News / 14-02-2022 / London

The Law Commission Consultation

The Law Commission is an independent advisory body to the UK government. Its eagerly awaited final report on the legal recognition of electronic trade documents such as electronic bills of lading is expected to be published in the spring of 2022.

The paper problem

ESG

In the current Environmental, Social & Governance (ESG) climate, the paper problem is clear. A single international trade transaction can require up to 20 or more documents, with each document running to several pages. Global container shipping generates approximately 28.5 billion paper documents each year.

Legal recognition – possession

Despite the sophisticated digital processes upon which international trade transactions are based, the current law of England & Wales does not recognise anything other than the physical possession of certain trade documents e.g. bills of lading.

The Law Commission’s stance

In an increasingly digitalised world, the Law Commission’s view is that the English legal position on paper documents is archaic and in need of reform.

The advantages of Electronic Trade Documents

Security and compliance

Electronic documents are inherently more traceable and transparent. For example, the metadata of such documents will often show from where the document originated and who has interacted with it. Documents in electronic format are also likely to reduce the instances of non-compliance due to human error.

The environment

Aside from reduced paper consumption, the use of electronic documents would circumvent the need for the transportation of physical trade documents and the carbon footprint associated with that exercise (e.g. air freight or international and domestic courier services).

Efficiency

Ancillary administrative processes may be bypassed which may, in turn, allow for the more effective allocation of a company’s resources.

Resilience to future pandemics

After approximately two years, the Covid-19 pandemic’s grip on our freedoms appears to be easing somewhat. The pandemic did, however, cause havoc within the global logistics sector with the closure of sea ports and other onerous quarantine measures we have seen applied at other global logistics hubs. Paperless electronic trade could make the transportation sector more resilient to the type of delays caused by epidemics and pandemics by reducing the need for human to human contact.

The disadvantages of Electronic Trade Documents

Security

It is perhaps somewhat misleading to suggest that document integrity is a disadvantage associated with the use of electronic documents. This is because electronic documents present a far more secure way to effect trade when compared to the use of paper documents.

It is perhaps more accurate to suggest that whilst electronic trade documents would offer greater security, especially if blockchain technology is used to underpin them, the system still would not be 100% totally secure.

The current insurance position and collective adoption

Although the International Group of P&I Clubs has for many years provided cover for the use of e-bills, adoption by the industry has been far slower than initially envisaged. Six e-bill platforms have been endorsed by the International Group, such that any liability arising through their use would be treated in exactly the same way as if a paper bill had been used. It is imperative, therefore, that only one of the six approved e-bill platforms is used.

The e-bill ecosystem requires the collective adoption of e-bills by the entire shipping chain. This is perhaps why the wholesale adoption of e-bills has been slow. It only takes one player in the transport chain to insist on doing things “the old fashioned way” to cause the entire chain to revert back to the use of paper documents.

The future

The world is becoming increasingly digitalised. Against that backdrop, it is inevitable that the use of electronic trade documents will eventually become “the norm”. The question is how quickly. The Law Commission’s eagerly awaited paper on the reform of English law to enable the use of e-bills is another inexorable step in that direction.