Electronic Data Interchange in Shipping: Legal Issues

Introduction

Electronic Data Interchange (EDI) involves the conduct of business transactions by exchanging the documents in electronic formats using web-based applications or Internet. EDI covers a wide range of transactions including placing purchase orders, offering price quotations, customer order confirmations, order status enquiries, shipping and the associated transactions such as scheduling and confirmation, invoicing and payments.

In essence EDI replaces paper-based transactions between two parties involved in any commercial transactions. EDI has been in practice for almost three decades in different formats with the concept developed with the idea of companies developing more efficient means of conducting business transactions. The proliferation of advance information and communication technologies enlarged the opportunity of improving the efficiency of many paper-based business dealings (Freibrun, 2005). EDI has evolved as an efficient means of expediting and concluding binding contractual relationships between commercial parties.

Despite the fact that EDI trading partners intend to pursue the contractual relationship through electronic transactions, the law has not cleared the clouds surrounding the legal enforcement of EDI contracts. The issue assumes larger significance in the light of the fact that bigger corporations insist on their larger as well as smaller trading partners and suppliers to conduct business transactions with them using electronic means.

EDI in Shipping

EDI has increasingly been adopted in shipping replacing paper transport documents, whereby shipping data is transmitted over the Internet. This transmission is done using one of several international standards set in this connection. Under EDI with respect to shipping, trade documents such as bills of lading, letters of credit and certificates of origin are exchanged between the seller and buyer electronically instead of manually exchanging them. The electronic transfer of documents enables the buyers and sellers to track the goods in transit and based on the information the parties may make necessary adjustments in case of delay in transit.

EDI enables the seller to realize the sale proceeds faster by faster transmission of the trading documents to the buyer electronically. The need for preparing multiple copies documents manually is reduced by adopting EDI and efficiency and accuracy of working is increased through EDI in shipping.

However the use of EDI has raised several issues. One of the major concerns is the security of transactions. In the traditional shipping transactions, the goods will be delivered to the buyer only against the production of original bill of lading to the shipping company. In the case of EDI even though there is the requirement of digitally signing the bill of lading replacing the written signature requirement, unauthorized access to such documents is not totally protected.

Availability of enabling infrastructure for practicing EDI to the fullest extent globally is another serious issue. It is not the case that all geographical regions are well connected with modern telecommunication networks facilitating electronic transfer of documents. This poses another challenge to the introduction of total EDI practice in shipping. Lack of an international standardization is one of the other major challenges to paperless system of trade. For instance a trading document like bill of lading may have several formats based on the trading practices prevailing in different countries. In order to have an effective global system of EDI working it is essential to have standardized formats of trade documents (Schaffer, Augusti, & Earle, 2008).

Apart from these shortcomings there are other legal and technological issues associated with bringing in a total system of EDI in shipping. While dealing with the technological issues is outside the purview of the current research, the objective of this research is to examine and report on the different legal challenges being faced by EDI practices in international shipping environment. Tackling of the legal issues in connection with EDI in shipping within the context of this work is divided into different areas for convenience of study. These areas relate first to a review of the most important documents currently in use.

The next part of the paper discussed the technical advancements in the shipping industry more specifically with respect to the documentation part. The next part reviews the problems raised by EDI bills from a legal perspective. Discussions on the developments which may provide solutions to the existing problems also form part of the paper. Among other things, this paper focuses on some of the major legal obstacles like the requirement of a written and signed document which is the common base document for shipping related transactions in many of the destinations and the function of a paper bill of lading as a negotiable instrument and the possibility of replacing the paper bill of lading with electronic documents that can be interchanged with ease.

Background and Rationale

The exceptional progression of the electronic data interchange (EDI) is complementing and increasingly replacing the traditional transport documents in the shipping/maritime transport. While paper-based documents have always been the instrument for facilitating international trade, today EDI is introducing an environment where documents are in digital form – created in an international electronic marketplace via computer intelligent agents that interact with unknown and invisible parties. With this growth in the use of EDI in shipping almost matched with unassailable growth in trade volumes, it is certain that paper transport documents will be fully substituted (e-business watch, 2008, p 7)

Hence, nation-state and supra-national governments, trade-blocs, courts and legislators have initiated and applied a range of legal frameworks to regulate these electronic documents but the result is rather a hotchpotch of largely diverse legal doctrines and does not provide a wide-ranging approach for regulating electronic data interchange.

These are not early days – almost three decades since the inception of the first attempt at electronic documents in shipping, SeaDocs project. EDI is an inevitable reality vital for the development of maritime transport. For it facilitates international trade at a scale unimaginable yet the EDI remains relatively unsuccessful than expected despite escalating IT technologies. In fact, the vast majority of documents is still in paper form and sent the world over to receivers of goods. Substantial developments have taken place, and without a grain of doubt, electronic documents will take over but legal issues in international trade law linger on (UK Law Commission, 2001).

Such a state of affairs highlights the necessity of understanding the relationship between EDI and the applicable law in a wider context. In particular, the persistence of the traditional documents in maritime transport means that attention should be given to the existing law. It is also imperative that transition from paper transport documents to paperless documents should be critically examined, drawing example from various approaches in different countries.

The diversity of legal arrangements across international trade players means that we cannot assume that interventions will operate in the same way in different contexts. Instead, we need to identify the important dimensions of players’ systems in order to formulate an effective international approach to EDI.

A number of researchers have examined variation in EDI systems in international trade, proposing that the nature of the relationship between these elements and international laws is societal-specific (Sriram, Arunachalam, & Ivancevich, 2000). While such work has improved our understanding of the transition process, empirical research has proved rather limited and narrowly focused. Cross-national studies have a tendency of focusing only on two countries, at worst, or on a single trade-bloc, at best , running the risk of generalizing to very different contexts on the basis of a limited number of ‘core’ players – usually the EU and United States (Faber, 1995). Measures of success of EDI outcomes have often obscured very real legal differences between systems and many crucial legal dimensions of the transition process have been ignored.

This research sets out to address this deficit by using a more wide-ranging approach for examining the relationship between EDI systems success and the law at a much wider scale and the developments in several international cases. In addition this research aims to critically analyze the legal reasons as to why EDI systems for effecting paperless transport documents in maritime transport remain somewhat unsuccessful.

Research Questions

Overall, the goal of the research is to critically analyze the legal reasons as to why EDI systems aimed at replacing paper transport documents with electronic ones in shipping have been somewhat less productive as opposed to expectations. Thus the following are the key questions:

• Can electronic documents accomplish, in precise terms, the same purpose as the traditional paper documents they are intended to replace? What are the legal requirements for successful replacement?
• Why have EDI systems projects been somewhat less successful as opposed to the high expectations? Is the existing law to blame?
• What are the developments in the replacement of paper documents with electronic ones?
• What are the legal variations and approaches by different institution/countries to EDI adoption? What are the implications of the United Nations Commission on International Trade Law (UNCITRAL) Model Law on Electronic Commerce?

Research Objectives

In order to achieve the principal aim of this research of analyzing the legal challenges being faced by EDI for replacing the paper documents, the study extends to find theoretical support to accomplish the following objectives which will lead to the attainment of the aim of the research. The objectives are:

• To critically analyze the features of the paper documents used in shipping and to assess the practicality of replacing the paper documents with electronic documents for successful EDI replacement.
• To study the UNCITRAL Model Law on Electronic Commerce and other initiatives in this direction and their implications for the employment and success of EDI systems in shipping/maritime transport.
• To generate a set of recommendations for successful replacement of paper transport documents with electronic ones.

Structure of the Dissertation

To facilitate a comprehensive reading and understanding of the presentation, this dissertation is structured to have different chapters. While introducing the subject matter of study and describing the background of the study, chapter 1 lays down the boundaries of research in the form of aims and objectives of the research within which the research is extended to find answers for the research questions stated. Chapter 2, by way of an analytical review of the relevant literature on the topic of EDI in shipping, attempts to enhance the knowledge of the readers in the topic under discussion.

The review extends to journal publications, articles and legislative notifications of the governments and authoritative websites dealing with the topic. Chapter 3 presents a description of the research methodology engaged by the researcher for data collection and analysis and final presentation of the inferences from the research in an orderly manner. Detailed account of the findings of the research, followed by a descriptive analysis of the findings, is presented in chapter 4. Chapter 5 being the concluding chapter contains a summary of the key issues discussed within the text of the dissertation and a few recommendations for further research on the extension of EDI to shipping. This chapter also narrates the limitations of conducting this specific research.

