Electronic Bills of Lading
Andreia Costa Vieira
Dissertation presented for the Degree of LL.M. in
International Commercial Law
University of Nottingham
Supervisor: Dr. S. Girvin
“I hereby declare that I have read and understood the regulations governing the submission of LL.M. dissertations, including those relating to length and plagiarism, as contained in the LL.M. Manual and that this dissertation conforms to those regulations”
Andreia Costa Vieira
Nottingham, 28 March 1999
I would like to thank Carlos A. O. Vieira, my husband, for his encouragement and continuing support throughout my LL. M. Course.
Particularly, I would like to thank Beng Yong Tang for his help and suggestions related to the correction of the structures of English of this Dissertation.
Electronic Bills of Lading are one of the most prominent issues presented by information technology to the shipping industry. It overcomes some of the main problems of traditional bills of lading, such as the problem of goods arriving earlier than their respective documents. However electronic bills of lading have faced many legal obstacles to replace the paper-based bill. The difficulties that it has faced range from the formation of the contract to its authentication. Nevertheless one of their biggest challenges is to acquire the function of “negotiability” performed by the traditional bill of lading. The present study assessed the main legislation as well as some private rules related to the issue of electronic bills of lading. On the one hand, this study shows that the legal obstacles presented together with some of their technological challenges have slowed down the reliability of the electronic document in the shipping industry. On the other hand, the study shows that regardless of all the legal obstacles, private initiatives have accepted the challenge and have introduced the electronic version of the bill of lading through voluntary rules, despite no legislative or legal validation.
Table of Contents
1 – C. B. Biddle, ‘The Utah Digital Signature Act and Liability Allocation in a Public Key Infrastructure’ (1996) 33 San Diego Law Review 1146 - also in Brad Biddle’s homepage: <http://www.acusd.edu/~biddle/> (visited on 30.09.98).
TABLE OF CONTENTS IV
TABLE OF CASES VIII
TABLE OF LEGISLATION IX
TABLE OF ABBREVIATIONS X
I - THE USE OF EDI 2
II - THE OCEAN BILL OF LADING 3
2.1 - The Electronic Bill of Lading as a receipt for the goods shipped 6
2.2 - The Electronic Bill of Lading as evidence of the contract of carriage 7
2.3 - Electronic Sea waybills 9
2.4 - Electronic Bills of Lading as negotiable documents of title 11
2.4.1 - A negotiable instrument? 12
2.4.2 - A transferable document 15
18.104.22.168 - The CMI method 15
22.214.171.124 - The SeaDocs method 18
126.96.36.199 - The public Key method 20
2.4.3 - A document of title? 21
2.4.4 - The transferor’s intention 22
III - OTHER LEGAL BARRIERS 23
3.1 - Formation of Contracts 24
3.2 - The Writing Requirement 26
3.2.1 - The CMI Rules and the issue of “writing” 29
3.2.2 - The UNCITRAL Model Law 30
3.3 - Admissibility and evidential value of electronic messages 30
3.4 - The issue of authentication 34
3.4.1 - Digital Signatures 36
3.4.2 - The Utah Digital Signature Act 39
3.4.3 - The CMI Rules and the issue of authentication 40
IV - BOLERO 42
V - THE ELECTRONIC BILL OF LADING AS SECURITY FOR BANKS 45
2 – C. B. Biddle, ‘Public Key Infrastructures and “Digital Signature” Legislation: 10 Public Policy Questions’ (1997). Cooley Godward LLP
3 – M. D. Bools, The Bill of Lading. A document of title to goods. An Anglo-American Comparison (London: LLP) (1st.ed., 1997).
4 – A. H. Boss, ‘The international Commercial Use of Electronic Data Interchange and Electronic Communications Technologies’ (1991) 46 Bus. Law, 1787.
5 – A. H. Boss & J. B. Ritter, Electronic Data Interchange Agreements. A guide and sourcebook (Paris: ICC Publishing) (1st. ed., 1993).
6 – G. F. Chandler, ‘The Electronic Transmission of Bills of Lading’ (1989) J Mar L. & Com. v. 20.
7 – M. Davies & A. Dickey, Shipping Law (Sydney: LBC Information Services) (2nd. ed., 1995).
8 – D. Faber, ‘Electronic Bills of Lading’ (1996) LMCLQ 232.
9 – A. G. Guest (ed.), Benjamin’s Sale of Goods. (London: Publ. Sweett Maxwell) (5th. ed., 1997).
10 – R. M. Goode, Electronic Banking. The legal implications (London: British Library Catalogue) (1st. ed., 1985).
11 – J. M. Holden, The History of Negotiable Instruments in English law (London: The Athlone Press) (1st. ed., 1955).
12 – P. Jones, ‘The Paperless Letter of Credit: Bolero’s Legal Platform’ (1997), in
<http://www.webcom.com/~pjones/bolerle.html> (visited on 05.01.99)
13 – P. Jones, ‘The Paperless Letter of Credit’ (1998) in
<http://www.webcom.com/~pjones/bolegfea.htm/> (visited on 05.01.99)
14 – R. B. Kelly, ‘The CMI charts a course on the sea of Electronic Data Interchange: Rules for Electronic Bills of Lading’ (1991-92) 16 Tul. Mar. L. J. 349.
15 – B. Kozolchyk, ‘Evolution and Present State of the Ocean bill of Lading from a Banking law Perspective’ (1992) 23 J. Mar. L. & Com. 161.
16 – B. Kozolchyk, ‘The Paperless Letter of Credit and Related Documents of Title’ (1992) 55 L. & Con. Prob. 39.
17 – J. Livermore et al., ‘Electronic bills of Lading and Functional Equivalence’ (1998) JILT in <http;//elj.warwick.ac.uk/jilt/ecomn/98_2liv/> (visited on 17.09.98).
18 – A. Mitrakas, Open EDI and Law in Europe (The Hague: Kluwer Law International) (1st.ed., 1997).
19 – J. J. Norton, C. Reed & I. Walden (eds.). Cross-Border Electronic Banking. Challenges and Opportunities. (London: Lloyd’s of London Press) (1st. ed., 1995).
20 – C. M. S. Pereira, Instituições de Direito Civil, v. 3. (Rio de Janeiro: Forense) (10th. ed., 1994).
21 – C. Reed, Electronic Finance Law. (Cambridge: Woodhead - Faulkner) (1st. ed., 1991).
22 – P. Samuelson, ‘The Quest for enabling metaphors for law and lawering in the Information Age’ (1996).Michigan Law Review 2045.
23 – R. Susskind, The Future of Law. (Oxford: Clarendon Press) (1st. ed., 1996).
24 – H. Theodoro Jr., Curso de Direito Processual Civil, v. 1 ( Rio de Janeiro: Forense) (10th. ed., 1993).
25 – P. Todd, Modern Bills of Lading (Oxford: Blackwell Law) (2nd. ed., 1990).
26 – P. Weiss, ‘Security Requirements and The Evidentiary Issues in The Interchange of Electronic Documents: Steps toward developing a security policy’ (1993) J. Com. & Inf. L., v. XII.
27 – J. F. Wilson, Carriage of Goods by Sea. (London: Pitman Publishing) (3rd. ed., 1998).
28 – J. K. Wimn, ‘Open Systems, Free Markets and Regulation of Internet Commerce’ (1998) Tul. L. Rev., 1197.
29 – B. Wright, ‘Eggs in Baskets: Distributing the Risks of Electronic Signatures’ (1995) 6 Computers & Law 30.
30 – A. N. Yiannopoulos, (ed.) Ocean bills of Lading: Traditional Forms, Substitutes and EDI Systems (The Hague: Kluwer Law International) (14th ed., 1995) - XIV International Congress of Comparative Law.
31 – “Who is Bolero?” in BOLERO homepage: <http://www.boleroltd.com/site.htm> (visited on 03.02.99).
32 – VeriSign homepage: <http://www.verisign.com> (visited on 29.09.98).
33 – Digital Signatures Guidelines (1996) – ABA Information Security Committee, in <http://188.8.131.52/scitech/ec/isc/dsg.html> (visited on 29.09.98).
Hussey v Jacob (1696) 92 ER, 929.
Lickbarrow v Mason 91794) 5 TR 683 ( ER 380).
Glyn Mills & Co. v The East and West India Dock Co. (1882) 7 App. Cas. 591.
The Stettin (1889) 14 PD 142; 6 Asp. MLC 395.
Hill v Regem  2KB 329.
Goodman v J. Eban Ltd.  1 QB 550.
State v Hickman, 189 So. 2d 254 (Fla. Dist. App. 1966).
Electronic Rentals Pty. Ltd. v Anderson (1971) 124 CLR 27.
Southwestern & County Property Ltd.  Ch. 185.
Molodyski v Vema Australia Pty. (1980) NSW Con R 55.
Browner International Ltd. v Monarck Shipping Co. Ltd. (The European Enterprise) (1989) 2 Lloyd’s rep 185.
Twyman Pastoral Co. Pty. Ltd. v Anburn Pty. Ltd.(1989), (Unreported, new South Eales Supreme Court).
N. M. Superannuation Pty. Ltd v Baker and Others (1989), (Unreported, New South Wales Supreme Court).
Enichen Anic SpA v Ampelos Shipping Co. Ltd.  1 Lloyd’s Rep 252.
Derby & Co. v Weldon (1991) W. L. R. 652.
The Future Express (1993) 2 Lloyd’s Rep 542.
