Electronic Trade Documents Act 2023

Commentary on provisions of the Act

Summary of the Act

17. The Act contains eight sections, which can be summarised as follows.
    1. Section 1 contains a definition of "paper trade document". It sets out the criteria that a document must satisfy in order to qualify as a "paper trade document". It also sets out a non-exhaustive list of trade documents that are commonly used in connection with trade in or transport of goods, or financing such trade or transport. This section effectively sets the scope for the types of trade documents that could be caught by the Act.
    2. Section 2 contains a definition of "electronic trade document". It sets out the criteria that a trade document in electronic form must satisfy in order to qualify as an "electronic trade document", and to therefore be capable of possession.
    3. Section 3 provides for the possession and indorsement of electronic trade documents. It also provides that an electronic trade document has the same effect as an equivalent paper trade document, and that anything done in relation to an electronic trade document has the same effect (if any) as it would have in relation to an equivalent paper trade document. It further provides that electronic trade documents are to be treated as corporeal moveable property for the purposes of any Act of the Scottish Parliament relating to the creation of a security in the form of a pledge over moveable property.
    4. Section 4 provides for a change of medium or form; that is, the conversion of a paper trade document into an electronic trade document, or an electronic trade document into a paper trade document.
    5. Section 5 contains an "opt-out" provision which, if applicable, will mean that sections 3 and 4 of the Act will not apply to the relevant electronic trade document. It also excludes uncertificated securities from the scope of sections 1 to 4 of the Act, and provides a power to amend section 5 so as to amend or remove the uncertificated securities exception, or to add to the list of documents or instruments excluded (subject, where relevant, to prior consultation with the Scottish Ministers).
    6. Section 6 sets out the procedural requirements for the use of the amending power contained in section 5 and confirms that it is exercisable by statutory instrument.
    7. Section 7 is the consequential amendments section. It sets out an amendment to the Bills of Exchange Act 1882, and provides for the repeal of certain provisions of the Carriage of Goods by Sea Act 1992.
    8. Section 8 sets out the territorial extent of the Act, the commencement date and the short title.

Commentary on sections of the Act

Section 1: Definition of "paper trade document"

18. Section 1(1) defines the types of trade documents which may fall within the scope of the Act. It does this by setting out three criteria that a document must satisfy in order to qualify as a "paper trade document" for the purposes of the Act.
19. Section 1(1)(a) requires the document to be in paper form. This is because the Act is concerned with electronic forms of trade documents that are currently used in paper form.
20. Section 1(1)(b) requires the document to be of a type commonly used in connection with trade in or transport of goods, or financing such trade or transport of goods. The purpose of this section is to narrow the ambit of the documents that fall within the scope of the Act. Its purpose is to exclude documents not of a type commonly used in connection with trade in or transport of goods (or financing thereof) but which may otherwise fall within the scope of the Act because they satisfy the remaining requirements in section 1. To provide certainty and clarity, and to prevent potential arguments that a broader range of documents fall within the scope of the Act (such as stock transfer forms, provisional allotment letters and other documents routinely used in financial or money markets) the Act is limited to documents of a type commonly used in connection with trade. In addition, the document need only be commonly used in trade in at least one part of the United Kingdom to satisfy section 1(1)(b). This wording prevents the situation from arising whereby a document is of a type commonly used in trade in England and Wales, for example, but not in Scotland (and would otherwise fall outside the scope of the Act).
21. Section 1(1)(c) provides that possession of the document must be required for a person to claim performance of an obligation. Possession may be required as a matter of law, commercial custom, usage or practice. This section is an "umbrella" provision, and allows for a broad range of documents to fall within the scope of the Act. The intention behind this section is to ensure that (subject to the remaining sections of the Act) any document the functionality of which requires it to be possessed falls within the scope of the Act, regardless of its precise legal or commercial nature.
22. For example, warehouse receipts and ship's delivery orders are not documents of title at common law, but possession is generally an important part of how these documents operate in practice. Possession of these documents may be required in certain circumstances as a matter of practice for a person to claim performance of an obligation, or for certain effects to follow under statute (for example, the Sale of Goods Act 1979). Whether possession is required for the operation of such documents depends on the manner in which they are made out, and the context in which they are used. When possession is relevant as a matter of practice for a person to claim performance of an obligation, these documents fall within the scope of section 1(1)(c). The umbrella provision also ensures flexibility insofar as certain documents may not fall within its scope today, but could do so if a commercial custom or practice were to develop requiring possession of those documents in order for them to fulfil their legal and commercial functions. For example, although consignment notes are already used in electronic form and so are not generally required to be possessed, they would be covered by the umbrella provision if there were circumstances in practice where they were required to be possessed in order for a person to claim performance of an obligation.
23. Section 1(2) sets out a non-exhaustive list of documents that are commonly used in connection with trade in or transport of goods, or financing such trade or transport. The documents listed in section 1(2) are key trade documents in widespread use, and have therefore been specifically listed for the sake of certainty and clarity. A particular document on the list will only be caught by the Act if it nevertheless satisfies the remaining requirements in section 1(1).
24. For example, the term "bill of lading" is broad and encompasses various types of document, including, for example, "shipped" or "on-board" bills of lading, "straight" bills of lading (usually marked as "non-negotiable") and multimodal bills of lading (which can classify as "received for shipment" bills of lading). The reference to "a bill of lading" in section 1(2)(c) of the Act is intended to cover all of these types of bill of lading, meaning that such documents are commonly used in connection with trade for the purposes of section 1(2)(b), and will therefore fall within the scope of the Act, provided possession is a necessary aspect of their functionality.

