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The 21st Birthday of the Electronic Bill of Lading: With Age Comes Maturity
© 2003
Carsten
Schaal &
Lex e-Scripta,
INTER-LAWYER.com. All Rights Reserved.
Most of the named approaches of
former electronic shipping documents had some flaws that let to the failure or
non-application of the provisions. As the need for fast, secure and cheaper
bills of lading is an ever growing task, traders, shipping lines, banks, and
international institutions seek for a final and well-established system that
could solve all of the problems associated to the bill of lading.
As mentioned before, the
replacement of the bill’s functions as a receipt for the goods shipped and the
proof of evidence of the contract between the shipper and the carrier are
relatively easy to realize by electronic means. The most challenging problem
that remains is to fulfil the requirement of a negotiable document of title by
electronic data interchange.
Chapter 2 discussed the
technical basis of modern forms of electronic bills of lading. Towards the end
of that chapter the ‘certification authorities’ were introduced, independent but
state-controlled ‘notary publics’ that are the trustful and connecting link
between seller and buyer. It was concluded that an electronic bill of lading
that was signed with a digital signature issued by a certification authority
could possibly withstand the critics and represent an equivalent to the
traditional bill of lading.
The latest attempt in electronic
shipping commerce that promises to fulfil the essential functions of a
traditional bill of lading is ‘Bolero’.
Bolero stands for ‘Bill of Lading Electronic Registry Organization’
and was commercially launched on September 27th 1999. Bolero
International Ltd. is a joint venture between SWIFT (Society for Worldwide
Interbank Financial Transactions) and the TT Club (Through Transport Mutual
Insurance Association Ltd.).
Besides SWIFT and the TT Club,
this project was partly initiated and also funded by the European Commission.
Its primary objective was to set up a pilot scheme and to design a contractual
framework to replicate as far as possible the electronic equivalent to a bill of
lading.
The masterminds of Bolero
deliberately called their electronic document a ‘Bolero Bill of Lading’, and not
- as could be assumed - an ‘electronic bill of lading’. That is because the
Bolero Bill of Lading does not fall within the classic definition of a ‘bill of
lading’ according to the maritime conventions and other relevant legislations.
Therefore, in order to create the same legal relation that applies when a
negotiable document of title is being issued and traded, it was necessary to
enter in some sort of contractual relationship. Thus, the specific feature of
Bolero is its multilateral contractual solution: each party that wishes to trade
in the electronic environment of Bolero, including carriers, shippers,
consignees, banks and other bodies connected with the shipping of goods such as
port authorities, needs to become a member of the ‘Bolero User Association’
first. The members must agree to observe the rules that are manifested in the
Bolero Rulebook.
The contractual adoption of the
Bolero Rulebook between all of its users gives the Bolero system its legal
effect. The Rulebook covers many diverse areas, among them general rules and
definitions, the admission of members, legal relationship, disciplinary
provisions, and the role and responsibility of the title registry. The last
point is of major interest for the scope of this paper and will be dealt with
below.
In the Bolero system, the
aforementioned sending and receiving of electronic messages and digital
signatures is operated by the ‘Core Messaging Platform’.
This service belongs to bolero.net and is responsible for all common functions
between the members. In the first place, it acts like an independent
certification authority and secures the international trade by receiving and
transmitting the electronic messages of the Bolero users. The service relies on
advanced cryptographic techniques, namely encryption and digital signatures, and
thus guarantees that a message originates from the purported sender and that it
remained unaltered on its way. By these means Bolero solved the problem of a
lack of delivery acknowledgements on the internet. Usually, the sender cannot be
sure whether his message has been received by the addressee. Under bolero.net
the message sent is acknowledged immediately by a receipt of the Core Messaging
Platform and is then forwarded to the receiver. When the receiver downloads the
message, it automatically acknowledges receipt to Bolero which then notifies the
sender that the data has been received.
A unique messaging protocol is also available from the Core Messaging Platform
in case of litigation to prove the actual messages that have been sent.
It can therefore be concluded
that the Core Messaging Platform of the Bolero system provides the requirements
to accomplish the bill of lading’s function as a receipt for the goods shipped
and as proof of evidence of the contract between the shipper and the carrier.
