Thursday 21 March 2019

Bahraini legislation based on the UNCITRAL MLETR

(This entry was originally posted at on 12 February 2019.)

Bahrain became the first to enact a statute based on the UNCITRAL Model Law on Electronic Transferable Records. I have been provided with an English translation of the statute by Jameel Al Alawi, Senior Legal Adviser for the Bahrain Economic Development Board, who was in charge of drafting the statute. With his permission, I post it below.

The Model Law sets out the conditions which must be met for an electronic record to be treated as a "transferable document" (Article 10). The latter is defined as a document that entitles the holder to claim the performance of the obligation indicated in the document and to transfer the right to performance by means of the transfer of that document (Article 2). Bills of lading and warehouse receipts, for example, are covered.

The Model Law adheres to the principle of technology neutrality, which means that the law should neither require nor assume the use of a particular technology for communicating or storing information electronically. Thus, the blockchain technology is not excluded from the Model Law's scope of application. It is in fact a technology well suited for creating and managing electronic records which purport to replicate transferable documents because it is capable of guaranteeing that there is a single true version of electronic records. 

The Model Law requires the use of a reliable method to establish an exclusive control of an electronic record that replicates a transferable document (Articles 10(1)(b)(i)(ii) and 11(1)(a)). In my previous work, I noted:

The reliability of the above-mentioned methods will be assessed by adjudicators on an ex post (i.e. after the occurrence of a dispute) basis. It would, however, be unfortunate if there were no foreseeability as to which methods would pass the reliability test since the use of such methods would then be deterred. A thought should, therefore, be given to the possibility of compiling a list of reliable methods on an ex ante basis. Such a list would need to be reviewed from time to time because neither the configuration of a central registry nor the algorithm of a blockchain is permanently fixed.

The Model Law lists a number of circumstances by reference to which to evaluate the reliability of a method, including the existence of a declaration by an accreditation body (Article 12(a)(vi)). But it leaves the details to the national laws.

What is interesting about the Bahraini legislation is that it provides for the accreditation of an "operator", the latter being defined as a person who operates an information system for managing electronic transferable records (Article 1(l)). It sets forth the procedure and conditions for accreditation (Articles 15 and 16), though it delegates to the competent authority to lay out the details of the conditions by means of a regulation. It also provides for the withdrawal of an accreditation. Once an operator is accredited, the reliability of the method used by the operator is to be presumed unless evidence to the contrary is adduced (Article 8(2)). Furthermore, where reliance on an electronic transferable record has caused damage and the electronic record is managed by an accredited operator, it is to be presumed that the damage was due to the operator’s intention or negligence unless otherwise proven (Article 17).

The Bahraini legislation is applicable to electronic transferable records "whether or not an operator is used in respect of these records" (Article 2(1)). Accordingly, it seems applicable to electronic transferable records managed with the use of the blockchain technology. In view of the definition of an "operator" (Article 1(l)), it seems unlikely that any accreditation will be issued with respect to public blockchains. But the administrator of a private blockchain may fall within that definition. It will be interesting to see whether the conditions for accreditation issued by the competent authority will actually cover private blockchains as well as central registries.

Postscript (15 Feb. 2019): Jameel has informed me that the Bahraini statute entered into force on 1 February 2019 but the regulation is still being debated.

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