Kazuya Yamashita
Partner, Higashimachi LPC
Attorney-at-law (Japan), Solicitor (England and Wales)

The use of electronic bills of lading (e-B/Ls) in trade practice has increased in recent years, with the service provider’s terms and conditions agreed between the parties concerned. However, I believe that this type of e-B/L, i.e., an agreement-based e-B/L has not yet reached a major share in trade practice compared to paper B/Ls, due to the lack of sufficient legal backing and unclear legal effect in relation to third parties who have not agreed to the terms and conditions. Under this background, there is a growing movement in other countries to legislate e-B/Ls into national legislation, and in Japan too, legislation for e-B/Ls is currently being discussed by the Legislative Council (in which I also participate as a relevant official). In this article, I will introduce the situation regarding such e-B/L legislation in Japan and other countries, in light of the interim draft of e-B/L legislation decided upon by Japan’s Legislative Council in March (the “Interim Draft”).

1. Overview of e-B/Ls

    

   1. What is an e-B/L?
      An electronic bill of lading (e-B/L) is generally said to be one in which the contents of a conventional paper B/L are converted into digital information and the issuing, transferring, and collecting of B/L-related matters can be carried out electronically. In other words, it can be said that e-B/Ls do not attempt to create something new that is completely different from the current practice of paper B/Ls but to replicate the current practice with paper B/Ls as closely as possible in electronic form.

    

   2. Advantages of electronic B/Ls
      The advantages of using an e-B/L which are often cited include:
      
      1. Increased speed and reduced administrative costs,
      2. Reduced risk of forgery and tampering, and
      3. The ease of collection of all originals, simplifying the process of combining and splitting B/Ls, and delivery at a place other than the named delivery port.

       

      Regarding (a) increased speed and reduced management costs, the management and transfer of title over cargo under an e-B/L is completed on the platform, eliminating the need for the conventional exchange of paper, which significantly speeds up the transfer of title and also reduces management costs by eliminating the need for complicated paper management.

       

      Regarding (b) reduced risk of forgery, the e-B/Ls currently in use are said to reduce the risk of forgery and tampering compared to paper, as they use blockchain technology or other technologies that are considered difficult to forge and tamper with.

       

      Regarding (c) the ease of collecting all originals of a B/L, it is usually considered necessary to collect all of the paper B/Ls issued (in practice, there are many cases where three originals are issued) when the contents are changed by combining or splitting the paper B/L or when the cargo is delivered at a place other than the named place of delivery. With an e-B/L, this collection of all originals of the B/L can be completed on the platform, making it easy to complete the process.

    

   3. P&I insurance coverage
      An essential consideration in the practice of using B/Ls is the availability of P&I insurance coverage for the carrier’s liability in the event of loss or damage to the cargo. As far as the availability of P&I insurance coverage when e-B/Ls are used, the International Group of P&I Clubs (IG) has stated that if the system is approved by the IG, the carrier’s liability is covered to the same extent as that of a paper B/L. However, electronic-specific risks are excluded from coverage, such as breaches of confidentiality of electronic data and breaches of the duty to maintain computer links.

       

      As of March 2023, the IG has approved (i) EssDOCS, (ii) Bolero International Ltd, (iii) E-Title, (iv) edoxOnline, (v) Cargo X, (vi) WAVE, (vii) TradeLends, (viii) IQAX, (ix) Secro and (x) TradeGo.

       

      The requirements for approval of an e-B/L system by the IG are as follows (see also "Japan P&I Newsletter, No. 55", issued April 2022, for further information on this point).
      

      1. The system must be able to accomplish a transfer of title, rights, and liabilities.
      2. There must be a signature provision whereby the parties agree that an electronic signature is a valid signature.
      3. A mechanism is necessary whereby parties must agree not to dispute that the e-B/L is a bill of lading.
      4. A mechanism is necessary whereby users can sue and be sued.
      5. The system must ensure that the treaties, conventions, and national laws which ordinarily apply to a paper bill of lading are applicable to the e-B/L as if it were a paper bill.
      6. The operator/system provider must accept liability in case of system failure.
      7. The system must allow for clausing, accomplishment, and rejection of the e-B/L
      8. There must be sufficient evidence of the terms of the contract of carriage.
      9. The system must expressly exclude application of the Contracts (Rights of Third Parties) Act of 1999. [1]
      10. The operator or system provider must carry adequate limits of liability in their insurance to cover liabilities arising from system fault or failure of any nature.

