Commentary on sections of the Act Section 5: Exceptions
Section 5(1) provides that sections 3 and 4 of the Act do not apply in relation to an electronic trade document if an intention that section 3 should not apply appears in, or can reasonably be inferred from, the document or terms that have effect in relation to it. The purpose of this sub-section is to ensure that the Act is facilitative insofar as parties do not have to rely on possessory concepts in relation to their electronic trade document if they do not wish to. That is, parties can, if they so choose, "opt-out" of the effects of the Act. This means they can continue to rely on other contractual workarounds or mechanisms for using documents in electronic form, rather than relying on the possessory concepts in the Act. This section is drafted broadly so as to include a situation where the terms of issue, or the terms otherwise governing the manner of holding and transferring the document, contemplate or provide for an arrangement other than one based on possession.
	Section 5(2)(a) excludes documents or instruments entered in a relevant system under the Uncertificated Securities Regulations 2001 (S.I. 2001/3755) from the scope of sections 1 to 4 of the Act. The purpose of this exclusion is to avoid potential confusion that could result from the fact that two statutory regimes in relation to electronic documents or instruments could apply. For example, a type of debt security known as "commercial paper" (which is technically a promissory note) could meet the requirements of the Uncertificated Securities Regulations 2001, and also fall within the scope of the Act. Since the Uncertificated Securities Regulations 2001 provide for a different statutory regime entirely from one based on possessory concepts, it is preferable for documents or instruments falling under that regime to fall outside the scope of the Act.
	Section 5(2)(b) provides a power to further exclude a type of document or instrument from the scope of sections 1 to 4 of the Act by specifying that document or instrument in regulations made by the appropriate authority. Section 5(7) identifies the appropriate authority as the Secretary of State, the Secretary of State acting jointly with the Scottish Ministers and - where all the provision made by the regulations is within Scottish devolved competence - the Scottish Ministers.
	This power may be exercised in circumstances where it is determined that a type of document or instrument which falls within the scope of the Act requires more bespoke provisions to allow for its digitalisation, or where a type of document or instrument should not be capable of being used in electronic form. Given that the Act could lead to a significant change in practice for certain types of documents, it is important that the legislation includes a power to make further carve-outs if it proves necessary or desirable. Any regulations made pursuant to section 5(2)(b) would not amend section 5 of the Act, and could themselves be amended or revoked by further regulations made under that sub-section. Sections 5(4) and 5(5) provide that the Secretary of State must consult the Scottish Ministers before making regulations under section 5(2)(b) containing provision with effect in relation to Scotland, except when the Secretary of State and Scottish Ministers are acting jointly.
	Section 5(3) provides that the exception in sub-section (2)(a) may be amended or removed by regulations made by the Secretary of State. This power may be exercised in circumstances where the Uncertificated Securities Regulations 2001 are amended, thereby necessitating consequential amendments to the exception provision in the Act.