EDI in Shipping – A Theoretical Framework

Despite the apparent benefits arising from the EDI system to international trade community, the progress towards complete convergence and adoption of a harmonized system has faced serious barriers both operational and legal. It has been agreed by most of the people belonging to commercial agencies that eventual shifting to paperless trade and EDI practices is inevitable in view of the high costs and many of the inherent inefficiencies of conducting international trade based on extensive paper documents to be created and submitted to a number of agencies and parties involved in the international trade transactions.

In order to have a comprehensive understanding of the legal issues impeding the progress of EDI in the realm of shipping, it is necessary to have a deeper insight into the topic of paperless documents and their electronic exchange in international trade transactions. A review of the traditional shipping documents and their functionalities is also considered essential. This chapter attempts to enhance the knowledge on these thrust areas through a review of the relevant literature.

Transport Documents covering International Trade

Sale of goods across national borders poses challenges that are different from the sales in domestic environment. With sellers and buyers located in different countries, there is always the necessity to transport the goods from the warehouse of the seller or other third party, to the buyer’s country. Thus international sales involve transportation of the goods often covered by large distances across different countries of the world.

This necessitates arranging for the transportation and insurance of the goods either by the buyer or seller. Both the buyer and seller to the sale contract are under obligation to perform their part of the contract to arrange for the delivery of the goods in accordance with the terms of the contract and for making the payment of the agreed price under the contract. Sale on shipment terms such as CIF and FOB¹ have enabled the performance of international sale of goods through the tendering of documents in exchange for payment.

In this process of documentary transfers the banks have a significant role to play with their letters of credit which provide for additional security to both the buyer and seller. Despite the lack of uniform international laws covering the definition and characteristics of different transport documents, rules established by commercial practices appear to be substantially similar in most of the jurisdictions (UNCTAD, 2003).

Overview of Negotiable and Non-negotiable Transport Documents

For a comprehensive understanding of the discussions on the legality of electronic documents and to examine the possibility of hassle-free EDI in shipping it is important to understand the basic features of negotiable and non-negotiable transport documents. This section describes the salient features of these documents.

Negotiable Bill of Lading

A bill of lading is a document issued by a carrier upon effecting the shipment of the goods has an important role to play in the international trade. The document with its negotiability performs a number of functions in the context of international commercial transactions. Bill of lading is an official receipt evidencing the shipment of the contracted goods and the physical possession of the goods with the carrier for delivery to the consignee at the appointed destination.

This aspect of providing evidence of shipment becomes important from the purview of both the buyer and seller to determine the obligations of both the parties in the contract under the sale of contract. The document also clarifies the position of the carrier in respect of the potential cargo-claimant in case the goods are lost or damaged while in transit. The bills of lading also evidences the terms of contract with the carrier.

Bill of lading operates as a transferable document of title and this element of transferability makes it distinct from non-negotiable seaway bill. By holding a document of title the holder becomes entitled to claim delivery from the carrier or from the customer. Since the goods will be delivered at the port of discharge only against the surrender of the original bill of lading, this document provides a constructive possession of the goods to the holder of the document. With this feature, while goods are in the physical possession of a carrier during transit, the possession and property in the goods can be passed on to subsequent parties, by giving the possession of the negotiable document of title to the goods.

The minimum standards of liability established in The Hague Rules 1924² and the Hague Rules as amended by the Visby and SDR protocols 1968 and 1979 (Hague-Visby Rules) are made mandatorily applicable to bills of lading and similar other documents.

Non-negotiable Sea waybill

A sea waybill being a non-negotiable document functions both as a receipt for goods received by the carrier and as an evidence for the contract of carriage. The difference in sea waybill from bill of lading is that this document need not be presented for obtaining delivery from the carrier at the port of discharge. Therefore they cannot convey constructive possession of the goods covered under the bill. The utility of sea waybill is limited as it cannot be used for the purpose of transferring possession and property in the goods. This makes the sea waybill unsuitable for transactions of sale of goods in transit and for providing as security to the bankers for any financial arrangement under letters of credit or otherwise.

The Hague and Hague-Visby rules applicable to “bills of lading or similar documents of title” shall not apply to sea waybills, unless there is an express contractual agreement between the parties to the contrary. However in view of the standard form and wide application of sea waybills, some of the states extend the protection of The Hague and Hague-Visby Rules to sea waybills also. In some of the case such statutory application will become operative only when it is expressly included in the document³.

Straight Bills of Lading

In general bills of lading are made out to ‘the order’ of the contracting person. However bills of lading may also be made out in the name of specified consignee in which case the document is referred as ‘straight bill of lading’ and this document since is made out to specific consignee loses its character of further negotiability. This bill of lading is not transferable and consequently become unsuitable for effecting sale of goods in transit.

However the question remains whether this document is to be produced for obtaining delivery of goods at the port of discharge and if yes whether the document can be treated as holding title to the goods covered. If the straight bill of lading is a non-negotiable document it can be used to transfer the title only once from the seller to the buyer. At the same time the document can as well be treated as security for the seller, bank or the buyer.

If the document is recognized as a document of title to goods, then The Hague and Hague-Visby Rules become applicable to straight bills of lading. The position in this regard has been clearly dealt with in the case of The Rafaela S ⁴ where the court ruled that when the straight consigned bill of lading contains a clause which requires the surrender of the bill to obtain delivery of the cargo it becomes a document of title to goods irrespective of the fact that it is non-negotiable.

Other Transport Documents

In carriage of goods by road, rail and air respective carriers issue consignment notes which do not operate as documents of title to goods. Even freight forwarders’ receipts or the ships’ delivery orders do not hold as documents of title. Multimodal or combined transport documents are of recent growth which is designed to cover carriage of goods by sea as well as the transportation from point to point. These documents may be made out to ‘the order’ so that they can be used as documents of title to goods.

Role and Functions of Transport Documents

Documents covering the transportation of goods perform a definite role in the exchange and recording of information in respect of the carriage of particular goods. There are other roles attached to the documents by the legal significance the documents as well as the content and use of the documents. Similarly there are variations between negotiable or transferable documents and non-negotiable documents. Traditionally the negotiable documents have been covering the carriage by sea where the bill of lading has been considered as the pre-eminent example of a transferable document (UNCTAD, 2003).

Bill of lading and other transport documents are found to have the following role and functions in the carriage of goods.

1. Bill of lading or other transport document is construed as a receipt for the goods based on statements which specify the quantity and apparent conditions of the goods at the time of receiving the goods for carriage. These statements contained in the bill of lading acquire significance as proof under legal rules attached to such kind of documents. The levels of proofs assigned may vary depending on the character of the individual documents whether they are negotiable or restricted by the context or the additional words qualifying the issue of the documents.
2. The transport document is a means of evidencing the existence of the contract together with the terms and conditions of the contract.⁵However the bill cannot be taken as the contract by itself but only as an evidence of an already concluded contract. This is because normally any trading transaction is concluded before the issue of the bill of lading or other transport document. Nonetheless there may be other evidences than the bill of lading to supplement or contradict the contractual terms (Treitel & Reynolds, 2005). Once the bill of lading gets transferred to other agency or entity such as a banker, it assumes greater significance because of the transferable role it has. The major function of the document within the transferable role is to effectively convey the standard terms of the carrier. Where the document is employed as a means of transfer of title to goods, it also operates as a convenient means of transferring such terms through a host of parties connected or unconnected with the transaction. Legal significance is attached to the terms of the document in respect of those terms which the parties have knowledge of. Notice of the existence of specific terms can be given to the parties either by including the specific terms (Peel, 2007) or by giving conspicuous reference to the terms.
3. A bill of lading is in general regarded as a transferable document which has a significant role to play in passing proprietary and contractual rights within the framework of the applicable laws (Treitel & Reynolds, 2005). The applicable laws invariably provides for the handing over of the original of the bill of lading to the carrier before the carrier can affect delivery of the goods. The applicable laws also provide that there is a wrong committed by the carrier if he chooses to deliver the goods without presentation of the bill in original.

