Background

We considered the proposed digitalisation of trade documents in our Lending Focus article of February 2023 – "Can English law adapt to allow for the digitalisation of trade finance documents", noting that the Law Commission's proposed reforms represented a significant step in the development of English law in this area, and a confirmation that the UK is keen to place itself at the global forefront of facilitating digital documents. There were significant hurdles under English law to the taking of this step, including the inability to possess an intangible, which would include an electronic legal document.

The Law Commission released a consultation paper and draft bill to address the digitalisation of trade documents in April 2021, then in March 2022 produced its report on Electronic Trade Documents to which a draft bill was appended. The draft Electronic Trade Documents Bill (the ETD Bill) was mentioned in the 2022 Queen's Speech, given by the King (then the Prince of Wales) on 10 May 2022. The Law Commission's report recommended that:

• "Trade documents in electronic form should be capable of being possessed as a matter of law, provided they meet certain criteria which ensures that they can replicate the salient features of paper trade documents."
• "There should be legislative reform to allow for trade documents in electronic form that satisfy certain criteria to be possessed and therefore to have the same legal effects as their paper equivalents."

At the time of writing of our previous article, the ETD Bill was progressing through the House of Lords. The House of Lords had established a Special Public Bill Committee on it, which had sought views on the proposals. Significant thought and focus was allocated to progressing the law to facilitate technological advances and electronic trade. 

Current position 

The ETD Bill has now progressed through the House of Lords (12 October 2022 to 22 March 2023) and House of Commons (23 March 2023 to 10 July 2023), and amendments proposed to it have been considered and processed. In a very exciting development, the ETD Bill has now secured royal assent and the Electronic Trade Documents Act is anticipated to become effective within a matter of months. The UK is the first G7 country to enact legislation of this nature.

Contents of the Electronic Trade Documents Act:

It sets out which documents qualify as "paper trade documents" and provides examples of documents commonly used in the UK in connection with trade in or transport of goods, and financing such trade. The examples given are: 

• Bills of exchange.
• Promissory notes.
• Bills of lading.
• Ship's delivery orders.
• Warehouse receipts.
• Mate's receipts.
• Marine insurance policies.
• Certain cargo insurance certificates.

It sets out which information in electronic form would, if contained in a document in paper form, lead to the document being a "paper trade document". The information will be treated as an "electronic trade document" if a reliable system is used to identify, protect and secure the information, and to allow a person to exercise control of the document and to cease to have control over it. Certain criteria (the Gateway Criteria) are used as a basis for determining what is required in terms of a reliable system, to replicate the relevant features of the equivalent paper document.

It allows a person to possess, indorse and part with possession of an electronic trade document.

It confirms that an electronic trade document has the same effect and functionality as its equivalent paper form and that anything done to the electronic trade document has the same effect as if it were done to its paper form.

Ground breaking change in trade finance documents

The Electronic Trade Documents Act represents significant progress, in fact what could be described as a revolutionary change, in the field of trade finance documents and a very welcome development in this area of law. It demonstrates that the UK is keen to be at the forefront of progress in this area. A press release from the Department of Science, Innovation and Technology on 20 July included the following comment from Paul Scully, Minister for Tech and the Digital Economy: "what may look to many of us as a small change to the law is something that will have a massive impact on the way UK firms trade, and in turn, is going to boost our economy by over £1 billion over the next decade".

The benefits to reform are numerous and include the following:

• cost and time savings: electronic processing is significantly quicker than transferring a paper trade document
• enhanced security given document trails will be more easily traceable
• a reduction in the environmental impact of paper, printing and courier emission.

It is important to note that currently only a small number of jurisdictions recognise electronic trade documents. In order for real progress therefore, multi-jurisdictional reform is needed, given the nature of trade. If reform is only made in this jurisdiction, electronic trade documents may be permitted under English law but may not be recognised elsewhere. We look forward to further developments in this area! 

Find out more

To discuss the issues raised in this article in more detail, please contact a member of our Banking and Finance team.