Special Public Bill Committee
Monday 20 February 2023
Arrangement of Business
My Lords, before the start of today’s proceedings on the Electronic Trade Documents Bill, it may be helpful if I say a word about the Special Public Bill Committee procedure that we will follow.
In all respects, our proceedings will be identical to those of a Grand Committee. No amendments have been tabled, but I will ask the committee whether each clause should stand part. Any Member of the House may attend and speak. Members should stand when speaking and may speak to each clause more than once. The main difference from Grand Committee is that the committee may vote. When I collect the voices, if it is clear that there is no agreement, I will call a Division, which will take place straightaway. Only members of the committee may vote. The clerk will call out each name in alphabetical order, and members should reply, “Content”, “Not content” or “Abstain”. I will then announce the result and call the next clause. It may be convenient for the committee if certain consequential clauses stand part en bloc. If any member of the committee objects, this must be taken separately, to the extent desired. Do any members of the committee wish to declare any interests that have not already been declared? No? Then we will start.
Electronic Trade Documents Bill [HL]
Special Public Bill Committee
Clause 1: Definition of “paper trade document”
Debate on whether Clause 1 should stand part of the Bill.
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.
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.
I feel provoked to speak. I shall not detain the committee long. I entirely echo what the noble Lord, Lord Clement-Jones, said. The letters from all parties have been extremely helpful, and the noble Lord, Lord Lansley, has played a blinder in trying to draw out the detail, which has helped all of us. This is obviously a very necessary Bill, and I am sure that, in the fullness of time, it will ensure that we as a nation are well placed in the world of electronic trade and electronic trade documentation. I do not have any particular misgivings about the Bill, but I shall of course listen very carefully to what is said in the other clause stand part debates.
I will not detain the committee long on this clause, not least because I will speak in detail on Clause 2 in a moment. I echo my noble friend Lord Lansley’s thanks to all the members of the committee, with whom it has been a pleasure to work, particularly under the chairmanship of the noble and learned Lord, Lord Thomas of Cwmgiedd, who has helpfully steered our discussions. I express my gratitude to our clerks and all who gave evidence.
I am glad that my noble friend was satisfied by the letter that I sent on 17 February. I am glad to have this opportunity to put that on record. It will of course be published alongside the other Bill documents, so that the explanation contained in it can be seen. It goes without saying that the Government believe that Clause 1, and all the clauses, should stand part.
Clause 1 agreed.
Clause 2: Definition of “electronic trade document”
Debate on whether Clause 2 should stand part of the Bill.
Member’s explanatory statement
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.
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.
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.
The legal technique also has the advantage of making the legislation short, simple and with the minimum adaptation to English law. I regret to say that we can rarely say that of Bills these days. If issues arise that have not been foreseen or there are changes in technology, the judiciary across the UK will thus be in a position to work out, as it has done over the centuries in England and Scotland, the legal solution that best meets the needs of international trade.
It is also important to stress that the Bill shows the UK’s leadership in the adoption of the MLETR. It will encourage other states to adapt their law to be interoperable with the MLETR by providing a model of what other states may wish to adopt.
My Lords, it is a pleasure to take part in this Committee stage. I declare my interests, previously declared in the Special Public Bill Committee, as adviser to Circulor, a supply chain traceability business. I also thank the Minister for his extremely helpful letter of 17 February and the clerks and everybody else who helped to make the committee process such a pleasure to be part of, including colleagues on the committee.
The key points on this element, as perfectly set out by the noble and learned Lord, Lord Thomas, are these. Through the careful crafting and drafting, not least by Professor Green of the Law Commission, we have the dual benefits and necessity of interoperability with the MLETR and other states that have adopted it, and all the benefits of common law and the judgments, thus far, of English courts and that similar jurisdiction moving forward. In taking this approach to the adoption of the MLETR into English law, we have that benefit and necessity of interoperability and, as has been stated, hundreds of years of English law opining on this subject. It goes to the heart of the Bill. However, as the noble and learned Lord pointed out, it is probably worth saying, as it is not stated in the Bill, that the sole purpose and intention of the Bill, for want of any doubt or any cloud in anyone’s mind, in this country or internationally, is interoperability with the MLETR and with bringing forward the benefits of English law to that end.