J. H. Tucker & Co. Ltd. v Board of Trade  1 W. L. R. 655.
Table of Legislation
Carriage of Goods by Sea 1992 (England)
Carriage of Goods by Sea 1971 9England)
Carriage of Goods by Sea Act (Australia)
Hamburg Rules on Carriage of Goods by Sea
The Hague – Visby Rules on Carriage of Goods by Sea
The Hamburg Rules on Signature
United Nations Convention for International Sale of Goods
CMI Rules on Electronic Bills of Lading
UNCITRAL Model Law on Electronic Data Interchange and Related Means of Communication
The ABA Digital Signatures Guideline
The Utah Digital Signatures Act 1995
The US Uniform Facsimile Signatures Of Public Official Act 1997
Uniform Customs & Practice for Documentary Credits (UCP 500)
Uniform Customs and Practice for Documentary Credits (UCP 400)
The Gaming Act 1664 (England)
The US Uniform Commercial Code 1993
The US Uniform Code 1991
The UK Interpretation Act
The Brazilian Code of Civil Procedure
Civil Evidence Act 1968 (England)
Evidence Act 1971 (Australia)
The German Code of Civil Procedure
The US Federal Rules of Evidence
The Greek Code of Civil Procedure
The Italian Code of Civil Procedure 1942
Table of Abbreviations
ABA – American Bar Association
BOLERO – Bills of Lading for Europe
CMI – Comité Matitime International
COGSA – Carriage of Goods By Sea Act
Com. & Inf. L. – Computer and Information Law
EDI – Electronic data Interchange
ER – English Reports
J. Com. & Inf. L. – Journal of computer and Information Law
JILT – Journal of Information, Law and Technology
J. Mar. L. & Com. – Journal of Maritime Law and Commerce
L. & Con. Prob. – Law and Contemporary Problems
UCP – Uniform Customs and Practice
Michigan L. Rev. – Michigan Law Review
San Diego L. Rev. – San Diego Law Review
SWIFT – Society for Worlwide Interbank Financial Telecommunications
Tul. Mar. L. J. – Tulane maritime Law Journal
UCC – Uniform Commercial Code
UNCITRAL – United Nations Commission on International Trade Law
VAN – Value Added Network
W. L. R. – Weekly Law Reports
Technology has brought about extraordinary changes to modern legal systems and has over-turned many legal issues. One of these issues is the possibility nowadays of having “paperless documents” through the use of digital electronic systems.
Electronic messages are probably regarded nowadays as having the same status as the written word had many centuries ago. In the “age of orality”, people used to close agreements with spoken words alone and, therefore, the law was kept down to basic principles.
The advent of writing, and later on of the printing press, brought about the possibility of more complex agreements and more detailed written law. However, this transition did not happen easily. There were many who still thought that oral statements were more reliable as evidence for the existence of contracts than mere writing.
The same has happened with electronic transactions. Doubts surrounding their reliability have delayed their substitution of paper documents. However, distrust of new technology has not been the only obstacle to the implementation of electronic contracts. There are also barriers in the form of legal issues which have yet to be resolved.
This dissertation aims to discuss the main aspects of the changeover from written to electronic transactions in the area of ocean bills of lading. The first chapter deals with a brief explanation of the Electronic Data Interchange system. The second chapter introduces the bill of lading as a document in the shipping industry and the possibility of having an electronic version of it. It then goes on to describe the main characteristics of the paper bill, that is, the qualities of being a receipt for the goods shipped, an evidence of the contract of carriage, and a negotiable document of title. Likewise, it will examine whether or not the electronic version of the bill of lading can have all of these qualities. The third chapter will deal with other legal barriers which electronic bills of lading have faced, such as the formation of contracts, the requirement for writing, the issue of admissibility as evidence in courts, and the problem of authentication. The fourth chapter describes the work of the BOLERO project. The last chapter will outline the feasibility of using electronic bills of lading as security for banks.
Within these chapters, international rules dealing with the issue of electronic bills of lading, or electronic messages generally, such as the CMI and the UNCITRAL Rules, as well as private initiatives, such as the SeaDocs Registry , will be given as examples of Electronic Data Interchange within shipping law. By reason of the international nature of electronic bills of lading, this dissertation will not be based on the law of a specific country, but, instead, different legislation, within different legal systems, will be taken as examples.
I - The use of EDI
Advances in computer technology have greatly affected shipping law. One area which has felt the impact of new technology in a major way is that of Bills of Lading. The traditional paper-based bill of lading has given way to paperless documents through the use of a system called Electronic Data Interchange (hereafter referred to as EDI).
The term EDI is basically used with the meaning of systems which operate through “computer to computer exchange of information in predertemined formats”. EDI was a system developed in the 1970s, and since then, it has attempted to replace commercial paper documents, such as shipping bills, invoices, remittance advice or even purchase orders, with efficient and economical electronic transmissions.
One of the EDI systems currently used by banking institutions is the so-called SWIFT (Society for Worldwide Interbank Financial Telecommunications). SWIFT has mainly been used for the communication of commercial letters of credit among banks worldwide. Millions of operations per day have taken place through the SWIFT system without any legislative or judicial validation. Even so, SWIFT has experienced an enormous success that proves the possibility of electronic transfers of ownership of large amounts of money.
In the context of shipping transactions, and specifically the ones involving bills of lading, the EDI systems consist of exchanges of messages between the shipper’s and carrier’s computer terminals, sometimes with the participation of third parties’ computer terminals acting as certification authorities.
The EDI use has received great support from businessmen, shipping enterprises, financial bodies etc. for many reasons: a) it solves geographical problems – the parties may be located in different countries; b) it has reduced the time needed to transfer bills of lading; c) it has reduced the costs of such transactions; d) it has decreased the number of middlemen involved in the transactions, thus enhancing the integrity of the documents and; e) it has increased the accuracy and standardisation of business communications. Despite the benefits it has brought, there is much controversy about whether a paperless system can really act as a bill of lading. The next section will deal with some of these issues.
II - The Ocean Bill of Lading
A bill of lading is a document issued by the carrier or its agent when goods are delivered to be shipped for carriage. This single document performs, in fact, three major functions under shipping law. First, from its historical origins, the bill of lading has been a receipt for the cargo received which contains statements related to the type, quantity and conditions of the goods shipped.
Second, when the shipper does not charter a vessel because of the small quantity of goods which will be shipped, the shipper will enter into a contract for the carriage of goods aboard a ship carrying small consignments of cargo for many different shippers. The carrier will then issue a bill of lading to the shipper which will act as evidence of the contract of carriage.
Third, the bill of lading may include a provision for delivery to a named consignee - this is the straight bill of lading or sea waybill. In this situation the goods must be delivered only to the person named on the bill or to his agents. However, the bill of lading may be drawn “to order”, and in this situation, it can be transferred by endorsement and thus it will be considered a negotiable document of title, although it is not technically a negotiable instrument.
The traditional paper-based bill of lading has performed all these three functions for centuries. In spite of its fairly reasonable performance in Shipping Law, the traditional bill has presented some problems.
On the one hand, sea transport is becoming faster by the day. Technology in the shipping industry has quickened the process of shipping goods and the transit of cargoes, resulting in faster loading operations and faster voyages.
On the other hand, it seems that, at the same time, post office operations have become slower. Moreover, the arrival of documents at the destination port is often delayed by a “detour” to a bank along the way in order to process documentary credit operations.
The consequence is that goods sometimes arrive at the destination port before the shipping documents. As far as the principles of carriage of goods by sea are concerned, the carrier cannot release the goods until the consignee presents the bill of lading, and this results in long jams at the ports of discharge. It may also have the consequence of making carriers release the cargo without presentation of the bill of lading, and this may cause even greater problems. Furthermore, “delays also create additional costs relative to the custody and insurance of the goods”.
Boss has also remarked that the issue of paper-based bills of lading has a high cost. “…[T]he cost of raising conventional documents and the attendant delays involved in their issuance and verification constitute 10 to 15% of the total transportation costs”.
Paper-based bills of lading also face another big problem - the one of fraud. Such documents have been an easy target for fraudsters. The whole document has been counterfeited, the quantity and weight of goods have been altered, signatures and dates of issuance and loading have been forged.
Moreover, traditional bills of lading are often issued in a set of three originals, where delivery of the goods can be required against the presentation of a single original from that set. This creates the problem of forged endorsement, such as in the English case of Glyn Mills & West India Dock Co.. A dishonest shipper, for example, may negotiate the three original bills to three different people, “all of whom take in good faith”.
All these problems faced by paper-based bills of lading have made EDI attractive to the shipping industry. Another advantage of EDI, besides the ones mentioned in the last chapter, is that the problem of a set of three original bills of lading no longer exists.
The real challenge then is the efficient substitution of paper-based bills of lading by electronic documents. This has not been an easy task. Electronic bills of lading have to operate in the same paper-based document fashion - that is, being a receipt for the goods shipped, being evidence for the contract of carriage and being a negotiable document of title.
2.1 - The Electronic Bill of Lading as a receipt for the goods shipped
The original function of bills of lading was undoubtedly, to serve as receipts for the goods shipped. Before this usage, shippers used to travel with their goods and therefore there was no need for such a document. However, as shipping transactions became more widespread, the shippers had to send their goods to a kind of correspondent or agent at the port of discharge and, therefore, the bill of lading came into being.
From that moment onwards, once goods were shipped, a bill of lading was issued by the shipowner or its agent, based on some information the shipper had given in advance about the cargo, or even based on a “dummy bill of lading” which contained the information to be inserted in the definitive bill of lading.
In order to satisfy customs procedures for export, nowadays shippers and forwarding agents frequently send such information to the carrier’s agents through EDI. The carrier’s agents are then able to pass on this information to the Customs Office, also through EDI, and to prepare an electronic bill of lading using the information received about the goods. In fact, the electronic message may be prepared by the carrier himself or his agent (such as in the case of the CMI Rules) or it may be prepared by a central registry (as in the example of SeaDocs).
Whatever means are used to produce the electronic data, information such as the description, quantity and conditions of the cargo will be inserted in the electronic bill. Therefore an electronic bill acknowledges receipts of the goods and thus satisfies the “receipt” function of a formal bill of lading. Electronic sea waybills have already performed the function of receipt for the goods shipped without any problem.
