easier. The UK has similar agreements with other countries, including Australia and New Zealand. It also has other digital trade deals with a number of countries, including Japan.

Work is also underway on a project between the C4DTI and other stakeholders on a project to open a paperless trade corridor between the UK and Thailand to make imports and exports cheaper, faster and simpler for companies in the two countries. More generally, the ICC’s Working Group on Digitalisation in Trade Finance has developed a digital trade roadmap setting out concrete policy changes to promote the global digital trade agenda.

China, Japan and South Korea have not adopted the MLETR but have enacted domestic legislation setting out how electronic documents may be possessed and transferred and what rights and entitlements they bring with them.

Multimodal transport

In 2022, a UNCITRAL Working Group commenced work on a new instrument (potentially in the form of an international convention) to establish the legal recognition of negotiable multimodal transport documents (and relevant electronic records) as documents of title, similar to negotiable bills of lading.

If this is achieved, qualifying documents could be traded and used for sale of goods in transit under a string of contracts, similar to negotiable bills of lading, with the buyer bearing the risk of loss of or damage to the goods in transit and left to seek redress, if any, from the carrier. However, consideration is being given to ensure that any new international convention does not conflict with existing conventions regulating the carriage of goods by sea (Hague Rules, Hague-Visby Rules and Hamburg Rules).

Adoption

A key challenge is industry adoption. The Act does not compel use of electronic trade documentation. Stakeholders continue to have a choice of whether to use paper or electronic documents. Therefore, unless they understand the benefits to them of paperless trade, there may be slow uptake notwithstanding the Act.

Counterparties to transactions will also have to be on board, particularly in cross-border transactions, otherwise there may be a digital mismatch both in terms of preferences (i.e. paper vs electronic) but also in terms of digital standards and systems used. Interoperability of systems is key.

Industry-approved standards are needed. The ICC Digital Standards Initiative aims to establish a globally harmonised digital trade environment. Other, similar, industry standards are also being developed. Further, as mentioned above, considerable work has already been done and is underway in identifying what constitutes a reliable system.

Businesses will also need to consider whether their IT systems and internal processes need to be updated and whether they need to provide training on digitalised trade.

Significantly, the list of documents covered by the Act is not exhaustive. There is, therefore, potentially scope for extending digitalisation to other documents, such as airway bills or CMR notes for road transport. In that way, the whole trade process can be digitalised.

Law and jurisdiction

One challenge to wider adoption of cross-border digitalised trade is the divergence of domestic legislation on the legal recognition of electronic trade documents. It is obviously important to include express law and jurisdiction clauses in shipping and trade contracts. However, issues may nonetheless be encountered where a foreign court refuses to honour a jurisdiction clause and also does not recognise the legal validity of electronic documents.

The UK Law Commission is currently considering the existing rules on private international law and how they might apply in the digital context and will be making recommendations for any reform considered necessary as part of its project called “Digital assets: which law, which court?”

Comment

The Act is a significant step forward in the global adoption of digitalised trade but must be seen in the context of other international efforts to make global trade essentially paperless.

On a positive note, the G7 countries are reported to be steadily progressing towards MLETR adoption, albeit that each jurisdiction is approaching this in its own individual way. Other countries considered to be emerging markets have already adopted MLETR, among them the UAE, Abu Dhabi Global Markets and Bahrain. India and China are also said to be showing some interest in the eventual adoption of MLETR.

It will be interesting to see whether, and to what extent, the Act lives up to the expectation that it will be a “game changer.”