My Lords, this is probably the most positive clause stand part debate that I have had the privilege of speaking in. We have debated the essence and architecture of Clause 2 extensively during the passage of the Bill so far. I thought that our chair, the noble and learned Lord, Lord Thomas, was very tactful in talking about our experience as a committee. The fact is that we had a fairly steep learning curve on trade documents in many respects. He guided us expertly through what we can safely say—interestingly, we had a bit of a history lesson during committee on the Bill—is the biggest change to trade documents since the Venetians ruled the waves.
In particular, these gateway provisions in Clause 2 were examined extremely carefully for their compatibility with the MLETR. One of the issues raised by the noble Lord, Lord Lansley, was about time and place. The Minister’s letter, again, answers that very effectively, so that issue is settled to our satisfaction.
The noble Lord, Lord Holmes, talked about the interoperability aspect. This is crucial, and, again, even though perhaps we do not make enough of that explicitly, it is clearly satisfied by the Bill and needs to be supported on that basis.
My Lords, I am grateful for the consensus of the committee and the opportunity to set out on the record the reasons for the approach that we have taken.
Clause 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. It defines the subject matter with which the Bill is concerned: namely, electronic trade documents. In my noble friend’s explanatory statement to his Motion that the clause should not stand part, reference is made to the provisions of the MLETR and how they are consistent with the structure of the Bill. One area that we did not reach consensus on was whether to refer to the MLETR as the M, L, E, T, R; to pronounce it “Meleeter”; or to refer to it by its full name. However, I am glad that we have had the opportunity to focus on it again today.
The starting point for the Bill has been the following question: what requirements must trade documents in electronic form satisfy in order to be considered capable of performing the same functions as their paper counterparts? Clause 2 seeks to address this question by setting out the criteria that a document must satisfy in order to qualify as an electronic trade document. These gateway criteria are intended to replicate the salient features of paper trade documents, such as being capable of exclusive control and fully divestible upon transfer. An electronic document that satisfies the criteria in Clause 2 is capable of possession and of performing the same functions as its paper counterpart.
Article 10 of the model law sets out criteria that an electronic record must meet in order to satisfy a requirement for a transferable document or instrument—in other words, a paper trade document. A document that satisfies the criteria in Article 10 is an electronic transferable record for the purposes of the model law. In this sense, the MLETR also contains gateway criteria, many of which are closely comparable to those in the Bill.
As I think the committee fully agrees, Clause 2 is fundamental to the Bill and has been carefully drafted to ensure that electronic trade documents can function in the same way as their paper counterparts. The Bill is not intended to be a comprehensive code in relation to electronic trade documents. Rather, it is intended to ensure that electronic documents that satisfy certain criteria, in a reliable way, are legally and functionally equivalent to their paper versions.
As was made clear throughout the committee’s evidence sessions, the structure and the content of the Bill, and Clause 2 in particular, are compatible with the MLETR and with laws in other jurisdictions that have adopted it. It is, however, drafted to cater for the specificities and nuances of UK law, and to take account of feedback to the Law Commission’s consultation paper and draft Bill. So I agree with my noble friend, the noble and learned Lord and others that the salient point here is the interoperability, and I hope that that and the letter I sent to the committee make that clear.
Clause 2 agreed.
Clause 3: Possession, indorsement and effect of electronic trade documents
Debate on whether Clause 3 should stand part of the Bill.
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.
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.
My Lords, in many ways, this went to the heart of our discussions in the committee—understandably so, because it is so central to the Bill. In many ways, possession is 9/10ths of the Bill. The position of possession in English law is why it is critical to enable full understanding in this country for those who will seek to avail themselves of this new law when it comes into force with all good speed. It is just as important internationally to enable understanding of why the Bill was constructed around the concept of possession.
As the noble and learned Lord, Lord Thomas, perfectly pointed out, the Bill is all about interoperability and consistency, and that can barely be restated enough. However, by deploying the concept of possession in the Bill we have interoperability, consistency and the benefit of bringing hundreds of years of English law to bear, without cutting across the essential need for interoperability in any sense or the absolute need for consistency for the smooth and efficient functioning of electronic trade documents for international trade as a result of the Bill.
