Electronic Trade Documents Bill [HL]

Lord Lansley Excerpts

Second reading committee
Monday 7th November 2022 Grand Committee

[Lord Lansley (Con)]

My Lords, I am very glad to have the opportunity to follow the noble Viscount, Lord Waverley. He is, as he mentioned, co-chair of the all-party group for trade and export promotion, of which I am a member—

[Viscount Waverley (CB)]

Vice-chair.

[Lord Lansley (Con)]

Indeed—I am a vice-chair. I thought the noble Viscount made some interesting points, and I very much join him in welcoming the Bill.

Sometimes, we are wont to criticise Bills that are in the form of a framework but, in this instance, there is an understandable structure here from the Law Commission. In the adoption of electronic trade documents, it encountered the legal constraint of the possession of electronic trade documents as a common-law principle and, rather than try to codify and put into statute everything relating to the common law in this respect, it said, “Let us at least try to equate electronic trade documents to paper documents in statute.” This will allow us to see how some of the courts’ decisions over time enable those established principles in relation to paper documents to be extended into electronic trade documents, which would be very helpful.

We are, therefore, dealing with a Bill that is technology neutral. I know that my noble friend Lord Holmes of Richmond knows far more about the technology of these things than I do; I hope he will agree that a technology-neutral Bill is a good structure for us to work with.

I want to talk about a number of other things. I am a member of the International Agreements Committee of your Lordships’ House and we have had the opportunity to look at some of the agreements that we are now entering into; for example, on digital trade with Singapore and the free trade agreements that we have entered into with Australia and New Zealand, as well as the prospect of entering the CPTPP agreement, which, in the context of regional, international and plurilateral agreements, is probably the most advanced in its promotion of digital trade. There is no point having such agreements that open these opportunities for digital trade if we do not put the literal building blocks of digital trade in place.

Last October, the G7 group of Trade Ministers agreed digital trade principles. I think the United Kingdom was instrumental in enabling that to be brought together; it is therefore terrific that we are implementing it rapidly in our legislation. As the noble Viscount, Lord Waverley, said, I hope other countries will take similar steps to put their jurisdictions into a similar framework. I hope we will look toward the framework of the United Nations Commission on International Trade Law, the Model Law on Electronic Transferable Records, to which the noble Viscount referred. The more that jurisdictions across the globe can structure their legislation domestically on an international template of that kind, the better.

We have a particular responsibility because, for so many of these international trade documents, in so far as they have a legal base, they have it in English law. I am advised that 80% of bills of lading, if they were challenged, would be challenged in an English court. We really need to make sure that our law is a leader in this respect. I hope we will find that during our work on this Bill.

I entirely applaud the Bill’s overall structure and intentions. My noble friend the Minister very well and happily set out all the substantial benefits that can accrue from this, in trade, economic and environmental terms. I very much look forward to our achieving those. However, there are issues we need to discuss, notwithstanding this being a Law Commission Bill; by its nature, we need to examine it—it is our job as a revising Chamber to look at it very carefully and ask all the questions, not least so that the other place can be confident that it can pass it happily and quickly.

I will refer to a range of issues. Underlying this is the fact that, if we are not trying to structure the legislation around the concept of the possession of electronic trade documents, we are none the less trying to adopt what is referred to as exclusive control in the singularity of electronic trade documents. It is difficult. The explanatory notes to the model law in UNCITRAL captured it rather well at paragraph 82, which says that

“a paper document, as a physical object, is by nature unique and, furthermore, centuries of use of paper in business transactions have provided sufficient information to commercial operators for an assessment of the risks associated with the use of that medium, while practices relating to the use of electronic transferable records are not yet equally well established.”

We need to be sure that we understand where the risks emerge. There are potential benefits associated with the use of electronic documents, as my noble friend will doubtless explain, including those in security and reliability, but there are also risks.

I hope the House will establish a Public Bill Committee to examine this Bill so, before I stop, I will raise a number of issues. I do not ask my noble friend to reply to them in this debate; they are more appropriate for the committee, but I thought it would not hurt to flag them up, simply because in my preparation for today I encountered a number of issues that I thought would be interesting to discuss.

First, there is a reference in Article 13 of the model law under UNCITRAL to time. Provisions relating to the indication of time and place are found in many trade documents; there may well be mechanisms through which we can make the time of documents electronically secure, but not necessarily in the same way as we do with paper documents. This concept of “reliability” will have to be extended to time on documents as well as to other factors. Since Article 12 of the model law is transposed almost literally into this Bill, for example, I wondered why we have not transposed one or two other aspects of it in the same way.

Secondly, on the question of acting jointly, when one is dealing with paper documents, one knows who has possession of them. In the context of electronic documents, not least because of some of the technological aspects, such as the number of people who have access to a private key, we may deal with people who have to act jointly in circumstances that would not be evident for paper documents. We need to understand the safeguards associated with the intentions of people acting jointly, because the Bill rests upon that understanding and how it will be achieved.

