The Electronic Trade Documents Act 2023 was granted Royal Assent on 20 July 2023. This enables documents such as a bill of exchange and bill of lading to be legally recognised in electronic as well as paper format.
The International Chamber of Commerce has published that around 80% of global transactions are based upon English law.[1] Currently, Singapore is the only other nations with the modernised trade documents legislation adopted.[3]
The Bill enables a sophisticated approach to the multiple transactions that support international trade within transport, insurance, finance and logistics. The UK government estimates that 25 billion paper documents are created globally each year to facilitate container shipping – and the associated government reports cites practices whereby “A single trade finance transaction can involve 20 entities and between 10 and 20 documents amounting to over 100 pages.”[4]
Prior to the introduction, the recognition of intangible possession of trade documents was not possible, causing inefficiencies due to the legal inability for an electronic document to be recognised in the “possession” of a “holder”, and equivalent to a paper document. The Department for Culture, Media and Sport have stated that[5]:
“Success will be indicated by increased trade participation; lower trade costs; decreased trade transaction times; increased administrative efficiency; greater transparency and security; increased access to trade finance for UK Small to Medium Enterprises (SME); and a reduction in documentation errors.”
The Electronic Trade Documents Report [6] cites that in a survey on the impact of COVID-19 on Distributed Ledger Technology (DLT) and trade, conducted by the World Trade Organisation (WTO) and Trade Finance Global, the legal challenges were considered to be a more pressing concern than any other challenges.[7] The pandemic catalysed a growing consensus identifying that the onerous legal obligations to provide paper-based documents to support international transactions placed limitations on the use of certain traditional forms of financing such as the bill of exchange, and also production of the bill of lading, which traces its antecedents to the 17th century and has traditionally required a wet signature[8].
The examples of relevant trade documents that the act will apply to including the following:
• a bill of exchange
• a promissory note
• a bill of lading
• a ship’s delivery order
• a warehouse receipt
• a mate’s receipt
• a marine insurance policy
• a cargo insurance certificate
The Bill of Lading
The Bill of Lading is issued once goods have been shipped, and other than in certain circumstances where the shipping is novated to a charterparty whereupon it will take the form of a receipt, will act as evidence of a contract of carriage and legal ownership. In this respect, the bill of lading is a supporting document generally requested by the bank to support payment under a documentary credit.[9] Presentation of the bill of lading is also required in order to claim the goods at destination.
The Electronic Trade Documents Act 2023 has addressed the repeal of sections 1(5) and 1(6) of the Carriage of Goods by Sea Act 1992.
The Bill of Exchange
The bill of exchange is a globally recognised as a derivative of the lex mercatoria – the transnational law merchant developed within Medieval Europe, and is commonly used within a letter of credit. [10] The Electronic Trade Documents Act 2023 has inserted “or to anything that is an electronic trade document for the purposes of the Electronic Trade Documents Act 2023 (see section 2 of that Act)” in order to amend section 89B(2) of the Bills of Exchange Act 1882 (instruments to which section 89A applies).[11]
Far from becoming obsolete, the Bill of Exchange Act 1882, originally drafted by Sir Mackenzie Chalmers, and amended via three individual provisions within The Electronic Trade Documents Act 2023[12] containing delegated powers, two of which are Henry VIII powers, will again establish a precedent as an enabler to global trade.
Through technology such as Artificial Intelligence (AI), Distributed Ledger (DLT), Optical Character Recognition (OCR) and smart contracts,[13] the International Chamber of Commerce have identified that “in specific electronic records submitted under a Digital Trade Transaction (DTT) it would be far more difficult to experience fraud than in today’s paper world.” [14]
Exclusive Control
The Electronic Trade Documents Act 2023 identifies that a trade document in an electronic format should be subject the same type of exclusive control by a single person, or group of individuals acting as a single entity, as could be expected of a holder of an original paper document. The purpose of this is to prevent two persons with access to a document from delegating rights of transfer to different places.
The Law Commission's interpretation of the legislation highlights the adoption of Distributed Ledger Technology (DLT) and centralised registry systems, where “only the transferee’s security credentials (that is, login details) will provide the ability to transfer or otherwise exercise control over the document.”[15]
The UK government estimates a reduction in trade documents administration from up to 7 days reduced to 10 minutes[16], and has identified that the Electronic Trade Documents Act will be boosted by £1.14 billion[17] over the forthcoming decade due to the efficiencies created by making trade more straightforward, efficient and sustainable.