Moreover, in common law, the rule is that once the bill of lading is in the hands of the shipper, it is prima facie evidence of the weight or quantity of the cargo shipped. An “electronic version” of this rule would be: once the shipper gets the electronic message and its corresponding code key, such EDI is prima facie evidence of the weight or quantity of the goods shipped and therefore the burden of proving that the goods were not shipped as stated in the electronic bill rests on the carrier.
2.2 - The Electronic Bill of Lading as evidence of the contract of carriage
The earliest bills of lading did not perform a contractual function, because the small amount of cargo carried per ship did not require such a function. The contractual obligations between shipper and shipowner were inserted in a charterparty to which the bill of lading made reference. It seems that the contractual characteristic was only inserted into the bill of lading from the 16th century, when the amount of cargo per vessel started to increase and it was impracticable to enter into a charterparty with every shipper involved in the transactions. This feature of bills of lading remains to the present day - that is, a bill of lading will only be evidence of the contract of carriage when there is not a charterparty. Thus when the shipper of the goods is also the charterer of the vessel the bill of lading will operate only as a receipt for the goods shipped.
In order to deal with liability issues of the carrier’s obligations, The Hague, Hague-Visby and Hamburg Rules were drafted. Under the Hamburg Rules, Art. 5.1, the carrier is liable for loss resulting from loss or damage to the goods, as well as delay in delivery, if the occurrence which caused the loss, damage or delay took place while the goods were in his charge, unless the carrier proves that all measures were taken to avoid the occurrence and its consequences.
The Hague and Hague-Visby Rules provide in Art. 3, r. 2, that the carrier must load, handle, stow, carry, keep, care for and discharge the goods received properly and carefully. Therefore in contracts where The Hague and Hague-Visby Rules apply this provision is the basis for loss of, or damage to the goods.
However Art I (b) of the Hague-Visby Rules provide that the Rules apply only to contracts of carriage covered by a bill of lading or any similar document of title. This provision suggests that they do not apply to electronic bills of lading. Therefore contracts of carriage which envisage an electronic data interchange would be in a disadvantage compared to those which are under the Rules protection.
In England, for example, a contract of carriage is taken under the provisions of the COGSA 1971 which enacted the Hague-Visby Rules and gave them “force of law”, applying compulsorily to the bill of lading or similar documents of tittle related to the carriage of goods between two different States if, according to Art. X, the bill is issued in a contracting State, or if the carriage is from a port in a contracting State, or “the contract contained in or evidenced by the bill provides that these Rules or legislation of any State giving effect to them are to govern the contract” (Art. X, c). As Faber points out “if the message is not a matter of law a bill of lading or document of title, then in the absence of an express contractual incorporation of the Rules into the contract they would not apply. Even an express incorporation would have to be carefully worded. Merely to incorporate the terms of any ‘mandatorily applicable international Convention or national law’ could be inadequate…Therefore, if a court were to hold the electronic message not to be a bill or document of title, the Rules would not apply”. A document which is not a bill of lading or similar document of title under the Rules cannot be treated as if it was under a mandatory obligation inherent in the Rules.
In so much as the Rules are not applicable, an electronic bill of lading transaction will operate in a different fashion. The carrier’s obligations would have to be set in a separate agreement between the parties involved. This could result in the a reduction of the amount of the carrier’s liability, but there is no other way, unless the Rules are amended in order to apply also to electronic bills of lading.
2.3 - Electronic Sea waybills
In order to solve the problem of the goods arriving before the arrival of the shipping documents, a liner document was created to replace the traditional bills of lading. The sea waybill (also called liner waybill or straight bill of lading) is a document which goes with the goods in the vessel and therefore the consignee does not have to present the bill to obtain delivery of the goods.
A sea waybill serves two out of the three functions of the traditional bill form: it is a receipt for the goods shipped and it is also evidence of the contract of carriage. Nevertheless, such a document is issued to a named consignee and the carrier will have to deliver the goods only to the named person or his agent. Thus the negotiability feature of a bill of lading does not exist in a sea waybill.
As Todd points out, sea waybills have distinct advantages for carriers. “They can travel with the goods. Lengthy and complex documentary processes are avoided. Carriers do not risk the same liability to consignees”. They also present advantages to the shipper. First, they solve the problem of delayed arrival of the shipping documents. Second, they also avoid the high costs associated with traditional form bills of lading. Sea waybills have also the advantage of avoiding the problem of fraud associated with the issue of three or more original negotiable bills.
However as such documents are non-negotiable instruments, they are not mandatorily envisaged by the Hague-Visby Rules. Therefore the carrier’s liabilities are limited to agreements undertaken by himself and the shipper.
One of the forms of waybills which is not really “new” in shipping transactions is the electronic sea waybill. Electronic sea waybills have been used without great difficulties, as remarked in the XIV International Congress of Comparative Law.
Faber gives a good explanation of how electronic sea waybills have been used. Initially the booking information is given by the shipper’s computer to the carrier. Then the sea waybill is issued by the carrier’s computer and never takes a paper-based form. The computer also gives delivery instructions. Such electronic messages have greatly increased the speed of transactions and have made the information passed more accurate. In this way, sea waybills have become “the most popular form of transport document in the modern shipping world”.
Nevertheless, an electronic sea waybill also presents some of the problems of traditional waybills. First, electronic sea waybills are not documents of title and, consequently, they cannot be used as security for financial purposes of the transaction. Second, electronic sea waybills cannot be used by the sale contract parties as protection against bankruptcy of one of them, nor can they minimise the risk of suing in a foreign country. Therefore, a document which can act as receipt for the goods shipped, evidence of the contract of carriage and negotiable instrument of title and that, at the same time, can speed up the process of transfer of documents and cut down the high cost of the issue of such documents is needed by the shipping industry. The great doubt is whether an electronic bill of lading is able to operate in such a fashion.
2.4 - Electronic Bills of Lading as negotiable documents of title
The bill of lading has been a receipt for the goods shipped since the last years of the 14th century. In the 16th century the function of being an evidence of the contract of carriage was inserted in the bill. However, it seems that it was only in the 18th century that its actual third function was recognised by the courts.
In the English case of Lickbarrow v. Mason the main question to be solved was “whether the bill of lading has a proprietary function and, if so, what it was”. Nevertheless, until they reached a conclusion on this matter they had to pass through the issue of negotiability to understand whether the bill of lading was a negotiable document of title. In the House of Lords the judgement on this case suggested that a bill of lading, in spite of not being technically a negotiable instrument, was considered a “negotiable” document of title. Even when this case is interpreted in the sense that it was merely held that the bill transferred the property in the goods, the bill of lading is said to be a negotiable instrument by virtue of the customs of merchants.
One of the greatest challenges of the electronic version of bills of lading is to achieve such “quality” of “negotiability”. In order to understand whether this is possible, it is necessary to first consider how the bill of lading acquired the qualities of “negotiability”, “transferability” and “document of title”.
2.4.1 - A negotiable instrument?
The concept of negotiability is a complex one. Negotiability may be taken as the quality of a document of being transferable or exchangeable for value. A document may also be called negotiable when it is capable of transferring the property in the goods.
Nevertheless, according to Holden, under common law the doctrine of negotiability could not be said to exist until the principle that “a bona fide holder for value could ever acquire a better title to a bill than that possessed by his transferor” was developed. This “better title” is, in fact, a principle brought from the case of Hussey v. Jacob, where a bill of exchange had been drawn to settle a gaming debt which was rendered void by the Gaming Act 1664. The significant point of that decision was an obiter dictum of Mr. Holst which said that if a man looses at dice and gives a bill payable to the winner or order, “and the winner endorsed it to a stranger for a just debt, and the person upon whom the bill was drawn accepts it in the hands of the stranger, the acceptor would be liable”. In this way, the transferee would take the bill free from any equity affecting it in the hands of the transferor.
Actually, to be considered a negotiable instrument, a document must have three essential characteristics. Firstly, any holder, such as a payee or endorsee, who is in possession of it, or the bearer, has to be able to bring an action to enforce it. Secondly, it has to be a document transferable from person to person (through endorsement and delivery of the instrument or, when the document is made to order blank, it is transferable by mere delivery). Third, a bona fide transferee who takes for value an instrument that is complete and regular on its face becomes a “holder in due course”.
In relation specifically to bills of lading, Lickbarow v. Mason is the leading case on the issue of negotiability. One of the questions in this case was whether a bill of lading can transfer a greater right than the transferor possessed.
Ashrust J. went on to say that the instrument is in its nature transferable - the assignee of a bill of lading trusts to its endorsement - and in this respect this is similar to the case of a bill of exchange. As the consignor did not confine the delivery of the goods to the vendee only, he has not restrained the negotiability of it, and therefore he has made it an endorsable document. The same happens with a bill of exchange, that is, the consideration may be found between the drawer and the payee, yet there is no consideration between the drawer and an endorsee; and the reason is because it would be enabling either of the original parties to assist in a fraud. This rule is based on principles of law, and not on the custom of merchants. The endorsement is established by the custom of merchants, but the effect of that endorsement is a matter of law – when third parties are concerned, consideration can not be found in such a transaction. This is also the case with respect to a bill of lading.
This reasoning, although being a very good explanation of the real position of bills of lading, was not the majority in the King’s Bench. The majority decision taken by Buller JJ and Grose J was that the bill of lading passed property in the goods to the transferee without considering whether or not it was a negotiable document.
Later on, in the House of Lords, the bill of lading was given the quality of “negotiable” although therein was no intention to make it equivalent to bills of exchange. Their Lordships considered, inter alia, that the bill of lading is a negotiable and transferable instrument by the custom of merchants, through endorsement and delivery - or when appropriate just delivery - of the bill, when it could be said that property in the goods has passed.