Section 2: Definition of "electronic trade document"

25. Section 2 sets out the criteria that a document in electronic form must satisfy in order to qualify as an "electronic trade document" for the purposes of the Bill.

Same information as the equivalent paper trade document

26. Some paper trade documents which fall within the scope of the Act have requirements as to the information they must contain in order to qualify as that trade document. These requirements may derive from statute, common law, custom or practice. In order to qualify as an "electronic trade document" for the purposes of the Act, a document in electronic form must contain the same information as would be required to be contained in the paper equivalent. Section 2(1) effectively provides for this requirement.
27. The purpose of this requirement is to establish the link between the document in electronic form and its paper counterpart. It entails that, for example, not every electronic payment instruction will become a bill of exchange and therefore subject to the requirements of the Bills of Exchange Act 1882. An electronic promissory note would need to include an unconditional promise to pay the bearer a sum certain in money in order to fall within the scope of the Act. Importantly, this section does not introduce any new requirements as to the information that a document in electronic form should contain. Rather, it requires information that must be contained in a paper trade document to also be contained in any electronic form of that document for it to fall within the scope of the Act.

Concept of "document" in electronic form

28. Section 2(2) sets out the concept of "document" in electronic form for the purposes of the Act. It provides that the information in electronic form, as well as any other information with which it is logically associated that is also in electronic form, constitutes an "electronic trade document" for the purposes of the Act (emphasis added), provided a reliable system is used to achieve certain functionality in relation to that document.
29. In practice, a document in electronic form may have multiple components. One component will always be the particular instance of a data string or data structure consisting of functional code, which is logically associated with (and specifically identifies) the human readable part of the document. There might also be other components made up of human readable text (for example, a .pdf file or other type of data that can be accessed and displayed in a human readable way by a computer). Depending on the technology being used, this could be a unique cryptographic "token" allocated to a system user. The data string or data structure is recorded on or across one or more ledgers, structured records or registers.
30. Section 2(2) ensures that the various components of a trade document in electronic form are regarded as a single document, even though they may perform different functions. For example, the requirement that an electronic document must contain the same information as its paper counterpart will likely be fulfilled by the human readable component of the document. This component is logically associated with the controllable data structure. On the other hand, it is likely that control of the document will be exercised by means of the document’s underlying data structure (such as the token).
31. "Logically associated" in section 2(2) is intended to mean electronically connected to, linked to, or otherwise cross-referenced to. This wording enables the use of different models for electronic trade documents’ management systems.

Reliability of an electronic trade document system

32. Section 2(2) requires that a reliable system is used to ensure that the document in electronic form has certain features or functionality designed to replicate the salient features of a paper trade document. "Reliable" in this context means that an electronic system meets certain standards in the way that it operates.
33. Section 2(5) sets out a list of non-exhaustive factors (based loosely on article 12 of the UNCITRAL Model Law on Electronic Transferable Records) that a court may take into account when considering whether an electronic trade document system is reliable. In requiring a system to be reliable, and in setting out various factors that may be taken into account when assessing reliability, the Act does not prescribe or endorse any particular type of technology. It simply provides a non-exhaustive list of factors that a court may take into account when assessing the reliability of a particular electronic trade document system.

Distinguishable from copies

34. Section 2(2) requires that a reliable system is used to ensure that the document in electronic form has certain features or functionality designed to replicate the salient features of a paper trade document. "Reliable" in this context means that an electronic system meets certain standards in the way that it operates.
35. Section 2(5) sets out a list of non-exhaustive factors (based loosely on article 12 of the UNCITRAL Model Law on Electronic Transferable Records) that a court may take into account when considering whether an electronic trade document system is reliable. In requiring a system to be reliable, and in setting out various factors that may be taken into account when assessing reliability, the Act does not prescribe or endorse any particular type of technology. It simply provides a non-exhaustive list of factors that a court may take into account when assessing the reliability of a particular electronic trade document system.

