Estimated reading time: 6 minutes

Everyone loves a first birthday party.  The Electronic Trade Documents Act (or ETDA as it is affectionately known) celebrates that milestone on 20 September 2024. Whilst 12 months is barely a beat in the life of a statute, now nonetheless seems like an appropriate moment to reflect on its progress to date. 

The Act was introduced to deal with the fact that the law as it was had a blind spot in relation to electronic documents. The problem was that certain documents crucial to trade, such as bills of lading, had, in order to perform the functions required of them, to be recognised by the law as possessable. 

But only tangible things could be possessed and, since digital documents were regarded as intangible, they were not therefore amenable to possession. This meant that these crucial trade documents simply did not have the same legal status as their paper bills of lading equivalent.

A bill of lading is essential in trade because, unlike standard contractual documents, it does not merely record a party’s rights but actually embodies those rights. In other words, the holder of a bill of lading, simply by holding or possessing that bill, also holds the rights to which it relates. This is a very useful bit of legal alchemy because it facilitates secure trade and financing, so it is easy to see why it also needed to work in relation to electronic documentation. 

Paper documents are cumbersome, expensive, insecure, bad for the environment, and easy to forge. They also require physical transportation and, given the global nature of trade, the costs (both financial and environmental) of sending vast amounts of paper across the planet, are huge.  Given that technology is now capable of emulating the features of paper, it’s unsurprising that parties want to take advantage of the speed, efficiency and security that it offers.  In allowing them for the first time in history to do just that, the passing of the ETDA marks a tectonic shift in the legal landscape.   

This legal change, however, whilst absolutely necessary to change the nature of trade, is not sufficient. Law reform facilitates, but it does not mandate, nor does it orchestrate. The industry needs to take for itself the next crucial step along the road to digitalisation. Whilst the prize is considerable, some obstacles remain (some real, most perceived) to its doing this.  

First, there is the adaptive preference issue: why move to digital when paper has worked for so long? Whilst the aggregate risks inherent in using electronic documentation are undoubtedly lesser than those that are attached to paper, the former are unfamiliar and therefore generate more doubt.  An inevitable human response, this is perhaps best overcome by putting the issue into its historical context. Were we to start from here in designing a system to facilitate trade and trade finance, nobody sensible would suggest doing so by using paper as the medium.  It’s far more fallible. 

This point segues into another common (perceived) problem; that of the Act’s reference to a “reliable system”. Section 2(2) reads: 

(2) The information, together with any other information with which it is logically associated that is also in electronic form, constitutes an “electronic trade document” for the purposes of this Act if a reliable system is 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). 

The real significance of this subsection is to set out the functions that a document must perform to attract the legal equivalence to paper conferred by the Act (the provisions a-e, above).  The reference to a reliable system is not a legal imposition or requirement over and above the simple need for those functions to be implemented reliably.  Seeing as the reliability of paper (in terms of its being capable of performing its documentary function) is not questioned, the Act here does little more than state the obvious.  

Quite frankly, if parties are using systems that are not reliably able to achieve the requirements in a-e, it will be a factual, logistical and commercial issue for them long before it becomes a legal one.  The emphasis that has been placed on the “reliable system requirement” belies its substantive place in the Act as a mere supporting role.  

It’s necessary, but it’s a bar no higher than that which applies to the ability of paper to act as a vehicle for documents. 

Then there is the choice of law question. Given the international nature of trade, the issue of which law governs a dispute (and therefore answers, for instance, the question of whether a particular document is valid) will often be pertinent. This issue, which is rarely straightforward anyway, is particularly difficult to resolve in relation to electronic bills of exchange because section 72 of the Bills of Exchange Act 1882 provides that “the validity of a bill as regards requisites in form is determined by the law of the place of issue”.  

The place of issue of a paper bill is far more straightforward to identify than the place of an electronic bill’s issue since the former happens in an observable way in the world, but the latter within a distributed, and potentially decentralised, system. Although by no means insurmountable, this is an issue that will require careful consideration. 

There is, of course, a more practical obstacle to embracing the digitalisation of documents. Particularly in the early days, such adoption is likely to require investment in systems and in those able to use them to good effect. The medium- and long-term efficiency savings are very real, but these early costs might simply be prohibitive for smaller organisations to bear: even more reason for those with broader shoulders to drive the sort of large-scale adoption that will bring down costs for all. 

In many ways, the ETDA has hit the ground running in its first year, facilitating numerous fully digital trade transactions that would simply not have been possible without it, and spawning the development of several products designed to meet its criteria and thereby achieve legal equivalence to paper.  

There is no doubt, however, that it could have a broader reach and that a greater advantage could be taken of it.  It is unsurprising that parties are somewhat hesitant to set out into uncharted waters, but there are some very easy maps and reliable compasses to consult, as well as far more safe harbours than might first appear.   

Birthdays tend to lend themselves well to reflection: an auspicious time to examine end-to-end processes and to plan a clear route to digital transformation.