I am currently sitting as a member of the Special Public Bill Committee tasked with the job of considering the Electronic Trade Documents Bill. We have just concluded three weeks of evidence sessions, hearing from expert witnesses from the legal, trade and technology sectors. We will now be deliberating over that evidence and awaiting confirmation of the date for our final amending debate, hopefully this month (February), before the Bill then goes to final stages in the Commons.
Our first evidence session was with Professor Sarah Green, Commissioner at the Law Commission and Lord Parkinson, Parliamentary Under Secretary of State at DCMS, who responded to questions on the purpose of the bill, the challenges of ensuring international interoperability, legal terminology, legal jurisdictions and the current situation. The Minister pointed out that we are updating statute from 1882 which underlined the fact that – as well as enabling technological innovation in international trade – we are consolidating English common law at the forefront of these developments.
These themes, the potential for international leadership, the technological opportunity and the legal terminology (in terms of the distinction between the concepts of “possession” and “exclusive control”) ran throughout subsequent evidence sessions.
Over four further evidence sessions we heard from:
• Chris Southworth, Secretary General, International Chamber of Commerce United Kingdom
• Dominique Willems, Head of Public Affairs & Government Relations, Digital Container Shipping Association
• Hannah Gilbert, Policy Advisor (Legal & Taxation), UK Chamber of Shipping
• Sean Edwards, Chairman, International Trade and Forfaiting Association
• Filip Koscielecki, International Group of P&I Clubs
• Lars Hansén, Partner, Enigio
• Professor Sir Roy Goode KC, Emeritus Professor of Law St John’s College, Oxford
• Professor Louise Gullifer KC, Professor of English Law at the University of Cambridge
• Professor David Fox, Chair of Common Law, University of Edinburgh
• Professor Alex Mills, Professor of Public and Private International Law, UCL
• Professor Miriam Goldby, Professor of Shipping, Insurance and Commercial Law, Queen Mary University of London
• Richard Hay, Counsel and UK Head of Fintech, Linklaters
• Professor Andrew Steven, Chair of Property Law, University of Edinburgh
• Dorothy Livingston, The City of London Law Society, Consultant, Herbert Smith Freehills LLP, Chair CLLS Financial Law, Committee and Working Group
• Mr Justice Foxton, Judge in Charge of the Commercial Court
International Leadership
The Electronic Trade Documents Bill has been drafted by the Law Commission and is based on a model law passed in 2017 by the UN International Trade group. This model law on electronic transfer records (MELTR) provides a framework but governments need to align the framework with their national legal systems. Although many countries have accepted the principle – in fact the UK brokered the ministerial agreement at the G7 – very few have yet incorporated the law properly. Germany, however, is expected to have full legislation later this year and France by 2025, probably 2024. China and the US are on similar timeframes. Singapore is one country that has already passed a law and with this Bill we have the chance to be the first G7 country to do so.
Another pertinent fact is that English law governs 80% of trade documents (such as bills of lading) worldwide. As Chris Southworth put it,
“There is a terrific amount of attention on the UK. All eyes are on the UK because of that fundamental relationship between English law and the international trading system.”
Chris Southworth
The importance of English law in international trade was a point of agreement amongst all witnesses, as was a level of enthusiasm about the UK being at the forefront of these developments. Professor Goode pointed out that “the Bill if adopted could itself become a kind of model law for how to adopt the UNCITRAL model law.”
Hannah Gilbert also highlighted the importance of UK-Singapore testing that has been possible since the adoption of the digital economy agreement.
“This presents a unique opportunity for the UK Government. The UK-Singapore digital economy agreement has meant that pilot projects have been able to be started to test the interoperability between two jurisdictions.”
Hannah Gilbert
Another point made by witnesses was around the opportunity in the Commonwealth. The business case for digitalising commercial trade documents in the Commonwealth is worth £1.2 trillion and as we all share English law, this Bill could form the template by which we could replicate this Bill across the 52 countries that do not have legislation already in place.
Amidst the positivity Chris Southworth did raise an important point about the significant momentum around the ASEAN and APEC regions in this space. We must not rest on our laurels.