Integrity of an electronic trade document

36. Section 2(2) requires that a reliable system is used to ensure that the document in electronic form has certain features or functionality designed to replicate the salient features of a paper trade document. "Reliable" in this context means that an electronic system meets certain standards in the way that it operates.
37. Section 2(5) sets out a list of non-exhaustive factors (based loosely on article 12 of the UNCITRAL Model Law on Electronic Transferable Records) that a court may take into account when considering whether an electronic trade document system is reliable. In requiring a system to be reliable, and in setting out various factors that may be taken into account when assessing reliability, the Act does not prescribe or endorse any particular type of technology. It simply provides a non-exhaustive list of factors that a court may take into account when assessing the reliability of a particular electronic trade document system.

Exclusive control

38. Section 2(2)(c) requires that it must not be possible for more than one person to exercise control of the document at any one time. Section 2(3)(a), discussed below, provides that a person exercises control of a document for the purposes of the Act when they use, transfer or otherwise dispose of it.
39. Requiring that it must not be possible for more than one person to exercise control of the document at any one time is not the same as precluding multiple people from having control at the same time. Multiple people could have control of a document in electronic form (because, for example, they all have the security credentials or private key necessary to use, transfer or dispose of the document). However, what is important for the document in question to qualify as an electronic trade document is that, even if multiple people have the private key or other means of control, only one person can utilise that key or means of control at any one time. The question of who actually has control is therefore separate and distinct from the question of the features that a document in electronic form must have in order to qualify as an electronic trade document for the purposes of the Act. The exclusive control requirement contained in section 2(2)(c) is aimed at addressing the double spend issue so that, for example, two people with the relevant private key cannot both transfer the same document to two different transferees independently of each other.
40. A system is not excluded from the scope of the Act simply because the system operator or administrator, as well as the user, is able to exercise control of the document in electronic form. Since section 2(2)(c) focuses on exercising control, rather than having control, this removes any concern that such a system would be excluded. Systems where the system operator or administrator is able to exercise control of the document fall within the scope of the Act (assuming they meet the other criteria). The requirement that it must not be possible for more than one person to exercise control of the document at any one time ensures that where, for example, the user is transferring or otherwise using the document (thereby exercising control), the system administrator cannot also do so.

Identification of the persons who are able to exercise control

41. Section 2(2)(d) requires that any person who is able to exercise control of the document in electronic form is able to demonstrate their ability to do so. The electronic trade document system must be capable of allowing for the identification of any person who is able to exercise control of the document, regardless of whether any person is in fact exercising that control.
42. This requirement reflects the association between the document in electronic form and the person or persons who are able to exercise control of that document. It ensures that, for a document to be an electronic trade document, the document must be capable of being uniquely associated with the person or persons who are able to exercise control of it. Depending on the underlying technology, this association could be achieved by the system linking the document with a particular address or security credentials, and a person being able to demonstrate that they have the relevant security credentials or other means of control.
43. This section does not mean that, by looking at the system itself, it must be possible to see who is able to exercise control. Instead, it requires that, if asked to evidence their ability to exercise control, a person could prove this on the system. For example, if three people have access to the private key to a document, the system must allow each of those three persons to identify themselves as persons who are able to exercise control by showing or using their private key.

Divestibility

44. Section 2(2)(e) requires the document in electronic form to be divestible. This means that transfer of the document must necessarily entail a transfer both of the document and of the ability to exercise control of it (unless the person is able to exercise control by virtue of being a transferee). This feature prevents an electronic trade document from being transferred more than once by the same party, or by another party having concurrent control with the transferor– the double spend problem. Divestibility singularises the right to claim performance of the obligation recorded in the document.
45. Suitable objects of property rights are necessarily divested on transfer. For physical objects, this is inherent in their material nature. For example, in the paper world, if Alice gives a paper bill of lading to Bob, Bob then has the bill of lading and Alice does not. The bill of lading is no longer in Alice’s physical possession, nor does she have factual control over it. Alice has been divested of the paper trade document and cannot purport to transfer it to Charlie. Similarly, if a paper bill of lading is in a vault and Alice and Daisy both have the passcode to the vault (and therefore concurrent control and possession of the bill of lading), if Alice were to take the paper bill of lading out of the vault and give it to Bob, both Alice and Daisy would lose factual control and possession of the document.
46. The divestible nature of a paper trade document is crucial to its ability to be possessed. Section 2(2)(e) aims to replicate this feature in the electronic context by requiring that when an electronic trade document is transferred, the transferor (and any person who was able to exercise control concurrently with the transferor) is fully divested of the document. How divestibility will work in practice will largely depend on the type of electronic trade document system in question.
47. Importantly, the word "transfer" in section 2(2)(e) is being used in a factual rather than a legal sense. It is intended to mean the electronic equivalent of handing over a piece of paper. It is not intended to refer to the legal process by which the transferee becomes the valid holder of the document, which may require additional elements (such as acceptance or indorsement) to be satisfied.
48. The ability to retain a copy of the electronic trade document after transfer or disposal would not, in and of itself, prevent the divestibility requirement from being satisfied, and would not constitute retention of control of the document.