Alinea Customs anticipate that the next steps for our clients will be in procuring suitable Distributed Ledger Technology (DLT) partners that can provide a secure, reliable and competitively priced service in order to ease the transition.
[1] Open Access News UK economy set for billion boost with Electronic Trade Documents Act 21 July 2023 < https://www.openaccessgovernment.org/uk-economy-electronic-trade-documents-act/164108/#:~:text=UK%20leading%20the%20way%20in%20digital%20trade&text=English%20law%2C%20the%20foundation%20of,are%20based%20on%20English%20law > accessed 23 Jul 2023 [2] Shearman and Sterling (2018) R3 Reports with Shearman and Sterling LLP and BAFT < https://www.shearman.com/-/media/files/perspectives/2018/09/code_is_not_law_r3_v2.pdf?la=en&hash=1B78A83DE90C3A94BD84401D5814656B594E04C6 > accessed 20 July 2023 [3] Lord Bassam of Brighton, Electronic Trade Documents Bill 2023, Volume 828: debated on Wednesday 22nd March 2023, Hansard UK Parliament, available from: https://hansard.parliament.uk/lords/2023-03-22/debates/AF2515E1-8848-4DDD-B84A-C73FC39C62C9/ElectronicTradeDocumentsBill(HL) [accessed 26th March 2023] [4] Dominic Webb The Electronic Trade Documents Bill 2023 House of Commons Library 21 June 2023 https://researchbriefings.files.parliament.uk/documents/CBP-9641/CBP-9641.pdf 7 [5] DCMS ‘ De Minimis Assessment: Self-Certification Template. Title of regulatory proposal. Electronic Trade Documents Bill’ available from: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1122880/DMA_self-certification_template_-_DCMS_Electronic_Trade_Documents_DMA__2022__accessible.pdf [6] The Law Commission, Electronic trade documents: Report and Bill, Lawcom No.405, House of Commons, 15 March 2022, < https://www.lawcom.gov.uk/project/electronic-trade-documents/ > [accessed 27th March 2023] [7]Patel, D. and Ganne, E. (2020). Blockchain & DLT in Trade: Where do we stand? WTO and Trade Finance Global (“TFG”). https://www.wto.org/english/res_e/booksp_e/blockchainanddlt_e.pdf. [8] Marco Forgione (2022) Trade Data and Digitalisation Institute of Export & International Trade, Llewellyn Consulting 5 [9] J. Atkins ‘UniCredit loses US24.7mn damages claim against shipper over missing oil cargo’ (Global Trade Review 04 May 2023) < https://www.gtreview.com/news/mena/unicredit-loses-us24-7mn-damages-claim-against-shipper-over-missing-oil-cargo/ > accessed 9 April 2023 [10] Law Commission (2022) The Electronic trade documents: Report and Bill, Law Com No 405 38 [11] The Electronic Trade Documents Bill 2023 [12] The Electronic Trade Documents Bill 2023 [13]ICC (2021) Uniform Rules for Digital Trade Transactions Version 1.0. The International Chamber of Commerce. https://2go.iccwbo.org/uniform-rules-for-digital-trade-transactions-urdtt-version-1.html#table_of_content [accessed 26.03.2023] [14] Meynell, D., Collyer, G. Hennah,D., Wynne, G. (2022) Implementing URDTT, Uniform Rules for Digital Trade Transactions, Version 1.0, The International Chamber of Commerce [15] Law Commission, Electronic trade documents: summary March 2022 14 [16] DCMS Impact Assessment of the Electronic Trade Documents Bill 8 December 2023 < https://www.gov.uk/government/publications/electronic-trade-documents-bill-impact-assessment/impact-assessment-of-the-electronic-trade-documents-bill#costs-and-benefits > accessed 23 July 2023 [17] Department for Science, Innovation and Technology, Nigel Huddleston MP, and Paul Scully MP UK economy to receive £1 billion boost through innovative trade digitalisation act 20 July 2023 < https://www.gov.uk/government/news/uk-economy-to-receive-1-billion-boost-through-innovative-trade-digitalisation-act#:~:text=The%20Electronic%20Trade%20Documents%20Act%20is%20a%20game%20changing%20piece,faster%2C%20simpler%20and%20more%20sustainable. > accessed 20 July 2023