The Electronic Trade Documents Act – how reliable are your systems?

Digitalisation of the shipping industry continues to be high on the agenda, with container lines and the bulk carrier sector recently committing to increased use of electronic bills of lading (“e-bills”) by 2025 and 2030 respectively. An important, and sometimes overlooked, aspect of digitalisation is the opportunity it presents for shipowners to re-imagine and re-design their systems and processes.

The Electronic Trade Documents Act[2] (the Act) which passed into law on 20 July 2023, offers just such an opportunity. The Act is technology-neutral, deliberately not favouring a single technology so as not to inadvertently limit the means in which the aims of the Act can be achieved[3]. As such, it challenges those who wish to adopt e-bills to make their own assessment of whether the systems they use comply with the requirements set out in the Act, and in turn benefit from the protections it provides.

In this article we will look at the key provisions of the Act which govern compliance, and consider ways in which shipowners can evaluate the systems available for e-bill of lading issuance and exchange.

The Act

The Act is not yet in force, and will come into effect two months from the day it was passed, being 20 September 2023. It will not apply to bills of lading issued prior to that date.

The Act aims to facilitate functional equivalence between electronic bills of lading (and other documents) and their paper counterparts.

It is trite law that a bill of lading has three key functions:

1. Evidence of the contract of carriage
2. A receipt for the goods
3. A document of title, possession of which gives the lawful holder a right to delivery of the goods

It is this last function which is fundamental to the operation of international trade and trade finance and replicating this feature within a digital environment is a key focus of the Act.

If the requirements of the Act are met, then an electronic trade document will have the same effect as an equivalent paper trade document. In practice, this means that compliant electronic trade documents will:

1. Benefit from the provisions of the Carriage of Goods by Sea Act 1992, which govern the transfer of rights of suit to the lawful holder of a bill of lading; and

2. Qualify as a bill of lading under the Carriage of Goods by Sea Act 1971, and therefore be mandatorily subject to the Hague Visby Rules, in the circumstances provided for by that Act.

As these are fundamental protections for issuers and holders of bills of lading, it is therefore essential that those who seek to use e-bills are confident that the systems and processes they are using to facilitate the issuing and exchange of e-bills are compliant with the requirements of the Act.

Key Requirements

In order for an electronic trading document to benefit from the protection of the Act, s.2(2) provides that a ‘reliable’ system must be used to:

(a) identify the document so that it can be distinguished from any copies,

(b) protect the document against unauthorised alteration,

(c) secure that it is not possible for more than one person to exercise control of the document at any one time,

(d) allow any person who is able to exercise control of the document to demonstrate that the person is able to do so, and

(e) secure that a transfer of the document has effect to deprive any person who was able to exercise control of the document immediately before the transfer of the ability to do so (unless the person is able to exercise control by virtue of being a transferee).

1. 2(5) provides that when determining whether a system is ‘reliable’, the matters that may be taken into account include:

(a) any rules of the system that apply to its operation;

(b) any measures taken to secure the integrity of information held on the system;

(c) any measures taken to prevent unauthorised access to and use of the system;

(d) the security of the hardware and software used by the system;

(e) the regularity of and extent of any audit of the system by an independent body;

(f) any assessment of the reliability of the system made by a body with supervisory or regulatory functions;

(g) the provisions of any voluntary scheme or industry standard that apply in relation to the system.

Whilst this list is advisory and non-exhaustive, it is likely to become a key touchpoint for judges and arbitrators who are called upon to determine whether a particular electronic document meets the requirements of the Act.  This also constitutes a useful checklist for those seeking to evaluate the various platforms available, particularly as no industry standards or certification system currently exists.

A final operational requirement appears at s.4 of the Act. This provides that for a change of medium to validly take place (from digital to paper and vice versa), the converted document must include a statement that is has been converted.  We recommend that shipowners add this to their enquiries of platform and software vendors, to determine whether this statement is applied automatically.

What additional technical considerations are relevant to e-bills?

When it comes to issuing a paper bill, the process for doing so is well known and familiar:

• the Chief Officer will generally provide a Mate’s Receipt to the cargo interests for approval;
• once approved the Master or his agent will sign the original bills in triplicate;
• one is then given to the ship, and the remaining two are passed to the shipper; and
• the relationship between the Master or shipowner and the agent will likely be longstanding, and documented in a general agency agreement.

