In a recent memorandum, Cadwalader attorneys examined the potential implications of developments in blockchain technology for bills of lading.
The function of a bill of lading is to "evidence the title to the goods being shipped, the contract of carriage, and the right to receive and direct the disposition of those goods." The Cadwalader attorneys characterized blockchain, which functions as a digital ledger, as a "decentralized, automated system for storing information about transactions among its members."
The attorneys suggested that transactional data in a particular blockchain could be used to identify all parties to a transaction, the time that in which the transaction was executed, what was transferred, and other relevant information, in the form of metadata. The attorneys also suggested that digital coins could be used in tandem with a particular blockchain to represent the goods being transferred. As such, the digital coins and the blockchain could be used to identify who held the title to the goods.
Further, the attorneys examined how blockchain may fit into the legal framework that governs bills of lading. Bills of lading are subject to rules under Article 7 of the Uniform Commercial Code. Although the UCC provides for the use of "electronic documents of title," the attorneys explained, it would be difficult to "structure [a] blockchain and draft the accompanying legal documentation in a manner that preserves [a] part[y's] rights and property interests under the UCC." However, the attorneys expressed confidence that a "properly designed" blockchain system could be made consistent with UCC provisions governing bills of lading.
If blockchain transactions could be classified as bills of lading, the attorneys concluded, there might be significant benefits. For example, "classification under the UCC would provide clear legal answers regarding how to receive a perfected security interest in the bill of lading." The attorneys also stated their belief that a blockchain bill of lading "could be either negotiable or non-negotiable."
The memorandum was authored by Cadwalader partners Christopher McDermott and Jeffrey Nagle, and by associates Martin Horowitz and Stephen Johnson.
Commentary / Christopher McDermott
The use of blockchain in lieu of bills of lading remains largely hypothetical at this time, but offers real benefits to market participants (e.g., cost savings, reductions in fraud, etc.) and appears attainable from a legal perspective. Indeed, it may very well become the industry standard sooner rather than later.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
