The Law Commission of England and Wales is hoping to ease concerns that digital trade documents may not be recognised as valid by overseas courts even when contracts specify the use of English law.
Only a handful of countries have adopted laws that recognise electronic versions of trade documents such as bills of lading.
The slow take-up has prompted legal experts to worry that a court in a country that does not recognise an electronic bill of lading (eBL) as valid may not deem the holder as having ownership of the goods in question.
Through a consultation launched last month, the Law Commission wants trade and trade finance practitioners to give their views on the issue.
It has also proposed legal reforms to address some complications that have arisen from the UK’s adoption of the Electronic Trade Documents Act (ETDA).
The ETDA was passed in 2023, but only a small number of countries, such as Bahrain, France, Singapore and Uruguay, have similar legislation, although several more are in the process of developing it.
The Law Commission is tasked by the UK government with considering and recommending potential changes to the law. While its recommendations only apply to England and Wales, most trade contracts conducted internationally use English law.
One of the first issues to arise in court cases involving trade transactions is the question of jurisdiction: which country’s law is the most appropriate to hear the dispute? Litigants often fight fiercely to have a case heard in their preferred court.
Omer Guy, general counsel for the Digital Container Shipping Association, says an example of a case where the question of jurisdiction could arise is a dispute involving a Chinese exporter, a Brazilian consignee and a container shipping company in Switzerland.
Because Brazil does not currently recognise eBLs, a party could argue in a Brazilian court that the bill of lading is not valid, and there is a risk the court could accept that argument.
“If the bill of lading is not valid and is not considered a bill of lading anymore, then as a carrier, you are not protected,” he says. “You are not granted the protections, the limitations that you would otherwise be granted under the Hague-Visby Rules, for example, and all of the protections that you as a carrier have under the bill of lading. So it is a very big risk.”
“We always say that this is the elephant in the room,” he says of the question of jurisdiction and electronic trade documents. “Because it’s a procedural matter nobody really talks about it too much, but everybody knows it’s an issue. I think it’s a big issue.”
Traders using electronic bills of lading can specify English law in their agreements, but it can never be guaranteed that everything that arises from the transaction will be governed by English law, says Sarah Green, who played a lead role in drafting the ETDA while at the Law Commission.
As long as many countries do not recognise electronic versions of trade documents as valid, “there is always a possibility that some court somewhere will apply a law that doesn’t recognise electronic trade documents to the transaction,” says Green, now an independent arbitrator and mediator.
But Green points out that this issue is not specific to the ETDA, but crops up for any national laws that apply to commercial transactions with an international element. It “isn’t something that is exacerbated by electronic trade documents,” she adds. “That’s just the way that private international law works.”
For the holders of documents such as bills of lading, the consequences of such a decision could be significant. As documents of title, bills of lading act as evidence of title to goods that can be worth large sums, especially in high-value commodity trading such as oil and gas.
Another complicating factor is the physical location of a document such as a bill of lading or bill of exchange.
If a dispute is contractual, a court will typically defer to the jurisdiction chosen by the parties. But if the dispute is deemed one over property, the question of jurisdiction will be strongly influenced by the location of the property – the electronic trade document.
The consultation suggests reforms to a section of the Bills of Exchange Act 1882 that deals with conflict of laws, which is seen as problematic for electronic documents because it places emphasis on the physical locations at which a bill is issued and delivered.
The provision in the Act has been criticised as “out of date” even for paper bills, the Commission says in the consultation. The changes suggested by the Commission would make it unnecessary to identify “where” an electronic bill of lading is issued or delivered.
Laura Burgoyne, the Law Commission’s head of commercial and common law, says because they have been paper documents “for hundreds of years” there has never been “a question about where they were at a particular time, because they’re physical, so they could be in a particular place”.
But digital versions exist in code or on a blockchain, meaning “there has been quite a lot of consternation about how this applies if you move to using electronic trade documents, because then you can’t say where the document was at a particular time”, Burgoyne says.
In February, the Commission published guidance in the form of a frequently asked questions document, which it hopes can help alleviate this worry and other areas of the potential conflict between the ETDA and other countries’ laws.
Burgoyne says the documents “are designed to help people in the industry navigate through… a fear and a misunderstanding rather than an actual problem in the law, to quite a large extent”.
Green says “there can never be absolute certainty about which laws will apply to any dispute with an international dimension, whether it involves digital documents or entirely conventional means.” The only way to achieve that would be for all jurisdictions to have exactly the same laws, she says, noting that certainty will increase as a greater number of countries enact laws validating digital trade documents.
“That does not mean, however, that electronic trade documents can only be used in transactions relating to those jurisdictions that have made these reforms.”
“The main point is that England can’t sort it out for everybody, everywhere, and that’s the case for every jurisdiction with any private international law issue. Parties are still going to be well advised to choose English law to the extent that they can,” she says.
“There’s no silver bullet here.”
The consultation runs to September 8.
This article was updated on July 16 to include further comments from Sarah Green.
