With Digitalisation Comes Hidden Risks That Shippers May Not Understand

UK – WORLDWIDE – Digitalisation of the shipping sector means some wholesale changes, many simply not understood by some freight forwarding agencies and their clients. Now the Law Commission is set to address how current rules need to be adapted to avoid what could be huge potential legal pitfalls.

For centuries, indeed millennia, the Bill of Lading has sat at the heart of international trade. Now, with the wider acceptance of electronically written documents, the fact that such carriage of information is not given the same status under English law as its paper equivalent needs urgent attention.

Globally the position is even more confused with different legal systems giving greater or less validity to such documents, but with English so often given primacy in contracts, changes need to be made and recognised. The Law Commission’s proposals are, unsurprisingly, a very complex and intelligent insight into the workings of what is undoubtedly the required way forward.

The Law Commission began to examine the question with a consultation in April this year and the investigation applies to documents including bills of lading; bills of exchange; promissory notes; ships’ delivery orders; warehouse receipts; marine insurance policies; cargo insurance certificates; and warehouse receipts.

The highest priority is of course given to the matter of control, who actually ‘owns’ the data within the document? This leads us into the world of blockchain, the person who has control of the document is one who can use, transfer or dispose of it.

This month two experts on such matters, Nick Austin and Athina Douni, respectively partner and associate at the Reed Smith Transportation Industry Group, have written an excellent article published by the Baltic Exchange which explains the proposed changes in great detail.

The article points out that the the Law Commission’s proposals, which are still in the policy development stage, are aiming to align with international recognition systems, including the UNCITRAL Model Law on Electronic Transferable Records 2017 (MLETR), which uses the concept of exclusive factual control as being equivalent to possession.

MLETR has already received recognition in states such as Singapore, where the legal system largely mirrors that of England from which much of it was derived. Unfortunately this may be a long road as far as international trade is concerned but, if eventually accepted into English Law, at least those contracts made giving it primacy may avoid potentially long and expensive proceedings, long after the electronic horse has bolted.

Photo: Documents which acted as Bills of Lading have been in existence since pre-Roman times. This example from 1805 is for ‘2 Quarter Casks of White Wine’ headed for Alexandria. From Wikimedia Commons archive Image by William Jarvis from the Public Domain.