The Electronic Trade Documents Bill has received its first reading in the House of Lords. The Bill proposes changes to the law that would allow for the legal recognition of electronic versions of trade documents, such as bills of lading and bills of exchange.

According to the Law Commission of England and Wales, international trade is worth around £1.266 trillion to the UK. It says that despite the size and sophistication of this market, many of its processes, and the laws underlying them, are based on practices developed by merchants hundreds of years ago. In particular, under the current law of England and Wales, being the “holder” or having “possession” of a trade document has special significance. However, the law does not allow an electronic document to be possessed. As a result, nearly all documents used in international trade are still in paper form.  So, while as a consumer you can buy something online in a couple of minutes, an international trade arrangement can take days.

The World Economic Forum has found that digitising trade documents could potentially reduce global carbon emissions from logistics by up to 12%, due to having billions fewer pieces of paper literally flying about. Electronic trade documents also increase security and compliance by making it easier to trace records, for example, by using blockchain and distributed ledger technology.

The Law Commission was asked by the UK government to set out reforms to the legal status of electronic trade documents in 2020. Following consultation, the Commission published its recommendations in March 2022. It recommended that a trade document in electronic form should be capable of being possessed provided that certain criteria are met:

• The electronic document should be susceptible to exclusive control. To prevent double spending, only one person (or persons acting jointly) must be able to exercise control of the document in electronic form at any one time.
• The electronic document should be fully divested on transfer. The transferor should no longer be able to exercise control of the document when it is transferred.
• A reliable system should be used to ensure that the criteria are satisfied. The underlying system whereby the document meets the criteria must be reliable. 

The government has worked with the devolved administrations so that the Bill works for the whole of the UK, and not just England and Wales. It modernises old legislation such as the Bills of Exchange Act 1882 and the Carriage of Goods by Sea Act 1992. 

The Bill includes seven clauses, including:  

• A clause setting out a definition of "paper trade document" including examples, such as promissory notes.
• A clause setting out a definition of "electronic trade document".
•  A clause providing for the possession and endorsement of electronic trade documents. It also provides that an electronic trade document has the same effect as an equivalent paper trade document, and that anything done with an electronic trade document has the same effect (if any) as it would have with an equivalent paper trade document.
• A clause providing for a change of medium or form.  This means the conversion of a paper trade document into an electronic trade document, or the other way round.

A date for second reading is yet to be set.  The new law is a G7 commitment by the UK government, so it is likely to pass through the parliamentary process without too much delay once parliamentary time is found.