Hwaidi M and Ferris G:

Switching From Paper To Electronic Bills Of Lading: Part 1. Fundamental sociological structure, distributed ledger technology and legal difficulties

Hwaidi, M. & Ferrier, G., Nov 2019, In : Journal of International Martime Law. 25, 4, p. 297-315 19. Research output: Contribution to journal › Article › peer-review

The first part of this article proposes a conceptual framework for a sociological understanding of the use of bills of lading. We argue that platforms that aim to facilitate an electronic format of bills of lading should be based upon the constituent components of the practices associated with paper bills of lading. In the second part of this article we suggest that distributed ledger technology (DLT), including blockchains, is the best technological means for facilitating the use in practice of immaterial bills of lading. The appropriate type of DLT is then evaluated in light of the legal difficulties anticipated. Over the last three centuries, a bill of lading (ie a written document issued by the carrier of goods) has been one of the cornerstones of international trade, mainly because of its essential role in facilitating documentary sales and raising finance.1 The conventional bill of lading is issued in a paper format. Paper bills of lading often arrive later than the arrival of oil and dry cargo, thus causing significant inconvenience such as cost of demurrage, particularly to carriers.2 Switching from paper to electronic bills of lading should offer an ideal solution to this common problem.3 Previous attempts to switch from paper to electronic bills of lading as a universal solution in international trade, such as Bolero and essDOCS systems, have been unsuccessful. This is so, despite potential gains in solving the problem of the delay of the arrival of bills of lading, reduction of costs, fraud protection, increased transparency and the potential for real time transfer of rights. Various writers have identified technical and legal difficulties encountering the emergent use of electronic bills of lading, predominantly in relation to the characteristic of transferability.5 However, none of them has analysed the sociological structure underlying the use of bills of lading. The premise of this article is that the legal and practice norms that constitute bills of lading in use (ie the characteristics of receipt for goods, evi-dence of the carriage contract, document of title and transferability of the bill) that have become widely ap-plied and effective in the paper format of bills of lading are also equally vital for bills of lading in an electronic format. Bills of lading have purpose and meaning within social practices, enforced by groups of traders and not merely by national laws. These social practices must be serviced by any successful electronic substitu-tion for the paper bill. We argue that, for a universal substitution of paper bills of lading by an electronic for-mat, the platform deploying the technology for electronic bills ought to accommodate the social structure that enables practice norms to be enforced by cooperation, reputation and passive sanctions unofficially execut-ed by traders themselves. Accordingly, in the first part of this article, we propose a conceptual framework for analysis (an analytical framework) of the fundamental sociological structure of bills of lading. In the second part of this article, to be published in the next issue of this journal, we suggest how distributed ledger technology can accommodate such a nature in light of potential legal difficulties. There are technical, legal and social obstacles that hinder the widespread use of electronic bills of lading. The technical obstacles such as the exclusivity of possession and digital signature via technology can be overcome by adapting new technologies, as suggested later in the second part of this article. Similarly, the legal obstacles, also explained in the second part of the article, can be overcome by amending certain cur-rent laws. In contrast, the social obstacles represent chronic challenges that may not be overcome in the near future. The first chronic challenge is the lack of an urgent need to switch the use from paper to elec-tronic bills of lading, as the paper bill still functions successfully, despite its many problems.6 The second chronic challenge is the lack of worldwide infrastructure by various actors who have various interests in bills of lading to accommodate the use of an electronic format.7 This article does not address those chronic social obstacles, because it seems that they cannot be solved nowadays and they will be overcome in future after taking strategic steps for long-term developments (eg worldwide investment in technologies, training and infrastructure of various institutions in developed and developing countries). We argue, however, that a third social obstacle for the widespread use of electronic bills of lading is the fail-ure of current platforms deployed for electronic bills of lading such as Bolero and essDOCS to accommodate the underlying practice norms of paper bills of lading. Thus, Bolero8 and essDOCS9 (and previously SEADOCS10) are based on a centralised ledger (ie a single authorised server that transfers the title and the transferable rights). Thus, the service is monopolised by a company,11 which is inconsistent with the socially situated uses of paper bills of lading that are based on decentralised authority. A paper bill of lading is trans-ferred peer-to-peer without the need for a central register to register and execute the transfer of rights. The enforcement of the norms associated with the use of bills of lading in an electronic format by international merchants through cooperation and passive sanctions, as in paper bills, ought to heighten the possibility of the widespread use of electronic bills, because the electronic bills will both be distributed in a horizontal way (ie trader-to-trader enforcing rules)12 rather than in a vertical way (ie top-down, with the service provider imposing rules on traders)13 and the norms will be internalised, and may endogenise, in the cognitive behaviour of carriers and traders.14 This third social obstacle is not chronic in the sense that the first two obstacles are because it can be solved in an effective way by utilising the 'analytical framework' proposed in the first part of the article. In the second part of this article, we suggest that currently the only technological means that can provide this peer-to-peer ability securely is the recent invention of distributed ledger technology (DLT). Indeed, DLT with its various platforms, such as the blockchain platform deployed in Bitcoin, is based on the idea of a peer-to-peer transaction without the need for a third-party agent administering a central registrar to validate the authenticity of the transaction. The third party is replaced by an automatic mathematical system of vali-dation.15 We argue, therefore, that a universal successful replacement of paper bills of lading by an elec-tronic format should be based on DLT. In a new initiative, Bolero's company has partnered with R3's com-pany,16 and also essDOCS has partnered with Voltron,17 to update the electronic bills of lading using DLT, so the potential is under ongoing experimentation. We argue that any new DLT platform should be based on six fundamental grounds (ie peer-to-peer transfer; informative network; reciprocal powers; reflection of social roles; enabling the function of the fundamental institution of the security of the circulation of transacting in goods, finance and insurance; and fraud detection).

Switching from paper to electronic bills of lading: Part 2. Fundamental Sociological Structure, Distributed Ledger Technology And Legal Difficulties

Hwaidi, M. & Ferris, G., Jan 2020, In : Journal of International Martime Law. 26, 1

Research output: Contribution to journal › Article › peer-review

On the basis of the analysis in Part 1 of this article we identify in this second part the fundamental grounds upon which a new platform should be based, and we advocate accordingly the kind of technology that is suitable for electronic bills and the solutions for potential legal difficulties. We propose that distributed ledger tech-nology (DLT) is the suitable technology for the legal and practice norms of bills of lading and we evaluate the type of DLT that could facilitate the adoption and use of electronic bills of lading. This part also identifies po-tential legal difficulties based on a legal comparative study, mainly from the perspective of English law and partly from the perspective of other national laws, that may face the proposed DLT, and how these difficul-ties may shape the type of DLT suitable for electronic bills of lading.

PARRY, R. and BISSON, R., 2020. Legal approaches to management of the risk of cloud computing insolvencies. Journal of Corporate Law Studies, 20 (2), pp. 421-451. ISSN 1473-5970