What it means to exercise control

49. Section 2(3)(a) sets out what it means to exercise control of a trade document in electronic form for the purposes of the Act. A person exercises control when they use, transfer or otherwise dispose of the document (regardless of whether they have a legal right to do so). The concept of control within the meaning of section 2(3)(a) is a factual rather than a legal or rights-based enquiry.
50. "Use" of a trade document in electronic form constitutes an independent and separate exercise of control, in addition to transferring or disposing of the document. There may be situations where a party is able to use the document without also being able to transfer or dispose of it. This would be the case where, for example, a party is able to hold or retain the document in order to prevent any dealings in the document by anyone else. In such a case, the party who is able to retain the document has the ability to use the document. For example, where a pledge is granted, the pledgee, to whom the document is transferred, may be precluded by the system from further transferring or disposing of it until the debtor has either repaid the loan or defaulted. This does not, however, change the fact that the document has been transferred to the pledgee. The pledgee retains the document, and can thereby prevent any dealings in the document by anyone else. In this case, the pledgee is using the document, notwithstanding that they cannot transfer or otherwise dispose of it.
51. Other examples of acts that constitute "use" of the document include requesting a change of medium, requesting an amendment of the document, adding an indorsement or an acceptance to the document, and presenting or surrendering the document.

Reading or viewing a document

52. Section 2(4) provides that reading or viewing a trade document in electronic form does not, without more, constitute "use" of the document for the purposes of the Act. Reading or viewing a trade document could arise both where a person does not otherwise have factual control of the document (and therefore the ability to exercise control), and where they do. For example, a person could have read-only access to a document, allowing them to view and read the document but nothing more. Such a person does not have the ability to use that document for the purposes of the Act. This means that they do not have control (or the ability to exercise control). For example, a stevedoring service provider (who loads and offloads cargo to or from a ship) might need to check the information in a bill of lading in the course of unloading the goods. If the service provider is only given access to the document over the system for this limited purpose, and simply views the document, this does not constitute "use" of the document for the purposes of the Act.
53. In other cases, a person who has the ability to use, transfer or otherwise dispose of the document (and therefore the ability to exercise control) would ordinarily also be able to access the document to read or view it. If, however, the person only reads or views the document in a particular instance, that does not constitute "use" of the document and, as such, the person cannot be said to be exercising control of the document for the purposes of the Act. This is the case notwithstanding the fact that the person would otherwise have control of the document that they could exercise (because, for example, they could transfer or otherwise dispose of it). In theory, this means that someone could exercise control of a document while another party with control is simply reading or viewing it.
54. To "use" a trade document in electronic form is, therefore, to utilise or retain the document to achieve a particular purpose. It includes causing something to happen (or preventing something from happening) to the document. Merely reading or viewing the document does not, in and of itself, constitute "use" of the document in a particular instance.

Persons acting jointly

55. Section 2(3)(b) of the Act covers the situation where a group of persons acting jointly can exercise control of the trade document in electronic form. This could arise, for example, in a multi-signature arrangement, where several people have different (fragments of) keys, with a certain combination or number of them being necessary to effect a transfer of the document. In this case, the persons who can exercise control jointly over the document are treated as one person for the purposes of section 2(2)(c). As such, even though multiple persons (acting jointly) can exercise control of the document, these arrangements are still capable of satisfying the exclusive control requirement in section 2(2)(c).

