Substantive Law Issues

After proving that parties to a transaction cannot use a choice of forum and law clause, the modern international law has become more than just a coordination order.

Regarding the procedural issues concerning the application of electronic B/Ls, considering the substantive law issues is inevitable. In the previous section, the legal effect of electronic B/Ls is acquiesced as paper B/Ls so that the discussion around the choice of jurisdiction and choice of law can be confined in a reasonable scope. However, the electronic B/Ls are not spontaneously vested with the same legal effect as paper B/Ls. Neither “custom of merchants” nor statutory definitions support the validity of electronic records as transferable and possessable documents. As long as these impediments remain unsolved, the general

111 Article 22(2) of the Hamburg Rules.

112 Boggiano, Antonio. International standard contracts: a comparative study. Martinus Nijhoff, 1981, on pp.55–60.

113 See Article 2(3) of the 1999 International Convention on Arrest of Ships, art. 7, 3, U.N. Doc. A/CONF. 188/L.2 (March 12, 1999).

114International Convention Relating to the Arrest of Sea-Going Ships, May 10, 1952, 439 U.N.T.S. 193, art. 7, 3 [Brussels Convention of 1952].

application of electronic B/Ls will be prolonged indefinitely. In this subsection, the two overlooked issues, legal recognition and negotiability of electronic B/Ls, are scrutinized.

a) Legal Recognition of Electronic Bills of Lading

Electronic B/Ls are defined a series of electronic messages, in a form similar to e-mails;

they contain information or instructions relevant to the goods concerned and their carriage and delivery of the same type as in a paper bill.¹¹⁵ In other words, electronic B/Ls are simply B/Ls in electronic form. Despite the great resemblance, the electronic replications have not retained the same legal effect as their paper counterparts. The reason is that the traditional common laws and statutory laws see a document as a piece of tangible and signable paper that can be possessed and endorsed physically. One clear indicator of evidence is that a carrier is only obliged to deliver goods against the surrender of an original B/L. As electronic B/Ls do not have a physical existence, they cannot fulfill these accustomed legal requirements such as writing, signature, and authentication. For the same reason, the admissibility and evidential value of an electronic record before courts or dispute settlement fora are also ambiguous.

Legislatures in various jurisdictions have realized this complication and have been making efforts to address it. In English law, for example, the COGSA 1992, which modernized the COGSA 1971, renewed its definition of B/Ls, and allows the Secretary of State to extend the application of the act by secondary legislation so that a document issued, endorsed or delivered by “an electronic communication network or any other information technology” can obtain the same legal effects as paper documents.¹¹⁶ In Australia, the 1996 Sea-Carriage Documents Act stipulates that electronic sea-carriage documents have the same legal effect as a written document.¹¹⁷ The endeavors to embrace the use of paperless documents can also be seen in continental countries: the newly reformed German maritime legislation suggests that the electronic B/Ls fulfill the same functions as paper documents as long as the authenticity and

115 Supra note 46.

116 See section 1(5) and (6) of COGSA 1992.

117 See Emmanuel T. Laryea, Paperless Shipping Documents: An Australian Perspective, 25 TUL. MAR. L.J. 255, 265 (2000). For additional information, see Sea-Carriage Documents Act, 1996, section 4 (Austl.), available at

http://classic.austlii.edu.au/au/legis/qld/consol_act/sda1996202/s4.html.

integrity of the electronic records can be guaranteed.¹¹⁸ Internationally, attempts to legitimize the electronic B/Ls have been made as early as 1978 when the Hamburg Rules defined “writing”

as including “inter alia, telegram and telex” and the signature on B/Ls may be “made by any other mechanical or electronic means.”¹¹⁹ Specific and direct regulations come from the CMI Rules for Electronic Bills of Lading 1990,¹²⁰ the Rotterdam Rules,¹²¹ and the UNCITRAL Model Law on Electronic Transferable Records.¹²² The Baltic and International Maritime Council (BIMCO) also included an electronic bill clause in its latest version of the NYPE form to permit legal effects to the use of electronic documents. Moreover, developments can be detected outside the transport sector. In the finance sector, the ICC adopted in 2013 the Uniform Rules for Bank Payment Obligations, a system for payment developed by SWIFT whereby payment takes place on successful electronic matching of data.

The rules and legislation indicate that the legal acceptance of electronic B/Ls is considerably high. Electronic B/Ls are unlikely to be denied of legal effects in many jurisdictions solely because of their electronic form. However, even the most active pro-paperless legislations treated the electronic B/Ls with reserve. As an effective electronic document, regardless of being issued or used in a certain country, must comply with certain standards. To date, these standards remained either unexplained or ambiguous.¹²³

b) Transfer of Electronic Bills of Lading

One of the unique features that empower B/Ls to play an unparalleled role in the international carriage of goods by sea is its transferability. Given that the rightful possession of a bill gives the holder contractual and proprietary rights embodied in this bill, being the holder

118 See § 516 and § 526 of the HGB.

119 See Article 1(8) and Article 14(3) of the Hamburg Rules.

120 Comité Maritime International Rules for Electronic Bills of Lading 1990 (CMI Rules).

121 The Convention on Contracts for the International Carriage of Goods Wholly or Partly by Sea December 11, 2008, 63 UNTS 122 (Rotterdam Rules).

122 United Nations Commission on International Trade Law, UNCITRAL Model Law on Electronic Transferable Records (2017), (Vienna: United Nations, 2017), available at http://www.uncitral.org/pdf/english/texts/electcom/MLETR_ebook.pdf.

The Rotterdam Rules provide expressly for “electronic transport records” and has been described as “technology neutral”.