National law usually determines the precise extent of the proprietary and contractual rights that can be transferred. Under English law the transfer of a bill of lading construes the transfer of constructive possession of goods covered by the bill. However it is advisable to mention that the law operates on the basis that the transfer of a bill has the effect of supporting the intention of the transferor to transfer the proprietary rights. The proprietary right includes the rights based on possession of the goods and in certain circumstances the transfer of proprietary rights is capable of transferring a title to goods at a level greater than that possessed by the transferor (Aikens, Lord, & Bools, 2006).

Apart from transfer of proprietary rights, the bill of lading can also be used as a means of transferring the contractual rights under the Carriage of Goods by Sea Act, 1992. The bill of lading in the paper form is considered as having the convenience of enabling the transfer of rights binding against the carrier just by a symbolic transfer of the goods represented by the bill of lading.

In the case of carriage of goods by road, rail and air the non-negotiable consignment takes the central role. Consignment notes are also used in short sea shipping transactions. In many other trades, sea way bills and straight bills of lading are in use especially where there are no limited financing arrangements obtained through using bank facilities. Even though the non-negotiable documents can function as receipt of goods and evidences of transactions, they do not possess the ability to transfer proprietary or contractual rights to third parties in the fullest sense.

Barriers to Paperless Trade

There are a number of barriers to the implementation of a complete and effective EDI system on a global basis. The barriers may be categorized into operational barriers and legal barriers.

Operational Barriers

The operational barriers to EDI in shipping may take the form of

1. difficulties in establishing generally accepted norms and systems for paperless trade among different government and commercial entities,
2. lack of a paperless trade community which connects all the associated entities in any international trade process,
3. requirements of differing procedures and submission of different documentation by the participating governments in the international trade,
4. lack of compatible and harmonized paperless systems in different geographical locations and
5. concerns over security and perpetration of frauds in electronic documentation filing.

Generally a number of difficulties were encountered with paperless trading systems. For a longer duration, the international business community was unable to devise appropriate and acceptable electronic trade systems which were trustworthy and accepted by all the concerned users. Even though some steps were taken in the direction of introducing EDI in the 1970s and 1980s, these efforts proved futile because of lack of patronage and the necessary support to these efforts (Urbach, 1985). There were other major concerns such as lack of trust in the system, fear about maintaining the confidentiality and concerns over liability (Laryea, 2000). However, with the change of times there have been remarkable developments in the information and communication technology many of the problems of the earlier attempts have been overcome.

Major concern over security and the potential for perpetration of frauds with respect to the electronic filing of the documents is one of the barriers for the faster development of EDI in shipping field. Possibilities of fraudulent declarations being made by the traders when allowed to transact business through EDI is one of the major concerns of the international trading community (Department of Foreign Affairs and Trade Australia, 2004, p 5)

Legal Barriers

Legal issues with respect to EDI in shipping can arise in four different ways. First is the requirement that the paperless electronic documents should meet the requirements of validity for enforcing the contract legally. Uncertainty on this score of whether the paperless documents possess the necessary legal status for enforceability is one of the major concerns for the introduction of EDI. Secondly the paperless documents should possess the capability of evidential thresholds for admissibility and reliability of being offered as evidences in a judicial process.

The paper documents have the primary function of being administered as evidence in legal cases. Since the documentary evidences assume significant value in legal proceedings, the inability of electronically created documents to be offered as evidences decrease their value and use and hence acts as a barrier to their use. Another test for the legality of paperless documents is their ability to meet the mandatory requirements of different government departments such as customs or tax offices to submit and retain such documents as business records. This is one of the important requirements as the government departments would always require retaining and producing the documents even after several years.

Therefore if there is a situation that electronic documents cannot be construed as business records that can be submitted and retained, then the paperless documents lose their value and do not help in augmenting the use of EDI in shipping. Another question that arises in respect of paperless documents is about the ability of those documents to replicate the functionality of traditional international shipping documents, such as the negotiable character of the traditional bill of lading (Laryea, 2002).

The point here is that as commercial laws both at national and international level were developed at a period when paper-dominated commercial documentation and record keeping were the only means of transacting international and domestic business, much of the provisions were designed to include terms that connote paper as documents, they restrict the use of the new ICT in legal realm. “Similarly, the legal and commercial concepts were fashioned by, and aimed at, paper as the means of communicating, recording, and holding monetary and proprietary value”. (Laryea E., 2005)

Addressing Legal Issues

The legal barriers to EDI in shipping may be mitigated by making new legislation, by private contracting which provides for the solutions to undecided issues with respect to paperless documents and by judicial adaptation of existing general laws to suit the new methods of transacting under EDI regime.

General or specific legislations made to cover transactions using electronic documents and the processing of such documents may solve the legal issues in connection with the introduction of EDI. General legislations may take the route of revising the language to remove medium-specific language to facilitate electronic transactions. They may also provide new and broad definitions of the terms to enable the transactions to acquire legal validity irrespective of whether they use paper or electronic documents.

An example of this type of legislation may be found in the ‘Electronic Transactions Act’ or ‘Electronic Communications Act’ or ‘Electronic Commerce Act’ found in many countries of the world. Providing legislation-based legal effect to electronic contracting, electronic evidence and electronic authentication methods will lead to enhanced user trust and confidence in the EDI process in shipping related transactions (Laryea, E. 2000).

In some instances, there may arise the necessity to revise the existing statutes or enact specific provisions to cover different aspects of EDI proliferation. For example, Australia revised its Carriage of Goods Act, 1991 to recognize the use of paperless documents as an alternative to the traditional bill of lading. The country also enacted a Sea-Carriage Documents Act in the various jurisdictions for the same purpose. These revisions and additions are made further to the enacting of Electronic Transactions Act in all the jurisdictions. A survey of all Asian countries reveal that most of them have adopted revisions in general statutes to cover electronic commerce, even though no specific legislation has been adopted in this respect (Laryea, E. 2000)⁶.

Private contracting is another way of addressing the problems relating to the adoption of EDI in shipping transactions. Private contracts entered into in line with the existing legislations may help overcoming the problems when the parties involved in the commercial transactions conclude contracts which detail the procedures and legality of transactions dealt with electronically (Boss, 1992). Such a contract should be explicit in terms of the system specifications, measures needed to secure the transactions, responsibilities of each party to the contract, consequences of breach and penal provisions for not complying with specific acts and deeds covered under electronic dealings.

The contract should also contain a provision specifically precluding the parties to challenge or deny the legally binding nature of the electronic transaction with a view to avoid the liability under the contract on technical grounds. This may be in the form of an undertaking to be signed by all the parties concerned.

Private contracting may take a generic form or it may be drafted based on the characteristics of specific industry. The BOLERO Rule Book which is the guideline for all entities following the BOLERO system is a typical example of a private contract. This Rule Book is described by Bolero as ‘a multi-lateral contract that binds each User to every other user in relation to their use of the Bolero service’. (Bolero, 2006)

The objective of entering into Bolero contract is that every user signifies his acceptance to follow a common set of rules enshrined under the key elements of Bolero service. For instance when it has been agreed by the parties to a contract that electronic communication sent under the contract shall be binding on each other then there is no possibility for any user to deny the binding nature of a message sent electronically with a digital signature.

Another example may be found in the dormant CMI Rules for Electronic Bills of Lading, 1990. Under Article 11 of this legislation, it is provided that all parties subscribing to the provisions of the rules ‘agree that any national or local law, custom or practice requiring the Contract of Carriage to be evidenced in writing and signed, is satisfied by… electronic data.’ (Comite Maritime International, 2003) Moreover the parties who have agreed to adopt CMI Rules shall not have the defense to deny their liability based on the plea that the contract was not in writing.

Although private contracting may be found to be effective in solving some of the issues, the statutory requirements in certain situations may act to limit its effectiveness. Nonetheless private contracting has proved to be an effective means of substantiating the legal status of electronic regime while adopted in conjunction with the prevailing statutes.⁷.

The general law may also be able to provide the ground for adoption of paperless transactions even in the absence of legislation or private contracting by judicial interpretation by various courts of law. There have been many instances where the courts have adapted the provisions of existing statutes to meet the needs of changing regime in electronic commerce. For instance courts have provided that signatures are the only identification means for authentication irrespective of the method used to sign.

This has given the digital signature the necessary legal validity. The courts have also recognized that a PIN is valid. However one shortcoming of general law is that it cannot change swiftly to adapt itself to the growing and complex needs of electronic commerce raised by the adoption of new and improved technologies in transacting international trade (Laryea, E. 2000).