Section 3: Possession, indorsement and effect of electronic trade documents

Possession and indorsement of an electronic trade document

56. Section 3(1) provides that a person may possess, indorse and part with possession of an electronic trade document. This section is intended to remove the legal blocker that historically has prevented trade documents in electronic form from being possessed. As a result of this section, electronic trade documents are capable of possession.
57. The Act does not set out what constitutes possession of an electronic trade document. Since possession is a relative and fact-specific concept, what constitutes possession of an electronic trade document in any particular context will be assessed as a matter of common law. The common law approach to establishing possession as a matter of fact considers two elements: factual control and intention (see for example The Tubantia (No 2) [1924] P 78; Mainline Private Hire Ltd v Nolan [2011] EWCA Civ 189; [2011] CTLC 145). Who has possession of something at any one time will therefore depend on the type of control they have in respect of it and their intentions in relation to it, assessed against the control and intentions of other people who may also have a claim. Although existing case law concerning possession relates to tangible assets, many of the principles are capable of application to electronic trade documents.
58. Although possession is often described in terms of exclusive control, the existing common law admits many situations in which more than one person has control of a tangible asset. Exclusivity means one person, or group of persons acting in concert, can exclude others from having control of that object. Exclusive control is not the same as singular control. Control may be consensually shared (for example, where multiple people acting together all have knowledge of the relevant private key and any one of them may use it in furtherance of mutual objectives). In other cases, control may be concurrent but the persons who have control are acting independently (for example, where multiple people have knowledge of the relevant private key or security credentials facilitating control of an electronic trade document). Control may also be joint (for example, in a multi-signature arrangement as described above). The important feature of exclusive control is the ability it provides to limit access and use; it is not nullified simply by virtue of being widely shared on any given set of facts.
59. Intention is an integral part of the enquiry whether a document is in fact possessed by a particular person. Whether a person with the ability to control an electronic trade document has the requisite intention to possess it will depend on the facts of the case and the evidence available as to their state of mind. Their intention may also need to be assessed relative to that of others.
60. Parties may also have other possessory interests in electronic trade documents, including legal possession (being the right to possess rather than possession in fact). The range of potential relationships between persons and electronic trade documents is analogous to that between persons and paper documents (or indeed any other tangible object).
61. Section 3(1) provides that a person may part with possession of an electronic trade document. The Act does not specify what amounts to a transfer of possession. However, section 2(2)(e) (the divestibility criterion) ensures that when a person transfers an electronic trade document (meaning the electronic equivalent of handing over a piece of paper), the transferor necessarily loses the ability to exercise control of the document. So too do all the people who shared the ability to exercise control of the document with the transferor (unless they are themselves a transferee). Transfer of (factual) possession of an electronic trade document therefore entails a loss of control by the transferor. To gain possession, the transferee(s) must have the requisite intention to possess the electronic trade document. Depending on the circumstances, the transferor may retain some rights over the document, for example, if the document is released to a debtor subject to a trust in favour of the creditor.
62. Section 3(1) further provides that a person may indorse an electronic trade document. Indorsement is an essential part of the transfer of many trade documents and any rights which attach to them. Indorsement is an annotation in writing on a document of title instructing that the obligation recorded therein be performed to the order of a named person or simply "to order". There is a business practice of indorsing paper documents on their reverse, which reflects the origins of the word "indorsement": the Latin "dorsus", meaning "back". Unlike a paper document, an electronic document may not have a "back". The purpose of providing expressly for indorsement of an electronic trade document is to ensure that an electronic indorsement will be valid regardless of where it is located on the document.

Equivalence between paper and electronic trade documents

63. An electronic trade document should be the same in law as the equivalent paper trade document. Electronic and paper trade documents should have the same legal effect and functionality, and the same rules should apply to both. Further, anything done in relation to an electronic trade document should have the same effect (if any) as it would have in relation to a paper trade document. Sections 3(2) and 3(3) are intended to give effect to these overarching policy intentions.
64. Section 3(2) provides that an electronic trade document has the same effect as an equivalent paper trade document. This means that where, for example, a paper trade document can be said to "embody" an obligation (which may be to deliver goods or to pay money) the electronic equivalent has the same legal effect insofar as it also embodies the relevant obligation. The holder of the electronic trade document can enforce the obligation in the same way as a holder of the paper equivalent.
65. Section 3(3) provides that anything done in relation to an electronic trade document has the same effect (if any) as it would have in relation to an equivalent paper trade document. For example, where the transfer or delivery of possession of a paper trade document is the means by which the right to claim performance of the obligation embodied in that document is transferred, then transfer or delivery of possession of the equivalent electronic trade document will similarly be required. In other words, the right to claim performance of the obligation embodied in the document, whether in paper or electronic form, is generally transferred by this means and not by assignment or assignation. This is so regardless of the fact that an electronic trade document is regarded as intangible (or incorporeal); as a result of the Act it can nevertheless be possessed. What constitutes a transfer or delivery of possession of an electronic trade document will look different from handing over a physical paper trade document. The transfer of possession will be effected on the system – but the act is the same, that is, transfer of possession rather than assignment/assignation. Assigning the right to claim performance of the obligation would not be sufficient where assignment in relation to the equivalent paper trade document would not be sufficient to transfer the document, and section 3(3) ensures that the effect of assignment in relation to both the electronic and paper trade document is the same. Section 3(3) therefore ensures that the same process of transferring the document applies in relation to a trade document, whether in electronic or paper form.
66. A similar result arises in the context of security interests. Certain paper trade documents can be subject to possessory securities (for example, pledge) or non-possessory securities (for example, charge). To effect a possessory security, there has to be a transfer of possession of the relevant paper trade document to the creditor. Because the Act provides for electronic trade documents to be possessed, it will be possible to make them subject to possessory security arrangements. In order to effect a possessory security in relation to an electronic trade document, there has to be a transfer of possession. Anything less would not be sufficient because that action in relation to the equivalent paper trade document would not be sufficient. Section 3(3) therefore entails a transfer of possession of the electronic trade document, and this has the same effect as a transfer of possession of the equivalent paper trade document.
67. In addition, any act which amounts to the electronic equivalent of delivery, presentment, amendment, acceptance or rejection, or surrender will have the same effect as it would have in relation to a paper trade document. For example, delivery of a bill of exchange is defined as "the transfer of possession, actual or constructive, from one person to another". Determining what constitutes delivery of an electronic bill of exchange will therefore entail assessing whether there has been a "transfer of possession" of the electronic document. At its most basic, transfer of possession as a matter of fact requires a transfer of control from the transferor. Determining what constitutes "delivery" of a particular electronic trade document will therefore require an assessment of the features of the electronic trade document system in question, and the evidence available.
68. These sections are not intended to overcome or circumvent (statutory or other) requirements applicable to paper trade documents. Rather, they are intended to ensure that electronic and paper trade documents have equivalence in all respects, are dealt with in the same way, and that the same substantive law applies to "trade documents" whether in paper or electronic form.

