The Law Commission has published a consultation paper which makes provisional proposals for legislative reform to ensure that certain trade documents in electronic form have the same legal effect as their paper counterparts.

International trade involves the use of special documentation, including bills of lading, bills of exchange, promissory notes, marine insurance policies, cargo insurance certificates, warehouse receipts and ship’s delivery orders. These documents, which are also used in trade finance transactions (such as documentary credit arrangements and forfaiting), are still generally issued and used in paper format. The industry generates billions of paper documents each year.

Stakeholders have told us that a move to an electronic system could have several benefits, including increased efficiency, increased security and a lower risk of fraud. However, the current law of England and Wales (both common law and legislation such as the Bills of Exchange Act 1882) effectively prevents the move to such a system. In general, possession of trade documents is used to determine who may exercise certain rights at law. Under the current law, an electronic document, as a form of intangible property, is not currently capable of possession in law (see Your Response v Datateam [2014] EWCA Civ 281 and OBG v Allan [2007] UKHL 21).

In our consultation paper, published on 30 April 2021, the Law Commission has made proposals for legislative reform and provided a draft Electronic Trade Documents Bill. The purpose of the draft Bill is to provide that certain trade documents in electronic form can be possessed, and therefore have the same effect as paper trade documents. It provides that an electronic trade document is capable of possession if it meets certain criteria, including that the document:

  • has an existence independent of both persons and the legal system;
  • is capable of exclusive control; and
  • is fully divested on transfer.

Under the draft Bill, a person has possession of an electronic trade document if they have control of it. They have control of a document if they are able exclusively to use the document and transfer or otherwise dispose of it. The draft Bill also includes clauses on the transfer and indorsement of electronic trade documents, and the replacement of electronic trade documents with paper trade documents (and vice versa).

Although this consultation paper focuses on electronic trade documents, we are aware that there is also significant interest in the question of possession of other intangibles (including, for example, cryptoassets). That question, along with other relevant considerations, is the subject of another Law Commission project on digital assets on which we have published a short call for evidence.

The Law Commission’s consultation on electronic trade documents runs until 30 July 2021 and we are keen to hear views from interested stakeholders. We expect to publish our final report, recommendations and draft Bill in early 2022.

Siobhan McKeering is a Lawyer at the Law Commission of England and Wales.