Technology Ready
Again there was vigorous agreement that technology was not the problem, that the technology was proven and had been around for a while – although a point was made that it was positive that the market was more developed. Dominique Willems pointed out that a few years ago, there were just a few players and not much choice, making it too expensive for smaller and medium-sized enterprises. He was clear that now
“The market of solution providers has matured very well and there is sufficient choice for different parties to use this in a trusted environment.”
Dominique Willems
Other witnesses agreed, listing 10 or 12 solution providers in the global market.
We heard evidence from one of those providers, a Swedish company called Enigio. Lars Hansen, Partner at Enigio, described a trade document produced by their technology.
“First, it would be a PDF file that holds the content. That file has a unique number or ID registered on a blockchain, a distributed registry that is held by very many users. The other element of the trade document is the cryptographic key—the owner key. Those two together are the original and make the trade document. If you only have the PDF, you have a copy. You manage the document by presenting the legislation of the correct document and the correct cryptographic key—the only key—to the system, which will enable you to invite someone to sign it, add text, transfer or invalidate the document.
We will never know what is in the document, we will never see it, because it is held by the user. It is never in our system. It is a PDF that is stored locally. We will never know what the cryptographic key is. That is the key to the document. We will have knowledge in the distributed ledger about the lock, which is published in the document and the ledger, but not the actual key. As a system provider, we will never know or be close to the key, and we will never know what is in a document. It is really up to the user.”
Lars Hansen
This method utilises a blockchain solution but the other important thing about this legislation is that it is – intentionally – tech neutral. No technology is mentioned only the criteria that a trade document must meet to qualify as an “electronic trade document”.
These criteria are set out in Clause 2 and state that an ‘electronic trade document’:
– must be identifiable so that it can be distinguishable from any copies.
– must retain its integrity (not be altered without necessary authority)
– must not be possible to have more than one person exercise control over it at any one time.
-must be capable of being uniquely linked to that person.
– must be fully divested on transfer.
In terms of questions about fraud and cyber security, evidence suggests that the use of this technology is far safer. We cannot completely eliminate risk but the evidence points to these methods being far safer than the current paper system.
Possession vs Exclusive Control
One of the most interesting questions from a legal perspective is the use of the term possession – instead of exclusive control – which is the term used in the model law.
The Law Commission referred to the issue as the “possession problem” and it stems from the fact that in English law commercial trade documents (documents of title, bills of lading) are not documents setting out contract information but an actual physical manifestation of goods and this is described in existing law as ‘possession’.
Translating that into a that digital context has been much harder than merely permitting ‘digital documents’. Making the law say that things that are intangible can be possess-able might have dangerous unintended consequences so specifying certain criteria has solved this problem.
All our witnesses agreed that for practical purposes possession and exclusive control would be functionally equivalent and Professor Gullifer approved of the approach
“because it brings in all kinds of statutory and common-law rules and principles in relation to paper documents that will apply to electronic trade documents—not just conversion but other concepts such as bailment and therefore pledge. Paper trade documents are used to an enormous extent in pledges in international trade.”
It is important to note that this concept of possession in law will only apply to trade documents and not digital assets more widely – a huge legal question that the Law Commission is working on at the moment.
Conclusion
This legal blocker has been a huge hurdle to innovation and progress in terms of tech solutions and trade. When the Bill becomes an Act and comes into force, hopefully by spring – we will have achieved something significant. But as Chris Southworth said that is actually just the starting gun. A lot of work still needs to be done, incorporating the standards, systems and everything else across business. Again we must not rest on our laurels. But should we do the work we will benefit – increased efficiency, lower costs, increased security and compliance and environmental benefits. We must do this.
Read the Bill on the Parliament website
Related posts:
Electronic Trade Documents Bill – Lord Holmes of Richmond MBE (lordchrisholmes.com)
Related articles:
Fears Electronic Trade Document Act could become a ‘missed opportunity’, Tech Monitor
Electronic Trade Documents Bill: Why we need to seize the day with distributed ledger technologies, Computer Weekly
Government introduces Electronic Trade Documents Bill, Computer Weekly
UK’s ‘ground-breaking’ digital trade bill progresses, Global Government Fintech
Parliament paves the way for blockchain with digital documents bill, CityAm
Electronic Trade Documents Bill introduced to Parliament, Law Commission