Out of the three ways of mitigating the challenges of EDI the legislation is the preferred method as the other two methods have inherent disadvantage of slow adaptive in nature in addition to being inconsistent and creating uncertainty. The United Nations Commission on International Trade Law (UNCITRAL) has impressed upon the member countries to enact new laws or revise the existing ones to accommodate electronic documentation of trade transactions to provide them the necessary legal character⁸.

UNICTRAL is continuously working on the promotion of measures to improve the functioning of e-commerce in general and paperless trade in particular and has made commendable performance in the past⁹. There are other international organizations like UNCTAD, International Institute for the Unification of Private Law (UNIDROIT), International Chamber of Commerce (ICC), Comite Maritime International (CMI), WCO and OECD which work on new ways of tackling the legal issues of e-commerce so that there will be convergence of EDI practices all over the world.

Various national governments after considering the role and importance of e-commerce in the overall development of their respective economies and the need to create a conducive atmosphere for implementing paperless transactions have taken initiatives for legal facilitation of e-commerce and paperless trade. “Some governments have concluded electronic contracting agreements, enacted electronic commerce facilitating laws, and revised existing laws to accommodate electronic transacting”. (Laryea E, 2000) Even though such legislation and enactments have addressed some of the legal issues (for example through enacting statutes like Electronic Communications Act, 2000 the electronic signature has been given legal recognition), there are several other legal issues in the successful implementation of EDI still linger on requiring specific addressing of these issues.

Legal Issues

EDI has been considered as instrumental for bringing about a number of changes in the scope and function of statutes. However, it has not quite been possible for the legal reforms to keep in pace with the technological developments. The problems of implementing EDI on a global basis are brought to fore when the statutory requirements of international trading documentation imposed by different jurisdictions are considered as most of them have not been subjected to reforms that recognize electronic form of documentation. The salient legal issues that affect the adoption of EDI as a recognized system of international trade documentation are

• requirement of legal recognition of data messages,
• writing or a “document” requirement,
• requirement of signatures on the documents and
• documents of title and negotiability.

Legal Recognition of Electronic Contracts

The legal enforcement and validity of electronic contracts have created new challenges to the international trading community. Computer documentation including bill of lading and data messages necessitate a significant adjustment to existing legal practices for recognizing them as legally enforceable. This is because of the fact that the legal systems so far have been geared only towards dealing with paper based documents. The statutory requirements for giving legal recognition to documents have been drafted much before the electronic version of documents came in to practice and no major reforms have been undertaken to correct this state.

“[The] three main issues relating to electronic contracting concern the legal formalities, the time and place the contract was made and the admissibility of computer evidence in civil proceedings” (Bainbridge, 1996).

Another related issue is that whether a data message can be treated as a document and admissible in a court of law as evidence. In many of the countries both civil and criminal legal systems have recognized computerized records as admissible evidences. For example in the case of Derby & Co v Weldon¹⁰ it was held that the database of a computer containing information that could be retrieved and converted into any readable form would be construed as a document irrespective of the fact that whether the information is stored in the computer or record in backup file.

Admissibility of Evidences

Since most of the procedural rules of the legal systems in respect of the admissibility of evidences are evolved based on the paper documentation they impede the admissibility of electronic records in a court of law as evidence which poses a major challenge in the implementation of EDI in shipping. The rapid development in ICT and the consequent proliferation of e-commerce has made many of the jurisdictions ill-equipped to consider the electronic documents as evidences. The admissibility of EDI as evidence needs to be considered from both common law and civil law perspectives since the main thrust of EDI is to replace the paper based bill of lading with electronic bill of lading.

Common Law

The features pertaining to hearsay rule and the best evidence rule under most common law jurisdictions also apply to the electronic documents to be treated as evidences under the common law adversarial system. The number of exceptions developed to hearsay rule also apply to the electronic documents which are being increasingly The English Civil Evidences Act, 1968 has made provisions for the admissibility of information contained in any computer documents as evidences subject to the fulfillment of certain conditions. The conditions stated by the Act are so stringent that they offer a wider scope for arguments based on technicalities.

For instance one of the conditions stipulates that the computer from which the information was retrieved should have been regularly used. However there is no explanation in the Act as to the meaning and scope of ‘regular’ use of computer actually. This is sure to create potential problems with respect to the interpretation of the ‘regular’ use of the computer. Another potential problem under this Act is that the security issues have not been dealt with by the Act. However English Civil Evidences Act, 1995 has dealt with this issue through sections 8 and 9 relating to the admissibility of documentary evidence.

The Act provides that any ‘statement contained in a document’ including statements in email will become admissible as evidence in the UK civil court. However there are no specific provisions contained in the Act which specify the requirements with respect to the documents to have legal admissibility. In practice there will be problems for the judges for deciding on the legal admissibility during the hearing of any specific case¹¹.

According to the law of evidence the ‘best evidence rule’ requires presenting the best available evidence. Under the circumstance where there are original documents that can be presented, a data message may not be regarded as the best evidence and at best may be considered as hearsay evidence. On the contrary if there are no original documents to present, a data message or computer printout could be considered as the best available evidence (Hill & Walden, 1996¹²).

According to the Article 1 of the ‘Electronic Signature Directive’ issued by the European Parliament and the European Council electronic signatures have been provided the necessary legal recognition. EC has recommended the member nations to ensure the acceptance of advanced electronic signatures in their national law. Accordingly all member states have enacted national laws based on this directive. One of the examples in this direction is the Electronic Communications Act, 2000 enacted by UK.

In the United States the Federal government regulates the admissibility of electronic evidences. Just as the case with other common law jurisdictions, in the United States also the hearsay rule is subjected to several exceptions. Electronic documents such as the computer output is admitted as evidences under one of these several exceptions where there is a provision to admit them as ‘business records’. There are new Uniform Rules of Evidence prescribed governing the admissibility of electronic records.

Civil Law

Civil law jurisdictions which function under inquisitorial system taking all material evidences into account and attach respective weights to the evidences cannot consider the evidence based on electronic documents with the same weight as being offered under common law. However the civil courts still have the complex task of ascertaining the actual weight that they can attribute to the computer based evidences. Since the civil courts normally follow the practice of establishing the material truth in a trial by considering the due weight of all the evidences, the extent of utility and weight of the computer based evidence in changing the direction of the trials cannot be precisely stated (Al-Farhan, 2002)¹³.

The question that needs to be resolved is that whether electronic contracts can be treated as a document and whether it can be accepted as evidence in courts. In many of the countries both civil law and common law systems generally admit computerized records as evidence in any trial. For instance English civil courts have recognized electronic means of passing the information as evidence in addition to the paper documents.

Model Law under Article 4 has provided a solution to the problem of presenting an electronic document as evidence. The Article provides that information should not be denied the effectiveness, validity or enforceability on the ground that the information is in the form of a data message. This position is further substantiated by Article 8 which states that nothing in the application of the rules of evidence shall apply which has the effect of preventing the admission of a data message in evidence purely on the ground that it is a data message. Therefore the intention of Article 8 is clear in that irrespective of the application of the ‘best evidence’ or ‘hearsay’ rules apply to data messages they will not alter the legal recognition and evidential value of such data message.

Writing

There are different versions adopted by the local jurisdictions on the documents to be in a written form. Specifically bills of lading are to be written form because of their importance in the international trade and commerce. The requirements with respect to writing seemingly impede the increased adoption of EDI in shipping. The English court has held that the database of a computer can be regarded as a document for meeting the requirements of the High Court Rules.¹⁴

This nevertheless does not satisfy the requirements of ‘writing’, since according to the provisions of the Interpretation Act, 1978 of the United Kingdom, writing includes “typing, printing, photography and other methods of representing or reproducing the words in visible form”. Applying this definition an electronic message which is not visible cannot be treated as ‘writing’. Therefore if a document is required to be written such an electronic message cannot be construed as a document.

However this definition is wide enough to include electronic bills of lading as documents. The Bills of Lading Act, 1885 was replaced by the Carriage of Goods by Sea Act, 1992. Section 1(5) of this Act, provides for the enactment of regulations to this effect. However no such legislations have so far been made which applies to any information technology that corresponds to the issue of a document to which the Act applies. In general a liberal approach can be seen in the UK law towards the requirement of ‘writing’ (Al-Farhan, 2002).

