Another step has been taken towards achieving legal equivalence for electronic versions of trade documents, with the publication of draft legislation by the Law Commission of England and Wales.

The draft bill is intended to enable trade documents in electronic form – such as electronic bills of lading or bills of exchange – to be used in the same way as their paper counterparts.

Currently, under English law, being the “holder” or having “possession” of a trade document has special significance. However, the law only allows for tangible items to be possessed – and electronic documents are considered to be intangible.

Industries using these documents are therefore prevented by law from moving to a fully paperless process, the Law Commission says. It cites estimates by the Digital Container Shipping Association (DCSA) that 16 million original bills of lading were issued by ocean carriers in 2020, and that more than 99% of these were in paper form.

“To give a sense of the enormous amount of paperwork global trade generates, consider that the world’s largest containerships can carry 24,000 twenty-foot containers at any one time on any one voyage,” the Law Commission says. “For each one of those cargoes, paper transport documentation has to be produced, and must be processed manually to go from the shipper of the goods to the ultimate buyer at destination, sometimes through numerous intermediaries.”

In September 2020, the UK’s Department for Digital, Culture, Media and Sport (DCMS) asked the Law Commission to make recommendations to solve the problems caused by the law’s approach to the “possession” and transfer of electronic documents. DCMS also asked the Law Commission to prepare draft legislation to implement those recommendations.

In response, the Law Commission opened a consultation into the proposed legal reforms in April last year, giving interested parties until the end of July to comment on the tabled changes.

Speaking to GTR at the time, Sarah Green, the commercial and common law commissioner for England and Wales, said: “There is a very strong consensus from interested parties that the objective is something that needs to happen, and it is very unusual in that there has been no disagreement with that. From the point of view of practitioners and their legal advisers, there has not been much pushback in terms of how we are proposing to do it and probably that is just simply because, as commercial parties, if it is easier and simpler to do, and it works, then they are happy.”

Numerous stakeholders responded to the Law Commission’s request for comments, from academics to businesses, financial institutions, law firms, the judiciary, as well as industry bodies including the Bankers Association for Finance and Trade, the International Chamber of Commerce, and Swift.

In the Law Commission’s draft legislation, electronic versions of trade documents will have the same legal standing as their paper counterparts as long as they meet certain criteria. These include that electronic documents should contain the same information as would be required to be contained in the paper equivalent, they must be susceptible to exclusive control in order to prevent double spending, they must be distinguishable from any copies, and – importantly – should be capable of being possessed.

The Law Commission asserts that, if implemented, the legal reforms would not only increase efficiency and reduce the operating costs of trade, but also enhance the reputation of the law of England and Wales as the go-to choice of law for global trade contracts.

The draft bill has now been laid before parliament, and it now falls to the UK government to decide whether to implement the recommendations. The Law Commission is upbeat about the bill’s chances, saying that the government has already indicated that it intends to introduce “relevant legislation” when parliamentary time allows.