My Lords, I will be brief. As all noble Lords described, this approach was overwhelmingly supported by our witnesses to the committee. All of them emphasised that MLETR is a model law, not a prescription for law. Possession of digital documents is absolutely the essence of the Law Commission’s approach to the Bill, and it has been entirely justified. The noble Lord, Lord Lansley, talked about something being capable of possession, which essentially makes this clause a gateway, like Clause 2, leading it to common law to establish possession. This approach was entirely supported by everything that we heard during our inquiry. We fully support that Law Commission approach.
My Lords, clearly, the issue of possession and exclusive control was the nearest we came to controversy in our sessions on the Bill. But the convocation of professors arraigned before us was unanimous in the view that this is the way to approach the issue. The seminars on this which the noble and learned Lord, Lord Thomas, gave us added to our conviction that this was the right way. No doubt, it will establish the benchmark for other jurisdictions to follow.
I have one question. My eye alighted on the word “indorse” in Clause 3(1). Normally, this would be “endorse”. As I understand it—my English is not the best in the world—the difference is pretty marginal, but one relates specifically to financial terminology. I wanted to understand this better, because it is an unusual word that is not often used. Apart from that, I have nothing to add.
My Lords, I am sure that the Bill team behind me, to whom I add my thanks, will provide the legal thesaurus to answer the noble Lord’s question.
It is helpful to have a debate on Clause 3, as it is at the heart of the Bill. It provides that electronic trade documents are capable of possession and are, in all other ways, capable of having the same effect as paper trade documents. As my noble friend Lord Lansley said on the previous clause, this is an opportunity for us to show our working and reflect our helpful discussions in the committee with those who have kindly given evidence.
At several points during our deliberations, questions have arisen regarding the Bill’s approach to possession and exclusive control, particularly in comparison with the approach taken by the model law and Singapore. The Bill’s approach provides that a document that satisfies certain criteria, including being capable of exclusive control, qualifies as an electronic trade document, and that an electronic trade document can be possessed. The Singapore legislation and the model law provide that, if an electronic trade document can be exclusively controlled by a person, and if that person can be identified as the person in control, the document can satisfy a possession requirement. The main distinction between the two approaches is that the Singaporean and MLETR approach conceptualises exclusive control as a functional equivalent to possession, whereas the Bill provides expressly and directly that a document that can be exclusively controlled can be possessed.
The approach taken in the Bill was consciously chosen as the best solution for UK law for several reasons. Allowing the possession of electronic trade documents unambiguously removes the legal blocker currently preventing their recognition. It ensures that paper and electronic trade documents are subject to the same legal rules and laws, including that possessory concepts, such as pledge and conversion, apply to electronic trade documents in the same way they do to paper trade documents. This approach avoids the need fundamentally to rethink existing concepts of possession in respect of intangible assets, and it achieves equivalence with paper documents in a straightforward manner that is easy to understand for British businesses and global trade.
It is crucial for market certainty that electronic trade documents are able to plug directly into the existing legal framework applicable to paper trade documents. This identical treatment, irrespective of whether a document is in paper or electronic form, is particularly important, given the provisions in the Bill allowing for a change of medium, which are necessary to give parties flexibility as the industry seeks to effect the transition to electronic trade documents that we want to see.
Applying the concept of possession directly also preserves the role of intention in relation to electronic trade documents as it applies to paper. Intention is an important element of possession in UK law, and, as we heard in the oral evidence we received, it is possible to conceive of a situation in which a party has exclusive control of an electronic trade document but not the intention necessary for possession. Intention is relevant to determining who has possession of a paper trade document, and it should be equally relevant to the same documents in electronic form.
Possession is a common law concept with a significant and hugely valuable pedigree. The Bill in general, and Clause 3 in particular, is carefully worded to take advantage of this without risking the integrity of a well-established and foundational common law concept. Taking a different approach would require a fundamental reworking of the Bill.
Furthermore, the Bill deliberately does not define what it means to have possession of an electronic trade document. The Bill is concerned with features that an electronic trade document must exhibit in order to be possessable, and it includes a notion of control for this purpose only, rather than identifying who is in possession of it as a matter of fact or law, or both. Leaving the latter inquiry to the courts and common law is the preferable course of action. The common law has proven itself highly flexible and adaptable in this regard: existing common law has developed a range of tools to assist in determining what is, and who has, possession of a tangible asset at any particular time. This could include the related concept of constructive possession, which was raised in our evidence sessions as an important concept.
