Maritime Transport Documents in Digital Environment: Which is the Most Suitable

Whenever confronting the issue of digitalization of maritime transport documents, the first question is which types of documents need to be digitalized, and the second question is how to digitize them. Regarding the latter, the UNCITRAL Model Law introduced the “functional equivalence” principle, that is, to transfer the same functions of paper documents in a dematerialized environment.⁷⁰ Accordingly, analyzing functions of every document used in maritime transport is of little significance. Only studying the document that possesses all the functions is crucial. As examined above, majority of documents used in maritime transport serve the exclusive purpose of providing evidence of the facts stated in them. Other key documents can either contain or evidence the terms of the contract of carriage or be documents of title to the goods to which that contract relates. To meet the commercial needs, some documents can provide a mechanism for the transfer of rights arising under that contract and for the imposition of liabilities arising under it on the persons who were not originally parties to the contract.⁷¹ After going through all the principal types of maritime transport documents, the most valuable research subjects are B/Ls and sea waybills. B/Ls perform not only the evidential function as a normal document but also possess unique functions, such as proof of contract and symbol of ownership. Sea waybills, as a simpler document, have partly undertaken the role of B/Ls when the transit time is short.

However, is analyzing documents that are competitive in practice and overlapping in functions imperative? From a popularity perspective, although sea waybills are dominantly used on the Short Sea Liner routes like the North Atlantic routes,⁷² negotiable B/Ls continue

70 Faria, Jose Angelo Estrella. E-Commerce and International Legal Harmonization: Time to Go beyond Functional Equivalence, S. Afr. Mercantile LJ 16 (2004), on p. 531.

71 Treitel, Guenter Heinz, Francis Martin Baillie Reynolds, and Thomas Gilbert Carver. Carver on bills of lading. Vol. 16.

Sweet & Maxwell, 2011, on p. 1.

72 See UNTAD document TRADE/WP.4/R.1218, January 30, 1996.

to be dominant in many other trade routes.⁷³ Many voices in shipping and banking industry argue that this situation is simply due to the lack of awareness among shippers, banks, shipowners, and their agents to use sea waybills. However, a survey by the UNCTAD regarding the status quo of the use of transport documents in international trade reveals that 88% of the respondents, who are all stakeholders in maritime transport sectors, indicate that they use negotiable B/Ls in their practice. Among them, 70% use mainly or exclusively negotiable B/Ls.⁷⁴ Only 23% of the respondents use sea waybills for the majority of transactions.⁷⁵

The reasons behind this phenomenon are also revealed in this survey. Among the many factors that contribute to the continued use of negotiable B/Ls, the prevailing motivation is to use negotiable B/Ls as collateral under an L/C (75%). Others choose the negotiable documents because it is “requested/suggested by trading party (seller/importer/shipper/consignee)” (35%) or the “document ensures application of mandatory transport legislation” (31%).

Approximately a quarter of the respondents state that they choose the negotiable B/Ls because they intend to sell the goods during transit (25%). Only 20% of the interviewees use negotiable B/Ls for “no particular reason or standard practice.”⁷⁶

The survey clearly indicates that the three greatest incentives that encourage the use of negotiable B/Ls are a) banks need the document as collateral to issue documentary credit, b) the laws demand it, and c) owners wish to sell the goods in transit. T replace B/Ls completely, sea waybills must fulfill these needs as well. The legal status of sea waybills prohibits them from achieving this goal because the advantages of sea waybills over B/Ls are built at the expense of the document of title and negotiability functions. This approach makes the sea waybills only suitable for businesses in which goods are not intended to be used as collateral.

For banks and traders, negotiability is rigid demand: banks prefer to issue L/Cs based on B/Ls consigned “To the Order of XYZ Bank” so that they can acquire possessory rights over the goods to protect its own security interest in the collateral and its proceeds.⁷⁷ By contrast,

73 See report by International Chamber of Shipping.

74 See the Report of the UNCTAD, The Use of Transport Documents in International Trade, UNCTAD/SDTE/TLB/2003/3, dated November 26, 2003., para. 46, available at http://unctad.org/en/Docs/sdtetlb20033_en.pdf.

75 Ibid., at para. 47.

76 Ibid., at para. 53.

77 Kozolchyk, Boris. “Evolution and present state of the Ocean Bill of Lading from a Banking Law Perspective.” J. Mar. L.

& Com. 23 (1992): 161, on p. 242.

traders, especially in non-liner shipping in which bulk cargo is transported, still sell their cargos in transit.⁷⁸ They will be glad to be financed through documentary credits because they cannot easily carry all the expenses on their own, and the banks check the creditability of buyers for them. Finally, yet importantly, the laws governing the use of B/Ls are relatively uniform, whereas laws governing sea waybills are more divergent.⁷⁹

Sea waybills is excluded from the research scope for the technological reason. Sea waybills emerged to resolve the conflict of late-arriving original B/Ls and fast container ships.

B/Ls must be presented in the original upon delivery, so the consignee and carrier need to wait for the B/Ls to arrive to complete a transaction. Conversely, sea waybills are not documents of title, and, consequently, they are not required to be presented for delivery of goods. Thus, lateness or loss of sea waybills will not affect the delivery.⁸⁰ Nevertheless, this advantage is not diminished in a digital environment where the physical movement of documents is no longer necessary.⁸¹

In sum, although the legal nature and basic functions of B/Ls continue to provoke scholastic disputes, the application of this document in the commercial world has, without doubt, reached universal recognition. The functions of B/Ls and sea waybills are overlapping to some extent, but the unique function of the former as negotiable documents of title certainly outperformed the latter in bulk shipping and finance. Most importantly, unlike sea waybills, the common and civil law regimes have reached a certain consensus regarding the proprietary and contractual functions of B/Ls. This consensus helps lay a solid cornerstone for the legal development of B/Ls’ electronic alternative. Hence, this doctoral thesis concentrates on the B/Ls during the digitalization of maritime transport documents.

78 Ibid., on page 4.

79 See section 1(a) of the doctoral thesis.

80 See The Rafaela S, [2005] 1 Lloyd`s Rep. 347, 360 (H.L.), citing Schmitthoff’s Export Trade: The Law and Practice of International Trade, 10th ed., 2000, para. 15-033, on p. 281.

81 Various authors frequently underlined that this kind of problem is by far less likely to happen in cases in which electronic transport documents are used. See for example Chan, Felix W.H., “In Search of a Global Theory of Maritime Electronic Commerce: China’s Position on the Rotterdam Rules”, Journal of Maritime Law & Commerce, April 2009, on p. 186;

Mallon, Paul, “The Legal Implications of Electronic Commerce in International Trade”, Computers and Law (1997) 8 (October/November): on p. 24.