The Law Commission announced a consultation on proposals to allow for electronic versions of documents, such as bills of lading and bills of exchange, to be legally recognised. It published its consultation paper on 30 April 2021. If the proposals are implemented, the reform could revolutionise trade on an international scale.
International trade relies on a category of documents known as “documentary intangibles”. Transferring possession of documentary intangibles means that the obligations, which the documents embody, will also be transferred. For instance, physically handing over a bill of lading can be sufficient to provide the new holder a right to the goods in the bill. This is based on the idea that documents in trade can be physically held or “possessed”. Possession can only occur under English law with tangible assets. Thus, the law does not recognise the possibility of “possessing” electronic documents.
Consequently, the consultation paper sets out that electronic trade documents can only be widely adopted if they are capable of being “possessed” in the eyes of the law. The paper explains that electronic trade documents can be “possessable” if a particular criteria is satisfied. The criteria is as follows:
- The document is a trade document of the kind listed in its draft legislation. The Law Commission identified the following documents: bills of lading, bills of exchange, promissory notes, ship’s delivery orders, warehouse receipts, marine insurance policies, cargo insurance certificates, and warehouse receipts.
- The electronic document is capable of exclusive control. This means that the electronic trade document must be on a system that ensures that only one person (or a group) has control of the electronic document at any one time.
- The electronic document must be fully divested on transfer. For example, if person A transfers the electronic document to person B, person A must no longer be able to control the document.
There is just over a month for the Law Commission to close its consultation; the consultation will remain open until 30 July 2021.
The consultation paper can be found here.