The Queen Endorses the Digitization of Paper Documents in Global Trade

On the 10th of May 2022, in the Queen’s Speech which marks the beginning of the new UK parliament term, the UK Prime Minister and His Royal Highness the Prince Of Wales announced the Electronic Trade Documents Bill. The Electronic Trade Documents Report and Bill is one of the first pieces of proposed legislation that arose from The Law Commission’s recent focus on new technologies.

The main idea behind this bill is to keep electronic commercial trade documents and paper documents on the same legal footing, removing unnecessary bureaucracy and paperwork from the process. The Law Commission decrees that different types of electronic trade documents might be possessed and mentions a few subtle accommodations that show their understanding of the hold of the English common law to assimilate new concepts.

The Possession Problem

Based on the English law, documents most commonly used during trade transactions, such as Bills of Lading, Bills of Exchange, and Promissory Notes, not only evidence the obligations and rights recorded in them but also embody the right to claim performance of the said obligations. This results in the trade documents in a paper form considered tangible assets, and they need to be possessed to claim the performance of the obligations represented by them. This means:

• The right to claim performance of a trade document obligation can be transferred by physical delivery or indorsement.
• A person who possesses the trade document has the right to the document, protected from legal interference as any other tangible asset.
• The measure of damages, in case of any interference, amounts to the value of the obligations or rights mentioned in the trade document.
• To discharge the obligation, the individual owing the obligation of the document must render performance to the holder of the same.
• The trade documents can be subject to bailment, wrongful interference, and possessory security interests to the extent of their possession.

Irrespective of the legal obstacles to the electronic trade documents' functionality, when compared to their paper counterparts, the former has been used for a very long time. However, with the legal limitations in place, their use has always required a contractual framework where the parties agree that the transfer of e-trade documents will put the transferee in the same position as the holder of their paper counterpart.

An important thing to note is that that framework solely binds the contractual parties and cannot be enforced against the world. With the official announcement of the Electronic Trade Documents Bill recently in the Queen's Speech, there is an assurance that the legal barriers to digitising trade documents in English Law will be removed soon.

The Reform Proposed

Recent times have seen an increase in the demand for digitalization in international trade, prompting several new technologies. The Law Commission, however, seeks to bridge the gap by introducing distinct criteria for electronic trade documents that would give the documents the ability to be possessed and get the same legal treatment as that of already possessable paper documents. The non-exhaustive list of commercial trade documents mentioned in the proposed reform includes:

• Bills of Exchange
• Promissory Notes
• Warehouse Receipts
• Bills of Lading
• Cargo Insurance Certificates
• Ship’s Delivery Orders
• Mate’s Receipts
• Marine Insurance Policies

In order to be capable of being possessed and function like their paper versions, an electronic trade document should meet the following criteria:

• Reliability, especially when it comes to the security standards that it follows.
• Integrity, by being sufficiently protected against unauthorised alteration or interference.
• The information present in the electronic documents should encompass all the fields found on their paper counterparts to even qualify as a viable alternative.
• Exclusive control is with only one person (or persons, if acting together) at any one time.
• Divisibility in the transfer of the electronic trade document might necessarily entail the transfer of the ability to control it and the document itself. However, the transferor should not have any control over it after the transfer.
• Distinguishable from any other copies and identifiable in its electronic form.
• It should be uniquely associated with the person who has control over the document.

The report, however, does not propose any changes to places where the existing legal framework can regulate a matter appropriately.

The Benefits of the Proposed Reform

The Electronics Trade Documents Report & Bill is defined as a significant step in merging trade to the modern era when it comes to force in full scale as this is meant to change the face of digitization. The bill is meant to expand and apply across the whole of the UK, authorising all businesses to shift to digital-based transactions instead of paper-based ones.

The Law Commission hopes for this digital commercial trade documents reform to bring out crucial benefits through increased productivity and operational cost savings. When the reform comes into place, efficiency will also increase, as there will be a reduction in the loss of time with the shipments and necessary documentation coming in at the same time.

The Electronic Trade Documents Bill, in the longer run, will lower the cost of trade administration, increasing the overall efficiency of the process since the processing time is quicker than their paper-based counterparts. It will also raise the security and compliance of trade with the help of the traceability and transparency options of electronic documents.

Upon implementation of the bill, the major changes are supposed to be seen in commodity trades that have long chains of sub-sales when the goods are in transit and when the delays in the delivery of the paper form of the B/L result in demurrage and storage costs. The shift to electronic trade will also increase the security and transparency of documentation, thereby reducing the risk of fraud. There is also a substantial environmental benefit of the transition as today, around 28.5 billion paper trade documents are estimated to be used annually.

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