Although the common law of possession may need to be adapted in order to accommodate electronic trade documents, this is achievable without an explicit account of its relationship with control. This is largely because control is one of the two elements of possession as a matter of fact of common law.
Anyone with the ability to exercise control over an electronic trade document, such as anyone with knowledge of the private key or other security credentials, could thereby claim to have control and in turn a claim to possession. Where multiple people have competing claims to possession, existing rules on relativity of title will apply to determine the superior interest in any given situation.
The noble Lord asked about indorsement. It means an annotation in writing on the back of a paper trade document instructing that the obligation recorded therein be performed to the order of the person named in the indorsement or simply to order, which is called a blank indorsement. This instruction must be signed, and is usually completed by delivery. If the indorsement is a blank indorsement, the possessor of the document, whoever they may be, may indorse it in their turn. If the indorsement is to a named person, any subsequent indorsement must be by that person. It is an essential part of the transfer of many trade documents and any rights that attach to them. There is a business practice of indorsing paper documents on their reverse, which reflects that “indorsement” comes from the Latin “dorsus”, meaning back. The term is also used in the Bills of Exchange Act. I am glad that we have continued our learning process in this session.
Finally, on the subject of functional equivalence, it is worth noting that although Singapore is a common-law jurisdiction, it has diverged from the UK in the context of electronic communications and electronic commerce, where it has adopted other UNCITRAL model laws and the UK has not. The language of the MLETR might therefore be more compatible with Singapore’s existing law than it is with the UK’s. Its implementation without adaptation may raise fewer difficulties of interpretation there than it would in this jurisdiction. As the noble and learned Lord, Lord Thomas, said, different countries may take different approaches, but to all intents and purposes we are striving for the same ends.
As English law is the foundation of international trade, this Bill will put us ahead and in the lead not only of the G7 countries but of almost every other country in the world. The UK is setting the approach which all other jurisdictions will seek to follow, not just on the digitalisation of trade documents but on the future digitalisation of all trade, towards which this Bill is an important but merely foundational step.
Clause 3 agreed.
Clause 4: Change of form
Debate on whether Clause 4 should stand part of the Bill.
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.
I am grateful to my noble friend for flagging this area. Unless the committee wishes, I will not repeat the information that I provided in my letter of 17 February, at the bottom of page 4 and the top of page 5, but I am glad to be able to put it on record as my noble friend has allowed us to do.
Clause 4 agreed.
Clauses 5 and 6 agreed.
Clause 7: Extent, commencement and short title
Debate on whether Clause 7 should stand part of the Bill.
I will first say a word of thanks to the Law Commission, and to Professor Sarah Green in particular, for the excellence of its work. It is also right to thank those who submitted evidence in writing to us and those who gave oral evidence at quite an early hour on a Thursday morning. We were fortunate about the timing, in that we had the opportunity to request written evidence with the hiatus of Christmas. Although that may have made some people spend more time over Christmas on the interesting subject of bills of lading than they would have liked, it enabled us to start our oral evidence with a very firm body of written evidence. Having to compress it all into the usual 28-working day period may not have been to anyone’s advantage. I hope that the opportunity will be taken to think again about the procedure for written evidence; we certainly found the accident of what happened highly beneficial.
However, that benefit would not have been achieved without the great diligence of our clerk, George Webber, and his assistant, Louise Andrews, who laboured mightily to get the evidence in and to make so many phone calls in a very short period to ensure that we had a full book of evidence. I also thank them for organising all the transcripts and other documents. A special thanks is due to them both. I am sure I speak on behalf of everyone in saying how grateful we are.
Having said all that by way of thanks, I ought to temper it by saying that the work of the Law Commission, diligent and hard-working though it was, is the easy part of the process with which this Bill is engaged. Our part in this very agreeable committee has been very easy. As experience always shows, it is easy to change the law. The difficult bit is getting people to use it and move. It is important to stress that the formidable task lies ahead: changing the habit of centuries. However, there is a huge prize here and I am sure that we will get there.
First, I am confident that His Majesty’s Government will do all they can to publicise to other Governments the move that the United Kingdom has made to adapt its law so as to be based on interoperability under the MLETR. I was greatly encouraged by the evidence we received on what other states are setting about doing, and by discussions I had with another major trading state last week on the steps it has taken and the benefit it has had from seeing what we are doing. The UK has set an excellent example of the way forward and we should not be reticent and hide our light under a bushel.
