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Digital documents to be ‘possessible’ under proposed reform

By Michael Cross >>

(16 March 2022)

A new legal definition of the word ‘document’ could emerge under draft legislation proposed by the Law Commission today. The final recommendations of a project on electronic trade documents include proposals for legally recognising electronic versions of the physical paperwork which today must accompany almost all international trade. 

Today, time-honoured custom and practice and legislation dating from the clipper ship era, such as the Bills of Exchange Act 1882, require billions of physical bills of lading and other documents to be shuttled around the globe every year. The obstacle to computerisation is that such documents must be physically transferred along with the obligations they record. However, current English law does not recognise the possibility of possessing electronic documents. 

Under the proposed reform, electronic documents would have the same status as physical ones provided they met certain criteria. These include being: 

  • Susceptible to exclusive control to prevent ‘double spending’. 
  • Fully divested on transfer. 
  • Underpinned by a reliable system.

While the Law Commission says its recommendations are technologically neutral, it notes that these criteria can be met by the use of distributed ledger technology based on blockchain encryption. The most famous manifestation of such technology is in cryptocurrencies such as Bitcoin, where avoiding the ‘double spend’ problem is essential. 

The recommendations state that, given the complexity of the issues, the criteria for electronic documents to qualify as trade documents should be set out in legislation. ‘Ad hoc development through the common law would not provide the requisite degree of clarity.’  The draft bill applies to documents that rely on possession for their functionality as a matter of law or commercial practice, with specific exclusions for bearer bonds and uncertificated securities under the Uncertificated Securities Regulations 2001.

The commission said the proposed reform would increase efficiency and reduce the operating costs of trade while enhancing the reputation of the law of England and Wales as the go-to choice of law for global trade contracts. It quotes estimates from International Chamber of Commerce that digitising trade documents could generate £25 billion in economic growth by 2024.

‘Our recommendations would bring the law into the 21st century, streamlining global trade and generating benefits on an international scale,’ the project’s leader, law commissioner Professor Sarah Green, said.

The government, which asked the Law Commission to investigate the issue, welcomed the report. It has indicated that it intends to introduce legislation when parliamentary time allows.

(Courtesy: The Law Society Gazette)