Signature

Affixing the signature in a document signifies the authentication of the document. When a signature is affixed to a contract of sale, it implies the intention of the parties to become legally bound by the contract. In an EDI transaction it is often suggested that the documents can be signed electronically without the necessity of signing the documents manually for authenticating the documents. However difficulties are still found in replacing the traditional manual signatures with electronic signatures especially in important shipping documents like bills of lading.

Since computers are capable of producing identical signatures with ease, there is the potential issue of security in signing the bills of lading which erodes the confidence associated with the manual signatures. Since bill of lading carries the character of negotiability and acts as security to the bankers there has been no significant progress in accepting the electronic signatures in bills of lading.

UN Convention on the Use of Electronic Communication in International Contract, 2005 adopted by the UN General Assembly is one of the important landmarks in the direction of legalizing electronic signature. This convention acknowledges electronic communication to have the same legal effect as that of other forms of written communication. A further development in the context of electronic signature was the Directive 1999/93/EC adopted by the European Parliament and of the Council which provided a basic framework for electronic signatures. Article 1 of the directive specifically provides for the legal recognition of electronic signatures. Following the directive all member countries of the EU have passed legislation granting legal recognition to electronic signatures. Example can be cited in the UK Electronic Communications Act, 2000.

Document of Title and Negotiability

Even though the issues relating to signature and writing can somehow be overcome in an electronic context there is the more complex issue of negotiability which is to be considered as the most challenging element in the implementation of EDI practices. Generally the documents of title such as bill of lading hold the rights in the goods. Analysis of the legality of the negotiability of the documents of title to the goods reveals that “there is generally no statutory means in place by which parties, through the exchange of electronic messages, can validly transfer legal rights in the same manner possible with paper documents” (Bernauv, 1995). Therefore it can reasonably be stated that in the present state of legislation there is no way that the negotiability of the documents can be segregated from the physical possession of the original document.

Proposals to Overcome the Legal Issues

Extensive and increased use of computerized documentation to facilitate international trade transactions is not uncommon in the present day global business environment. The entire world appears to move towards an electronic commercial base. Because of the speed with which the transactions can be concluded, EDI systems have found to be significant use in the shipping industry replacing the traditional paper bill of lading by electronic means. However as discussed in the earlier part of the paper there are a number of operational, technical and legal barriers to the use of EDI in shipping. The legal requirements of paper based documents pose the major challenge for the use of electronic bills of lading.

A related issue is the manner of conveying the electronic messages to meet the requirements of a bill of lading which presently is a signed paper document. The issue assumes greater significance since the bill of lading represents a document of title to goods having the character of a security for the monies advanced by banks. In addition the seller can transfer the title to the goods by merely endorsing the bill of lading. This function of acting as security and transferability are not incorporated in electronically generated documents. There are certain proposals developed by international institutions to mitigate the legal issues that impede the use of EDI. This section of the paper discusses some of the international initiatives undertaken in this direction.

UNICTRAL Model Law on Legal Aspects of EDI

The UNICTRAL Model Law on Electronic Commerce, 1996 created by the United Nations has the objective of providing uniformity in law and practice involving the use of electronic media in international trade. Bill of lading as a transportation document is in the central focus of the guidelines. It is to be remembered that the Model law does not have any legal background of its own but it only acts as a guideline to be followed by the member countries.

The provisions of Model law will have legal enforceability only when enacted as applicable laws by the respective countries. Legislation based on the Model Law has been enacted in twenty countries including Australia, New Zealand, India and South Africa. Uniform Electronic Transactions Act 1999 adopted in the United States has broadly been based on the Law and principles of Model Law and enacted by almost all the states (Boss A. H., 2001).

Functional Equivalence Approach

Model Law recognizes that the legal requirements for the paper documents is the major impediment for the introduction of EDI and EDI cannot be considered as equivalent of a paper document both in nature and legality. Therefore the Model Law has created a ‘functional equivalence’ approach. This approach bases its application taking into account an analysis of the role and functions of paper documents and the ways in which EDI can achieve meeting these requirements. This implies that where there is a legal requirement with respect to writing, signature and originals it can be satisfied by producing equivalent data messages¹⁵.

Legal issues relating to data messages can be solved by referring to Article 5 of the Model Law which provides that “information shall not be denied effectiveness, validity or enforceability solely on the ground that it is in the form of a data message”. (United Nations 1997)

According to Article 9(1)

“In any legal proceedings, nothing in the application of the rules of evidence shall apply so as to deny the admissibility of a data message in evidence:

• on the sole ground that it is a data message: or
• if it is the best evidence that the person adducing it could reasonably be expected to obtain, on the ground that it is not in its original form.” (United Nations 1997)

Model Law provides a distinct legal status of writing to electronic messages through Article 6 which states

“Where the law requires information to be in writing, that requirement is met by a data message if the information contained therein is accessible so as to be useable for subsequent reference.” (United Nations 1997)

The solution to the problem of Signature is provided for in Article 7 of the Model Law. This Article provides

“Where the law requires a signature of a person, that requirement is met in relation to a data message if:

• a method is used to identify that person and to indicate that person’s approval of the information contained in the data message; and
• that method is as reliable as was appropriate for the purpose for which the data message was generated or communicated, in the light of all circumstances, including any relevant agreement.” (United Nations 1997)

Based on this Article, the UNICTRAL Model Law on Electronic Signatures 2001 specified a technology-neutral approach which avoids preferring the use of any specific type of electronic signatures. For meeting the challenges on negotiability and transfer of property and possession the Model Law has provided in Article 17(3)

“If a right is to be granted to, or an obligation is to be acquired by, one person and no other person, and if the law requires that, in order to effect this, the right or obligation must be conveyed to that person by the transfer, or use of, a paper document, that requirement is met if the right or obligation is conveyed by using one or more data messages, provided that a reliable method is used to render such data message or messages unique.”(United Nations 1997)

This Article is only the initial initiative to solve the legal issues with respect to legality of electronic bills of lading as the study by UNICTRAL Working Group on Electronic Commerce continued its study of this specific issue.

CMI Rules for Electronic Bills of Lading

Apart from the initiatives taken by the UNICTRAL there are other international organizations like International Chamber of Commerce (ICC) and Comite Maritime International (CMI) have developed various standards and supporting rules for promotion of EDI on a global level. ICC has made provisions relating to the use of electronic bills of lading in INCOTERMS 2000 and UCP 500.

CMI adopted Rules for Electronic Bill of Lading in 1990, according to which the CMI Rules become operative by incorporation of these Rules in the contract of carriage. CMI Rules provide for the issue of a Private Key – sort of a personal identification number – possession of which entitles the holder the control on the goods. When the right in the goods is transferred to any subsequent buyer on information to the carrier, the carrier arranges the issue of a new Private Key to the new buyer. This method of negotiation differs from the traditional one as in this case the carrier is involved in the transaction as a registrar who becomes an important link in the negotiation process.

CMI Rules also provide solutions to the legal requirements in connection with writing and signature. The carrier, consignor and the other parties who become involved with the transaction at a later stage subscribing to the CMI Rules and procedures with respect to writing and signature confirm that any domestic legislation or national custom or local practice specifying the requirements for writing and signature would be considered in accordance with the provisions of applicable CMI Rules in this respect.

The BOLERO Project

The Bills of Lading Electronic Registry Organization (BOLERO) project is another latest attempt to mitigate the legal issues in implementing EDI in shipping. The BOLERO system operated by

1. Bolero International Limited and
2. Bolero Association Limited became operative in the year 1999.¹⁶

The Bolero bill of lading incorporates all the essential features of the traditional paper-based bill of lading via fast and efficient electronic messaging system.

One of the key components of Bolero system is that the organization maintains a “Title Registry” which is a database of all the holders of right under the Bolero bills of lading. Bolero Rule Book controls the relationship among the parties involved in the transactions through the system. Rule Book also provides for switching to a paper bill of lading in the event the goods are sold subsequently to a party who is not the user of Bolero.

Security in the Bolero transactions is achieved through the use of digital signatures where the users are provided a unique ‘private key’ embedded in a smart card. With every transaction of buying and selling the changes in ownership or holding are electronically recorded in the “Title Registry”. The Bolero Rule Book provides for the change in the ownership and possession of goods through the legal concept of ‘novation’ where the original contract with the carrier is dissolved and replaced by a new contract between the carrier and the new party involved. At the point when the contract is novated, Bolreo.net acting as the agent of the carrier acknowledges the holding of the goods on behalf of the new party.

