On Thursday 20 July, the Law Commission’s recommendations on electronic trade documents became law as the Electronic Trade Documents Act 2023 secured royal assent.
The Act, which is based very closely on a draft Bill published by the Law Commission in March 2022, allows for the legal recognition of trade documents such as bills of lading and bills of exchange in electronic form. It was first introduced into the House of Lords under the special parliamentary procedure for Law Commission bills in October 2022. The Government has estimated that the Act will help to boost the UK’s international trade – already worth more than £1.4 trillion – by providing benefits to UK businesses over the next 10 years of £1.1 billion.
The process of moving goods across borders involves a range of actors including transportation, insurance, finance and logistics service providers. The Commission estimates that global container shipping generates billions of paper documents a year. Across so many documents, the potential positive impacts of using electronic trade documents – including financial and efficiency gains, and environmental benefits – are vast.
Despite the size and sophistication of this market, many of its processes, and the laws underlying them, are based on practices developed by merchants hundreds of years ago. In particular, under the current law of England and Wales, being the “holder” or having “possession” of a trade document has special significance. However, the law does not allow an electronic document to be possessed. As a result, nearly all documents used in international trade are still in paper form.
Over the past decade, the development of technologies such as distributed ledger technology has made trade based on electronic documents increasingly feasible. Without reform, the law would have lagged behind, hindering the adoption of electronic trade documents and preventing the significant associated benefits from being achieved.
The Act enables a trade document in electronic form to be used in the same way as its paper counterpart, provided that it meets certain criteria, including that it is susceptible to exclusive control, and is fully divested on transfer. A reliable system must be used to ensure that the criteria are satisfied. If a trade document in electronic form satisfies the requirements of the Act, it is an “electronic trade document” and is capable of being possessed.
As a consequence of the Act, electronic trade documents, being possessable, will be treated in law in a manner equivalent to their paper counterparts and will have the same effects and be subject to the same treatment and dealings in all respects.
Law Commission reforms
Further information about our electronic trade documents law reform project, including our recommendations, is available here.