A point of great importance in the issue of negotiability is that negotiable instruments are not created by persons at will. If a person wants a negotiable instrument, such an instrument must be among one of the negotiable forms set under law. Only statute or mercantile usage can establish the negotiability of an instrument.
This explains the difficulty for admitting that bills of lading are negotiable documents in the case of Lickbarrow v. Mason. If one takes the term “negotiability” in the light of its original interpretation, bills of lading will never be negotiable instruments. First, the bill of lading is a document intended to be transferred from person to person. Second, the transfer of the bill of lading also transfers property in the goods subject to the contract. However, the bill of lading cannot transfer a better title to its holder. In this sense, a bill of lading is not a negotiable instrument. Nevertheless, the treatment it received in Lickbarrow v. Mason as a “negotiable” instrument was in fact related to its quality of “transferability”.
Therefore if a bill of lading is not a negotiable instrument in the real sense of the term “negotiability” nor can its electronic version be a real negotiable instrument. Nevertheless, the bill of lading was considered “negotiable” in the sense of “transferable” by the customs of merchants. It was not simply created in one single contract by two or more persons at will. It had become a commercial custom. The question then is whether an electronic bill of lading has become also a commercial custom.
One may think that is too early to answer this question. However the broad acceptance of the CMI method and also the increasing work of the BOLERO project may suggest that the electronic version of the bill of lading is becoming a commercial custom. Thus, the quality of “negotiability”, or better of “transferability”, may be found in the nature of the electronic document itself and, as such, it may be upheld by courts .
2.4.2 - A transferable document
As quoted above, a traditional bill of lading is a transferable instrument. Its transfer will take place depending on the type of bill that was drawn. First, if the bill of lading is a “straight” bill, it is not negotiable and the goods must be delivered to the consignee named on it. However, the bill of lading may be drawn without any consignee’s name - that is, a bearer bill - or it may bring the term “or order” after the consignee’s name. Where a bill of a lading is a bearer bill, its transfer is effected by mere delivery. And where the person entitled to delivery of the goods under an order bill decides to transfer the bill to a third person, such transfer must be effected through endorsement by the transferor and subsequent delivery of the bill to the transferee. If such endorsement is made in blank no further endorsement is required but the transfer is then effected likewise by mere delivery.
If it were accepted that an electronic bill of lading is a transferable document, how would its transfer take place? And, moreover, would any electronic method of providing transferability be accepted under law?
The starting point is that the institutes of “endorsement” and “delivery” of the bill have no value here. Instead, different procedures have been developed in order to make such transfer possible.
184.108.40.206 - The CMI method
The first procedure of major importance to be analysed is the one of the CMI Rules.
Facing the increasing demand for paper bills of lading to be replaced by electronic bills, in 1990, the Commité Maritime International (CMI) issued a set of Rules governing transactions involving electronic bills of lading (hereafter referred to as the CMI Rules).
The CMI Rules work when they are incorporated into the contract of carriage. Therefore they do not intend to substitute national law provisions on bills of lading.
The basic idea of the CMI Rules is that the carrier is always notified of any change in entitlement to control the goods. Upon receiving the goods from the shipper, the carrier sends a message to the shipper electronic address. Such a message will include the name of the shipper, the description of the goods, the date and place of the receipt of the goods, a reference to the carrier’s terms and conditions of carriage and the Private Key to be used in subsequent transmissions. After confirmation of the receipt message, the shipper becomes the “holder”, and therefore, is the party who has the Right of Control and Transfer of the goods. If the shipper, whilst it is the “holder”, decides to transfer the Right of Control and Transfer, the shipper must notify the carrier of its intention and pass to the carrier the name and electronic address of the new holder. The carrier, then, confirms the receipt of such notification and transmit the contract information to the proposed new holder. However the Private Key is not transmitted, but instead, after the proposed new Holder confirms its acceptance to the carrier, a new Private Key is issued. Nevertheless, if the proposed new holder fails to advise the carrier of acceptance of the Right of Control and Transfer or if it advises the carrier that it does not accept such Right, the validity of the current Private Key is kept and the carrier notifies the shipper accordingly. Therefore no transfer of the Right of Control and Transfer takes place. After the carrier’s notification of the place and date of delivery of the goods, the holder nominates a consignee and gives adequate delivery instructions to the carrier with verification by the private key. If the holder does not nominate a consignee, it will be deemed to be the consignee.
Although they constitute a very good attempt to make the electronic bill of lading a transferable document, the CMI Rules presents some weaknesses. Firstly, they make no provision for the passing of property in the goods. However, even the transfer of a traditional bill of lading does not necessarily pass property in the goods since the right to do so may be reserved by the seller in a sale contract, or used as security in a financing transaction. The contracting parties should, then, make provision in the sale contract for the passing of property in the goods. New contracts would have to be drafted in this way, but “this is unavoidable in any case, since special forms of agreement will be required whenever electronic forms of transmission are used”.
Secondly, the Rules place an excessive responsibility on the carrier, where the carrier has to acknowledge receipt of the goods, confirm notification of intended transfer of control, transmit information to a proposed new holder, receive the new holder’s acceptance message, cancel the old private key and issue the new key, notify the holder of the place and date of delivery and, finally, deliver the goods.
Thirdly, it is not very certain whether the private key procedure can really function as a negotiable bill of lading under the law. “The rights incorporated into the private key depend not only on the lawful acquisition of the private key, but also on the text of the carrier’s valid receipt message”. Therefore, if a buyer accepts a fraudulent receipt message, the buyer may have obtained no rights to the goods at all. The simple statement that the private key together with the receipt message constitutes a real negotiable bill of lading may not be accepted once the legislature has reserved the prerogative of the constitution of negotiable documents of title.
220.127.116.11 - The SeaDocs method
Another procedure of transfer suggested is that of the SeaDocs Registry.
In order to deal with the problem of negotiating bills of lading in connection with oil shipments, a corporation formed by Chase Manhattan Bank and INTERTANKO (an association of independent oil tanker operators) entered into an undertaking called SeaDocs Registry Ltd, based in London.
The project started in 1986 and by the end of the same year SeaDocs had already closed down. The system operated in the following manner: The carrier issued a traditional bill of lading, which was deposited with SeaDocs - this worked as a depository-custodian and a registry of the original bill and its subsequent negotiations. SeaDocs, then, could endorse the bill of lading as well as effect transfers of ownership during transit through electronic communication. Yet the paper bill of lading was not eliminated from the transaction..
After receiving the original paper bill of lading from the shipper, SeaDocs issued a “test Key” to the shipper. Upon negotiation of the bill, the shipper sent an electronic message to notify SeaDocs of the transaction and gave the buyer a “portion” of the test key. The buyer would also notify SeaDocs via a computer message. Having received and tested both messages, SeaDocs, then registered the buyer as the new owner and transcribed this information on the original paper bill of lading. In order to enable the buyer to claim delivery of the goods, SeaDocs transmitted a code to the carrier and to the last owner recorded on the original bill.
As Kozolckyk remarks, SeaDocs presented no operational difficulties and required a relatively low registration fee. Even so, SeaDocs lasted less than one year. Kozolckyk presents the following possible reasons for this failure: 1) the unwillingness of commodity traders to record their transactions in a central registry subject to inspection by competitors and tax authorities; 2) the reticence by the ultimate buyers of spot crude oil to acquire bills of lading from an entity designed to service intermediaries and speculators; 3) the potential high cost of registry operation’s insurance, especially since the participants’ liability had not been established; and 4) the bank’s discomfort with the exclusive control of the registry business by one of their competitors.
In spite of its brief existence, SeaDocs was a proof that a large electronic bill of lading system can be workable. “SeaDocs’ main shortcoming may have been not its premature ambition, but the modesty of its scope. As a private registry it was available only to the trading partners, and not to third parties interested in knowing whether a given shipment was sold, pledged, or had taken place. By preventing interested third parties from inquiring about the status of transactions, including shipments, the notice function of the registry was minimised, and its role in the business world may have been diminished”.
In the light of the SeaDocs experience, the electronic data interchange system based on a central registry lost its commercial credibility and the concept of having each carrier act as its own registry, as in the CMI Rules system, started to seem more attractive, once it could also be a “less costly and less complex” system.
18.104.22.168 - The public Key method
There is still a newer method of transfer, which has been called “public key” and which is basically concerned with the issue of authentication. Therefore it will be analysed in more detail below, under the topic of Authentication .
The common ground of all methods of transfer is that endorsement and delivery are no longer the way of transferring the bill, but instead an electronic code should be the “key” to transferability. Would such a method be accepted by current legal systems?
Endorsement and delivery are the methods chosen by most of the legal systems to be the way transfer is effected. But when a paperless document is involved and both endorsement and delivery are impracticable methods, it is doubtful whether current legal systems would allow an electronic code to be the key to transferability.
The CMI Rules try to solve this problem by stating that “the transfer of the Right of Control and Transfer” through EDI “shall have the same effect as the transfer of such rights under a paper bill of lading”. Courts and tribunals are likely to uphold such an agreement, “at least inter parties”. However, as Yiannopoulos remarks, the difficulty with this provision is that a mere agreement of the parties cannot discharge mandatory rules of law because they are concerned with other issues, such as the protection of third parties. Thus such an equivalence of effects depends on whether the applicable law recognises the validity of such transfer.
The solution for the electronic key method is then dependant on changes within the national laws where jurisdictions require physical endorsement and delivery.
As it is shown bellow under the topic of Authentication, some countries have already changed their national laws in order to allow the electronic transferability of documents in general and, more specifically, of bills of lading.
2.4.3 - A document of title?
The negotiability issue also incorporates the understanding that when the bill of lading is transferred, its new holder acquires not just possession of the document itself but also possession of the goods represented by that document. In this way, the bill of lading is a document of title. However, as pointed out by Lloyd LJ in the English case of The Future Express, although a bill of lading acts as a document of title to the goods represented by it, the bill of lading is not a document which gives title to the goods, such as a bill of exchange does. The bill of lading, in fact, represents title to the goods by virtue of the custom of merchants.
