Legal background
The Department for Digital, Culture, Media and Sport ("DCMS") asked the Law Commission to make recommendations to solve the problems caused by the law’s approach to the "possession" and transfer of trade documents in electronic form. DCMS also asked the Law Commission to prepare draft legislation to implement those recommendations. The Law Commission consulted on provisional proposals and draft legislation in April 2021, 1 and published its final recommendations for reform, along with the draft Bill, in March 2022. 2
	The Law Commission’s recommendations relate to the law of England and Wales only. However, given that much of the relevant legislation in this area (such as the Bills of Exchange Act 1882 and the Carriage of Goods by Sea Act 1992) extends to the whole of the UK, and the position at common law is similar across the UK, the Government extended the Act so that it now extends to the whole of the UK.
	Allowing for electronic versions of certain trade documents so that international trade can be more fully digitalised could lead to significant cost savings and efficiencies, increased transparency, increased security, reduced errors, and greater resilience to the impact of sudden shocks such as COVID-19. This is the policy objective of the Act: to allow for certain trade documents in electronic form that satisfy specific criteria to be recognised in law as capable of possession, so that they can have the same legal treatment, effects and functionality as their paper counterparts. The Act and these explanatory notes refer to these documents as "trade documents", but in fact they are a subset of documents used in trade and trade finance which are dependent on possession for their operation, as described above.
	The Act recognises that not every electronic document has the same functionality. As such, only trade documents in electronic form that satisfy particular criteria, designed to replicate the salient features of paper documents, are deemed possessable under the Act. These criteria include that:
in order to prevent double spending, it must not be possible for more than one person (or persons acting together) to exercise control of the document at any one time; and
when the document is transferred, any person who was able to exercise control of the document before the transfer loses the ability to do so.
	In addition, a reliable system must be used to allow any person who is able to exercise control of the document to demonstrate that fact, to protect the document from unauthorised interference, and to ensure the document can be distinguished from any copies.
	The intended effects of the Act are to:
reduce transaction costs associated with paper trade documents by reducing resourcing and operational costs, and increasing productivity;
increase efficiency and encourage business growth by facilitating the development of digital products and services;
increase environmental benefits due to a reduction in paper documents; and
increase security and transparency in documentation.
	Further policy and background to the Law Commission’s recommendations is provided in its final report and the consultation paper which preceded it. 3