Fourth Industrial Revolution: Legal risk management is critical

The Fourth Industrial Revolution brings with it some operational risks in the supply chain. What about the legal risks that result?

We all know that new technologies have already impacted the logistics and supply chain industries, and will continue to do so in the chaotic environment that is the Fourth Industrial Revolution. Until now, the focus has been on how the new technologies could deal with operational risks in the supply chain. This article focuses on the management of the legal risks associated with the use of these new technologies.

The fundamental issue is to ensure that the contracts that are used cater for the operational and other risks arising out of the use of the new technologies. In the supply chain, there are numerous contracts including the land transporter’s contract, the terminal and/or consolidator’s contract and the bill of lading or charterparty contract. Traditionally these were all recorded on paper.

Some of the new logistics platforms are designed to do away with paper, which can reduce costs and errors and speed up the transfer of documents. These new technologies make the traditional analyses more complex, but they do not change the underlying legal principles by which a contract operates. In a dispute, generally the courts will try to determine what the parties had agreed to by referring to the applicable contract – whether it is written on paper or recorded on a server.

For example, in the English decision of Mediterranean Shipping Company SA versus Glencore International AG [2017] EWCA Civ 365, the Port of Antwerp operated an Electronic Release System (ERS) pursuant to which a PIN code is used to secure the release of goods from the terminal. In this case, Mediterranean Shipping Company (MSC) provided a release note, which contained the PIN codes, in exchange for the bill of lading to the shipper, Glencore International AG. Thieves hacked the system, obtained the PIN codes and uplifted the relevant containers at the port.

One of the issues that had to be considered by the court was whether provision of the PIN codes, in exchange for the bill of lading, constituted symbolic delivery of the goods, or, alternatively, whether provision of the PIN was provision of a “Delivery Order” under the contract.

The court rejected both of these arguments and held that the term “Delivery Order” must be understood to mean a “ship’s delivery order” as defined in section 1(4) of the Carriage of Goods by Sea Act 1992. As a consequence, the delivery order should have the key attribute of a bill of lading, namely a contractual promise by the carrier to deliver goods to the person identified in the order. The release note provided by MSC, which contained the PIN codes, did not satisfy this test.

The contract should have been drafted to cater for the release of the containers against a PIN code. It did not do so and, as a result, MSC was liable to Glencore for the loss suffered as a result of the theft of the containers.

This is a trenchant example of why everyone in the logistics and supply chain industries must do proper legal risk-management assessment when dealing with new technologies. Parties must always ensure that their contracts deal adequately with all aspects of the new technology, and that these new measures comply with the applicable legislation.