Mustill LJ demonstrated the function of the bill of lading as a document of title in another English case - The Delfini. He said that the bill is a symbol of “constructive possession of the goods” – it is part of the mechanism by which property is passed and so it transfers possession by endorsement and delivery. Bearing in mind that the bill of lading is a document of title to the goods shipped, it has value in itself as security to banks and its holder is entitled to sell the goods while in transit.
The question now is whether an electronic bill of lading could be part of the mechanism by which property is passed, or, put in other words, whether and EDI message could be considered a document of title to the goods shipped.
As shown above, the current methods of passing property in the goods are mainly endorsement and delivery. The “delivery of title” creates a kind of “legal appearance”, showing that “the title has entered into circulation in a legal manner and that the holder of the title is the beneficiary of the rights therefrom”. The delivery of the bill makes the holder the “apparent beneficiary”, which reinforces certainty in the transactions and, above all, safeguards the parties’ rights.
Under the CMI Rules System of transfer, for example, “the person having obligation under the title is aware of each transfer, and therefore knows the true beneficiary at each moment, once all the transfers are effected through the carrier, who is responsible for informing the new potential holder of his new private key”. In fact, the CMI Rules system avoids the situation of “legal appearance”, securing much more certainty during the transactions.
On the other hand, through the contract of carriage of goods, the right to receive the goods represented by the proper document is then created. Therein arises the purpose of endorsement, that is, to transfer the right to the goods. Many problems may exist in common law systems where the endorsee is not privity to the contract of carriage and therefore cannot sue the carrier in the case of a breach of contract. With the system created by the CMI Rules a relationship is existent between the carrier and the new holder, once the carrier is the one in charge of effecting the issue of a new key. Problems of privity of contract would not exist under the CMI Rules system of transferring title. In this system, “the new holder acquires the rights from the electronic bill of lading under a sui generis contract, which he concludes, as beneficiary, with the carrier or shipowner”.
2.4.4 - The transferor’s intention
An aspect of great importance is that of passing of property and the transferor’s intention. As Davies and Dickey points out “possession of the bill of lading entitles the holder to possession of the goods, but the ultimate question of title to the goods is determined by the ordinary rules of the law of personal property, by reference to the title of the transferor and the intentions of the parties on transfer”. In The Future Express case, the English Court of Appeal dealt with this issue and therein property and possessory title to the goods were held subject to the intention of the transferor and the transferee. The holder of a negotiable bill of lading is entitled to transfer the documents in a sale of goods where he can reserve the rights to the goods or he can also pledge the goods. In both cases, possession of the goods is passed but not property in the goods.
If the CMI Rules are the chosen option of the parties, the passing of property or of mere possession, will have no difficulties according to art. 7(d), where the transfer of the private key will have the same effects as the transfer of the rights in a traditional bill of lading.
Where any other system is used, an agreement between the parties may effect the desirability of transferring property or mere possession. An agreement between the actual possessor of the goods and the new possessor will effect transfer of possession. Thus the goods will remain in the carrier’s possession, who will exercise such possession through the master.
III - Other legal barriers
Besides the negotiability issue, EDI contracts have also faced other legal obstacles. This section will deal with the problems of contract formation, the writing requirement, evidence in courts and authentication
3.1 - Formation of Contracts
A contract is an agreement between two or more parties with the aim of acquiring, transferring, keeping, modifying or extinguishing rights in conformity with the law.
The formation stage of a contract can be divided into two phases, namely offer and acceptance. The Offer phase is when the parties manifest their will through the proposal of an agreement. However, the offer alone does not create a contract. It is necessary for the party who received the offer to accept it. Without acceptance there is no formation of contract.
The use of EDI in the formation of contracts triggers some difficulties. The first one is the conflict over “whether an offer has been properly made and accepted”. Computers have been programmed to give answers automatically after the receipt of a message. Responses programmed as such raise doubts on whether computer operators have indeed offered and accepted the messages contained in the original and reply communications. Discrepancies between the transmitted message and the real parties’ will may not be found until the stage of performance of the contract, and therefore, “a contract may be formed that does not represent the intent of the parties”. Nevertheless, the parties may enter into an agreement requiring acknowledgement of the electronic message before such a message acquires validity.
The CMI Rules for Electronic Bills of Lading include such a requirement. Rule 4 (a) states that upon receiving the goods from the shipper, the carrier shall notify the shipper of the receipt of the goods by sending a message to the electronic address specified by the shipper. After confirming to the carrier that he has received the receipt message, the shipper becomes the Holder. Furthermore, when the issue is transferability, the CMI rules are even stricter. Rule 7 (b) and (c) describes the process of transfer of the bill of lading which depends on notification of the current holder’s intent to transfer his rights to the goods, the carrier’s confirmation of the receipt of such notification, and transmission of the current holder’s intent to the proposed new holder, and the new holder’s acceptance of the right of control and transfer, whereupon the current Private Key is cancelled and a new Key is issued to the new holder. However, the CMI Rules do not deal with the issue of what constitutes an actual receipt of an offer and subsequent acceptance. When adopting the CMI Rules, the contracting parties will have to insert such an issue in their contract.
The second difficulty presented by the use of EDI messages in the formation of contracts is the determination of when and where a contract is formed. The determination of the time the contract is formed is important “for fixing the time the parties become legally bound” and “the time the contract starts producing legal effects”. The place the contract is formed has its importance on the determination of the law that governs the contract. Therefore, the interchange agreements or master agreements underlying the commercial transactions will probably set forth a choice of law provision.
In paper-based transactions, the time and place of a contract are the ones mentioned on the contract. A great doubt about EDI in the formation of contracts is whether the contract will be considered formed upon the receipt of the offeree’s acceptance to the offeror or upon the transmission of acceptance from the offeree to the offeror. Kelly suggests that it is broadly accepted that EDI messages are legally comparable to telephone communications - that is, they are instantaneous.
The CMI Rules do not provide a way to determine the date and place of the issuance of the bill of lading. Nevertheless the United Nations Commission on International Trade Law (UNCITRAL) elaborated a model law - to be discussed bellow - whose art. 12 provides that the EDI contract is formed at the time and place the acceptance is received.
However, in the absence of legislation dealing with formation of electronic contracts, the contracting parties should specify in their contract the time and place of the contract formation. As Faber points out, it may be “when an acceptance message reaches one of their systems or, if they are using a value added network (VAN) to translate or forward or store communication, when the acceptance message reaches that system”.
3.2 - The Writing Requirement
There are legal requirements in different areas of law which have influenced the users’ confidence to adopt electronic commercial practices. Firstly, laws governing commercial transactions (such as sales, transport and insurance) require written documentation of the existence of valid and binding obligations. Secondly, there are official requirements including both original documents being filed with the authorities (such as licence applications, reports, declarations and returns) and requirements for copies of related commercial documents. One of the legal barriers electronic bills of lading have faced is the problem of being considered a document for matters of law.
In 1945, in an English Court, Humphreys J. clarified the meaning of the term “document” as “something which teaches you and from which you can learn something, i.e. it must be something which affords information”. If this definition could be taken alone, electronic messages would meet the definition of a document, since they can be considered something which brings information. Moreover, as Humphreys J. remarks, it is immaterial what form the document takes - it may be anything on which the information is written or inscribed, such as paper, parchment, stone or metal. However, in some judgements, there were requirements that such information should be given in “writing”.
The United Nations Convention for the International Sale of Goods (1980), Art. 11 (1) provides that a contract for the sale of goods “need not be included in or evidenced by writing and is not subject to any other requirement as to form”. Yet many Common Law countries have a commercial rule of law termed “Statute of Frauds”, under which a purported agreement will be denied enforceability if it is not in writing and signed by one or both parties. In the United States, the Statute of Frauds requires contracts for the sale of goods (for $500 or more) to be evidenced by a writing, which must be signed by the party against whom enforcement is sought.
The requirement of “writing” has also been included in the body of some common law Acts. The Australian Carriage of Goods by Sea Act, for example, defines the term “contract of carriage” as a contract “covered by a bill of lading or any similar document of title”. The Australian Acts Interpretation 1901 defines “document” in its Section 25 as a) any paper or other material on which there is writing; b) any paper or other material on which there are marks, figures ... having a meaning for persons qualified to interpret them; and c) any article or material from which sound images or writings are capable of being reproduced with or without the aid of any other article or device.
Therefore all the attention is turned to the meaning of the term “writing”. Is an electronic message written information?
The concept of writing is not universally the same. In the United States, the Uniform Code, paragraph. 1 - 201 (46) (1991) defines the term “writing” with the inclusion of terms such as “printing, typewriting or any other intentional reduction to tangible form”. In the judgements of Hawley Fuel Coalmart Inc. v. Steag Handel GmbH and Interocean Shipping Co. v. National Shipping and Trading Corp. the American courts accepted telexes as “writings”.
The UK Interpretation Act 1978 includes in the definition of “writing” the terms “typing, printing, lithography and other modes of representing or reproducing word in a visible form”. Taking into consideration this definition, Faber concludes that “if a document must be written, electronic message would not amount to a document”. Using the same 1978 Act definition of “writing”, Chandler seems to arrive at a different conclusion: “In the United Kingdom, writing must be in a visible form. That requirement would confortably fit word on a video screen (which can readily be sent to paper if one desires)”. Despite the different conclusions, it is not difficult to agree with the argument that a computer screen produces words “in a visible form”.
One advantage of the “traditional writing” is that it cannot be changed without leaving a trail of the change, while electronic data can be easily changed or erased without leaving a trail.
Setting aside the issue of “written documents”, Faber acknowledges that English judges have recognised other means of conveying information.