123 The COGSA 1992 implies that the application of this act to electronic bills depends on the regulations being issued, although none have been issued to date. See also Goldby, Miriam, Legislating to Facilitate the Use of Electronic Transferable Records: A Case Study, UNCITRAL Colloquium on Electronic Commerce. 2011, at 3. In German law, the details about the issuance, delivery, and endorsement of an electronic B/L will be regulated by the Federal Ministry of Justice and Consumer Protection, see § 516 of the HGB. In Australian law, the electronic B/Ls can only enjoy the same legal effects as paper B/Ls under the premise of “with necessary changes.” See section 4 of the Australian Sea-Carriage

Documents Act 1996.

of the document allows merchants to trade them or to use them as collateral.¹²⁴ However, using the electronic B/Ls for the same purpose can be problematic because the relevant legal rules usually require transfer via a valid endorsement and exchange of possession.¹²⁵ Endorsement is expressed in the form of handwritten signatures and the exchange of possession is processed physically, so the two concepts must be reinterpreted in accordance with the electronic environment. To achieve this process, examining the purposes of signature and possession is essential.

In principle, the signature is the method to provide for the authenticity of the person using the signature along with the function to verify the validity or genuineness of a particular piece of information.¹²⁶ Possession of the B/Ls is a necessary prerequisite to identify the holder to complete delivery. Therefore, obstacles that hinder the development of electronic documents are a) guaranteeing that this data message is unique and authentic, b) proving that the “holder”

of this data message is the rightful holder and has exclusive control over the goods, and c) confirming that the transfer of electronic records is valid. From the technical aspect, at present, two types of management systems are used to address these challenges: “token”-based systems and “registry”-based systems.¹²⁷ The former system means that by entering valid usernames and passwords or biometric features, the user obtains a time-limited token in return, with which he/she can fetch a specific resource without providing the authentication for each step. The latter system aims at fulfilling the aforesaid requirements by registration: each time an electronic B/L is issued or transferred electronically, a record is made in a register of the name of the person to whom it is issued or transferred, and that entry in the register indicates that person is the holder of the bill. Technically, both systems can satisfy the functions of signature and possession while providing no less security. However, the legal effect of this transfer does not acquire the same security because it lacks the support of centuries-long mercantile custom

124 Schmitthoff, C. (2007), Schmitthoff’s Export Trade: The Law and Practice of International Trade, 11th ed., Thomson/Sweet & Maxwell, London, on p.590.

125 M Goldby, Electronic Bills of Lading and Central Registries: What is Holding Back Progress?, (2008) 17:2 Information

& Communications Technology Law 125, on p.37.

126 Mason, Stephen, Electronic Signatures in Law, Cambridge University Press, 2012, on p. 1.

127 UNCITRAL Report of Working Group IV (Electronic Commerce) on the work of its forty-sixth session (Vienna, October 29 to November 2, 2012) (A/CN.9/761), at para 23. Available at

https://documents-dds-ny.un.org/doc/UNDOC/GEN/V12/571/34/PDF/V1257134.pdf?OpenElement.

and legal practices like traditional endorsement. Therefore, transferring the B/L via electronic systems can be treacherous. For example, under English law, whether the transfer of a B/L will affect the transfer of property depends upon the intention of the parties. Normally, the physical transfer of a B/L raises a prima facie presumption of an intention to pass the property in the goods to the transferee. However, if the seller sends the B/L with reservations or if the B/L is passed wrongly, then the property is still not transferred. Whether an electronic transfer can constitute such an intention and a reservation is possible are undecided.

These two management systems are built upon different technology bases, so their levels of security vary. By comparison, the registry management system is considered more reliable than the token system based on the technical feature.¹²⁸ In this regard, jurists need to ask “how reliable is considered reliable” and “could the documents processed through a less reliable systems acquire the same legal effect?” International initiatives such as the UNCITRAL Model Law on Electronic Commerce,¹²⁹ the UNCITRAL Model Law on Electronic Signatures,¹³⁰ and the UNCITRAL Model Law on Electronic Transferable Records¹³¹ have been enacted and provided general answers to these questions. However, subject to the principle of “technology neutrality,”¹³² these model laws cannot move further into technological details. Recent legislation developments indicate that different jurisdictions have already revealed their respective preferences on technological requirements. These disparities certainly worried scholars.¹³³ If this tendency continues, then the lack of a technologically impartial and legally harmonized framework will eventually become a great burden for the validity of the transfer of electronic B/Ls.

128 Ibid.

129 United Nations Commission on International Trade Law, UNCITRAL Model Law on Electronic Commerce (1996), (Vienna: United Nations, 1996), available at http://www.uncitral.org/pdf/english/texts/electcom/V1504118_Ebook.pdf.

130 United Nations Commission on International Trade Law, UNCITRAL Model Law on Electronic Signatures with Guide to Enactment 2001, (Vienna: United Nations, 2001), available at http://www.uncitral.org/pdf/english/texts/electcom/ml-elecsig-e.pdf, Article 3 and Article 6.

131 Supra note 122.

132 The principle of “technology neutrality” can be interpreted from many perspectives, but in the context of the Model Laws, it means that technical standards should be designed to describe the results that should be achieved. However, users are free to adopt whatever technology is most appropriate to achieve the result. See details in chapter 2.

133 See Spyrelli, Christina, and Electronic Signatures. A Transatlantic Bridge? An EU and US Legal Approach Towards Electronic Authentication, The Journal of Information, Law and Technology (JILT) 2 (2002): 02-2. The authors were concerned that the legal inconsistencies between the US and the EU can render the international effort of establishing uniformity of e-transaction in vain. See also Blythe, Stephen E. “Digital signature law of the United Nations, European Union, United Kingdom and United States: Promotion of growth in E-commerce with enhanced security.” Richmond Journal of Law & Technology11.2 (2005), on p. 6.