Most noteworthy, however, is the
establishment of the Bolero ‘Title Registry’. With this step a solution was
found to the ever-existing problem of an equivalent to the bill of lading’s
function as a document of title. It needs to be emphasized again that a document
of title is the ‘key to the warehouse’
- without a transferable document of title the carrier can under no
circumstances release the goods to the consignee. Therefore, the Bolero system
needed to enable property rights in goods to be transferred in transit, and thus
created a title registry, which is supported by appropriate provisions in the
rulebook.
The creation of a title registry corresponds to the aforementioned necessity of
a trusted third party, that each user can rely on when rights and obligations in
the goods are to be transferred.
The transfer of rights and
obligations under the Bolero Rulebook is accomplished by means of attornment and
novation.
The legal principle of
attornment is a traditional part of English Common Law and usually describes a
situation where a tenant accepts and acknowledges the new landlord’ s rights
after the leased property has been sold.
It is thus an implicitly or explicitly consent to a transfer of a right.
The makers of Bolero made use of
the concept of attornment for the following purpose: the carrier is the
independent bailee of the shipper’s goods because he has the factual control
over the goods on his ship. ‘By entering into a contract with a shipper to
follow the shipper’s instructions (“to order”) and by agreeing that the shipper
can transfer his right to give instructions (transferring “to order”) to another
party, the carrier is agreeing to do what he currently does when he issues a
negotiable bill of lading’.
The carrier can only take such instructions of the person who has the
appropriate ‘key’. In the paper world, the ‘key’ is the negotiable bill of
lading. Under the Bolero system, ‘the ‘key’ is the dominion of the shipper over
the unique electronic message that the carrier has created. By advising the
party with dominion over the unique electronic message that the carrier now
holds the goods to that party’s order, the carrier is making what is
characterized under English law as an attornment’:
the carrier acknowledges the transfer of rights in the goods to the new
consignee.
The second part of the transfer
of rights is achieved by novation. According to the Bolero Rulebook, the new
consignee acquires his rights against the carrier by novation, meaning that the
carrier’s contract with the shipper is ‘extinguished and a new contract on the
same terms is created between the carrier and the consignee’.
Hence, the principle of novation implies that a ‘new party is substituted for
the shipper or holder of the Bolero Bill of Lading and a new contract is created
between the substituted party and the carrier’.
To summarize, attornment and
novation in the Bolero system is the acknowledgement of the carrier that it
holds goods to the order of a new transferee, and a separate contract that forms
the new agreement on the same terms between the carrier and the new proprietor.
For all the above to take place via electronic means, the bolero.net is included
as the carrier’s agent.
The contractual transfer of
rights and obligations under the Bolero approach by means of attornment and
novation also addresses the Privity of Contract Doctrine. This problem deals
with the question to which extent rights and liabilities can be transferred to
another party if the contract is concluded by an electronic bill of lading, i.e.
whether ‘the electronic bill of lading enjoys the same status as its paper
counterpart as an exception to the Doctrine of Privity of Contract’.
The principle of Privity of
Contract is a typical characteristic of English civil law. It states that only
the parties to a contract can have rights and liabilities under it.
As a result, contracts for the benefit of a third party are not recognized under
English jurisdiction. In terms of contracts for the carriage of goods by sea
this means that the Privity Rule would not allow the consignee any rights under
a contract evidenced by a bill of lading that has been concluded between the
carrier and the consignor.
Therefore, the UK Bills of
Lading Act 1855 provided for an exception to this rule by stating in sec. 1 that
‘every consignee of goods named in a bill of lading, and every endorsee of a
bill of lading, to whom the property in the goods therein mentioned shall pass
upon or by reason of such consignment or endorsement, shall have transferred to
and vested in him all rights of suit, and be subject to the same liabilities in
respect of such goods as if the contract contained in the bill of lading had
been made with himself’.
In the following way, the
Privity of Contract - exception is also contained in the 1992 COGSA in an
amended version. It can be found in sec. 2 (1) and sec. 3 (1), which state that
all rights of suit and all liabilities are vested in that person, that can show
bona fide possession of the bill of lading or that has either taken
delivery of the goods from the carrier, made demand for their delivery from the
carrier, or made a claim against the carrier in respect of them, as if he had
been a party to that contract.
Due to these provisions third
parties always had the possibility to sue the carrier subject to the terms of
the initial contract. However, nowadays this issue can amount to a problem where
the modern form of an electronic bill of lading is regarded to be an
equivalent to the traditional paper bill. In that case the named provisions
and therewith the exception would not apply, because they only refer to bills
of lading.