2. Progress of the investigation for the revision of Japanese law

    

   The progress of the investigation to revise Japanese law on e-B/Ls is as follows.

    

   1. 2018: Amendments to the Commercial Code and other laws
      The “Act to Partially Revise the Commercial Code and the Act on the International Carriage of Goods by Sea”, which was passed in May 2018 and came into force in April 2019, amended and established new provisions for paper B/Ls as well as paper and electronic sea waybills, but did not include provisions for e-B/Ls.

    

   2. 2021-2022: Research Group
      Based on the Cabinet’s June 2021 Implementation Plan for Regulatory Reform and the Priority Plan for the Realisation of a Digital Society, etc., the Research Group on the Digitalisation of Commercial Law (Chairperson: Professor Tomotaka Fujita, the University of Tokyo Graduate Schools for Law and Politics) examined the issues on e-B/L legislation and conducted a survey of legislation in other countries from April 2021 until March 2022.

    

   3. 2022-2023: Legislative Council
      In February 2022, the Minister of Justice asked the Legislative Council to “present an outline of a review of the provisions on bills of lading and other aspects of the Commercial Code, as it seems necessary to review them from the perspective of responding to changes in socio-economic conditions, such as the increasing use of electronic means in commercial transactions.” (Consultation No. 121). In response, the Subcommittee of the Legislative Council on Commercial Law (Relating to Bills of Lading, etc.) of the Legislative Council (Chairman: Professor Fujita, hereinafter the “Sub-Committee”) was newly established and has continued to deliberate on the specifics of e-B/L legislation since April 2022. In March 2023, the Sub-Committee decided upon the Interim Draft. The Interim Draft has since been submitted to a public comment procedure and opinions have been widely invited (see the website of the Ministry of Justice for more information).

    

   4. April 2023 onwards: Future process
      It is expected that the Sub-Committee will continue its deliberations and that a bill on e-B/L legislation will be submitted to Parliament around the end of 2023 or in 2024, following a report to the Minister of Justice on the outline.

3. Legislation of other countries

    

   Foreign legislation is a great reference source when amending Japanese law on matters that particularly require international harmonisation, such as e-B/Ls. Below is a brief introduction to Singapore and UK law, as examples of important foreign legislation.

    

   1. Singapore
      In Singapore, Part 2A “ELECTRONIC TRANSFERABLE RECORDS” of the Electronic Transactions Act was established as the law on electronic transferable records, including e-B/Ls, and entered into force in March 2021. Its main content is to adopt the Model Law on Electronic Transferable Records (MLETR) adopted by the United Nations Commission on the Law of International Commerce (UNCITRAL) into domestic law.

       

      Two of the most important aspects of the MLETR that are considered particularly important are as follows.
      

      1. Functional equivalence with paper securities
         The MLETR requires that an e-B/L be functionally equivalent to a paper B/L. Specifically, the e-B/L must meet the requirements of “singularity” (rights on the B/L cannot be duplicated and there is only one identified B/L), “control” (exclusive control), and “integrity” (cannot be tampered with and a record of changes are kept).
      2. Technical neutrality
         The MLETR does not require the use of a specific technology or model for e-B/Ls, but only a “reliable method” (reliability) that fulfils the functions of an e-B/L.

       

      As in Singapore, consideration is also being given to amending Japanese law in the direction of making it closer to the MLETR.

    

   2. United Kingdom
      In the UK, following a study and review by the Law Commission aimed at legislation on e-B/Ls, an amendment bill (the Electronic Trade Documents Bill) was submitted to Parliament in October 2022.
      The Bill is simple in content and its main focus appears to be to enable the statutory “possession” of transaction documents in electronic form (e.g., e-B/Ls), which is not permitted under common law. It also seems to aim for harmonisation with the MLETR in terms of ensuring international compatibility.

       

      On the other hand, it can be said that in Japan, amendments towards making the e-B/L legislation fit in well with the existing concepts of possession and securities legislation in the Japanese Civil Code and Commercial Code, etc. are being considered, without changing these concepts.

