Electronic trade documents

Current project status

• Initiation: Could include discussing scope and terms of reference with lead Government Department
• Pre-consultation: Could include approaching interest groups and specialists, producing scoping and issues papers, finalising terms of project
• Consultation: Likely to include consultation events and paper, making provisional proposals for comment
• Policy development: Will include analysis of consultation responses. Could include further issues papers and consultation on draft Bill
• Reported: Usually recommendations for law reform but can be advice to government, scoping report or other recommendations

The Law Commission has published a report with draft legislation which would implement its recommendations to allow for the legal recognition of trade documents such as bills of lading and bills of exchange in electronic form. The recommendations were implemented in the Electronic Trade Documents Act 2023, which came into force in September 2023.

Download the report and draft legislation here.

Download the summary of the report here.

Download the Welsh summary of the report here.

The problem

International trade is worth around £1.266 trillion to the UK. The process of moving goods across borders involves a range of actors including transportation, insurance, finance and logistics service providers. We have estimated 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. The International Chamber of Commerce has estimated that digitalising trade documents could generate £25 billion in new economic growth by 2024, and free up £224 billion in efficiency savings.

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 will continue to lag behind, hindering the adoption of electronic trade documents and the significant associated benefits from being achieved.

The work described on this page is linked to our wider work on cryptoassets and other digital assets, on which we have published a call for evidence and plan to publish a consultation paper with provisional proposals for reform in summer 2022.

The project

We have been asked by Government to make recommendations for reform to allow for legal recognition of trade documents such as bills of lading and bills of exchange in electronic form.

The recommendations in our report, and the Bill that would implement them, are intended to enable trade documents in electronic form to be used in the same way as their paper counterparts. To achieve this, the Bill sets out certain “gateway criteria” that a document in electronic form must satisfy in order to qualify as an “electronic trade document”. We recommend that electronic trade documents (that is, documents in electronic form which satisfy the gateway criteria) should be capable of being possessed, and that this principle should be set out explicitly in statute.

In our report, we also consider the consequences of electronic trade documents being possessable. It is our intention that electronic trade documents, when capable of possession, should be treated in law in a manner equivalent to their paper counterparts. Therefore, possessory concepts should apply equally to electronic trade documents as to paper trade documents. Furthermore, electronic and paper trade documents should have the same effects and be subject to the same treatment and dealings in all respects.

Because international trade involves the transfer of documents across borders, complex jurisdictional rules are often engaged when disputes arise. We think private international law aspects of electronic trade documents should be dealt with in a separate project that deals with digital assets more broadly. We have agreed with Government that we will undertake a new project looking at the rules relating to conflict of laws as they apply to emerging technology, and consider whether reform is required. We hope to be in a position to begin this work in mid-2022. Please see the relevant project page for the latest information.

Consultation

We published a consultation paper and draft legislation on 30 April 2021 setting out our provisional proposals for law reform.

We received comments on our proposals and draft Bill from a wide range of stakeholders, including international trade participants, tech companies, lawyers, and academics.

Our consultation closed on 30 July 2021. We analysed the responses we received and refined our provisional proposals and draft Bill taking into account comments from consultees and other stakeholders, and our further research.

Our recommendations for reform

The Law Commission recommends that a trade document in electronic form should be capable of being possessed provided that certain criteria are met. These criteria are designed to replicate the salient features of paper trade documents and include the following.

• The electronic document should be susceptible to exclusive control. In order to prevent double spending, only one person (or persons acting jointly) must be able to exercise control of the document in electronic form at any one time.
• The electronic document should be fully divested on transfer. The transferor should no longer be able to exercise control of the document when it is transferred.
• A reliable system should be used to ensure that the criteria are satisfied. The underlying system whereby the document meets the criteria must be reliable. We further recommend that the Bill should contain a list of factors which may be taken into account when assessing whether a system is reliable.

The recommendations apply to documents that rely on possession for their functionality as a matter of law or commercial practice, with specific exclusions for bearer bonds and uncertificated securities under the Uncertificated Securities Regulations 2001.

The report has been laid before Parliament. It will be for Government to decide whether to implement the recommendations. The Government has however already indicated that it intends to introduce relevant legislation when parliamentary time allows.

Contact us

To contact us please email: electronictrade@lawcommission.gov.uk.

Related projects

You may also be interested in our work on the following:

Smart contracts.

Cryptoassets and other digital assets.

Conflict of laws and emerging technology.