Electronic Trade Documents Act (ETDA) 2023: a move to digitalise trade documentation under English law

On 20 July 2023, the Electronic Trade Documents Act (ETDA) 2023 received royal assent, and the use of electronic trade documents became legally recognised from 20 September 2023, when the ETDA entered into force. The ETDA does not apply to bills of lading issued prior to this date. Until the ETDA was passed, electronic trade documents did not have the same legal effect as paper-based documents under English law. This, therefore, is a historic move towards the digitalisation of trade documents.

Key features of the ETDA 

1. Defining a “paper trade document”;
2. Defining an “electronic trade document”;
3. Allowing possession and indorsement of an electronic trade document;
4. Allowing change of form. 

Defining a “paper trade document”

The ETDA provides a flexible definition of paper trade documents requiring it to be in paper form and of a type that is commonly used in connection with the trade or trade finance in at least one part of the United Kingdom. The list of common trade documents is non-exhaustive and includes “a bill of lading”.

Defining an “electronic trade document”

For an electronic trade document to fall within the definition in the ETDA, it must first have the same function of a paper trade document. 

It must also be used under a “reliable system” to ensure (among other things) that it can be distinguished from any copies and cannot be altered without authorisation and cannot be used by more than one person at any one time.

In order to determine whether a “reliable system” has been used, the below matters will be taken into consideration:  

     a)    any rules of the system that apply to its operation;
     b)    any measures taken to secure the integrity of information held on the system;
     c)    any measures taken to prevent unauthorised access to and use of the system;
     d)    the security of the hardware and software used by the system;
     e)    the regularity of and extent of any audit of the system by an independent body;
     f)    any assessment of the reliability of the system made by a body with supervisory or regulatory functions;
     g)    the provisions of any voluntary scheme or industry standard that apply in relation to the system.

Possession, indorsement and effect of electronic trade documents

‘Possession’ of a trade document is an important concept in international trade as constructive possession of any goods is evidenced by holding the document of title. This means that ‘possession’ of the goods can be transferred whilst the goods themselves are still in transit. Where a bill of lading has been transferred to a new lawful holder, possession gives that holder the right to demand delivery of the goods. 

The previous restrictions under English Law required all trade documents to be ‘possessable’ in that they had to be in a physical, paper-based format. 

In the absence of an express contractual agreement between the parties, English law did not recognise the use of electronic trade documents. 

The ETDA now, however, permits a person to “possess, indorse and part with possession of an electronic trade document”, as if it has the same effect as an equivalent paper trade document, thereby altering the long-standing approach to the previous requirement of ‘possession’.  

Change of form

A paper trade document may also be converted into an electronic trade document and vice versa if:
     a)    a statement that the document has been converted is included in the document in its new form; and
     b)    any contractual or other requirements relating to the conversion of the document are complied with.

This is significant in practice as it permits a holder to change the trade document medium to comply with any jurisdictional requirements. 

There were concerns that the move to electronic trade documents would make it difficult, particularly for the end buyer, to enforce their rights where certain countries do not legally recognise the use of electronic bills of lading. 

A holder can now, however, easily convert a document back into paper form in order to comply with any local law requirements. 

When will the ETDA apply? 

The ETDA only applies to trade documents which are governed by English law and is silent on the issue of jurisdiction. Therefore, it is advisable for an electronic bill of lading to include a clause providing for English law as the governing law in order to benefit from the statutory provisions under the ETDA as well as a jurisdiction clause.  

Now that the ETDA is in force, the need for an express contractual provision permitting the use of electronic trade documents is no longer required. However, the parties may still wish to define the parameters for operating under the ETDA. 

Prior to the ETDA, the platforms for use of electronic bills of lading were contract-based and were binding only on the parties who had signed up to the platform. This meant that their application was restricted and subject to convoluted contractual mechanisms. 

The ETDA creates an equal playing field for all users of electronic bills of lading and it remains to be seen how the existing platforms will adapt to this new legal landscape. 

Benefits of the ETDA 

Increased efficiency 

The move to electronic trade documents will pose a significant cost saving for businesses, removing the need to produce cost-intensive paper alternatives. 

A business no longer has to print the paper documents and organise for them to be couriered to third parties, which ensures that the transaction process is quicker whilst also reducing the likelihood for errors.

The process of creating e-Bills of Lading can also be automated, with a business filling out the necessary details and creating the document at the touch of a button, which document can then be instantly transferred onto the relevant party. 

This improves efficiency and avoids the issues associated with paper bills of lading, where the goods cannot be released by a carrier if there is a delay in receiving the paper document, and the carrier insists on a letter of indemnity in order to release the goods to a consignee. 

Having said that, the use of the electronic bill of lading system itself is likely to result in additional costs imposed by providers. 

Increased security 

Electronic trade documents will also increase the security surrounding a transaction and limit the risk of losing confidential information. 

There are currently several electronic bill of lading systems, including Bolero, E-Title and Cargo X, which have been approved for use by the member Clubs of the International Group of P&I Clubs (IG). 

Newer systems are benefiting from the use of blockchain technology with electronic trade documents to create a traceable digital record of the transaction process. 

The use of the distributive ledger system, whilst allowing participants to access information instantaneously, also limits the risk of fraudulent activity as the information is stored on multiple servers, meaning that a perpetrator would have to access all versions to alter the document. 

Increased trade

The benefits of greater efficiency and improved security is expected to lead to an increase in trade for current, but also new participants, by removing trade barriers for smaller businesses and improving access to trade finance. This would make markets more accessible for those who do not currently export internationally. 

It has been estimated that the ETDA will boost the UK’s international trade by providing benefits to UK businesses over the next 10 years of £1.1 billion [1]. 

Comment

The digitalisation of international trade is inevitable, but it is moving at a different pace across the world. The ETDA is a major milestone on the way to a digital transition given the level of adoption of English law in the shipping and trading industries. 

The main area of contention under the ETDA is likely to be the interpretation of what is a “reliable system”. Although the ETDA provides several factors to be considered when determining reliability, any system is likely to be questioned in the event that the goods are misdelivered. The consequence of a system used by the parties being found unreliable remains to be seen. 

In practical terms, whilst the validity of an electronic bill of lading is now recognised under English law, this does not eliminate the need for parties to consider the risks associated with the use of the electronic platforms and to develop clauses which will deal with allocation of these risks. 

[1] Law Commission, ‘Recommendations to allow for electronic trade documents implemented in the Electronic Trade Documents Act 2023’ https://www.lawcom.gov.uk/law-commission-recommendations-to-allow-for-electronic-trade-documents-implemented-in-electronic-trade-documents-act-2023/