While ‘novation’ deals with transfer of the contract of carriage from one party to the other, ‘attornment’ is the method by which constructive possession of the goods is transferred. The ‘attornment’ deals are entered into by the carrier with the new holder through the agency of Bolero for transferring the constructive possession of the goods covered by the contract. Despite the advantages, there are two potential disadvantages in Bolero system in that the liability of Bolero is limited per user for breach of contract and there is the maximum that one user can claim per year. Secondly since the Bolero system is subjected to UK laws, the recognition by non-English courts of the system is questionable.

Conclusion

As a result of the discussions, the question that arises is how imminent is the replacement of traditional paper-based bill of lading by electronic means. The answer appears to be that it will take more time in view of the legal reforms required to recognize the technological concepts which have developed recently by the statutes.

Research Methodology

Introduction

Social science research follows several research methods to collect information and data relating to the issue under study. Ontology and epistemology enables the formation of the basic framework for many of the social research methods. The term ontology is defined as a branch of philosophy concerned with communicating on the environment and arrangement of the world (Wand & Weber, 1993). Ontology thus is concerned with what is said to be in existence in the real world. The ontological questions always try to find the arrangement of worldly truth and the things that need to be learnt about the real things in the world.

On the other hand, epistemology talks about the nature of human knowledge and understanding (Hirschheim, Klein, & Lyytinen, 1995). This philosophy advocates that such knowledge and understanding can be acquired by employing various types of inquiry and alternative methods of investigation (Hirschheim, Klein, & Lyytinen, 1995). According to Guba & Lincoln, (1994) the inquiry paradigms can be considered in ontological, epistemological and methodological questions. The methodological questions decide the ways in which the researcher can proceed to find out what he or she believes that can be known about the existing things in the world. The research methods generally follow

1. experimental,
2. correlation,
3. natural observation,
4. survey and
5. case study methods.

The researcher must evolve a suitable research design specifying the research method the researcher intends to follow for completing the study. In choosing the particular research method to be followed, the researcher has to take into account a variety of variables like the subject matter under research, and the range of interests of the researcher, difficulties involved in accumulating the time and resources and other funding issues. The major classification of the research methods takes the form of qualitative and quantitative research methods.

Considering the subjective nature of the current research to examine the acceptability of electronic documents as having legal tender and validity, use of epistemology was considered appropriate. Since epistemology is concerned about the ways in which the human actors would act to inquire and acquire knowledge on things, which really exist in the world, this research proposes to follow an epistemological approach. Moreover according to Hirschheim, Klein, & Lyytinen, (1995) since epistemology talks about the nature of human knowledge and understanding and that such knowledge and understanding can be acquired by employing various types of inquiry and alternative methods of investigation this research proposes to use an epistemological approach.

During the process of this examination, the research will extend to analyzing the latest developments in the field of Electronic Data Interchange in the field of shipping. This includes the study of the likely problems being faced for adopting the electronic documents and signature in the place of traditional shipping documents. Therefore it is proposed to use a quantitative research method of questionnaire survey among forwarding agencies and managers of logistics department in different companies to gather the necessary primary data for completing the study.

Research Design

For any research in the realm of social science, research design provides the bondage that keeps the research project together (Web center for Research Methods, 2006). Research design is resorted to make a specific structure available to the research, by indicating the manner in which the integral parts of the research project such as the samples and other elements work together to achieve the objective of addressing the central research question. The research design may take the form of a randomized or true experiment, quasi experiment or non-experiment (Web center for Research Methods, 2006).

It is necessary to have this three-fold classification for describing the research design with respect to internal validity. In general, although the randomized experimental basis is the strongest for establishing a cause and effect relationship, since the research is non-experimental in nature it adopts a non- experiment research design for conducting the research. Since the research aims to examine the perceptions of forwarders and logistics managers through survey, it is considered appropriate to employ the quantitative research method for completing the research.

Research Methodology

The process of this research engages the methodology primarily involving collection of the required information and data. The collection process is followed by the activities of organizing and integrating the data collected. The major step in the process of this research is the collection of data from the informants and the success of the research depends largely on the data collection process. Efficient data collection process leads the researcher to valid and credible findings from the research. This research will be founded on a quantitative study on the inferences of different people associated with EDI in shipping.

Collection of primary data using the information and data collected from a number of participants based on the survey will provide the base for a firsthand experience of the researcher. Therefore this research uses the research technique of survey method for conducting the research. The analysis of data collected is an important and integral process in the conduct of research. The current study used a thematic analysis of the primary data collected to present the information in a readable format.

The questionnaires containing open and closed ended questions were distributed to the selected participants through email and they were requested to send back the completed questionnaire to the researcher for further analysis. The subject matter of study could also invariably be supported by primary data collected through qualitative research method of semi-structured interviews. Therefore the researcher also considered using a qualitative method of semi-structured interviews in the place of survey.

However, since the samples would be having the opportunity to express their views more freely when they were asked to respond to surveys, the survey method was considered more appropriate. This would enhance the credibility of the study. Further, in view of the time and efforts involved in interviewing a group of respondents from a large population it was considered better to have opinions and viewpoints expressed as answers to the survey questions to add value to the findings.

Research Approach

In order to collect the required information and data for conducting the study it was necessary to conduct survey through a questionnaire distributed to the chief information officers and logistics managers of organizations dealing in international and domestic commerce. Originally the researcher planned to conduct the empirical study with freight forwarding companies. However on a second thought, it was recognized that organizations involved in general trade and commerce both domestically and internationally would present better responses because of their exposure to EDI rather than the freight forwarding agencies.

Initially the researcher requested for names of participants from friends and acquaintances. This gave access to approximately 12 names. The researcher also searched the Internet web sites that provided information on freight forwarders. This search led to the possibility of sending questionnaires to about 150 prospective respondents. A total of 31 responses were received.

A note explaining the background and the purpose of the interview was sent along with the questionnaire. The sampling method that was used for this research is by choosing the samples representing employees from different companies. Through the process of distributing the questionnaire containing both open and close ended questions, the researcher was able to collect the information and data from the selected samples. The distribution of samples is of paramount importance, as the sample should represent the total population. Therefore, the researcher took maximum care in the selection of samples for the interview.

Construction of the Research Instrument

The instrument (as exhibited in Appendix 1) contained a questionnaire with questions framed to find the viewpoints of the respondents about EDI in shipping in general and the difficulties faced by them in replacing the traditional set of paper documents by electronic documents. The questions focused more on the legal issues on replacing paper documents by electronic documents. Part A of the questionnaire contained questions on the nature and size of the companies. The demographic information is required to analyze the homogeneity of the samples. Part B of the questionnaire contained questions on EDI and its impact on shipping. The questions are open-ended questions providing the chance to the samples to express their opinion freely.

Summary

This chapter presents a descriptive account of the research design, research process and the data collection techniques followed for completing this research. The chapter also contained a discussion on the survey method followed for gathering the information and data from the selected samples. A detailed analysis of the findings of this study and an analysis of the findings is presented in the next chapter.

Findings and Analysis

Responses to the Questionnaires

The questionnaires were completed by senior managers in the organizations comprising mainly of Chief Information officers and Logistics managers having the responsibility of information processing and shipping in their respective organizations. Based on the information of their positions in their respective organizations it can be inferred that the respondents have adequate knowledge on the activities associated electronic data interchange in their respective industries. The response rate for completed questionnaire is shown in the following table:

Table: Breakdown of Responses.

This response rate can be considered as a typical of an information technology questionnaire survey. In the past for similar types of survey by Burd, (2008) evolved an average response rate of 30.0%. Baker, (1997) suggested that it is possible to obtain statistically reliable conclusion from a sample population of 20 or more. However it is a fact to be remembered that the relative response rates do not guarantee the reliability of the survey results as representing the viewpoints of the population. It is the content and reliability of the information that add up to the value of the findings of any social science research.

