Tuesday 18 April 2017

Relevance of the blockchain technology to the draft Model Law on Electronic Transferable Recores (as acknowledged by the latest official document)

My article, "Blockchain Technology and Electronic Bills of Lading", has examined the draft Model Law on Electronic Transferable Records and the Rotterdam Rules to see whether it is possible to interpret them in a manner compatible with blockchain-based bills of lading. What follows will note how the relevance of the blockchain technology has come to be acknowledged in the latest official document (A/CN.9/920 (2017)) which contains the draft Model Law with the draft explanatory notes.
The draft Model Law accommodates various types of electronic transferable records based on the principle of technology neutrality. The draft explanatory notes explain that reference in the Model Law to electronic transferable record management systems does not imply the existence of a system administrator or other form of centralized control (Para. 167). 
Nothing in the draft Model Law requires a person to use an electronic transferable record without that person’s consent (draft Article 6(2)). The draft explanatory notes state that consent to using distributed ledger based systems may be inferred by circumstances such as the exercise of control on the electronic transferable record or performance of the obligation contained in the electronic transferable record (Para. 48).
The draft Model Law is based on the principle of functional equivalence. Thus, where the applicable law provides for the endorsement of a transferable document, the draft Model Law treats an electronic transferable record as functionally equivalent to a transferable document only if the information required for the endorsement is “included in” the electronic transferable record (draft Article 16 on endorsement). The draft explanatory notes state that the words “included in” have been chosen to encompass instances when the information is logically associated with or otherwise linked to the electronic transferable record (Para. 141). This wide interpretation would accommodate the endorsement of a blockchain-based token through its transfer from one address to another on the blockchain.
Where there is a legal requirement of a signature of a person, an electronic transferable record can meet that requirement only if a reliable method is used to identify that person (draft Article 9 on signature). The draft explanatory notes acknowledge that certain electronic transferable records management systems, such as those based on distributed ledgers, may identify a signatory by referring to a pseudonym rather than a real name (Para. 60). The notes suggest that an identification by a pseudonym and the possibility of linking it to a real name, if need be, would satisfy the requirement to identify a signatory (Para. 60). The explanatory notes further suggest that linking of a pseudonym to a real name may be based on factual elements to be found outside distributed ledger systems (Para. 60). The same interpretation may be given to the notion of "identification" of the person in exclusive control of an electronic transferable record, a requirement which must be met to establish functional equivalence to the possession of a transferable document (draft Article 11(1) on control).

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