When it comes to issuing bills digitally, the process will still likely involve a third party, but this time in the form of a provider of a platform or other software solution on which bills can be issued, exchanged and surrendered.  Whilst many shipowners will already be using third party platforms for e-bills, such as those approved by the International Group of P&I Clubs[4], that relationship is likely to be based on a multiparty ‘rulebook’ that seeks to replicate, via contractual means, the statutory protections that apply to a paper bill.  Once the Act comes into force, this private contractual mechanism will no longer be required and users of the currently available platforms will likely see a change in the platform’s terms and conditions. This could extend to a wholesale move to a new, bilateral ‘SaaS[5]’ agreement, as has been seen with first-mover companies such as Secro in Singapore[6], in response to the equivalent electronic trade document legislation that entered into force there in February 2022[7].

In this new digital environment, Owners will need to consider:

• The terms governing their relationship with the platform provider – including issues of data governance, liabilities for system failures, cyber security and breaches, access and audit rights.
• Interoperability between platforms – it is conceivable that the original platform used between the carrier and shipper will be different to that used by the final consignee. Owners will need to consider how this will be managed and whether their / their shipper’s preferred platform allows for data (including meta data) to be exported, in a form which allows for use on a different platform.
• How the system enables a party to accept or reject a digital bill and what happens to the bill if rejected.
• How documents can be amended / rectified – this is of particular concern where the platform is blockchain-based and therefore has immutability built in to the design.
  
  

What operational issues are missing from the Act?

The Law Commission’s stated aim when drafting the Act was to take the ‘least interventionist approach’. As a result, the Act does not address several important legal and operational issues regarding the issuing of digital bills, for example:

• Private international law issues on jurisdiction relating to electronic documents – this is currently the subject of a broader Law Commission consultation and users of e-bills are well advised to ensure each and every bill issued includes a clear law and jurisdiction clause.
• Certification requirements of platforms providing services supporting the use of electronic trade documents, which would enable buyers of these services to more easily assess their compliance with the requirements of the Act.
• Signature formats and whether a cryptographically secure version (a ‘qualified’ electronic signature) is needed.
• What ‘indorsement’ is or must be.
• The ‘place’ where e-bills or replacement paper bills are issued.
• What happens when a change of medium is not effective (either because the new document doesn’t comply with the formal requirement to state on its face it is replacing the original document, or because of a failure to meet contractual requirements).
• Training requirements for shore and sea-based employees to ensure they have the skills to use any new systems.
• Access to data held on the platform for business analytics purposes.
• Digital identities and how these can be adopted to facilitate electronic transactions and trust between counterparties in a digital environment.

Users of e-bills under the Act will need to consider these issues carefully and ensure that their contractual arrangements, whether that be their charterparty clauses or bill of lading standard terms and conditions, and the terms of use and capabilities of the platforms they choose, provide clarity on these issues to avoid potential disputes.

On matters such as signatures, what is acceptable as evidence that a document has been electronically signed and / or endorsed and in a manner which ensures authenticity, will likely be a matter for each users individual IT and cyber security policies. These policies may need to be reviewed to ensure they adequately cover the new issues arising from the use of electronic signatures versus ‘wet ink’ signatures and company stamps on paper bills, and any new cyber threats from integrating with external platforms.

Conclusion

• The Act represents an exciting moment for English law, as the dominant law of international trade, to demonstrate that it can keep pace with technological developments and modern industry trading practices.
• It provides certainty to those wishing to use e-bills that they will be protected, but only if the specified conditions are met.
• It is therefore important for all parties wishing to take advantage of the Act to carefully review their relationships with external providers to ensure they are satisfied that their systems meet the requirements, in addition to ensuring any necessary changes to standard terms and conditions are made to clarify the important operational questions which the Act does not address.

[1] James Clear, author of Atomic Habits

[2] The Act can be accessed at: https://www.legislation.gov.uk/ukpga/2023/38/contents/enacted

[3] See paras. 2.47 onwards of the Law Commission’s Report at https://s3-eu-west-2.amazonaws.com/lawcom-prod-storage-11jsxou24uy7q/uploads/2022/03/Electronic-Trade-Documents-final-report-ACCESSIBLE-1.pdf

[4] See for example, NorthStandard’s Circular 2022/031 at https://www.nepia.com/circulars/electronic-paperless-trading-electronic-trading-systems-secro-system/ accessed on 24 July 2023.

[5] Software as a service.  For further comments on what Owners should consider when entering into software agreement such as this, please see our related article “Maritime technology: A Primer on Software Agreements”.

[6] https://www.gtreview.com/news/fintech/electronic-bill-of-lading-provider-leverages-singapore-legal-reform-to-rip-up-the-rulebook/ accessed on 31 March 2023

[7] The Electronic Transactions Act