David Collins

The Electronic Trade Documents Act 2023 (ETDA) went into force on 20 September 2023. Despite receiving little attention from the media, the ETDA is one of the most significant pieces of legislation enacted by the UK government in the field of digital trade. The ETDA enables the legal recognition of trade documents such as bills of lading and bills of exchange in electronic form which are deemed to have the same legal significance of their paper equivalent.

It is anticipated that this move could help save billions of pounds in lost revenue due to the ongoing use of paper documents by companies. ETDA is ground-breaking because there are few countries in the world that recognize electronic trading documents as equivalent to their traditional paper-based counterparts. This is why more than 25 billion paper documents are generated and couriered around the world every year for international container shipping alone. Currently less than 1% of international trade transactions are conducted without paper. Facilitating paperless trade through legislation like the ETDA will enable businesses to lower their costs, shorten transaction times, in some cases by weeks and combat fraud. It could also boost export finance, promoting growth in global trade generally.

Designed to maximize its beneficial impact on trade, the ETDA does not contain an exclusive list of all documents it covers. Instead, under Article 1(1)c it applies to trade documents where “possession” is required “as a matter of law or commercial custom, usage or practice for a person to claim performance of an obligation.” Previously the concept of physical possession, which is critical to English law, had been problematic for electronic documents. Possession itself is not defined under the Act, meaning that this issue will remain governed by the English common law, at least for the time being.

Article 2(2) of the ETDA introduces a new definition for electronic trade documents which is based on the requirement that these documents exist within a “system” to process them that conforms to particular minimum standards. Lawful holders of such documents are able to take constructive possession of the goods to which the trade document refers or to claim performance of relevant contractual obligations. In order for electronic trade documents to fall within the scope of the ETDA, under Art 2(2) the system through which they are processed must be “reliable.” With a view to encouraging the interoperability between systems, no particular format is proscribed. Instead in Article 2(5) of ETDA sets out various criteria for reliability, including protection from alteration, sufficient accessibility and identical in terms of the information it contains. Distributed ledger technology or blockchain-based systems can qualify as “reliable” under the ETDA.

Another key feature of ETDA may be found in Article 4 which provides for the conversion of an electronic document into paper form (and vice versa). This is important because documents with no effective governing law clause, such as typical bills of exchange, could be at the mercy of courts applying their own jurisdictional rules. With conversion specifically contemplated, international operability is achieved, ensuring that an electronic document holder can still enforce its rights even where electronic documents are not recognised (still most countries in the world).

The establishment of the ETDA is in many respects a turning point for the UK as a nation as well as for digital trade globally. A significant volume of international trade (perhaps more than 80%) is conducted under English law, arguably the world’s most sophisticated legal system for commercial contractual relationships. The ETDA was designed to complement the 2017 UNCITRAL Model Law on Electronic Transferable Records (MLETR), taking into account particular features of English law. Other countries, notably Singapore which also uses, have already enacted similar legislation, and it would appear as though an encouraging trend in favour of electronic documentation is well underway. Greater consistency among national legislation would help further eliminate any unnecessary transaction costs provided by redundant or incompatible approaches.

It may be that digital trade agreements between countries could function as a catalyst for further adoption of ETDA-style rules with greater interoperability between systems. In particular, the emerging trend for digital-only trade agreements, called Digital Economy Agreements (DEA) could be well-suited to deliver this kind of transformation to global commerce. Some of these, like the Singapore-Chile-New Zealand Digital Economy Partnership Agreement (DEPA) were specifically designed to bring in new members, potentially creating a critical mass of likeminded countries which are accepting of electronic trade documentation as equivalent to paper under similar terms.

DEPA contains a number of provisions on electronic documentation, however they are framed, broad, in non-binding language. For example, Article 2.2.6 specifies that parties “recognise the importance of facilitating, where relevant in each jurisdiction, the exchange of electronic records used in commercial trading activities between the Parties’ businesses.” Article 2.3.2 adds that “Each Party shall endeavour to adopt the UNCITRAL Model Law on Electronic Transferable Records (2017).” Bi-lateral mutual recognition agreements could achieve similar progress. For example, the UK has signed memoranda of understanding with several US states which could be expanded upon to include electronic commerce. Since commercial transactions tend to be governed at the state rather than federal level in the US, this might be a way to bring key US jurisdictions on board to the electronic document revolution.

See Digital Trade Research Group