Interaction with the Scots law relating to the creation of security in the form of pledge over moveable property

69. Section 3(4) is intended to address the interaction between the Act and the Moveable Transactions (Scotland) Act 2023 (asp 3) (the "MT(S) Act"). The MT(S) Act reforms Scots law relating to the assignation of claims and to security over corporeal moveable property. In relation to security, the rules on possessory pledge for corporeal moveable property are updated and a new "statutory pledge", which will normally be created by registration, is introduced. A statutory pledge will be available for corporeal moveable property and certain incorporeal moveable property (initially intellectual property or an application for, or licence over, intellectual property, with power to the Scottish Ministers to add other categories of incorporeal moveable property).
70. Negotiable instruments (such as bills of exchange) are excluded from the scope of the MT(S) Act. However, there remains some crossover between the Act and the MT(S) Act in that certain paper trade documents which fall within the scope of the Act (those which are non-negotiable instruments, including bills of lading) also fall within the scope of the MT(S) Act. The provisions of the MT(S) Act therefore apply to some of the trade documents that the Act is concerned with.
71. In light of the policy intention behind the Act, which is to ensure that an electronic trade document is the same in law as the equivalent paper trade document, section 3(4) is intended to ensure that the MT(S) Act will have the same effect as regards an electronic trade document as it would have for the equivalent paper trade document, specifically in relation to the creation of pledges.
72. Part 2 of the MT(S) Act allows for corporeal moveable property to be the subject of possessory and statutory pledges. However, it does not envisage the creation of possessory pledges in respect of incorporeal moveable property in any circumstances and, as noted above, statutory pledges can only be created in respect of certain incorporeal moveable property.
73. "Pledge" of a bill of lading constitutes a pledge of the underlying goods, which are tangible/corporeal. No special provision is therefore required to allow for this under the MT(S) Act. However, it is at least theoretically possible to deliver a different type of paper trade document with the intention of creating a (possessory) pledge over the document itself, given its tangible/corporeal nature. It should therefore be equally possible to do this with an electronic trade document (or to create a statutory pledge in respect of it under the MT(S) Act) in order to ensure legal parity between electronic and paper trade documents. It is not clear that sections 3(1), 3(2) and 3(3) of the Act are sufficient to allow for the pledge of an electronic trade document itself under Scots law, as the MT(S) Act might be taken to override these provisions. Section 3(4) is included to address this possibility.
74. It does so by providing that electronic trade documents should be treated as corporeal moveable property for the purposes of any Act of the Scottish Parliament relating to the creation of a security in the form of a pledge over moveable property.

Section 4: Change of form or medium

75. Section 4 allows for change of form or medium of a trade document from electronic to paper form, and from paper to electronic form. It uses the word "converted" to describe the act of changing the medium of a trade document; it does not refer to the tort of conversion. The purpose of section 4 is to provide that a change of form or medium is permissible, to set out clearly the requirements that must be met for a valid change of medium, and to provide for the consequences thereof. Many of the documents that the Act covers are used in cross-border transactions spanning multiple jurisdictions and involving contracts governed by different laws. It is inevitable that different jurisdictions will recognise electronic trade documents to varying extents. It may therefore be necessary in some situations to replace an electronic trade document with a paper substitute. For the sake of completeness, a paper trade document may also be converted into an electronic trade document.
76. Upon a change of medium, it is only the medium or form of the document that changes. If there is any substantive change to the content of the document upon the purported change of medium, this would constitute a fresh issue, not a change of form or medium. Where it is only the medium of the document that is changing (rather than the document being re-issued), the date and place of issue of the document in its new medium would be the same as that of the document in its old medium.