Secondly, banks and others engaged in providing finance need the utmost encouragement to assist in the use of electronic trade documents. I am again encouraged by the position taken by one bank, Barclays, whose letter to us after the evidence session made clear its wish to encourage the use of digitalisation. I should add that that is not the message I have received in respect of all banks, so HMG have a great deal of work to do.
Thirdly, we can be very confident that the ICC will continue to play a prominent role. We have been particularly fortunate in the UK because of the work done by Chris Southworth, but I have also learned that people are hard at work elsewhere. It is also encouraging that moves are under way to establish a trade digitalisation taskforce, involving His Majesty’s Government, the ICC and banks. I wish it well.
However, despite all of these encouraging signs, the task is formidable. The Government must lead with great determination and energy to ensure that the UK’s leadership in getting the Bill enacted is carried through to leadership in getting those engaged in international trade to adopt electronic documents through a common legal system based on the MLETR. The prize is enormous, and it was interesting to see that even net zero is shown to benefit from getting rid of paper in this enterprise. So although the task for the Government is huge, a lot of favourable winds are behind it.
My Lords, like the noble and learned Lord, Lord Thomas, I thank everyone involved in getting the Bill to this stage, not least Professor Green and her team at the Law Commission, our clerks and team here in the House and everyone who has been involved. As a committee, we benefited hugely from the expert and excellent chairmanship of the noble and learned Lord, Lord Thomas, with all his legal experience in this space, not the least of which was an interesting case, which he recounted to the committee, involving a large consignment leaving the port of Bordeaux. All the committee members’ ears pricked up at that point, only to prick down, if ears can do so, when it turned out that the consignment was grain, rather than any product from the right or left bank of the Gironde that may perhaps have been of more interest.
The noble and learned Lord, Lord Thomas, set out the point absolutely clearly: that the Bill demonstrates what we can do when we combine common law with our new technologies. It is right that we conceive of blockchain, distributed ledger technology, AI, machine learning and all the new technologies as tools. They are incredibly powerful and may be incredibly positive, but they are still tools that we humans have to determine how to deploy.
The Electronic Trade Documents Bill is a trade-enabling, trade-empowering Bill, through the potential of electronic trade documents. In reality, however, it is at its heart a new technologies Bill—new technologies in combination with English common law, brought to bear in the area of international trade in this instance.
As the noble and learned Lord, Lord Thomas, pointed out, the most important stage is after Royal Assent, when the hugest sales job must, rightly, be done on the Bill to get traders in this country, banks and other people involved in the international trade business, like insurers, to very much get behind and use electronic trade documents. Rightly, the Bill is permissive rather than mandatory. That is quite correct, but it means that this sales job must be done.
Secondly, this sales job must be done, rightly, through His Majesty’s Government in all the international fora —through bilaterals, trilaterals and all means—to demonstrate to other nation states the benefit of incorporating MLETR into their domestic legislation. To put it plainly, what purpose would the UK passing the Bill have if other nations have not taken MLETR into their legislation and enabled that international trade, which can be done in seconds rather than days?
As the noble and learned Lord, Lord Thomas, perfectly pointed out, the benefit to the environment and net zero should not be missed in any sense here. Currently, in trade, it may take seven to 10 days for a bill of lading document to be transferred to enable a shipment to move. This was illustrated so clearly during Covid, when the planes were grounded at London Heathrow with the trade documents on board and the ships queued up outside the Port of Singapore, unable to move for want of that physical document, which is so painfully papery. The Bill perfectly addresses that, enabling not only settlement in seconds but all that carbon, which would have been wasted in flights and timing, being wiped away through the implementation of the Bill.
Can my noble friend the Minister therefore say whether he will ensure that there is real cross-department and cross-Whitehall consideration not just of what we have learned through the Electronic Trade Documents Bill process but of how we can look to every possibility, in every potential context, to combine common law with the new technologies available, for the benefit of citizen and state alike?
My Lords, I was struck by the Minister saying that today’s stand part debates are an opportunity to show our workings. He is admirably qualified to be a Science Minister on that basis.
