Blockchain-based bill of lading: need for support from the legal infrastructure

In my earlier post, I have suggested that one of the most promising use cases of the blockchain technology is electronic bill of lading: a token on a blockchain issued by the carrier of goods which represents the right to demand the delivery of the goods.

In another of my earlier post, I have pointed out that while many of the proposed applications of the blockchain technology seem to rest on the assumption that the participants could make effective arrangements themselves, they will produce their intended effects only in the sphere of party autonomy as recognised by the applicable law.

That also holds true with a blockchain-based bill of lading. Suppose that the parties to a sale contract have agreed on the use of a blockchain-based bill of lading and the seller has concluded a carriage contract under which the carrier has agreed to issue such a bill of lading. Their arrangement will work among themselves in accordance with their agreements (If not, remedies for breach of contract will be available). But their agreements are not sufficient to defeat the claims of third parties such as a creditor of the seller seizing the goods, the trustee of the seller's bankruptcy estate, another buyer who has bought the same goods from the seller and a person who has bought the goods in good faith from the person who had stolen them.

The applicable law might protect the (original) buyer if he holds a traditional paper bill of lading. Thus, under Japanese law, once a bill of lading has been issued, the disposal of the goods represented by it is not possible otherwise than by means of the bill of lading (Article 573 of the Commercial Code as referred to by Article 10 of the Carriage of Goods by Sea Act). Furthermore, the delivery of a bill of lading to its lawful holder has the same legal effect as the delivery of the goods represented by it (Article 575 of the Commercial Code as referred to by Article 10 of the Carriage of Goods by Sea Act), with the consequence that an erga omnes effect is bestowed on the holder's title in the goods (Article 178 of the Civil Code).

For electronic bill of lading to flourish, it is essential for it to be given a similar support from the legal infrastructure. The lack of it has long afflicted the various projects of electronic bill of lading. Thus, the banking industry has been reluctant to accept this type of bill of lading as adequate collateral. One laudable initiative for embracing electronic bill of lading is the Rotterdam Rules (United Nations Convention on Contracts for the International Carriage of Goods Wholly or Partly by Sea) which contain provisions for "negotiable electronic transport records." Adopted in 2008, the Convention has not entered into force yet.

For a blockchain-based bill of lading to take off, it is also important for it to be given a sufficient support from the legal infrastructure. To start the ball rolling, it may be worth asking whether a blockchain-based bill of lading constitutes a "negotiable electronic transport record" under the Rotterdam Rules, a question I intend to address in my future post.