Requirements for a valid change of form

77. Section 4(1) provides for the change of medium (or conversion) of a trade document from electronic to paper form and from paper to electronic form, provided two conditions are met.
78. Section 4(1)(a) requires a statement that the document has been converted to be included in the document in its new form. For example, a document converted from paper to electronic form must contain, in that electronic form, a statement that it has been converted from paper. The statement need only specify that the document has been converted or changed from paper to electronic form; it need not contain additional details. The purpose of this requirement is to ensure that the transferee of a trade document, the medium of which has been changed or converted, is aware that the document was originally issued in a different form or medium. This puts the transferee on notice of a change of medium, helps maintain an audit trail of the document, and enables the transferee to ascertain the document’s genuineness and compatibility with any specific requirements.
79. Section 4(1)(b) requires any contractual or other requirements relating to the conversion of the document to be complied with. Systems currently in use, which provide electronic alternatives to paper trade documents, generally operate in accordance with underlying contractual provisions governing a change of medium. The issuer, as well as the person in possession, would generally need to agree to the change of medium. The purpose of this requirement is to ensure that such arrangements are not rendered redundant or overridden. The intention is to ensure that a change of medium is permissible at law, but not to establish how or by whom it may be done.

Consequences of compliance with the requirements for a change of form

80. Section 4(2) sets out the consequences of a valid change of form in accordance with the provisions of section 4(1). It provides that when a document is converted in accordance with section 4(1), the document in its old form ceases to have effect, and the rights and liabilities relating to the document continue to have effect in relation to the document in its new form.
81. This section ensures that, upon a change of form or medium in accordance with the requirements set out in the Act, there is no duplication of the performance obligation because the old form of the document ceases to have effect. In addition, the continuation of the rights and liabilities ensures that a change of medium is precisely that – a change of the form of the document, rather than any substantive change to the rights or liabilities pertaining to the document.

Consequences of non-compliance with the requirements for a change of form

82. Since the requirement to include a statement on the trade document in its new medium imposes a mandatory formality requirement, failure to include such a statement will result in an invalid change of medium for the purposes of the Act. Similarly, failure to comply with any contractual or other requirements necessary for a change of medium will result in an invalid change of medium for the purposes of the Act.
83. While failure to comply with either of the requirements set out in section 4(1) would result in an invalid change of medium for the purposes of the Act, the document created as a result of the purported conversion may nonetheless constitute a newly issued trade document in its own right, with its own date and place of issue. For example, if the purported change is from paper to electronic, but the parties forget to include a statement that the document has been converted, the electronic document could still qualify as an electronic trade document if it satisfies the requirements of the Act. However, since the document is not validly converted under the Act, this could lead to a duplication of the promisor’s obligation. This is because, in the absence of a valid change of medium, the document in its old (paper) form will not automatically cease to have effect. It would need to be separately cancelled and taken out of circulation in order to no longer bind the obligor.

Section 5: Exceptions

84. Section 5(1) provides that sections 3 and 4 of the Act do not apply in relation to an electronic trade document if an intention that section 3 should not apply appears in, or can reasonably be inferred from, the document or terms that have effect in relation to it. The purpose of this sub-section is to ensure that the Act is facilitative insofar as parties do not have to rely on possessory concepts in relation to their electronic trade document if they do not wish to. That is, parties can, if they so choose, "opt-out" of the effects of the Act. This means they can continue to rely on other contractual workarounds or mechanisms for using documents in electronic form, rather than relying on the possessory concepts in the Act. This section is drafted broadly so as to include a situation where the terms of issue, or the terms otherwise governing the manner of holding and transferring the document, contemplate or provide for an arrangement other than one based on possession.
85. Section 5(2)(a) excludes documents or instruments entered in a relevant system under the Uncertificated Securities Regulations 2001 (S.I. 2001/3755) from the scope of sections 1 to 4 of the Act. The purpose of this exclusion is to avoid potential confusion that could result from the fact that two statutory regimes in relation to electronic documents or instruments could apply. For example, a type of debt security known as "commercial paper" (which is technically a promissory note) could meet the requirements of the Uncertificated Securities Regulations 2001, and also fall within the scope of the Act. Since the Uncertificated Securities Regulations 2001 provide for a different statutory regime entirely from one based on possessory concepts, it is preferable for documents or instruments falling under that regime to fall outside the scope of the Act.
86. Section 5(2)(b) provides a power to further exclude a type of document or instrument from the scope of sections 1 to 4 of the Act by specifying that document or instrument in regulations made by the appropriate authority. Section 5(7) identifies the appropriate authority as the Secretary of State, the Secretary of State acting jointly with the Scottish Ministers and - where all the provision made by the regulations is within Scottish devolved competence - the Scottish Ministers.
87. This power may be exercised in circumstances where it is determined that a type of document or instrument which falls within the scope of the Act requires more bespoke provisions to allow for its digitalisation, or where a type of document or instrument should not be capable of being used in electronic form. Given that the Act could lead to a significant change in practice for certain types of documents, it is important that the legislation includes a power to make further carve-outs if it proves necessary or desirable. Any regulations made pursuant to section 5(2)(b) would not amend section 5 of the Act, and could themselves be amended or revoked by further regulations made under that sub-section. Sections 5(4) and 5(5) provide that the Secretary of State must consult the Scottish Ministers before making regulations under section 5(2)(b) containing provision with effect in relation to Scotland, except when the Secretary of State and Scottish Ministers are acting jointly.
88. Section 5(3) provides that the exception in sub-section (2)(a) may be amended or removed by regulations made by the Secretary of State. This power may be exercised in circumstances where the Uncertificated Securities Regulations 2001 are amended, thereby necessitating consequential amendments to the exception provision in the Act.

