Legal Issues and Electronic Bills of Lading

Legal Issues and Electronic Bills of Lading

2021-06-06T07:53:59+00:0020 Apr, 2021|Legal|

What are the most important features of paper Bills of Lading that must be preserved in any digital solution?

A Bill of Lading is not just a piece of paper. It is a document of title, granting rights and imposing liabilities on different parties. These rights and liabilities, and the way they transfer, are defined by a clear legal regime. Issuing a Bill of Lading as an original paper document enables its uniqueness, which is the key attribute of a Bill of Lading. Preserving this attribute has been the biggest challenge to overcome when digitizing Bills of Lading. This article takes a quick look at how different electronic Bill of Lading technologies have addressed legal issues around uniqueness, and why WAVE BL’s platform offers an optimal solution.

 

 

Digitization: First Generation vs. Second Generation

The First Generation Solution: A Centralized Cloud-Based Approach

First-generation electronic Bill of Lading (eBL) platforms were designed based on the central-server approach, which creates both advantages and technological and legal issues. The main advantage is that ensuring a single possessor at a time for each eBL is not a significant challenge. The administrator of such platforms maintains both a central repository where eBLs sent by all users are stored together, and a central registry that manages the repository and closely tracks any changes within an eBL’s chain of possession and title.

The disadvantage is that this approach introduced a whole new set of risks and legal issues that don’t exist while using paper bills. A centralized server creates a single point of failure, which can attract cyber attacks on the central registry; significant efforts are required to safeguard it from tampering.

 

 

In addition, centralized first-generation eBL platforms also mean the loss of some of the most important features that paper Bills of Lading offer:

  • Full control over title ⁠— Holders of paper Bills of Lading, who physically possess the documents, maintain full control of the Bills and their linked titles. But control over the title of first-generation eBLs, which cannot be physically possessed, is totally dependent on the quality of the service provider’s central registry, which requires ongoing validation to ensure that changes of possession are accurately tracked. An attack on the registry means that the wrong party could be assigned the title to an eBL ⁠— a major issue from a legal perspective.

 

  • Confidentiality ⁠— One of the most important features of a paper Bill of Lading is the fact that its actual issuance and contents, which can include highly significant commercial information, are known to only a few parties. First-generation eBLs, on the other hand, are stored on the service provider’s central servers. This means that the commercial information they contain can be accessed and data-mined by the service provider and by hackers.

 

  • Autonomy ⁠— A paper Bill of Lading is an autonomous document which effectively enables “off-grid” transfers of possession and title: to transfer possession, all the possessor needs to do is physically transfer the Bill and, if required, add an endorsement signature to the back of the BL. Needless to say, there is no requirement to register the transfer. This manual process is what promises the Bill of Lading remains autonomous and confidential, thus greatly streamlining its transfer. In contrast, each transfer of possession and title on one of the first-generation central-server eBL platforms is automatically listed in the central registry, which is hosted, administered and monitored by the service provider. The practice of both listing the transaction on the central registry and saving the eBL in the central repository ⁠— where both the registry and repository are hosted on the service provider’s servers ⁠— creates a new database which covers the entire activity of the supply chain, exposing it to monitoring by the service provider and to other cyber threats. In addition, this database can be exposed upon any lawful request made by a supervisory body with power over the service provider.

The Second-Generation Solution: A Decentralized Approach

In this section, we’ll take a look at second-generation eBL platforms and how they avoid the legal issues created by earlier technologies.

Second-generation eBL platforms use blockchain technology to take a decentralized approach. Users can install their applications and save their data locally on their own servers instead of having to save their data on a service provider’s central repository, and can communicate directly with each other without their transactions going through the provider’s data servers. 

To track changes within an eBL’s chain of possession and title, this approach uses a distributed transaction ledger, which by definition is not stored on a single server controlled by only one party. As a result, unlike first-generation solutions, this approach has no single point of failure and therefore is extremely difficult to tamper with. But these blockchain ledgers are necessarily public ledgers and can be read by anyone. The result is that potentially sensitive commercial transaction data is not private ⁠— a major drawback of most first-generation eBL services and a source of potential legal liability. WAVE BL’s solution to this problem is what sets it apart from every other eBL platform on the market, and what allows it to solve the legal issues involved in using other eBLs.

 

 

Why is WAVE BL’s solution such a technological breakthrough?

WAVE BL is a second-generation, decentralized platform that allows documents to be transferred in an exclusively digital format between parties in a way that secures control of each document to only one party at a time. For the first time, the possessor of an eBL has the same level of control as one would of a paper document in one’s pocket. WAVE BL also implements a unique blockchain privacy layer to ensure that commercial information recorded in the public ledger remains confidential. This means that WAVE BL offers all the advantages of paper documents ⁠that were lost in first- and second-generation solutions: confidentiality, autonomy, and full control. Users can be confident that their electronic Bills of Lading create no additional legal issues or liability.

