Sarah Green, Law Commission
Cross-border trade currently remains heavily reliant on documents such as bills of lading. A bill of lading is a document used in the carriage of goods by sea which, when transferred to a buyer (or any subsequent lawful holder), gives that holder constructive possession of the goods to which it relates. This ability to transfer constructive possession of the goods by transferring the document is of crucial importance in international trade where, for extended periods of time, good are not subject to the physical control of either the buyer or the seller. The law governing these documents is, however, currently premised on the idea that they can be physically held or “possessed”. This means that trade documents in electronic form, which are considered to be intangible, cannot be possessed, and therefore cannot function in the same way as their paper counterparts. When one considers that the largest containerships in the world can carry 24,000 twenty-foot containers on any single voyage1, it is easy to see how this legal blocker poses a real-world dilemma. Unsurprisingly, commercial parties are very keen for the law to catch up with the technological documentary capabilities now available, and to allow digital documents to function fully in the same was as paper has for centuries.
The UK Government is currently considering a Bill produced by the Law Commission of England and Wales in order to make the law in this area more fit for purpose in the digital age. The policy objective of the Bill is to allow for trade documents in electronic form that satisfy certain criteria to be recognised in law as being capable of possession, so that they can have the same legal treatment, effect and functionality as their paper counterparts. In so doing, it places electronic trade documents on the same legal footing as paper trade documents. This Bill is expected to become law in May or June 2023.
In enabling electronic trade documents to be used in the same way as their paper counterparts, it will generate significant cost savings, as well as improvements in information management and security. Another objective behind the Bill is for the UK to take the lead in setting an international standard as to how electronic trade documents can be defined and recognised under domestic law, with the intention that other jurisdictions will adopt similar laws.
Electronic trade documents are not the only digital assets that raise novel legal questions. Other new forms of asset, such as crypto tokens and non-fungible tokens (NFTs) challenge longstanding legal presumptions and rules. Given the already widespread, and ever-increasing, use of such digital assets by consumers and commercial players alike, this is a problem in need of an urgent and yet sophisticated solution. The issues here are to some extent similar to those that arise in relation to electronic trade documents, but are broader. NFTs are not, for instance, digital versions of things with which the law is already familiar but are instead entirely novel phenomena. This means that law reform must be nuanced and flexible, not least because the technology underpinning such assets is constantly evolving. In its Digital Assets project, therefore, the Law Commission is moving towards proposing common law rather than statutory reform. In other words, it currently takes the view that judicial decision-making, which is responsive to the facts of litigation, is better suited to the complex and dynamic digital assets environment than is the more static method of legislative rules. That is not to say that no targeted statutory reform is required here and there, but rather to suggest that English common law, for centuries a highly effective, trusted and responsive body of law, is ideally suited to provide the main body of rules within which digital assets can operate. Not only is common law more nimble in the face of technological development, but it is also able to cater better for the vast variety of factual circumstances in which legal questions will arise in relation to digital assets. To that end, the Commission is writing a Final Report, which it hopes will act as a guide to judges when developing the relevant legal principles, providing a detailed and principled analysis that can be tailored to many different factual situations.
As ever, the main challenges remaining will be those of interoperability and harmonisation. In the digital economy, cross-border issues are more pressing than ever, as physical barriers to trade continue to disappear. There is no doubt that this poses a challenge to commercial parties, to their legal advisers and to their customers. But it also provides a wealth of opportunities: the breaking down of old orders generates space for the development of new approaches; approaches that can be developed in a way expressly tailored to the contemporary technological and trade environment. In rewriting the rulebook, we can be audacious and perspicacious. And we should be.
1 See “Top 10 World’s Largest Containerships in 2021”, Marine Insight News Network (updated 18 January 2022), https://www.marineinsight.com/know-more/top-10-worlds-largest-container-ships-in-2019/#1_Ever_Ace.