I add my thanks to the Law Commission, to our witnesses for both their oral and written evidence, to the clerks and staff on the committee in particular and, overwhelmingly, to our chair, the noble and learned Lord, Lord Thomas, who has guided us so carefully and successfully through the thickets of the MLETR and the common law. I very much hope that the Minister and the House authorities more generally will take note of our chair’s comments on the procedure and the serendipity of the fact that we had time successfully to get the evidence and so on. If we had not had the intervening period of Christmas, this would have been extremely difficult.
I fully endorse—as opposed to indorse—what the chair said about the hard part being the practical application and adoption of the Bill. He mentioned the letter from Barclays, which is worth a little consideration because it is very encouraging. It came in rather late, but it expresses quite an appetite from its customers for the Bill, which bodes well:
“Our customers want trade to be simpler, faster and more digital, enabling them to complete trade deals in hours and days rather than weeks and months … The security and compliance of trade will also be strengthened through the proposals in the ETD Bill … The proposals in the ETD Bill will also result in a significant reduction of the estimated 25 billion paper documents generated and couriered around the world each year”—
the noble Lord, Lord Holmes, made this point. That net-zero aspect is extremely important in all of this. The letter says,
“Overall, we are confident that the … Bill will be a positive boost to UK trading”.
On implementation, the Barclays letter picks up the point about the new trade digitisation task force. It would be useful if the Minister could give us a little more information about that, if he has any, particularly in relation to some of the points raised by the noble Lord, Lord Holmes, on the duty or opportunity for the taskforce to encourage the adoption of new technologies, which will of course be absolutely crucial. The letter, again, stresses the need for UK leadership, so the trade digitisation task force will clearly have an international engagement duty. It would be useful if the Minister could unpack that a little so that we know that the Law Commission’s work, which we carried on, will bear fruit in due course.
We very much hope to see that the Bill has all the advantages set out in that Barclays letter.
My Lords, I add my thanks to the committee clerks, the noble and learned Lord, Lord Thomas, the Minister and other colleagues who have aided the performance of the committee’s duties. They have done a first-rate job and made the subject matter much more accessible to those of us who are simply lay people trying to comprehend it.
I will build on the point made by the noble Lord, Lord Holmes. We have all expressed the view that this piece of legislation provides a platform for us to build on as a nation in leading the world in the development of electronic trade documents. This is a question for the Minister, because we need to understand what sort of strategy the Government will put in place to ensure that we reap the benefit of that. If we are there with Singapore and just one or two others, that suggests that the scope for using this legislation is currently rather narrow, yet we understand and regularly hear from Ministers that we are in negotiation with other nation states on trade deals; we have had Australia and New Zealand pretty recently, and there is sometimes discussion about a trade deal with the US.
It seems to me that this activity should be linked to the development of electronic trading. Perhaps we should have a strategy document brought before us at some point; we would certainly benefit from a debate on the whole topic, because there is no point in having good legislation if the world is still indulging in a paper trail. The noble Lord, Lord Clement-Jones, referred to 25 million paper documents, and the Explanatory Notes set out and describe just how vast this assault on the world of paper is. There will be a massive paper saving if we can get this right, which would have a big environmental benefit for the future. Can the Minister give us a couple of ideas about the Government’s thinking on this and maybe at some later stage bring forward the opportunity for us to debate the issue more widely?
My Lords, I thank everyone who has helped the committee in its work. It has been an education. I have learned a great deal about electronic trade documents; I suspect it will not be of great assistance in my future career, but there is some value in the context of all our discussions about the internet. Learning about the Special Public Bill Committee process has been of particular value, and I take on board the comments of the noble and learned Lord, Lord Thomas, about how the approach could be improved. My thanks to everyone.
My Lords, Clause 7 sets out the territorial extent of the Bill, so this is an opportunity for me to say a little about that, as I touched on in my letter of 17 February.
As we heard during the evidence sessions, timing and resourcing meant that, unfortunately, it was not possible for the Scottish Law Commission to work collaboratively on this project, but the Government have taken every opportunity to ensure that the Bill works across our devolved legislatures. On Scotland specifically, the Government have undertaken significant legal work, including by engaging independent legal counsel, to analyse and ensure the compatibility of the Bill with both English and Scots law, including that related to the Moveable Transactions (Scotland) Bill currently before the Scottish Parliament.