In Derby & Co. v. Weldon, the database of a computer is a document for the purposes of the High Court rules governing discovery of documents, insofar as it contains information capable of being retrieved and converted into readable form and whether stored in the computer itself or recorded in backup files.
In Grant v. Southwestern & County Properties Ltd. Walton J acknowledged that “the mere interposition of necessity of an instrument for deciphering the information cannot make any difference in principle”. He was considering, in that case, that a tape recording could be a document. Bringing that interpretation to the field of electronic data, it is possible to conclude that the need of a printer to make an electronic message readable cannot be a barrier to render it a document. Furthermore, the paperless transaction suggests that no printer will be used, but only the computer screen. If information is properly transmitted to the computer screen, there is no question that electronic messages can be documents.
Trading partners cannot alter the provisions of national laws or requirements of administrative bodies. However, they can define the acceptability of EDI messages in their interchange agreements. One way of dealing with such “writing” problems has been to state that Electronic Messages have the same legal effects as written documents. This is the case of the CMI Rules and the UNCITRAL Model Law.
3.2.1 - The CMI Rules and the issue of “writing”
The CMI, Rule 4 (d) clearly sets that an electronic message “shall have the same force and effect as if the receipt message were contained in a paper bill of lading”. Moreover, the parties adopting the CMI Rules are under the provisions of Rule 11, that is, when any local law, custom or practice requiring the contract of carriage to be evidenced in writing and signed, such a requirement is satisfied by the transmitted and confirmed electronic data residing on computer data storage media displayable in human language on a video screen or as printed out by a computer. The parties, then, cannot raise the defence that the contract is not in writing. However, as set in Rule 10, any party to the contract has the option at any time prior to delivery of the goods to demand a paper bill of lading from the carrier. The issuance of such a bill terminates all the procedures of EDI under the CMI Rules (Rule 10 (d)). This is, in fact, a provisory solution once the CMI Rules are voluntary and therefore can be adopted or not by the parties.
3.2.2 - The UNCITRAL Model Law
The United Nations Commision on International Trade Law (UNCITRAL) has accomplished many studies on this issue. Through such studies, it arrived at a conclusion that “writings” generally serve three functions in contract law. Firstly, writing is proof that an agreement exists. Secondly, the writing serves “an evidentiary function”. Thirdly, beyond showing the contractual purpose, writings can serve a legal function.
Through these studies, the UNCITRAL elaborated a Model Law which envisages the solving of many of the impasses to the adoption of electronic data interchange. The Model Law intends to be a model to countries in order to create uniform law and practice involving the use of computerised systems in international trade.
Arts 4 and 5 of the Model Law resolves the “writing” impasse by stating that information shall not be denied effectiveness, validity, or enforceability solely on the ground that it is in the form of a data message. If a rule of law requires information to be in writing, a computerised message satisfies that rule if the information contained therein is accessible so as to be usable for subsequent reference.
3.3 - Admissibility and evidential value of electronic messages
Another legal barrier to the use of electronic messages is their admissibility as evidence in courts, which varies from legal system to legal system, from country to country. In many countries electronic messages have an evidential value. In Austria, Denmark, the Netherlands, Portugal and Sweden, for example, the civil procedure legislation provides that all means of evidence, irrespective of the form they assume, can be accepted as evidence in court. Brazil has a similar provision in its Code of Civil Procedure, Art. 332, where it can be read that all legal means of evidence, as well as morally lawful means, can be considered evidence in tribunals, even when such means were not established by the civil procedure code. Therein, there is not a hierarchy of proofs, that is, the judge can freely use the set of means of evidence offered by the all parties to arrive at a conclusion. Nevertheless, in many common law countries, the “best evidence rule” demands that the best available evidence be presented. Therefore, if there is an original document, a computerised document may be considered a hearsay evidence and only where no original document exists, an electronic message will be the best presented evidence.
In England, for example, the 1968 Civil Evidence Act, paragraph. 5, provides that a computerised document would be admissible as evidence of any fact stated therein of which direct oral evidence would be admissible once some conditions related to the period of preparation of the documents have been fulfilled. The problem with this provision is that the section where it is found is under the part of the Act which is headed “Hearsay Evidence”. Therefore, if the heading can be considered an operative part of the Act, paragraph. 5 must be an exception to the hearsay rule.
In Australia, despite the existence of the “best evidence rule”, some Acts, such as the Evidence Act 1971, were drawn in order to facilitate the use of computerised information as evidence.
The insistance of some laws to have only original documents in order to provide evidence in court has helped to keep electronic data outside the ambit of evidential value. As Mitrakas remembers, an original version of an electronic document does not exist because the supposedly original version is deleted from the computer memory when it is turned off, or transferred to a storing device.
The German Civil Procedure Code states that only original documents can be considered evidence, a condition that electronic data cannot fulfil. Therefore, in Germany, unless there are some changes in this area of legislation, an electronic message will never be considered evidence in tribunals. Evidence Rules in German Law are of mandatory nature and, for this reason, it cannot be changed by bilateral agreements or even by a unilateral declaration of the contracting parties. A way to bypass such created impasse is opting for arbitration, where the law would not contest the involved parties.
In the United States, the Federal Rules of Evidence, Art. 1002 requires the original writing, recording, or photograph to be evidence in court. As said above, in a literal meaning, electronic data cannot be considered an original document, it will always be a copy. However, Weiss remembers that electronic documents can be considered original documents “by definition” and therefore, for matters of evidence, the courts would accept computerised data.
In Greece, computer generated evidence is not specifically stated in the list of acceptable evidence. In fact, as Mitrakas remarks, the Greek Code of Civil Procedure, art. 444, 2 and 3 accepts “mechanical reproduction” as evidence in court. The same mechanical means are admissible under Art. 2712 of the 1942 Italian Civil Code and have been used in Italian courts to support the admission of electronic documents. The question is whether “mechanical messages” amounts to the admissibility of “electronic messages”.
In the United States, the Federal Rules of Evidence, Art. 1001, 1 defines a writing to include any mechanical or electronic recording, or other form of data compilation and Art. 1001, 3 defines an original to be any writing, print-out or other output, readable by sight, if that print out accurately reflects data stored in a computer or similar device. Mitrakas suggests that the expression of the American legislation “readable by sight” can assist other laws, such as the Greek one, which lists mechanical means in order to accept “electronic means” by analogy.
From a different angle, Koussolis points out that an electronic bill of lading is, in some way, a mechanical representation. In questioning “What exactly are these mechanical representations?”, he remarks that their characteristic feature is that messages are transmitted through a certain machine, whose procedure consists of three consecutive stages: a message in a readable language is inserted into the sender’s machine; this message is encoded digitally and sent to the recipient’s machine, where it is decoded back into readable language; and is finally presented on paper. Therefore, the message presented by the printer is the same as that introduced into the machine and processed by the central-processing unit. The electronic bill of lading, whose data has been transmitted to the beneficiary’s computer and printed, is thus a mechanical representation.
The UNCITRAL Model Law suggests a solution for the admissibility and evidential value of electronic data. First, Art. 4 states that information should not be denied effectiveness, validity or enforceability solely on the grounds that it is in the form of a data message. Second, Art. 8 of the Model Law provides that nothing in the application of the rules of evidence shall apply so as to prevent the admission of a data message in evidence on the grounds that it is a data message, or if it is the best evidence that the person adducing it could reasonably be expected to obtain, on the grounds that it is not in its original form. When a country incorporates the UNCITRAL Model Law, it will not make difference if electronic messages are locally put under the heading of hearsay rules or if the legislation requires original documents. Once the UNCITRAL Model Law is incorporated into national laws, data messages have the same evidential value as paper documents.
Nevertheless, many national laws have kept computer data outside the scope of admissible evidence, or have kept it as hearsay evidence because the security procedures used to transmit and store electronic messages are not totally reliable. The status of electronic messages as evidence in court will probably depend on the authentication method used in the transaction.
3.4 - The issue of authentication
Authentication is a procedure designed to show the real origin of something. The most universal form of authentication is the manual signature. A signature has basically two functions. Firstly, as stated above, it is a method of authentication. Secondly, it also serves as evidence of an intention to be legally bound.. When a signature authenticates a document, it indicates to the recipient, and third parties, the origin of the document and also the intent of its issuer. Nowadays, other methods of signatures have been used to substitute the manual ones.
The Hamburg Rules on Signatures (Art. 14, 3) accept a signature on the bill of lading to be “in handwriting, printed in facsimile, perforated, stamped, in symbols, or made by any other mechanical or electronic means, if not inconsistent with the law of the country where the bill of lading is issued”.
Not many countries have signed the Hamburg Convention on Signatures. Many of the national laws continue to require manual signatures. Likewise, in common law countries, the term “signature” has sometimes been restricted by courts to manual signatures.
In the Australian Courts, for example, facsimile signatures were accepted as signatures in some cases and rejected as such in other cases.
In the USA, the Uniform Commercial Code (UCC) defines the term “signed” as any symbol executed or adopted by a party with present intention to authenticate a writing. In addition, Art.3 provides that a signature may be made either manually or by means of a machine, by the use of any name including a trade name or assumed name, or by any word, mark, or symbol adopted by a person with the present intent to authenticate a writing. Furthermore, many American States have adopted the Uniform Facsimile Signatures of Public Officials Act 1997 to resolve any issues associated with the official use of facsimile signatures in connection with the issuance of public securities or payment instruments. However, even before this 1997 Act, American courts had accepted facsimile signatures as a method of authentication.
A revision of the American U.C.C. has been proposed. Among some of the changes to take place is the substitution of the current term “writing” by the proposed term “record” and the substitution of the current term “signed” by the proposed term “authenticated”.
English Courts have required that a signature be a personal act of authentication. In Goodman v. J. Eban Ltd., Denning L.J. said that “…when a document is required to be signed by someone, that means that he must write his name with his own hand upon it”. Faber considers that “where a computer generates the coded signature automatically, this requirement is unlikely to be satisfied” under English Law.
