Royston Deitch
Executive Representative, Head of IG Matters/General Manager of Underwriting Administration Dept. (Solicitor)

The exact date a bill of lading was first used to mark the handover of cargo for carriage on board a ship is lost in the sea fog of maritime history.

What is clearer is that, for hundreds of years, a paper bill of lading was issued by the carrier and came to embody three functions : receipt for goods loaded, evidence of the terms of the contract of carriage, and a document of title to the cargo.

Attempts to introduce an electronic bill of lading (or E-Bill) began in the oil industry in the 1980s. As it is a document of title, an original bill was and is needed to take delivery of cargo on arrival. However, oil cargoes can be traded many times in the course of a single voyage, and the slow progress of the original document through the banking system meant that it was rarely available when the cargo was discharged. This led to trading delays and disputes, and a wish to reform the system.

Advantages of E-Bills include speed, a reduction in administrative costs, and a reduced risk of fraud, which is always possible with a paper document. Changing a system which had endured for centuries takes time, however. One obstacle to reform under English Law is that the Carriage of Goods By Sea Act (COGSA) 1992 does not apply to E-Bills, as the law currently does not recognise the concept of “possession” of an electronic record. This means that the “document of title” function of a paper bill of lading cannot be transferred to its electronic counterpart. The Law Commission of England and Wales is looking at revising this part of the law.

The first E-Bills provider was called BOLERO, with a system which went live in September 1999. BOLERO allowed the transfer of title between users signed up to an electronic central registry system. Since then have come other systems where all users sign up to a multiparty contractual platform, such as essdocs (formerly Electronic Shipping Solutions), E-Title, and edoxOnline. The latest three commercially available systems are Cargo X, WAVE, and TradeLens. The last three differ from the first four as they use smart contract / blockchain / distributed ledger technology solutions.

Until February 2010, the Rules of all the International Group (IG) Clubs expressly excluded liabilities arising out of the carriage of cargo under all electronic, or paperless trading, systems, where the liabilities would not have arisen using a paper bill of lading. This situation changed in February 2010, when Group Clubs decided that liabilities in respect of the carriage of cargo under paperless trading systems would be covered, so long as the system had been approved by the Group. All seven systems listed above have been approved.

Traditional exclusions of cover under Group Club Rules relating to the carriage of cargo continue to apply in respect of all the approved providers as they do for paper systems.

If an unapproved system is used, however, there will only be cover if the Member can show that the liability would have arisen even if a paper bill had been used. In addition, whether the system has been approved or not, there is no P&I cover for non-P&I liabilities, such as cyber risks, or breach of confidentiality obligations or obligations to maintain computer links, arising out of the multi-party agreements for use of E-Bills.

IG Clubs delegate consideration of new E-Bill systems to the Paperless Trading Working Group of the Bills of Lading Committee, ably assisted by the Secretariat of the International Group. In assessing whether to approve a new system, the Working Group looks at how the new system compares to the traditional, paperbased regime. Specific matters are looked at such as clausing, endorsement, re-issuing and amending, surrender and delivery of the “document”, the law and jurisdiction of disputes, and the terms and limits of liability of the system provider.

There are 10 specific requirements which electronic trading system providers must satisfy in order to achieve approval from the International Group, as follows :

1. The system must be able to accomplish a transfer of title, rights, and liabilities (in other words, endorsement as a matter of law).
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-bill 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-Bill 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-bill.
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.
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.

If there is a change in ownership of the company behind the electronic system, the Working Group will review the new company’s terms. A review will also be carried out if a system provider changes its contractual terms, to ensure they still satisfy the above requirements.

It should also be noted, however, that the list of requirements dates back to December 2017, and is currently under review by the Working Group and IG Secretariat.

For several years, growth in the use of E-Bills was quite slow. The arrival of the Covid-19 pandemic in early 2020 changed matters. This brought a considerable increase in digitalisation globally, not least in shipping. Significant growth in the use of E-Bills has been led by several large shipping companies as they seek to achieve the increased efficiencies of the electronic system in a time of reduced physical contact generally. As take-up of E-Bills grows, the Working Group and IG will be ready to assess the terms of any new systems provider which comes on the market.

And the Japan P&I Club will be happy to answer any questions which you may have on the systems.