Following one of our evidence sessions, I corresponded with Professor Andrew Steven, who queried whether Clause 3(4) was necessary. In his response, he acknowledged our thinking behind its necessity and agreed with our approach. I will ensure that the Explanatory Notes that support the Bill are updated to provide further information on this matter. The Government are working closely with the Scottish Government to secure legislative consent from the Scottish Parliament. To be clear, this may require minor amendments to the delegated powers in the Bill to ensure that areas of reserved and devolved competence are satisfactorily covered.
The remaining parts of Clause 7 make provision about the coming into force of the Bill and it having prospective effect only. It also sets out the Short Title of the Bill. It will come into force two months after the day on which it is passed. Clause 7(3) ensures that an electronic trade document issued before the Bill comes into force cannot be possessed, indorsed or converted into a paper trade document. It also ensures that it is not possible to effect a change of form or medium under the Bill from paper to electronic if the paper trade document was issued before the Bill came into force.
Following the Bill being passed, many of the precise steps taken to implement and fully harness the benefits of the Bill will be for business and industry to determine. That is consistent with the approach taken throughout the Bill; it does not mandate the use of electronic trade documents but is a facilitative Bill. However, as we heard in our evidence sessions and as the noble and learned Lord, Lord Thomas, said again today, there are favourable winds and great enthusiasm from UK businesses for this important change. Businesses stand ready and eager to support the delivery of the Bill, which will benefit businesses of all shapes and sizes.
However, there is certainly a role for government to play here, not just my department but across His Majesty’s Government. For example, a memorandum of understanding has been agreed as part of the Singapore digital economy agreement, through which the Government are working in partnership with the International Chamber of Commerce on a pilot project intended to improve the interoperability between the UK and Singapore’s electronic trade documents framework. I mentioned in our evidence sessions the role that we played through our presidency of the G7 to encourage other jurisdictions to follow in this important area. We will continue to work alongside international bodies such as the ICC to assist that and support businesses to benefit from this UK legislation. We will work across government to ensure that this change is communicated.
The noble Lord, Lord Clement-Jones, asked about the Digitisation Taskforce chaired by Sir Douglas Flint. That was launched by the Chancellor in July 2022 to drive forward the modernisation of the UK’s shareholding framework. In particular, Sir Douglas has been asked to identify immediate and longer-term means of improving the current intermediated system of ownership, eliminate the use of paper share certificates for traded companies, mandate the use of additional options to cheques for cash remittance and consider whether the arrangements for digitisation can be extended to newly formed private companies and as an optional route for existing UK private companies. His Majesty’s Treasury leads on that work, so it may be better for Treasury Ministers to provide further information in the debates which noble Lords rightly say may prove useful.
In closing, I echo the thanks given to the Law Commission, particularly Professor Sarah Green, to George Webber and Louise Andrews, who have supported the committee’s work admirably, and to all those who gave evidence. I acknowledge the point made by the noble and learned Lord, Lord Thomas, about the difficulties imposed by the timetable of the Special Public Bill Committee process; we are all the more grateful that they sent us that evidence, which informed our discussions. I am also grateful to the members of the Bill team from across a number of departments who have supported our work.
I underline the point that all members of the committee have made and which has underpinned our discussions from the outset: that this small Bill has enormous potential to place the UK at the forefront of international trade as a thought leader for others to follow, and that it can bring significant benefits to British businesses, making it easier to sell internationally as well as cheaper, faster and more secure. It has been a privilege to work on it with the rest of your Lordships’ committee, and I hope that it will become law very swiftly.
I caught what the noble Lord said about the Treasury. Am I correct in understanding him to say that the Treasury will be in the lead in developing a post-Bill implementation strategy, rather than the noble Lord’s own department? I can understand why, strategically across Whitehall, it might not be DCMS, but will it be the Treasury rather than the departments that are responsible for business and for trade?
There is important work for both the Treasury and the new Department for Business and Trade. Obviously, throughout the passage of the Bill, the machinery of government changes have meant that many of these responsibilities have moved, but throughout the work on the Bill I have benefited from the support of officials in a number of departments, and His Majesty’s Treasury and the Department for Business and Trade play a key role here. It will not fall to DCMS, as newly constituted, to carry on that work, but, as I say, the work has been a cross-government endeavour hitherto and will remain so.
Clause 7 agreed.
Committee adjourned at 11.42 am.