With the paperless system, no handwritten signature is possible. Even so, contracts based on EDI require that the parties who are entering into binding contracts have a method of certifying that the message received came from the other contracting party sending it and that the message was not altered during its transmission.
The UNCITRAL Model Law deals with the legal requirement of signatures. Art. 6 of the Model Law provides that where a signature is required, a data message satisfies such a requirement if: a) it is possible to identify the originator of the message and his approval of the information contained therein, and b) the method used to generate the data is reliable enough.
In this way, the Model Law does not require a specific method of authentication. Computer security policies have addressed the issue of various methods for authenticating messages appropriate to different circumstances. Authentication, then, can be based on different technology procedures, such as: 1 - On something the user knows, such as a pin number or a password; 2 - On something the user is or does, such as a fingerprint or a manual signature; 3 - On something the user holds, such as a smart card..
Token devices (such as memory cards or smart cards) and biometrics authentication (those based on physical or behavioural characteristics) cannot be “guessed” or easily used by fraudsters, but these are methods often much more expensive and, therefore, not a practical solution. Procedures of authentication based on knowledge are inexpensive to implement, but they present a great weakness - pin numbers and passwords can be easily guessed. Therefore they do not represent security to their users. However, one knowledge-based solution that does offer a high degree of security is that of digital signatures.
3.4.1 - Digital Signatures
Digital signatures have the potential to possess greater legal authority than handwritten signatures. If a ten-page contract is signed by hand on the tenth page, one cannot be sure that the first nine pages have not been altered. However, if the contract was signed with digital signatures, depending on the method used, a third party can verify that not one byte of the contract has been altered.
A digital signature is defined through The Digital Signatures Guidelines as a “transformation of a message using an asymmetric cryptosystem and a hash function, such that a person having the initial message and the signer’s public key can accurately determine 1)whether the transformation was created using the private key that corresponds to the signer’s public key, and 2) whether the initial message has been altered since the transformation was made”.
Digital signatures, then, are produced through public key cryptography. Cryptography is a process where readable information - called the plaintext - is encrypted using a code called the cypher key to produce an encrypted copy of the information - known as the ciphertext - which can only be decrypted and restored to the original plaintext through the use of the cipher key. A cypher key is similar to a password but is usually much longer and therefore not cannot be guessed.
There are basically two types of cryptography:
A - Conventional, also called secret key or symmetric. Here, one single key is used to encrypt and decrypt a message. Its great weakness is that the shared key must be kept private and, therefore, the sender and recipient have to be in direct personal contact to distribute the keys in a secure way and keys have to be retired at regular intervals. Wimn remarks that this system is not feasible in large-volume commercial contexts. “If a single key is needed for each pair of individuals or organisations wishing to communicate securely, then within any large community an extraordinarily large number of keys must be generated and distributed to permit any one individual to communicate with any other individual at will. Development of a strong central administration system that would be necessary for private commercial applications is not likely to be feasible”.
B - Asymmetric cryptography, or public key, was brought about as a solution to this problem. Here, two different but related keys are likewise used to encrypt and decrypt a message. One key, the public key, is freely distributed and used by anyone, in order to send a message to the holder of the other key, called the private key. No one other than the holder of the private key is able to decipher the message sent. The private key can also be used to encrypt a message that the public key will decrypt. This use of two keys permits the holder of the public key to be certain that a message came from no source other than a holder of the private key corresponding to the public key used to decrypt the message. In this way, public key cryptography can be used to produce a digital signature.
However, Public Key Cryptography also presents problems. One of its main problems is to determine whether a public key is in fact associated with the person who claims to be its owner, that, is, the private key holder has to be identified in order to assure the reliability of the public key system.
To solve this problem, an inexpensive key distribution system, a public key infrastructure, which permits the identification of the private key holder, has to be created. The most common public key infrastructure is operated through the services of a certification authority. A certification authority is a trusted third party that works by associating a public key with a specific person. An individual is then associated with a public key through the certificate authority’s issuance of a certificate which contains, amongst other important information, a copy of the public key and the identity of the person associated with it. The party requesting the issuance of a certificate is called the subscriber. The party that will use the certificate to confirm the association between an individual and a public key is the relying party. The certificate is authenticated through the certificate authority’s own digital signature. In this way, a relying party that holds the certification authority’s public key and the subscriber’s certificate is able to check whether the public key is associated with the person claiming to be its owner.
Nevertheless, a problem with this kind of public key infrastructure is how a relying party can trust the certification authority. If another certification authority is created to verify the services of the first certification authority, it would create a chain of certification authorities and, consequently, the one which is the final link in the chain would not be supervised. Therefore, a final certification authority is needed, which is able to inspire total confidence in the authenticity of digital signatures, in order for them to be a viable authentication procedure for electronic commerce applications.
3.4.2 - The Utah Digital Signature Act
The Utah Digital Signature Act 1995 was the first legislation in the world authorising the use of digital signatures. Its intention is to promote the use of digital signatures on computer-based documents and to facilitate electronic commerce. To deal with the problem of certification authorities, the Utah Act authorises the State to act as the final certification authority. Furthermore, the Act also provides that the State is responsible for the licensing of other certification authorities. However, the Utah Act makes licensing optional, that is, certification authorities that obtain licenses are treated with favourable liability rules, although non-licensed certificate authorities may exist in Utah.
The Utah Act illustrates that legislation can clarify the arguably uncertain legal status of digital signatures, as well as determine liability standards in an emerging and unprecedented certification authority industry, clarify the rights and the responsibilities of infrastructure participants, and address other important public policy concerns.
Although the solution given by the 1995 Utah Act can be considered a good one, as Wimn remarks, “building a public key infrastructure requires more than just a credible certification authority issuing certificates”. The value of a certificate should be enhanced through a mechanism provided by the certification authority whereby subscribers will be able to notify the certification authority of any threat to the security of the private key and demand the cancellation of the certificate. Moreover, the certification authority should also have a mechanism to revoke an issued certificate in the case of being informed that the subscriber is a frausdster. In order to deal with these problems, the certification authority should create “a certification revocation list”, which would permit relying parties to check whether a certificate is still valid or has already been revoked.
3.4.3 - The CMI Rules and the issue of authentication
The CMI Rules provide for a method of authentication based on the issuance of a private key. In this system, no registry or certification authority will be used. Instead, the carrier is responsible for the issuance and transfer of the private key. In the context of the CMI rules, “private key” refers to a secret code, and is different from the private key referred to previously, which is used for encryption.
Albeit being a good attempt at establishing basic rules for the issue of authenticating electronic bills of lading, the CMI Rules present some problems. Firstly, the rules fail to deal with the allocation of liability in the case of a systems failure or breakdown. In order to solve this problem, the contracting parties should enter into an agreement that will cover possible situations that can arise. Secondly, the system used for authentication, i.e. the private key, is not a good one in matters of security. Perhaps a public key system should be adopted to replace a signature, for authentication purposes.
Todd presents a suggestion of how the public key system could work efficiently together with the CMI method. Note that he uses the term “secret code” instead of “private key” in order to avoid confusion with the private key used in encryption. He outlines that: 1 – Since the public key is “public”, each trader knows everybody else’s public key; 2 – the secret code is passed by the carrier to the shipper – this code does not need to be encrypted at this stage because insecure channels of communication are not used; 3 – the shipper then returns the secret code together with the identity of the transferee to the carrier when he performs a transaction. This time the secret code must be encrypted through the use of the private key and the carrier’s public key. The carrier will be the only person capable of decrypting that code using his private key and the shipper’s public key; 4 – the carrier is then responsible for sending the electronic bill together with a new secret code to the transferee, using the carrier’s private key and the transferee’s public key. The transferee is the only one who can decrypt that message using his private key and the carrier’s public key, and is also thus assured that the transmission came from the carrier; 5 – Any other transaction is then performed in the same way; 6 – The end receiver in this chain uses the secret code, given to him by the carrier, to obtain the goods. In this last stage of the transaction no encryption is necessary.
With reference to point 3 above, Todd earlier states that in the first stage of the first transaction, no encryption is necessary since only the shipper knows the secret code, and even if it is intercepted by fraudsters, it would be of no use to them as it is used only once. However, he later says that it should be encrypted even at this first stage. He also does not explain why the secret code does not have to be encrypted when transmitted to the original shipper, or when transmitted by the ultimate receiver, other than to say that “there is no need to use an insecure channel of communication.” He appears to consider land-based communication channels (as opposed to ship-to-shore channels using microwave or other forms or radio communication) to be secure enough for the secret code to remain a secret even if it is not encrypted. However, it is a well known fact that land based computer communications networks are far from secure, and it would therefore probably be better if the secret code (or “private key” in the CMI context) was always encrypted during transmission between all parties.
The method of using public key encryption represents more security to the system and therefore makes the electronic transactions more reliable.
IV - BOLERO
Bills of Lading for Europe (BOLERO) is a project operated by a consortium of shipping companies, carriers, traders, banks and telecommunication companies whose goal is to replace paper bills of lading by electronic messages through an online computerised registry. It is, in fact, an undertaking concerned with the legal issues that may arise when a substitution of negotiable paper shipping documents by EDI takes place.
The parties to the project became members of a kind of “club” and entered into agreements to make use of electronic communication, which were incorporated into a set of rules binding all the members. In the first stage of the project, only the “club’s” members participated but if the undertaking succeeds, the “club’s” facilities will probably be open to non-members.
The law applicable to a BOLERO contract is English Law, although disputes arising out of such transactions may be presented to any competent court. Furthermore, the CMI Rules for Electronic Bills of Lading have been the basis for the project.
