Siobhan McKeering from The Law Commission explains why they are looking into the law surrounding electronic documents and how it fits with other initiatives around digital technology
On 30 April 2021 the Law Commission published a consultation paper on electronic trade documents. We made provisional proposals for legislative reform to ensure that electronic versions of documents such as bills of lading and bills of exchange have the same legal effect as their paper counterparts. We have also published a separate but related call for evidence on cryptoassets and other digital assets. In both instances we are seeking the views of interested stakeholders before 30 July 2021.
Electronic trade documents
To start, an introduction to the project. International trade involves the use of special documentation such as bills of lading, bills of exchange and promissory notes. These documents, which are also used in trade finance transactions (such as documentary credit arrangements and forfaiting), are still generally issued and used in paper format. The industry generates billions of paper documents each year.
Industry stakeholders tell us that a move to an electronic trade document system could provide several benefits over the existing system, including increased efficiency, increased security and a lower risk of fraud. However, the current law of England and Wales (both common law and legislation) acts as a blocker to the adoption of such a system.
In general, possession of trade documents is used to determine who may exercise certain rights at law (for example, under the Bills of Exchange 1882). The problem is that an electronic document, as a form of intangible property, is not currently capable of possession in law. In Your Response v Datateam  EWCA Civ 281, the Court of Appeal held that intangible property could not be possessed. Lord Justice Moore-Bick noted that, while there were powerful arguments for extending property rights to intangibles, the court was bound by OBG v Allan  UKHL 21, in which the House of Lords had held that things in action could not be the subject of the tort of conversion. In OBG v Allan, Lord Walker said that holding that things in action could be converted (and therefore possessed) would be a step too far for the court. Lord Justice Moore-Bick, Lord Walker, and Baroness Hale have all suggested that Parliament could instead reform this area of the law.
Our consultation paper accordingly sets out proposals for legislative reform and includes a draft Electronic Trade Documents Bill. The purpose of the draft Bill is to provide that certain trade documents in electronic form have the same effect as paper trade documents. The draft Bill applies to bills of exchange, promissory notes, bills of lading, ship’s delivery orders, marine insurance policies, cargo insurance certificates and warehouse receipts.
We propose that an electronic trade document will be capable of possession at law if it:
The draft Bill provides that a person has “control” of an electronic trade document if they are able to use the document and transfer or otherwise dispose of it. There are also clauses on the transfer and indorsement of electronic trade documents, and the replacement of electronic trade documents with paper trade documents (and vice versa).
If the government were to implement these proposals, the current problem of possession would be resolved, and existing law would apply to electronic trade documents in the same way it already applies to paper trade documents. This is an important consideration because the law of England and Wales is an effective and trusted source of law in international trade. Our proposed approach, therefore, targets the legal blocker to electronic trade documents without significantly disrupting the existing rules which are already widely used.
The Law Commission’s consultation on electronic trade documents runs until 30 July 2021. We expect to publish our final report, recommendations and draft Bill in early 2022.
Cryptoassets and other digital assets
We are aware that there is also significant interest in the question of possession of other intangibles (including, for example, certain digital assets and cryptoassets). That question, along with other relevant issues, is the subject of another Law Commission project on digital assets on which we have published a short call for evidence.
Digital assets are used for an expanding variety of purposes, including as means of payment for goods and services or to represent other things or rights, and in growing volumes. Cryptoassets, smart contracts, distributed ledger technology (“DLT”) and associated technology have broadened the ways in which digital assets can be created, accessed, used and transferred. Such technological development is set only to continue, and there is a case for ensuring that property rights in digital assets receive full and consistent recognition and protection under the law.
In the short call for evidence, the Commission asks stakeholders for information on how digital assets are used, treated and dealt with by market participants and about how the law might accommodate digital assets now and in the future.
The call for evidence is open until 30 July 2021. We expect to consult on proposals for reform in late 2021 or early 2022.
There are certain issues which are not covered in our current work, but which we think require consideration in a broader context. We have not, for example, addressed in detail how electronic trade documents or other digital assets would operate within the framework of private international law. This question is part of a wider issue about how private international law deals with emerging technologies and the new forms of asset to which they give rise. We are consulting on whether such a project should be included in the Law Commission’s 14th programme of law reform. The Commission is also seeking suggestions for law reform projects more generally, across the full legal landscape.
Siobhan McKeering is a Lawyer in the Common and Commercial Law Team at the Law Commission of England and Wales