As was stated above, the COGSA 1992 recognizes electronic bills of lading in
general, but the required regulations to include them in the Carriage of Goods
by Sea Act have not been passed so far. Furthermore, the Contracts (Rights of
Third Parties) Act
confers ‘no rights on a third party in the case of a contract for the carriage
of goods by sea’ according to its sec. 6 (5-7).
Thus, a third party under a
contract that is evidenced by an electronic bill of lading would have no rights
whatsoever against the carrier.
Conversely, the Bolero Bill
of Lading offers a solution: the transferee obtains his rights and
obligations by means of an electronic message through the Title Registry in a
separate contractual relationship with the carrier via the concept of novation.
As this separate contract with the carrier applies directly to the new holder,
there is not even the necessity for an exception to the Privity of
Contract Doctrine. Therefore, the transferee of a Bolero Bill of Lading has just
as many rights, obligations and liabilities as a third party to a traditional
bill of lading – without the very need for an exception.
Because of that the Bolero Bill
of Lading is only called the functional equivalent to the paper bill of
lading.
The term ‘electronic bill of lading’ would suggest that the modern form
represents exactly the same requirements like the traditional bill.
Notwithstanding the above, the
Bolero Bill does indeed - including such features as the Core Message Platform,
the Title Registry, and legal principles suchlike attornment and novation -
replicate all the functions of the bill of lading.
The chore that was challenged in
the introduction of this dissertation was whether the modern electronic bills of
lading are able to replace the traditional paper bills of lading. It was alleged
that after 21 years of development not only the technical essentials but also
the legal prerequisites would be fulfilled in today’s international trading
environment.
The elaboration regarding the
technical basis for electronic messages has revealed that modern forms of
messages that are sent via electronic means are as secure as a paper document
could almost ever be. The utilization of updated cryptographic techniques,
namely the encryption and decryption of electronic documents and digital
signatures, are a method of security in the highest degree.
Furthermore, it was expound that
the so-called certification authorities act as state-controlled and trusted
third parties, offering a similar high level of security and control over the
electronic bill of lading as a negotiable paper document does in the hands of
its own proprietor.
Turning to the aspects of legal
acceptance it was concluded that the electronic bill is a document in writing
under UK legislation, no matter whether it is represented on the computer
display, stored on any kind of electronic or digital medium, or factually is a
printout from the computer’s printer. Additionally, the technical process of
encryption harmonizes with the signature requirement where it is demanded.
An enormous progress was also
made on an EU and international level during the last decade. Numerous EU
Directives and international conventions promote the use of electronic bills of
lading as well as e-commerce in total. As a response, the UK lawmakers adopted
the Electronic Communications Act 2000, which will take this nation a good step
closer to e-commerce trade.
Problems, however, emerge from a
look at UK laws such as the COGSA 1992 and the Hague/Visby Rules. The former one
does mention and recognize information technology and telecommunication systems
in general, regulations to include electronic bills of lading into the law’s
application have not been passed though. A wider interpretation of the latter
Hague/Visby Rules to cover electronic documents could possibly be attempted,
nevertheless such an approach was already denied in the academic writings.
In respect of the aforementioned
argument it was important in the scope of this work to mention the Bolero Bill
of Lading which achieves a functional equivalence to the traditional bill of
lading. Security concerning electronic messages is guaranteed through the Core
Messaging Platform that uses the same encryption methods as aforementioned. The
crucial point is Bolero’s contractual solution within the Title Registry: acting
as the trusted third party, the Title Registry transfers the rights in the goods
from the carrier to the transferee by novation, while the carrier acknowledges
the transfer of rights by attornment.
This contractual relationship is
just as useful as a negotiable document of title – all the rights, obligations
and liabilities are by contractual means with the new consignee. He has control
over the goods.
This leaves the author to
conclude with congratulations to the 21st birthday of the electronic
trade with goods carried by sea: ‘The beauty of a contractual solution is that
it can move far more quickly than legislative change in response to industry
demand and certainly faster than international legislation through conventions’.
Therewith, a workable solution
for electronic trade has been found with the Bolero project. International trade
has no time to wait for mercantile custom to approve the electronic bill of
lading.
© 2003
Carsten
Schaal &
Lex e-Scripta,
INTER-LAWYER.com. All Rights Reserved.
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