Thirdly, there is a whole process in Clause 4 by which documents can be transferred from paper to electronic or electronic to paper forms. The Bill is clear that this has to be in circumstances made evident in the respective documents. However, if I recall the Explanatory Notes correctly, it is clear that, while that should be the case, if it is not, it does not automatically follow that the electronic trade document concerned is not valid. It may still meet the criteria to be a valid document for these purposes. I would like to explore in Committee how that is the case and what happens in circumstances where documents are transferred from one form to another, not least because there is greater risk of duplication in such a case.

Clause 1(2) lists examples of documents. This is not the same as the list in the model law. I know that this is not exhaustive—it is indicative—but I do not understand why, in paragraph 38 of the explanatory notes to the UNCITRAL model law, for example, there is a reference to

“bills of exchange; cheques; promissory notes; consignment notes; bills of lading; warehouse receipts; insurance certificates; and air waybills.”

This is not the same as the list in the Bill. Why is it different and what are the justifications for those differences?

A question we need to follow up and explore further in the debate is the intention of the Law Commission. It says it is going to come on to the interaction between these changes and private international law, but we need to think particularly about the transitional issues—I hope they are only transitional—associated with our jurisdiction creating valid electronic trade documents when other jurisdictions do not. How do we deal with those connections? From our point of view, similar to the discussion on a single trade window, we want interoperability. We want our borders to be frictionless and other borders to be frictionless. That means they need to be aligned in various ways, including in those jurisdictions.

I want to make two final points. First, I want to explore what the voluntary industry standards are for the purposes of the reliability standard. Secondly, in paragraph 36 of the Explanatory Notes to the Bill, there is an expectation that documents are original, but there can of course be multiple original documents. There can be multiple paper documents that are treated as original. The explanatory notes for the model law make it clear that this is something that electronic trade documents do more readily. We have to understand that these documents are not necessarily singular and how to deal with them when they are not, but are multiples that are original.

I hope that gives your Lordships a sense of the discussions we might have in Committee. I very much share what I hope is the collective view of the House: I support this Bill and want to see it make good progress quickly.

Electronic Trade Documents Bill [HL]

Lord Lansley Excerpts

Lords Special Public Bill Committee
Monday 20th February 2023 Other Business

Debate on whether Clause 1 should stand part of the Bill.

[Lord Lansley (Con)]

I will say a few words on Clause 1. On a previous occasion, I drew attention to my interest as a vice-chair of the trade and investment all-party group, which is supported by the International Chamber of Commerce. It and many others gave us the benefit of evidence, and we are all most grateful to our witnesses, not least Professor Sarah Green of the Law Commission, for this. I feel that I now understand, in my own limited way, how the Bill achieves its objectives, and the several particular issues that I raised at Second Reading have been thoroughly explored and answered. Members of the committee will want to thank our chair, the noble and learned Lord, Lord Thomas of Cwmgiedd, who was instrumental in us achieving that, patiently taking us non-lawyers through the provisions from time to time.

On Clause 1, when I spoke at Second Reading I noticed that the list of documents in subsection (2) was not the same as in paragraph 38 of the Explanatory Notes on the model law on electronic trade records. As the Bill states, the list is not exhaustive but indicative. The Law Commission’s consultation gave an indication of which documents in the list possession may most commonly be relevant to. For example, although air waybills are in the MLETR list, the Law Commission concluded that possession of these documents is never required for them to function as intended. By contrast, possession of mates’ receipts, which we discussed in our earlier sessions, may be relevant if transferring them results in the property transfer of ships’ goods. These differences between the two indicative lists are the result of their relative significance in English and Welsh law, as compared to other jurisdictions. The difference is not in itself of significance.

As the Minister’s helpful letter to the committee on 17 February stated, in practice the list in Clause 1(2) gives examples of documents that

“may satisfy all three requirements of sub-clauses 1(1)(a), (b) and (c).”

However, the Bill states that they are

“examples of documents that are commonly used as mentioned in subsection (1)(b)”.

This difference also should not worry us. The Bill is clear that a “paper trade document” is one that satisfies all three requirements. The indicative list, however composed, includes only documents that are commonly used, so the clause serves its purpose.

[Lord Clement-Jones (LD)]

I am not quite sure about the procedure. Is this a debate on Clause 1 standing part?

[Lord Lansley (Con)]

Yes.

