John Habergham, Myton Law, Hull U.K.

On 20 September 2023 ,the Electronic Trade Documents Act came into force.

It is groundbreaking legislation.  The driver behind the legislation was to ensure that certain trade documents, in electronic form, if they satisfied the criteria of the Act, should be capable of performing the same functions as their paper counterparts.  So, in short, electronic trade documents should have the same legal effect as a paper document.

We are talking about documents such as bills of lading, bills of exchange, warehouse receipts etc. The focus of this article will be bills of lading.

It is trite that the introduction of new legislation always brings some uncertainty.  There will always be a period of bedding down.  This is especially so when the legislation in innovative.

Is one such area of uncertainty the need for reliability?

To establish the equivalence of electronic trade document with a paper trade document, a certain amount of reassurance was thought necessary.

The Act introduced certain “gateway criteria” before this equivalence can be attained and this includes elements such as identifiability of the users, protection from alteration, exclusivity of control, demonstrating that control, that the document is capable of being divested and that any system used is reliable.

So far as reliability is concerned, the Act gives further guidance and that is contained in section 2(5) and suggests that these factors “may be taken into account” in assessing reliability.  Note that this is part and parcel of the Law Commission’s firm stance that there should be a light touch, not overly prescriptive approach.  Part of the reasoning for this stance is because the rate of technological change has been huge in recent decades and there is no reason to believe it will slow down.  Hence the Law Commission’s “least intervention” principle – it didn’t want the legislation having to play catch up with developments in technology.

The factors are:

“2 (5)  When determining whether a system is reliable for the purposes of subsection (2), 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.”

But what if it is said that the “reliability” criteria has been breached?  What would be the impact?

What I am discussing here is a temporary issue with reliability.  If it were more fundamental than that, then the system would not be reliable per se and it means that the document wouldn’t comply with the gateway criteria and wouldn’t be capable of possession.

But what if it were a temporary issue reliability?  What would be the impact?  Would this, again, lead to the document simply not qualifying as being capable of possessed and hence could not function as an electronic trade document?

I doubt that can be the intention or the outcome.

Firstly, I don’t think the requirement for reliability should be interpreted as a guarantee of reliability.

Secondly, and more fundamentally, the requirement for reliability was introduced to provide some reassurance that electronic documents could be treated as equivalent.

If a temporary aberration meant the non qualification of the document, this reassurance would be blown away.  It would undermine confidence in the use of electronic trade documents.

Thirdly, the factors which should be taken into account in assessing reliability are factual.  I suspect that the approach of the courts would be limited to assessing each case on its own merits and background facts, rather than laying down any overarching principles.  Having said that, I imagine that if ever this issue came before the courts, there would be a reliance upon expert evidence.

Without trumpeting myself as in any way IT savvy, it seems to me that the systems which are in place are based on blockchain technology which seem to come with a significant degree of security and are extremely difficult to hack into.  (I leave aside state sponsored hacking which seems to be the prevailing threat which is a wholly different beast to any commercial dispute).

Rather, I think that deficiencies in reliability will be driven by human failings, rather than technological failings.

In as much as, currently, with paper trading there is always the potential for fraudsters gaining access to possession of documents, the same applies by analogy with obtaining possession of the “private key” to electronic documents.

There is an established body of case law dealing with the allocation of risk of fraud amongst parties and I don’t see any reason why these should not apply, with obvious variations, to mis delivery by fraud in the electronic trade arena.