Electronic Chattel Paper – Changing the Medium

A private correspondent writes: “Have you ever heard of any cases on electronic chattel paper that is subsequently printed out (apparently called “papering out” in the biz) and the printed version being considered as an ‘original’?”

Views? What protections are there in law or in practice to avoid duplication of a record that should be unique, or at least have a single authoritative version?

On what basis is electronic chattel paper issued or used in Canada, if at all? UCC Article 9 makes special provision for it, and negotiable electronic records generally, but Canadian e-commerce law has not followed that, so far as I know. Does federal law cover it, whether the Bills of Exchange Act or the Depository Bills and Notes Act? If so, what do they say about “papering out”?

The UNCITRAL Working Group on Electronic Commerce has been working for some years on a model law on electronic transferable records (ETR). The group hopes to wrap up its work on this topic at its next meeting in early November. The draft Model Law to date – the most recent version online is for the May 2016 meeting – can be found here (WP.137 and WP.137 Add. 1):

That draft provides for changes to the support medium of a transferable record, from paper to electronic in draft article 21 and from electronic paper in draft article 22. The latter says this:

Draft article 22. Replacement of an electronic transferable record with a transferable document or instrument

1. A change of medium of an electronic transferable record to a transferable document or instrument may be performed if a reliable method for the change of medium is used.

2. For the change of medium to take effect, the following requirements shall be met:

(a) The transferable document or instrument shall include all the information contained in the electronic transferable record; and

(b) A statement indicating a change of medium shall be inserted in the transferable document or instrument.

3. Upon issuance of the transferable document or instrument in accordance with paragraph 2, the electronic transferable record ceases to have any effect or validity.

4. A change of medium in accordance with paragraphs 1 and 2 does not affect the rights and obligations of the parties.”

Paragraphs 44 through 46 of WP.137 Add.1 comment on this provision.

Does this sound to you like a practicable provision?

BTW the government of Canada has been looking for Canadian interest in the ETR project of UNCITRAL for several years and has found none. If you or your clients would like input into the final version of the model law, by all means let them know – you may do so through this post. The text to be placed before the November meeting should be available at the link above shortly.

Comments

  1. David Collier-Brown

    I’d wish the former record in either case to be annotated with
    – the nature of the change of medium, as above
    – the date range for which the now-obsolete document was valid
    – a necessary and sufficient indication of the location of or acecess method to the replacing document

    I used to work in large-scale document imaging, and we needed at least that to be able to track a document. More if we had to track change in the document in our electronic-based system, plus a watermarking system for copies printed from the electronic system with the change dates and a statement of when the copy was printed.

    Not a trivial problem (;-))

  2. No Canadian jurisdiction provides for electronic chattel paper, and as a constitutional matter (property and civil rights) Parliament would not be able to legislate in this area. The Ontario Electronic Commerce Act provides that “control” of an electronic document does not constitute possession for the purposes of the PPSA. Whatever control means in this context, it is clear that one could not perfect a security interest in chattel paper in electronic form (i.e. a digital image of a paper contract) by taking possession of a printout or exercising some form of dominion over an electronic version of the document. The OBA has recommended that the PPSA be amended to allow for electronic chattel paper but it seems unlikely that these amendments will see the light of day any time soon.