[Lord Clement-Jones (LD)]

I see. The only part of the Bill that we received contrary evidence on was mates’ receipts. If that is the only matter that there was an argument on, we have done pretty well on the Bill so far. I thank our chair for his expertise, which helped us enormously as we went through the Bill; we kicked the tires fairly firmly. I congratulate our Minister, who switched hats seamlessly during the Recess and is now the spokesperson in this area; his versatility clearly knows no bounds. I thank him for his letter, which cites case law that makes the status of mates’ receipts very clear. We also owe the noble Lord, Lord Lansley, quite a bit for unpacking, with his trade expertise, the issues in Clause 1 today and throughout the passage of the Bill.

I am personally quite satisfied, although I have some trepidation. Professor Sir Roy Goode is no mean authority, but we must conclude that the Minister is correct in quoting case law, and I think our chair is very satisfied with how Clause 1, and the documents cited in Clause 1(2), are set out. So I agree with the noble Lord, Lord Lansley, but it is useful that we have explicitly said that we are satisfied in that respect.

--- Later in debate ---

This motion is to facilitate a debate on the Clause, including to understand how the provisions of the UNCITRAL Model Law on Electronic Trade Records are consistent with the structure of this Bill.

[Lord Lansley (Con)]

I tabled a Motion to facilitate a short debate on this clause, in the spirit of what we just discussed, to show not only that we have been assured about the structure of the Bill but that we can demonstrate to those who care to read our proceedings that we have done so and gone through a process; it is a bit like doing arithmetic and showing one’s workings. 

In this particular respect, regarding Clause 2, I want to look at the relationship between the Bill and the UNCITRAL model law on electronic trade records. The Bill enables the possession of electronic trade documents in the same way as paper trade documents. The MLETR is based on the principles of technological neutrality and functional equivalence between a transferable document or instrument—as defined in each legal jurisdiction, as they say—and the resulting electronic trade document, based on a reliable system. The MLETR is clear that functional equivalence standards can be achieved using different approaches in different jurisdictions.

The Bill achieves that required effect, taking advantage of the existing legal concept of possession in English and Welsh law and placing the exclusive control of a paper trade document as the functional equivalent of possession. A particular example I raised was the question of time and place indications. Article 13 of the model law provides for indications of time and place, but the Explanatory Notes state that this is to the extent that these are required in the equivalent transferable document.

Clause 2 sets out what is required to constitute an electronic trade document; it is, in effect, about exclusive control of such a document. Clause 2(1) provides that the information required to establish a paper trade document is to be the same as for the equivalent electronic trade document. The following subsection then sets out what is needed for control and for the singularity of the document, so that one should not have multiple requests for performance of the same obligation. Time and place indications are not always required in a paper trade document; if required, they would be covered by both the equivalence provision in the first subsection I referred to and the operation of the reliable system as provided for in subsection (5).

I am not sure that we discussed Clause 2(1). I think it is really useful. It sets out very well how our structure in the Bill meets the standards set in the MLETR. I support the clause standing part as we have it before us.

[Lord Thomas of Cwmgiedd (CB)]

My Lords, I have declared my interests previously in relation to various bodies that deal with maritime law, insurance law and various other aspects of the law.

I thank the Minister for his letter, which was very helpful and clear in summarising all the answers to the various points that have been raised. It has been a pleasure to work in this committee. I think I first saw a bill of lading as a young pupil over 50 years ago. Other members of the committee did not suffer from that disadvantage, so it has been a great pleasure to work with them. I thank them very much for the hard work to which they have been put and for their generosity in the thanks I have received this morning.

I will make one point in the debate on this clause. It is clear that the agreement on UNCITRAL’s model law on electronic trading records marked a significant turning point in the move towards the use of electronic trading documents in shipping and finance. It did so by establishing a common legal regime that will take the place of the common legal regime for paper documents that has evolved through traders, originating in Italy or maybe before then in the Middle Ages. We need to make an immediate change now.

The Bill adopts the MLETR common legal regime for electronic trading documents by adapting the law in the UK so that it is entirely consistent and interoperable with the MLETR regime. Indeed, there would have been no point in bringing forward this Bill if it was not completely consistent and interoperable with the MLETR. Those engaged in international trade will not move to the use of electronic documents unless there is a common legal regime grounded on the MLETR.

In hindsight, it is unfortunate that this was not made clear in the Bill. I hope this point will be noted for future Bills directed to law derived from international bodies that must operate across the world. I hope the Minister can confirm that the sole purpose of the Bill is to make the law in the UK consistent and interoperable with the MLETR.

The evidence that we received was almost unanimous in its strong support for the technical way in which the Bill adapts the law in the United Kingdom. I say that, because we have also looked carefully at Scots law; a project of this kind in future must include the other parts of the United Kingdom. In addition to being entirely consistent with the MLETR, the legal technique employed provides the benefit of building on the existing law developed in international trade largely through the judgments of the English courts, and on this occasion I do mean English. I will say a little more about this when we discuss the issue of possession in the debate on Clause 3.

--- Later in debate ---

Debate on whether Clause 3 should stand part of the Bill.