Characteristics of Respondent Organizations

From the answers to Part I of the questionnaire, the information on the characteristics of the respondent organizations has been compiled for presentation. Based on the number of employees the size of the organization has been categorized into small, medium and large companies. Organizations with less than 50 employees were classified as small, with 51 to 250 employees as medium and organizations having more than 250 employees as large. The results indicate that a majority of the firms were falling under medium and large sized organizations. 72% of the organizations were having turnover between £ 20 million and above £ 50 million. 78% of the organizations were involved in international operations. The following figures represent type and size of the organizations responded to the survey questionnaire.

Electronic Data Interchange in Respondent Organizations

Part II of the questionnaire contained questions on the perceptions of the respondents on various aspects of electronic data interchange initiatives adopted by their respective companies for shipping as well as other organizational purposes.

Exposure to EDI Systems

The question on exposure to networks/large information systems of the organization evoked the above response from the samples.

Table: Exposure to EDI Systems.

It is clear from the table that a majority of the respondent organizations are adopting systems for electronic data interchange from their suppliers. 10 respondents have indicated that they maintain EDI systems for meeting the requirements of their customers. Only few of the respondent organizations have electronic data interchange with their parent organizations. From the standpoint of the researcher the chances of the respondent organizations to get exposed to EDI systems are based on their working environment. It is normal that organizations with the kind of exposure to international trading should expect some kind of pressures for adopting EDI systems in their organizations. The attitude towards implementing effective EDI system is one aspect that top management of the organizations should consider and devise appropriate systems for integrating the data with different agencies.

Level of EDI Systems

Table: Level of EDI Systems.

One of the major factors that influences the organizations to adopt electronic data interchange systems is the pressure from their respective customers or suppliers. This is evident from the survey results where almost 71% of the respondents are of the view that their organizations have adopted the EDI systems to meet the requirements of their customers or suppliers. Without the institution of an effective EDI system the organizations are sure to have potential loss of customers or additional costs to their respective organizations.

Importance of EDI Systems

Table: Importance of EDI Systems.

From the table it is clear that almost all the respondents have understood the importance of adopting an effective EDI system in their organizations. Any organization having an attitude of attaching less importance to the development in the global environment in respect of data interchange based on advanced information and communication technology would cause organizational systems to be less effective than they otherwise might be. This would also lead to lesser competitive ability of the firms.

Critical Success Factors

The question on the critical success factor has evoked mixed responses from the participants to the survey. This is because of the fact most of the factors listed appeal equally for the successful implementation of an effective EDI system in the organizations. For instance, it is difficult to judge whether the factors of lack of compatibility of hardware and software or the lack of provision of clear legal guidelines would seriously impede the implementation of EDI systems.

From a global perspective in the absence of compatible ICT implements an effective EDI integration cannot be attempted. At the same time having uniform legal base for the recognition of writing of the contracts, or recognizing the electronic signatures is of utmost importance for commercial transactions to take place between parties situated in different geographical locations. Similarly within the organizational context, the commitment of EDI implementation team is as important as that of the training to the EDI participants.

Strictly from a legal perspective which is the scope of this research, unless dependable security measures are there to protect the legality of the transactions the parties involved would hesitate to indulge more in electronic interchange of shipping documents. Uniform statutes providing for the same rights and responsibilities of the parties in different countries are also of paramount importance to encourage parties to enter into more electronic trading among them. Above all organizations are sure to undertake a cost-benefit analysis of making a thorough reengineering of their business processes to accommodate the full electronic data interchange with their business partners.

The results of the survey indicate that relationship with trading partners is one of the most pointed out critical success factor based on the mean value. This factor might have assumed significance in the light of the trust the companies can place on their business partners which would be the direct result of the relationship or the pressure from the business partner which again is a matter of relationship between the associates.

Availability of proper networks has also found favor with the participants as a critical success factor, as without proper networks to facilitate the data interchange there can be no effective EDI introduced either in shipping or covering any other business operations. The mean values assigned to the individual success factors based on the responses from the participants are shown in the following figure.

Factors affecting Legality of Electronic Documents

The objective of this question is to gather the perceptions of the participants on the factor that affects the legality of electronically transmitted documents most. The data collected is presented in the table appended below.

Table: Factors affecting Legality of Electronic Documents.

On the question of the factor that affects the legality of electronic documentation most, the respondents have expressed the opinion that lack of global recognition is one of the important factors that affect the legality of the electronic documentation. The dispersed geographical locations, where the parties are situated and the uneven development of ICT in these locations are the reasons for the global recognition of the implementation of EDI in the organizations throughout the world.

Even though a number of initiatives have been taken by the European Union and the United Nations in encouraging the member countries to adopt and implement EDI in the respective countries, lack of uniform development of technology and the availability compatible networks have hindered the successful implementation of EDI in all the countries with the same intensity. In addition the adoption of EDI requires a number of changes in the existing legislation and enactment of new laws governing the replacement of traditional paper documents with electronic documents. Despite the progress in the industrially advanced countries in the direction of implementing EDI in a rapid pace, the developing countries are unable to meet the technology standards compatible with the advanced nations. This has seriously hit recognizing the legality of the electronic documents in the developing countries.

Restrictions on negotiability of electronic documents is another factor which the respondents have identified as the one that most affects the legality of electronic documents. Other factors like lack of uniformity in regulations and security concerns of bankers are the other factors that have more serious influence in affecting the legality of electronic documents.

Analysis

Analysis of the findings of the current research indicates that even though different industries are not averse to the idea of implementing full EDI (which is evident from the use of electronic seaway bills), there is the requirement of the bill of lading to be negotiable which acts as the most important legal barrier in implementing the EDI in shipping. With the electronic form of bill of lading, firms are unable to introduce the negotiability factor which is easier in the traditional paper bill of lading which can be signed and transferred as such as a token of having negotiated.

EDI can certainly be regarded as a better way of helping the creation of legally binding agreements between different parties. Notwithstanding this fact, there is no clarity on the legal standing with respect to the electronic documents. Therefore EDI contracts cannot be regarded as legally enforceable ones. This study adds knowledge to the already found obstacles of writing, authentication, and evidential nature, issues pertaining to the formation of contracts, signature and negotiability of the electronic documents.

Although the regulations of a number of advanced nations recognize a large amount of business dealings as legally perfect even when the contracts are not made out in a particular written version, there are specific requirements with respect to ‘writing’ in the case of some of the laws and rules. The requirements with respect to writing may relate to the contracts which is binding on parties other than the buyer and seller and where the title to the properties can be transferred by just the physical transfer of document of title to goods. Similarly where the laws are enacted with the idea of protecting a specific class of persons and where the requirement is specified by the administrators to enforce a public procedure.

In respect of authentication of the documents also there may arise a substantial barrier for the implementation of EDI in different countries with the ‘signature’ on the documents. The objective of the signature is to identify the parties and in a contract the purpose of signature is the evidence of the intention of the parties to be bound by the contract. In most of the countries the courts have placed restrictions on the documents to be signed by the parties manually.

EDI transactions can be authenticated by signing them electronically within the data streams of algorithms. This would enable identifying the sender by reading the signature through an electronic ‘key’. UNICTRAL model law has broadened the legal based of electronic documentation to include electronic signatures. The Uniform Commercial Code allows any symbol or signature affixed with the intention of authenticating a contract.

Two of the important issues that arise with respect to the legality of data messages are

1. whether they are documents and
2. whether these messages can be accepted as evidence.

Article 4 of UNICTRAL provides for the recognition of the legality of the data messages with respect to their effectiveness, validity or enforceability. Article 8 adds to the legal character of data messages by adopting best evidence rule and hearsay rule and grants the messages evidential nature. However there are still some countries which have not enacted legislations based on the model law which hinders the progress of EDI.

In the light of the above discussion, the findings of the research can be said to be in agreement with the literature reviewed in indicating that the negotiability of the documents is the foremost factor that affects the legality of electronic documents. The legality of documents depends on the writing, authentication by signature and transfer to third parties. There are major issues still remain unsolved with respect to these features of electronic documents which affects the implementation of EDI in full.

It is true that if negotiability of electronic documents is made possible without restrictions, it would lead to the undertaking of most of the other commercial functions without much difficulty. It has to be appreciated that in respect of contracts of carriage, only function of bill of lading still remains to be covered by EDI is the negotiability as the other functions like evidencing the contract of carriage and receipt of goods are already covered by EDI.