Section 6: Regulations under section 5

89. Section 6 makes provisions for the regulations made under section 5. It confirms that the power is exercisable by statutory instrument subject to the affirmative parliamentary procedure. Regulations made by the Scottish Ministers, whether acting alone or jointly with the Secretary of State, are also subject to the affirmative procedure of the Scottish Parliament.

Section 7: Consequential provision

90. Section 7(1) provides for consequential amendments to section 89B(2) of the Bills of Exchange Act 1882 ("Instruments to which section 89A applies"). It effectively provides that section 89A of the Bills of Exchange Act 1882 ("Presentment of instruments by electronic means") does not apply to anything that is an electronic trade document within the meaning of the Act. Sections 89A and 89B of the Bills of Exchange Act 1882 envisage a different type of electronic presentment from that provided for by the Act, which does not involve a physical document. It is appropriate therefore that anything constituting an electronic trade document within the meaning of the Act is excluded from the scope of these provisions.
91. Section 7(2) repeals sections 1(5) and 1(6) of the Carriage of Goods by Sea Act 1992 ("COGSA 1992"). Sections 1(5) and 1(6) of COGSA 1992 give a power to make regulations to enable bills of lading, sea waybills and ship’s delivery orders to be issued, indorsed, delivered or otherwise transferred by electronic means. Given that bills of lading and ship’s delivery orders fall within the scope of the Act, the powers provided for in these provisions become redundant with respect to those documents. In addition, even though the Act does not apply to sea waybills, sea waybills are not transferable, and possession of them is not (either as a matter of law or commercial practice) relevant to the determination of rights and entitlements. As such, the inability to possess sea waybills is not an obstacle to their use in electronic form. If it were ever the case that possession was relevant to a sea waybill in a particular situation, it would fall within the umbrella provision in section 1(1)(c) of the Act.

Section 8: Extent, commencement and short title

92. Section 8(1) sets out the territorial extent of the Act. The Act extends to England and Wales, Scotland and Northern Ireland, except for section 3(4) which extends only to Scotland.
93. Section 8(2) makes provision about the coming into force of the Act. The Act comes into force at the end of the period of two months beginning with the day on which it is passed.
94. Section 8(3) effectively provides that the Act has prospective effect only. It achieves this by providing that sections 3 and 4 of the Act do not apply in relation to a paper trade document or an electronic trade document issued before the day on which the Act comes into force. The Act uses the word "issue" as all the documents with which the Act is concerned need to be issued before they can be used in the ordinary course of business to achieve certain effects at law. When a particular trade document can be said to be issued will depend on the facts, and the type of document in question. For example, the word "issue" could be said to describe the moment in time when a trade document (where relevant) becomes a document of title.
95. Section 8(3) entails that an electronic trade document issued before the Act comes into force cannot be possessed or indorsed, and cannot be converted into a paper trade document. It also entails that it is not possible to effect a change of form or medium under the Act from paper to electronic, if the relevant paper trade document was issued prior to the Act coming into force. In order to promote certainty and clarity, section 4 of the Act only applies to paper trade documents or electronic trade documents issued after the Act comes into force. Since the documents falling within the scope of the Act are generally issued, transferred, and accomplished in a relatively short space of time, the period during which such documents exist which cannot be converted to electronic or paper form in accordance with the Act will be relatively short.
96. Section 8(4) sets out the short title of the Act. The Act may be cited as the Electronic Trade Documents Act 2023.