  WAVE BL uses the following technologies:

  • P2P document transfer – The WAVE BL network offers direct P2P transfer of Bills of Lading. P2P (peer-to-peer) is a serverless technology that allows documents to be transferred from one party to another without passing through a service provider’s central servers. This means that there is zero potential exposure of the data to third parties, and that third parties can’t interfere with any document transfers. In other words, it mirrors the exact way a paper bill is sent in a closed envelope using a courier. 

 

  • Decentralized registry – As a second-generation platform, WAVE BL utilizes a decentralized registry based on blockchain technology to track changes in possession and title. Because the registry is decentralized, it does not have a single point of failure, making it extremely difficult to tamper with. This means that the WAVE BL network enables reliable verification of title and possession. It also means that anyone can perform verification themselves, eliminating the need to rely on the service provider to authenticate and confirm transfers of title or possession

 

  • Blockchain Privacy Layer – To overcome the fact that blockchains by nature are public, WAVE BL uses a unique Privacy Layer to encrypt blockchain information. The Privacy Layer makes it possible to enjoy the blockchain benefit of autonomous document transfer without making the transaction’s information public. This means our users can rest assured that third parties can’t access or mine sensitive commercial information from our transaction ledger.

 

 

How WAVE BL addresses legal issues with electronic Bills of Lading

Digitization is the perfect answer to the complexities and costs of using paper Bills of Lading.  It solves critical problems like loss, delays, and fraud, and eliminates the need to rely on risky and expensive substitutes and shortcuts. The digitization process replaces paper Bills of Lading with electronic BLs (eBLs) that are transmitted quickly and securely via an electronic network. Today, there are many solutions on the market, both centralized and decentralized. Choosing the best solution means exploring and understanding the differences between them to evaluate the best fit for your needs.

  • Commercial neutrality – On the back of a paper Bill of Lading there appears a contract of carriage, which sets the roles and rules that govern the relations between the issuer, shipper and titleholder, as well as the legal venue governing the contract. When using WAVE BL, the issuer of an eBL is required to upload that contract as part of the issuance. WAVE BL does not interfere with its contents: parties can use any form of contract they prefer, including the same contract of carriage they would use with paper BLs.

 

  • Legal provisions – Each user signing up to WAVE BL agrees to its Bylaws, which have been designed to exactly mirror ALL the legal flows outlined in the provisions of the English COGSA 1992 law, thus supporting all types of Bills of Lading with no legal shortcuts. Using WAVE BL strengthens the user’s legal stance by setting clear contractual obligations which all WAVE BL network users are committed to. With the ability to endorse digital documents, affix stamps and signatures, and handle all transactions in a privacy-oriented format, Bills of Lading issued through the WAVE BL platform provide all of a paper document’s protections while decreasing its risks. The WAVE BL legal framework was developed so as to retain the exact balance of rights and liabilities offered by paper BLs. 

 

  • Identical insurance coverage and International Group of P&I Clubs approval – There is no difference between the insurance coverage granted to a paper Bill of Lading and that granted to an electronic Bill of Lading issued via WAVE BL. The International Group of P&I Clubs formally approved the WAVE BL legal framework on December 23, 2019, certifying the WAVE BL Bylaws and the technology underpinning the digitization of physical assets in WAVE BL’s decentralized network. As a result, a WAVE BL Bill of Lading is treated by insurers exactly as if it were issued on paper. The IGP&I approval for WAVE BL’s issuance and delivery capabilities means that P&I members are now permitted to use the network for their document transfer needs while remaining eligible for insurance coverage.

 

 

  • WAVE BL is not an additional principal to the eBL – WAVE BL is not an agent, nor a principal to any transaction performed on its network. Unlike centralized, first-generation eBL platforms, WAVE BL enables transactions that are truly unconditional and final. Just as with the legal regime applied to a paper Bill of Lading, WAVE BL transactions do not require any advance approval from WAVE BL for novation and attornment. In other words, transactions on the WAVE BL network are performed directly between users, without any intermediate involvement by WAVE BL.

Summary

This article outlined the differences between first- and second-generation eBL platforms, and why WAVE BL’s advanced second-generation solution gives users all the benefits of digitization without losing the benefits of traditional paper BLs. 

Because first-generation systems do not replicate the advantages of paper, they have failed to digitize the global trade industry in the years since their introduction and did not successfully address the legal issues raised by digitization.

But the improved value proposition of WAVE BL’s second-generation approach eliminates the risks of first-generation technologies, creates a sound legal framework, and allows the trade industry ⁠— for the first time ever ⁠— to go fully digital, starting with the document most fundamental to trade: the Bill of Lading.

Boaz Lessem

Boaz Lessem

GC, Head of Legal
This article takes a quick look at how different electronic Bill of Lading technologies have addressed legal issues around uniqueness, and why WAVE BL’s platform offers an optimal solution.

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