Another important aspect that needs mention is the ‘digital signature’, since there has been significant development taken place in this respect. There are issues connected with digital signatures as to whether such signatures are legally enforceable. In the context of EDI in shipping, signature or authentication of a document can be done in any of the following ways;

1. by making use of secret digital code which are similar to ‘PIN’s used in operating automatic teller machines,
2. by using ‘public keys cryptography’ which functions based on a mathematical scheme for arranging computer data,
3. by using a digital signature or
4. by using specific computer software such as ‘PenOp’ where a person can sign the computer screen and the signature will be encrypted by the software.

Even though these methods of authentication have the technical ability to verify the origin of the message, they may not meet the legal requirements for signature.

In order to determine the legality of the digital or electronic signature, it is important to consider the provisions of Model Law governing the ‘writing’. Articles of Model Law distinguish writing, originality and signature in respect of documents in electronic form. Article 6 of the Model Law provides the technical solutions same validity as a traditional signature and allows the parties to agree on specific means of signing the electronic documents.

In cases where the service of Bolero is used, each user agrees that a signed message shall become admissible before any court of law as evidence of a message or any portion of such message. In the event of any requirement of any message a copy produced by the user which is duly authorized by Bolero shall be accepted by anyone as the primary evidence of the message. For this purpose Bolero has defined ‘signed message’ as any document bearing a digital signature that could be verified by using the public key. This public key is listed in a certificate issued by Bolero and for accepting the digital signature; the certificate should be valid when the digital signature was created (Chan et al., 2003)¹⁷.

The latest development in the area of EDI in international trade and commerce is the new United Nations Convention on Contracts for the International Carriage of Goods Wholly or Partly by Sea – the Rotterdam Rules adopted by the United Nations in December 2008. The Rotterdam Rules provide more clarity to the roles and responsibilities of different parties in the international trade and commerce. While the old conventions did not address the EDI, the Rotterdam Rules has set out the legal infrastructure for the development of e-commerce in maritime transport. It aims at introducing complete paper-free transport of goods by sea with a view to achieve shorter processing times and reduced chances of mistakes which will ultimately result in lower costs (United Nations Information Service, 2009).

Summary

The findings from the questionnaire survey identified the level of EDI implementation in the respondent organizations. The findings also report that lack of global recognition and lack of negotiability of the bill of lading as the factor that affect the legality of the electronic documents. Solid relationship with the business partners and the availability of proper networks are the critical success factors for the successful implementation of EDI in shipping as identified by the survey.

Conclusion

The major legal challenges therefore are not technology related with respect to the implementation of EDI in shipping. However use of new and improved technology has changed the ways in which businesses are transacted and contracts are concluded. The existing rules and regulations have not been able to fit into the new business infrastructure. Commercial and financial transactions have become trans-border transactions at a faster rate than anticipated and the technological developments in the legal realm have not been reciprocated to recognize the legality of these new types of transactions.

Therefore it becomes essential that an analysis of the provision of improved services and the activities of firm involved in extending these services is undertaken from a legal perspective to understand the implications of legal issues on each type of business transaction.

A general approach towards analyzing the legal aspects of EDI therefore would provide only a general and superficial overview without any in-depth understanding of the requirements. It is to be appreciated that legal issues relating to monetary transactions, transactions in stocks and bonds, dealings in properties, supply chain management, customs-related activities and welfare funds and other social security measures are different even though they adopt same kind of technological applications.

Therefore it would be impossible to analyze the impact of replacing paper with electronic documents and arrive at a solution which can be applied to all kinds of business transactions where paper is being used. Even when traditional mail has been regarded as a part of business for centuries, there has been no effort to make the postal laws part of the commercial legislation. In the same way when electronic messages become part of the commercial transactions there is no need to consider laws relating to such messages as important to the legal base of the transactions.

Several literature relating to EDI have pointed out that in addition to replacing manual data handling with electronic data exchange, EDI also helps in redesigning and improving the entire business processes of firms with respect their dealings with their trading partners. Thus EDI introduces a new way of doing business to the organizations. In order to achieve a high level of integration of EDI in the areas of logistics and supply chain management, it is crucial to identify the underlying success factors and paying much attention to these factors before any attempt is made towards full implementation of EDI.

It is necessary to understand that in the increasingly competitive business world, the international relationships between the companies has become extremely important and this has made the electronic data interchange at the international level a necessity of time assuming significant importance.

Recommendations

Further studies relating to EDI in shipping can be extended to a comparative study of the legislation governing the electronic commerce in the European Union and the United States for a better understanding of the ground for implementation of a full EDI in the different continents. Similarly a study of the format of the latest electronic documents being used in international commercial transactions for suggesting suitable modifications will also not be out of place.

References

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Al-Farhan, F., 2002. Electronic contracts The Impact of the UNCITRAL Model Law on international legal systems Saudi Arabia information technology development from a legal perspective. Web.

Bainbridge, D. (1996). Introduction to Computer Law 3rd Edition. London: Pitman Publishing. Cited in Muthow ‘The Impact of EDI on Bills of Lading — A Global Perspective on the Dynamics Involved’. Web.

Bernauv, K. (1995). Current Developments Concerning the Forms of Bills of Lading – Belgium In A.N. Yannopoulos, (ed.), Ocean Bills of Lading: Traditional Forms, Substitutes and EDI Systems. The Hague: Kluwer Law International. Cited in Hamid (2004) ‘The Legal Implications of Electronic Bills of Lading: How Imminent is the Demise of Paper Documents’. Web.

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Boss, A. H. (2001). The Uniform Electroni Transactions Act in a Global Environment. Idaho Law Review , 275 (7).

Chan, F.W.H., Ng, J.J.M. & Wong, B.K.Y., 2003. Shipping and Logistics Law: Principles and Practice in Hong Kong. Hong Kong: Hong Kong University Press.

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Footnotes

1. INCOTERMS published by the International Chamber of Commerce (ICC) constitute a contractual set of rules based on the commercial terms established by the custom of international traders. CIF stand for Cost, Insurance, Freight and FOB stand for Free on Board.
2. As per International Convention for the Unification of Certain Rules of Law Relating to Bills of Lading, 1924.
3. Section 1(6)(b) UK Carriage of Goods by Sea Act, 1971.
4. J I Macwilliam Co Inc v Mediterranean Shipping Co S A.The Rafaela S [2002] EXCA Civ 556; [2003] 2 Lloyd’s Rep 113.
5. Bill of Lading or other transport document offers prima facie or conclusive evidence depending upon whether or not a document is transferred or negotiated.
6. For instance general statutes have been enacted in countries like China, Hong Kong, India, The Philippines, Singapore, Malaysia, Japan, Thailand and South Korea.
7. The private contracts also result in additional benefits by providing for the allocation of risks arising out of electronic transmissions or by providing for the apportionment of liability to specific parties in the event of losses occurring on accounts of acts or deeds of third parties unconnected with the contract.
8. UNICTRAL was created in December 1966 by the United Nations with an express object ive of promoting harmonization and unification of international trade law. See United Nations General Assembly Resolution 2205 (XXI).
9. UNICTRAL has been instrumental in bringing out Model Law on Electronic Commerce 1996 and the Model Law on Digital Signatures 2001 for enactments in the same line by the member countries.
10. In Derby and Co v Weldon (No.9) [1991] it was held that a computer database, in so far as it contain information capable of being retrieved and converted into readable form was document for the purpose of disclosure. See Michael Brindle & Raymond Cox Law of Bank Payments Edition 3 Sweet & Maxwell 2004 p 281.
11. Alan Shipman (2008) ‘RPost’s Registered E-mail ® Services and Evidence Issues within in the United Kingdom Legal System’. Web.
12. Cited in John Livermore and Kralierk Enarjai in ‘Electronic Bills of Lading and Functional Equivalence’ . Web.
13. Farhan Al-Farhan (2002) ‘Electronic contracts The Impact of the UNCITRAL Model Law on international legal systems Saudi Arabia information technology development from a legal perspective’. Web.
14. Derby & Co. Ltd. V Weldon & Others, [1991] 2 All ER 901.
15. In case where the Model Law is adopted, functional equivalence would become acceptable, reducing the uncertainties of electronic bills of lading to a large extent.
16. The Bolero.net: The Electronic Trade Community. Web.
17. Felix W H Chan, Jimmy J M Ng, Bobby K Y Wong (2003) ‘Shipping and Logistics Law: Principles and Practice in Hong Kong’ Hong Kong University Press Page 239.