4. Overview of the interim draft

    

   The Interim Draft decided by the Subcommittee in March 2023 presents very detailed draft amendments and its supplementary explanation explains the reasons for the proposal, comparisons with the MLETR and UK law, and sets out the current legislation. The amendments that are considered particularly important are as follows.

    

   1. Name of e-B/Ls (Part I, Section 1 of the Interim Draft)
      The Interim Draft states that the legal name of e-B/Ls will be “Denshi Funani Shoken Kiroku” (literally, an “electronic bill of lading record”).

    

   2. Provisions on when e-B/Ls may be issued (Part 1, Section 2.1 of the Interim Draft)
      Currently, a carrier is obliged to deliver a paper B/L upon request of the shipper (Article 757, paragraphs 1 and 2 of the Commercial Code). The Interim Draft does not go as far as requiring the carrier to issue an e-B/L, but allows an e-B/L to be issued only if the carrier has the consent of the shipper, i.e. if the carrier, as issuer, and the shipper agree to the issuance of an e-B/L. This is due to the fact that the issuance of e-B/Ls is expected to impose burdens and technical difficulties upon carriers, such as the introduction of an e-B/L system.

    

   3. Provisions on statutory matters to be recorded in e-B/Ls (Part 1, Section 2.2 of the Interim Draft)
      Paper bills of lading have relatively loose formal requirements and may be deemed valid even if some of the statutory particulars listed in Article 758(1) of the Commercial Code (type of goods, volume or weight of goods or number of packages or pieces, markings, external condition, name of shipper or charterer, name of consignee, name of carrier, name of shipowner, port and date of loading, port of unloading, transportation charges, number of original bills if several are issued, and place and date of issue) are missing (e.g., Supreme Court of Judicature judgment dated 13 May 1932, Dai Minshu Vol. 11, p. 943). The Interim Draft stipulates that, in principle, the same statutory matters to be recorded in paper B/Ls should be recorded in electronic B/Ls on the presumption that they are interpreted as being equivalent. However, in view of the nature of electronic issuance, matters relating to the issuance of multiple copies, which are stipulated for paper B/Ls, are excluded from the statutory matters to be recorded for e-B/Ls.

    

   4. Creation of the concept of “control” (Part 1, paragraphs 2 and 3 of the Interim Draft)
      Based on the premise that it is not possible to conceive of physical “possession” of an e-B/L itself, the Interim Draft establishes a new concept of “control” of an e-B/L, referring to the concept of “control” in the MLETR. The Interim Draft contains two proposals for this concept of “control”: the first defines it as “the state of being able to [exclusively] use” an e-B/L, while the second does not provide a specific definition and leaves it to interpretation.

    

   5. Technical requirements for e-B/Ls (Part 1, Section 3.1 of the Interim Draft)
      
      1. In light of the MLETR’s technical requirements for singularity, control, transferability and integrity of e-B/Ls, the Interim Draft proposes that the basic characteristics of an e-B/L which must be satisfied are that: (i) the e-B/L is identified as the only record evidencing the possession of rights contained in the e-B/L, (ii) the e-B/L can be controlled and the person with control can be identified, (iii) control of the e-B/L can be transferred, and (iv) the information recorded in the e-B/L can be preserved.
      2. With regard to the reliability requirements required by the MLETR, the Interim Draft provides three proposals. The first does not specifically define reliability requirements, on the grounds that as long as other technical requirements are fulfilled, it is considered probable that the general reliability requirements are also fulfilled. The second proposal says that the reliability requirements should be explicitly defined as requirements for validity. The third proposal does not stipulate reliability as a requirement for an e-B/L’s validity, but requires users of e-B/Ls to use a reliable method.
      3. In addition, the Interim Draft does not stipulate the involvement of institutions certified by the government, as e-B/Ls are used not only in Japan but also internationally.