[Lord Lansley (Con)]

My Lords, my Motion on this clause is similarly to facilitate a short debate. In particular, I was interested in our discussions about why we did not define exclusive control as equivalent in law to possession.

As I understand it, the effect of the Bill is that the control of an electronic trade document may lead to possession of that document in the same way as for a paper trade document. We do not treat the control of paper trade documents as equivalent to possession, but they are capable of possession. Therefore, removing the legal block on the possession of an electronic trade document in statute simply retains in practice the equivalence of paper and electronic trade documents. Defining exclusive control of an electronic document as possession would, as I have now understood, create a legal difference between paper and electronic trade documents, which is contrary to the intention of the model law and, indeed, confusing and unhelpful to those who are using electronic trade documents.

We had interesting discussions about the intention to possess, but the conclusion that certainly I have reached is that although the intention to possess an electronic document may very rarely be an issue, there is case law on possession that would be helpful in the context of the electronic equivalent of a document being forced into a person’s control or their having control unknowingly or unintentionally.

As the Bill stands, and as my noble friend Lord Holmes of Richmond rightly said, we benefit from the existing law on possession, and the Bill as it stands introduces no confusing difference in the legal treatment of trade documents in different forms. With that explanation, I continue to support this clause standing part.

[Lord Thomas of Cwmgiedd (CB)]

I, too, will add a short word in relation to this point. First, I thank the Minister for making so clear that the purpose of the Bill is consistency and interoperability with the MLETR, and I hope that the message to the Law Commission and to draftsmen in the future is to put that in the Bill.

During our evidence sessions, we spent some time, as the noble lord, Lord Lansley, has so eloquently explained, looking at legal techniques, particularly those employed in Clause 3(1). The technique employed in the Bill enables electronic documents to be possessed, in contradistinction to the legal technique of using exclusive control as the equivalent of possession, as was done in Singapore. It is essential to stress that, for all practical purposes, the result will be the same. Both techniques ensure interoperability under the common legal regime to be established by the MLETR.

We were lucky in both the oral and the written evidence that we received, particularly from the judge in charge of the Commercial Court, Mr Justice Foxton; from Mr Andrew Taylor in his submissions on behalf of the UK branch of the Comité Maritime International, which has done so much to ensure uniformity of maritime law; and from a large body of distinguished academics, including Professor Sir Roy Goode, Professor Louise Gullifer, Professor Miriam Goldby, Professor Alex Mills, Professor David Fox and Professor Andrew Steven, who effectively gave evidence to the same effect: that there was an advantage in the continued use of the concept of possession for electronic trade documents, in contradistinction to simply adopting exclusive control in its place.

Here, trade documents are in a different category from other forms of control over electronic documents and digital assets. The two advantages can be summarised as follows. First, retaining the concept of possession more easily enables the law relating to electronic trade documents to be developed by building on the established law relating to paper documents so carefully developed over the centuries and with worldwide applicability.

Secondly, although in my view this is likely to be of only minimal practical significance, and I certainly hope that it is, there could be an exceptionally rare case in which the requirement of an intention to possess—I would prefer to stick to the English rather than to “animus possidendi”—arising from the continued use of the concept of possession might permit a court to deal in a just way with a case in which something unanticipated has unfortunately gone wrong.

There are those two advantages, but I stress again that the fact that Singapore has chosen a slightly different route to that adopted in the Bill is, for all practical purposes, immaterial to interoperability.

--- Later in debate ---

Debate on whether Clause 4 should stand part of the Bill.

[Lord Lansley (Con)]

My Lords, I apologise for delaying the committee again, but I want to reference an issue that concerns me in relation to Clause 4. If a change of form is not carried out correctly, and if the electronic document is a valid document in itself but does not include the statement that the document has been converted from a paper document, the paper trade document to which it relates may not be cancelled and, as paragraph 82 of the Explanatory Notes suggests,

“this could lead to a duplication of the promisor’s obligation.”

Should we exclude this possibility?

In his helpful letter last Friday, the Minister said that the approach in the Bill is better than the alternative. If the alternative was to treat an electronic trade document as invalid if the statement in subsection (1)(a) is not included, and the paper document is none the less withdrawn—as one would expect in most cases, because the paper trade document is withdrawn when the electronic trade document has been created, and the mistake has been made—there may be no valid document at all, which is obviously problematic for a bill of lading, for example, about which we have learned a reasonable amount.

Also, persuasively, the Minister rests his argument on the reliable systems used for the creation of an electronic trade document. As we discussed with a number of witnesses, these are not infallible, but the opportunity to reduce fraud and enhance the integrity of trade documentation, including the reduction of error, using new and reliable electronic systems is now overtaking the reliability of a paper-based system as well as reducing cost, time and resource implications. So although I flag up this issue, I accept that the clause should stand part as is.