BOLERO provides its users with document management features for exchanging data. All BOLERO messages are digitally signed, which prevents modification of transactions while the goods are in transit. Security procedures are employed to ensure that, once holdership is recorded, only the BOLERO shipper - the recorded holder - is able to give instructions to transfer rights to the goods.
The parties themselves carry out endorsements of the bills of lading with the use of two registries. The first registry receives the messages from the parties and passes them on, keeping a record of the “holders” of the electronic bill. The second registry is in charge of the security and authentication issues. It is, in fact, a trusted third party which is the register of the public keys used to decrypt the messages sent by the parties and also the authenticator of the keys through its own electronic signature. The BOLERO Registry functions this way: “A BOLERO carrier sends a message to a BOLERO shipper that confirms receipt of goods by the carrier and provides all the data normally found on bills of lading. The carrier also directs the message to the Title Registry where the BOLERO shipper is logged as holder of the ‘document’. If the shipper wishes to transfer the ownership of the goods covered by the message, it gives instructions in a BOLERO format that identifies the new owner, who must also be a BOLERO user, to the Title Registry. Upon receipt of this message, the Title Registry sends a message confirming the new owner as the holder having rights over the goods”.
In relation to the issue of title to sue the carrier, Faber points out that under the BOLERO project a system where the carrier is involved in the process of transfer of the bill of lading is introduced. Thus the registry responsible for receiving and passing on the electronic messages capable of effecting the transfer of the right of control is the carrier’s agent. Therefore, a new legal relationship is created between the new holder and the carrier. The message may thus have the effect of an attornment – or promise – to deliver the goods to the new holder or to anybody else according to the new holder’s instructions. The carrier is responsible for transmitting the electronic bill containing, or making reference to, his terms and conditions. Therefore, there is an attornment on the terms and conditions of the contract of carriage. If a court can see contractual intent and consideration therein, the holder’s right of action may be given effectiveness.
There is still the question of whether BOLERO can enable banks to acquire rights to the goods covered by the bill of lading. Jones points out that there are not many problems in providing banks with a “valid possessory pledge over the goods themselves”, which is the main element of the security package. In some countries the law sets a requirement that this right should be recorded by appropriate registration. This requirement should be carried out by the Banks independently of BOLERO.
V - The Electronic Bill of lading as security for banks
Documents of title have frequently been used for financial purposes. In an international sale of goods transaction, for example, payment is often effected through a documentary credit system.
Documentary credit is a means of providing payment through two distinct steps. Firstly, a bank replaces the buyer, as the party responsible for effecting payment to the seller. Secondly, payment is effected against presentation and conformity of the documents, according to the contractual terms, which represent the goods after shipment and whilst in transit. Broadly, “documentary credit is a set of contracts between a chain of banks under which they agree to pay their predecessor in lieu for the goods which have been shipped from seller to buyer”. The function, then, of documentary credit is to provide security for the money that has been paid out in every link in that chain.
In many areas of banking, electronic documents have taken the place of paper-based instruments. Nevertheless, the difficulty in accepting an electronic version of negotiable transport documents of title is even greater. All the issues discussed in the above chapters keep a degree of uncertainty as to whether an electronic bill of lading would be a proper negotiable document of title, which may offer security in financing transactions. This uncertainty makes banks prefer to deal with the paper-based bill, despite its known problems.
On the other hand, since EDI methods of transferring documents offer many advantages to the shipping industry, the trend in this industry is towards accepting such methods in spite of their risks. Therefore, as far as the respective financial transactions are concerned, banks will have to readapt their finance systems to the technological advances, in order to keep their clients and expand their business.
In relation to the CMI Rules, for example, the banks’ main concern is the security of the system. The banks’ argument is that unless an appropriate uniform encryption and authentication algorithm makes the transmission rights through the private key more secure, no banker would wish to assume the risk of possible fraudulent pledges, negotiations and issuances.
Banks are further concerned that terms and conditions of the contract should be readily available to all the holders. Since the banker is also a holder, it would want to know the terms and conditions of the carrier from whom it will be claiming the goods, mainly because these terms and conditions often change from one bill of lading to the next.
One of the obstacles to the dematerialization of documentary credit is the fact that documentary credit operates “across national boundaries”. Therefore the only acceptable way of having it on a worldwide basis would be a common set of international rules.
The Uniform Customs and Practice for Documentary Credits 1993 (UCP 500) are the current international rules available for governing documentary credit operations. The problem is whether these Rules apply to EDI messages.
Under Art. 20 (b), UCP 500, an original document is required. However, Art. 20 (b) (I) further provides that “Unless otherwise stipulated in the Credit, banks will accept as an original document(s), a document produced or appearing to have been produced: by reprographic, automated or computerised systems”.
When Reed comments on the equivalent provision of UCP 400 he points out that such provision appears to suggest that EDI messages will amount to documents for the purposes of the UCP. However, such a definition could refer to physical documents alone - Art. 22 (c) (ii) refers only to the manner of their production. Therefore, it was ambiguous whether the UCP 400 did or did not apply to electronic documentary credit transactions.
It should be noted, however, that the UCP 500 still sets a complementary paragraph to this provision, which states that such other forms are accepted as original documents “provided that it is marked as original and, where necessary appears to be signed”.
Therefore, it seems that the UCP 500 is asking for a paper-based document. However the text carries on: “A document may be signed by handwriting… or by any other mechanical or electronic method of authentication”. Clearly UCP 500 accepts digital signatures - or “any other method of authentication”. Considering that electronic authentication is usually related to electronic documents, that is, to paperless documents, this provision suggests that UCP 500 extends its application to EDI messages.
Even if this provision is interpreted in any other way, without supporting the use of EDI documents, since the UCP 500 are contractual rules, nothing would prevent banks from accepting electronic messages instead of paper-based documents. Where documentary credit transactions are based on the CMI Rules, for example, the holding of paper bills of lading can be replaced by the bank holding the private key.
Moreover, the process of checking documents could be speeded up by computers - that is, computers would “take over the process of checking the documents”.
It is possible that if a considerable number of banks accept EDI transmissions within the documentary credit operations, courts will be more ready to recognise electronic bills of lading as negotiable documents of title and, moreover, they would be able to interpret the UCP 500 in order to give legal effect to the transaction.
The introduction of EDI in the shipping industry has proved that electronic contracts have resulted in large savings of time and money in shipping transactions.
The ambitious idea of creating an electronic version of the traditional bill of lading is a real three-faced challenge, because the bill of lading functions as a receipt for the goods shipped, evidence of the contract of carriage, and a negotiable document of title. The first two functions of the bill have been performed by the electronic document without great difficulties, as demonstrated in the transactions involving electronic sea waybills.
The big challenge then, for EDI documents, is to acquire the quality of negotiability. The case of Lickbarrow v Mason proved that bills of lading were not negotiable documents in their nature, but instead, the custom of merchants gave to bills of lading the privilege of functioning as negotiable instruments.
Likewise, electronic bills of lading may acquire the quality of transferability through the custom of merchants. The increasing acceptance of the CMI Rules for Electronic Bills of Lading, and the great support and incentive the BOLERO project has received, may in a short time be considered by courts and tribunals to be a “custom of merchants”. Todd has pointed out that it is possible that an electronic document becomes “a document of title with proof of custom”. However he remarks that customs take a long time to be established. His position is that changes in legislation would be an even better solution to this problem.
How long did it take for courts to accept the negotiability of bills of lading? The case of Lickbarrow v Mason does not bring any mention to a specific period of time. It seems then, that the issue here is not just related to time but it is mainly related to usage. The frequent practice of a usage turns it into a custom. Some usages may require a long time to become a custom, whilst others may take a much shorter time. As such, the custom of operating transactions through electronic documents is likely to be upheld by courts in common law systems as well as by tribunals in civil law systems.
Moreover, the long procedures that have been taken in the formation of legislation worldwide may diminish the strength of the argument that legislation is an easier method of turning electronic documents into negotiable documents of title.
Nevertheless, the quality of negotiability is not the only obstacle EDI has faced in replacing paper-based documents. The difficulties faced by EDI start in the formation of the contract itself, wherein, master agreements dealing with the intention of the parties, and the time and place of production of the documents, seem to be the only practical solution the contracting parties actually have.
The requirement that documents must be in writing is another obstacle to the use of EDI contracts. Private and international attempts have found that the easiest way to deal with this issue is for a statement to be inserted in the contract to the effect that EDI messages have the same legal value as written documents. This is the case with the CMI Rules and the UNCITRAL Model Law. Unfortunately, such statements in contracts will continue to be the only way of making EDI messages similar to paper-based messages, until national laws change their way of dealing with electronic documents.
Another legal obstacle to the implementation of EDI contracts is their evidential value in courts. The UNCITRAL Model Law once more suggests a solution to this issue. Art. 4 of the Model Law provides that information should not be denied effectiveness, validity or enforceability solely on the grounds that it is in an EDI form. However, it is certain that the admissibility of EDI messages as evidence in courts depends on an even greater issue - the one of authentication of electronic messages.
There are different ways of authenticating EDI contracts. The way used by the CMI Rules, the so-called “Private Key”, has been criticised for its weaknesses, mainly in relation to its security system. A more reliable method suggested is Public Key Cryptography. It is really difficult to say which method is the best one. However courts and tribunals will probably judge the means of authentication by its effectiveness rather than by the way authentication was produced and therefore more than one method may be accepted.
Last but not the least, an electronic version of the bill of lading faces the problem of being accepted by banks in financial operations. The reason banks are afraid of accepting electronic documents as security for their financing transactions is nothing less than all the above-mentioned problems, inter alia, the quality of negotiability and the effectiveness of electronic authentication. This leads to a crucial question: Can electronic contracts represent real security for banks?
The answer to this question should come from the banks themselves. In a world of so much competition, a bank that can accept an electronic document as security for its transactions would have an advantage over its competitors. Of course, such a bank would also have to bear all the legal consequences of doing so.