    

   6. Conversion of e-B/Ls and paper B/Ls (Part 1, Section 4.1 and 4.2 of the Interim Draft)
      
      1. The MLETR and the UK amendment bill contain provisions for conversion between paper and electronic B/Ls, based on the need in practice, and the Interim Draft also contains such provisions.
      2. Conversion from paper to electronic
         In the same manner as regarding the issuance of e-B/Ls, the Interim Draft does not go as far as requiring a carrier to convert a paper B/L to an e-B/L.
      3. Conversion from electronic to paper
         The Interim Draft has two proposals regarding conversion from an e-B/L to a paper B/L; the first does not grant the person controlling an e-B/L the right to demand the carrier to convert to a paper B/L but allows conversion if an agreement can be reached with the carrier, while the second proposal grants the person controlling an e-B/L the right to demand the carrier to convert to a paper B/L.

    

   7. Types of e-B/Ls and methods of transfer (Part 1, Section 5 of the Interim Draft)
      
      1. Types of e-B/Ls
         There are four types of paper securities under the Civil Code, namely (i) securities payable to order (securities in which the rights holder is the person named on the security, or a person endorsed on the security by the designated person), (ii) registered negotiable securities payable to holder (negotiable securities on which the name of the obligee is written with a supplementary note that payment should be made to its holder), (iii) other (non-negotiable) securities, and (iv) bearer securities (securities in which a rights holder is not named on the security, and the bearer is the rights holder). The Interim Draft proposes to establish rules for e-B/Ls in a manner that maintains these four types of securities as much as possible.
      2. Method of transferring e-B/Ls
         The Interim Draft proposes that (i) for e-B/Ls deliverable to order, in addition to “transfer of control”, which corresponds to “delivery” of a security payable to order, “electronic endorsement”, which corresponds to “endorsement”, should be prescribed as a requirement for the effective transfer of rights. In addition, not only electronic endorsement in the principal form of naming the transferee, but also electronic endorsement in the form of blank endorsement (i.e., a method in which the name of the transferee is not shown and only the signature of the endorser is provided) is permitted. An electronic signature is required for electronic endorsement, as is the case when an e-B/L is issued. On the other hand, for e-B/Ls that are the (ii) registered negotiable securities deliverable to holder type or (iv) bearer type, only the “transfer of control”, which corresponds to the “delivery” of the security, is to be prescribed as a requirement for the effective transfer of such rights.

    

   8. Electronic Multimodal Transport B/Ls (Part 2.2 of the Interim Draft).
      The Interim Draft states that if e-B/L legislation is adopted, it would be appropriate to allow the same for Multimodal Transport B/Ls.

    

   9. Electronic Warehouse Receipts (Part 2 and 3 of the Interim Draft)
      The Interim Draft also considers the computerisation of Warehouse Receipts, which are used in circumstances such as the settlement of futures contracts, in the same way as e-B/Ls, while also investigating the needs for computerisation.

5. Examples of provisions under time charterparties

    

   Moving away from but related to the Interim Draft, to touch on the relationship between e-B/Ls and time charter contracts, BIMCO currently proposes the addition of the following provisions to time charter contracts to regulate the rights and obligations between shipowners and charterers.
   • BIMCO Electronic Bills of Lading Clause
   

   1. At the Charterer’s option, bills of lading, waybills and delivery orders referred to in this Charter Party shall be issued, signed and transmitted in electronic form with the same effect as their paper equivalent.
   2. For the purpose of Sub-clause (a) the Owners shall subscribe to and use Electronic (Paperless) Trading Systems as directed by the Charterers, provided such systems are approved by the International Group of P&I Clubs. Any fees incurred in subscribing to or for using such systems shall be for the Charterers’ account.
   3. The Charterers agree to hold the Owners harmless in respect of any additional liability arising from the use of the systems referred to in Sub-clause (b), to the extent that such liability does not arise from Owners’ negligence.

    

   Including such a provision when concluding a time charterparty would help to clarify the legal relationship between the charterer, who would like to be able to use e-B/Ls, and the shipowner, who would like to avoid any disadvantages from the use of e-B/Ls.

6. In closing

    

   The above is an introduction to the domestic and international status of e-B/L legislation. It will take some time before the revised law is enacted, but I will continue to strive as a member of the Sub-Committee to help Japan’s e-B/L legislation become internationally harmonised and to encourage the wider use of e-B/Ls in practice in the near future.

[1] This requirement confirms the principle that rights and obligations under the contract are acquired/borne only by the parties to the contract and are not affected by third parties outside the contract.