The Law Commission of England and Wales has announced a consultation on a proposed legislative reform which would give legal recognition to electronic versions of trade documents such as electronic bills of lading, in the wake of the recent commitment made by G7 digital and technology ministers to adopt electronic transferable records in international trade transactions.
The Law Commission’s proposals highlight the criteria that electronic trade documents would need to meet so that they can be “possessed” in the eyes of the law and therefore used as an alternative to paper versions in global trade.
The Law Commission is consulting on the proposed changes, including draft legislation to implement them, until July 30, and aims to publish its recommendations for reform and a final draft bill early next year.
GTR speaks to Sarah Green, the UK’s commercial and common law commissioner, to understand the proposed changes and the reasons behind them.
GTR: Why does this proposed legislative change require a Law Commission project to achieve?
Green: In terms of objectives, it is very simple and very straightforward: to ensure that trade documents in electronic form have exactly the same legal effect as the paper forms of those documents. Achieving that simple objective is what causes the difficulty. At the moment, as a result of legislation and common law principles in this jurisdiction, those documents in electronic form do not have the same legal effect as their paper counterparts, which makes it a lot more difficult to achieve the same result as quickly and as securely. It is pretty clear that what we do need in this situation is legislative change.
GTR: Thus far, solutions to making electronic documents enforceable have been created through the use of contract law, such as in the case of electronic bills of lading. Given this, is it really necessary to change the law?
Green: I suppose it depends on what you mean by necessary. Commercial parties will always find workarounds, so in a sense, I suppose it is not strictly necessary, but it is certainly not exactly the same, particularly in terms of the security of those transactions. Contractual rights are all very well as long as nobody is insolvent. As soon as a party becomes insolvent, your contractual rights are not nearly as valuable as proprietary rights would be.
Essentially, these reforms aim to remove blocks to giving proprietary rights to title to goods on the basis of electronic documents. It just looks a bit odd in the 21st century to have these legal blocks which in themselves have no justification other than, we do it this way because we’ve always done it this way. When you are looking at commercial parties and the value of international trade to all jurisdictions but particularly to the UK, it really just makes sense that the law should reflect the reality that commercial parties want to use electronic documents for efficiency and security but still have all the rights that paper documents give them.
GTR: What are you hearing from industry about the need for this project?
Green: This consultation paper is in itself partly a response to stakeholder engagement. In some Law Commission projects you might get some stakeholders who don’t think the law needs reforming and don’t agree with the project, but we certainly haven’t had that with this project.
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.
I am painting quite a rosy picture and that is quite unusual for Law Commission projects. This is an unusual one in the sense that there is a lot of support for the project as a whole and how to achieve it, although there are slightly different reasons for being happy about the way that we have reached that goal.
GTR: What are the requirements of the English law system that mean you cannot simply transpose the UNCITRAL model law on electronic transferable records (MLETR) into legislation, as has been done in other jurisdictions?
Green: As the name suggests, it’s a model law. It was not supposed to be a plug and play law that just gets adopted wholesale. While we are not really following MLETR, our proposals were developed in parallel to what the MLETR was doing. One of the aspects in which we do diverge is in the concept of possession. Possession is the root of the issue of why at the moment electronic documentation wouldn’t be treated in the same way as paper documentation, because according to English and Welsh law, you cannot possess something that is intangible. Electronic documents are considered to be intangible, so therefore you cannot possess an electronic document.
What our consultation paper does is purport to bring electronic documents within an expanded notion of possession and what MLETR does is look at control as a functional equivalent of possession. The problem with just using the MLETR’s concept of control in English and Welsh law is that that concept has quite a lot of baggage already, and we also have to bear in mind how comfortable judges are going to be in using any concept that we introduce. Common law judges are already very comfortable with the notion of possession.
Our commercial law works really well. We didn’t want to fix anything that wasn’t broken. And so the least interventionist way of achieving our objective is to expand the definition of possession rather than try to superimpose what would be to the common law quite an unfamiliar use of control, which wouldn’t have been so straightforward and could have led to greater uncertainty, which of course is something that nobody wants to happen.
GTR: What do you need from industry, from exporters, and from financiers in order to achieve the aims of this project?
Green: We have just begun our consultation period for this project, which runs until July 30. What we need are responses from industry and other stakeholders as well. If they don’t agree with certain of the proposals that the Commission has made, we would like to hear from them. Commissioners do change their views on things based on consultation responses, because we are a consultative body.
Equally, if stakeholders support the project, it is important that they tell us, rather than assuming that their support will be presumed by us. It would be really useful to be able to say to the government in the Commission’s final report that we received responses from stakeholders representing the spectrum of interests and that everybody agreed that this was a good idea and should be taken forward. This will help build the case that the government should implement our recommendations sooner rather than later.