The UK Electronic Trade Documents Act 2023 explained

Why the Act was needed

Before the Act, the law of England and Wales did not recognise possession of an electronic document, because possession was associated only with tangible things.^[2][3] The Law Commission called this the "possession problem".^[2]

The industry worked around this with multipartite contracts, or rulebooks, under which every user agrees to treat an electronic transfer like a transfer of the paper document.^[2] The Law Commission identified three shortcomings: added complexity; rights enforceable only against contractual counterparties, whereas paper documents are more consistently recognised globally; and a position untested in court.^[2]

The Commission consulted from 30 April 2021 and published Electronic trade documents: Report and Bill (Law Com No 405, HC 1188), ordered to be printed on 15 March 2022.^[4][2] The Government accepted the recommendations and used the special parliamentary procedure for Law Commission bills.^[5] The Bill was introduced in the House of Lords on 12 October 2022; every section except section 6 (regulations) corresponds to a clause of the Bill as introduced.^[3][4] Royal Assent followed on 20 July 2023.^[1][6]

Which documents the Act covers

Section 1 defines a "paper trade document" by three tests: it is in paper form; it is of a type commonly used in at least one part of the United Kingdom in connection with trade in or transport of goods, or financing it; and possession of it is required, "as a matter of law or commercial custom, usage or practice", to claim performance of an obligation.^[1]

Section 1(2) gives a non-exhaustive list of examples: a bill of exchange, a promissory note, a bill of lading, a ship's delivery order, a warehouse receipt, a mate's receipt, a marine insurance policy and a cargo insurance certificate.^[1][7] The Explanatory Notes say "bill of lading" covers shipped, straight and multimodal bills, which fall within the Act if possession is a necessary part of their function; a listed document must still meet the section 1(1) tests.^[7]

A sea waybill is outside the Act in practice: the Explanatory Notes say sea waybills are not transferable, so their electronic use is unaffected, although section 1(1)(c) would apply if possession ever became relevant to one.^[7]

What a reliable system must do

Under section 2, information in electronic form that would, on paper, make a paper trade document is an "electronic trade document" only if a reliable system is used to: identify the document so that it can be distinguished from any copies; protect it against unauthorised alteration; secure that no more than one person can exercise control of it at any one time; allow a person able to exercise control to demonstrate that ability; and secure that a transfer deprives the transferor of control.^[1]

A person exercises control by using, transferring or otherwise disposing of the document, whether or not they have a legal right to do so; persons acting jointly count as one, and reading or viewing is not of itself use.^[1] The Explanatory Notes call the divestment requirement "the electronic equivalent of handing over a piece of paper".^[3]

Section 2(5) lists matters a court may take into account when judging reliability: the system's rules, integrity and access-control measures, hardware and software security, independent audit, any assessment by a supervisory or regulatory body, and any applicable voluntary scheme or industry standard.^[1] The Explanatory Notes say this list is "based loosely on article 12" of the UNCITRAL Model Law and that the Act "does not prescribe or endorse any particular type of technology".^[7][3] There is no accreditation regime: the Law Commission rejected one as burdensome, preferring industry standards.^[2] P&I approval is an insurance matter, not a requirement of the Act.

Possession, indorsement and effect

Section 3(1) provides that a person "may possess, indorse and part with possession of an electronic trade document".^[1] Section 3(2) and (3) give it, and anything done in relation to it, the same effect as for an equivalent paper trade document.^[1]

Possession is then a common-law question of fact, turning on control and intention, and a transfer is a transfer of possession rather than an assignment.^[7] Because an electronic document may have no "back", an electronic indorsement is valid wherever it appears.^[7] Section 3(4), Scotland only, treats an electronic trade document as corporeal moveable property for Scottish pledge legislation.^[1]

Worked example. A seller in Felixstowe ships goods to a buyer in Singapore and the carrier issues an electronic bill of lading on a system that meets section 2. The seller indorses it to its bank and transfers control; the bank, once paid, transfers control to the buyer, who presents it to the carrier for delivery. Under section 3, each step has the effect it would have had with a paper bill governed by the same law.^[1] How a court or bank in Singapore treats the record depends on Singapore law.

Change of form

Section 4 allows a paper trade document to be converted into an electronic one and vice versa, "if (and only if)" a statement that the document has been converted is included in the new form and any contractual or other requirements for the conversion are met.^[1] On a valid conversion the old form ceases to have effect and all rights and liabilities continue in the new form.^[1]

The Explanatory Notes say the statement puts the transferee on notice and keeps an audit trail, and that the issuer and the person in possession would generally need to agree.^[7] An invalid conversion leaves the old form in effect, so the obligor's liability could be duplicated unless the old document is cancelled.^[7] This change of medium rule differs from MLETR articles 17 and 18, which also require a reliable method for the change.^[8][1]

Exclusions, consequential changes and extent

Section 5 lets parties opt out: if an intention that section 3 should not apply appears in, or can reasonably be inferred from, the document or its terms, neither section 3 nor section 4 applies.^[1] Sections 1 to 4 do not apply to uncertificated securities under the Uncertificated Securities Regulations 2001, or to document types specified in regulations made under the affirmative procedure.^[1]

Section 7 excludes electronic trade documents from the electronic-presentment provisions of the Bills of Exchange Act 1882 and repeals section 1(5) and (6) of the Carriage of Goods by Sea Act 1992, a power to make regulations for the electronic use of bills of lading, sea waybills and ship's delivery orders; the 1992 Act's revised text shows both subsections omitted from 20 September 2023.^[1][7][9]

Section 8 extends the Act to England and Wales, Scotland and Northern Ireland, except that section 3(4) extends only to Scotland.^[1] The Law Commission can recommend only for England and Wales; the Government extended the Act UK-wide because much of the relevant legislation already applies across the UK and the common law is similar.^[2][10] The Act came into force two months after it was passed, on 20 September 2023; sections 3 and 4 do not apply to documents issued before that day.^[1][6]

How the Act relates to the MLETR

UNCITRAL lists the United Kingdom on its MLETR status page with the year 2023 and a footnote that the legislation "is influenced by the Model Law and the principles on which it is based".^[11] The Law Commission considered the Model Law "sound in principle" and sought alignment "insofar as possible", while tailoring its recommendations to the law of England and Wales.^[2]

The main difference is conceptual. MLETR article 11 treats a reliable method establishing exclusive control as meeting a requirement of possession.^[8] The Act instead makes the electronic document itself possessable, so the common law of possession applies to it; control appears only in the section 2 gateway test.^[2][1]

Other differences: the Act omits the MLETR's article 12(b) "safe harbour" for a method proven in fact to have worked;^[2][8] it has no counterpart to article 19 on records issued abroad, because the Commission knew of no rule under which English law would deny recognition to a document solely because it was issued abroad;^[2][8] and its change-of-form rule requires no reliable method for the conversion.^[1][8] See the MLETR explainer and the legal tracker.

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