WAREHOUSE RECEIPTS

DEVELOPING AN UNCITRAL INSTRUMENT ON WAREHOUSE RECEIPTS

Table of Contents

I. BACKGROUND INFORMATION ..................................................................................... 1

II. ASSESSMENT OF DOMESTIC LEGISLATIVE AND REGULATORY
FRAMEWORKS ................................................................................................................... 3
A. BULGARIA ............................................................................................................................ 5
a. Legislative Framework ..................................................................................................... 6
b. Regulatory Framework ................................................................................................... 11
c. Enforcement ................................................................................................................... 16
B. MALAWI ............................................................................................................................. 18
a. Legislative Framework ................................................................................................... 18
b. Regulatory Framework ................................................................................................... 21
c. Enforcement ................................................................................................................... 23
C. FRANCE .............................................................................................................................. 24
a. Legislative Framework ................................................................................................... 26
b. Regulatory Framework ................................................................................................... 27
c. Enforcement ................................................................................................................... 29
D. MEXICO ............................................................................................................................. 30
a. Legislative Framework ................................................................................................... 31
b. Regulatory Framework ................................................................................................... 35
c. Enforcement ................................................................................................................... 37
E. PHILIPPINES ....................................................................................................................... 38
a. Legislative Framework ................................................................................................... 39
b. Regulatory Framework ................................................................................................... 42
c. Enforcement ................................................................................................................... 44
F. UNITED ARAB EMIRATES .................................................................................................. 45
a. Legislative Framework ................................................................................................... 46
b. Regulatory Framework ................................................................................................... 52
c. Enforcement ................................................................................................................... 54
III. INITIATIVES ON WAREHOUSE RECEIPTS BY INTERNATIONAL AND
REGIONAL ORGANIZATIONS ...................................................................................... 55
 A. SCOPE ................................................................................................................................ 57
B. ELECTRONIC WRS ............................................................................................................ 57
C. TRANSFER OF WRS ........................................................................................................... 58
D. REGULATION OF WRS AND SUPERVISION OF WAREHOUSES .......................................... 60
E. LICENSING REGIME FOR WAREHOUSES ........................................................................... 62
F. PROTECTION OF THE RIGHTS OF SECURED CREDITORS.................................................. 64
G. GAPS IN THE EXISTING PRINCIPLES, POLICIES AND STANDARDS.................................... 66
H. COMPARING & CONTRASTING WRS PRINCIPLES, POLICIES AND STANDARDS.............. 67
I. OTHER INITIATIVES .......................................................................................................... 68
IV. APPLICATION OF UNCITRAL MODEL LAW ON ELECTRONIC
TRANSFERABLE RECORDS .......................................................................................... 72
A. OVERVIEW OF THE MODEL ETR LAW ............................................................................. 72
B. MEXICO EWR AMENDMENTS .......................................................................................... 73
b. Implementation of an EWR............................................................................................ 73
V. NEED FOR MODERNIZATION ...................................................................................... 75
A. COUNTRIES WITHOUT WAREHOUSE RECEIPTS LEGISLATION AND REGULATORY
FRAMEWORK .................................................................................................................... 76
a. Cameroon ....................................................................................................................... 76
b. Nigeria ............................................................................................................................ 77
c. Poland ............................................................................................................................. 79
B. COUNTRIES WITH A PARTIALLY DEVELOPED WAREHOUSE RECEIPTS LEGISLATION AND
REGULATORY FRAMEWORK ............................................................................................ 79
a. Belarus............................................................................................................................ 80
b. Russia ............................................................................................................................. 81
VI. USE OF WRS IN CROSS BORDER CONTEXT ............................................................ 82
A. EGRAIN .............................................................................................................................. 82

B. SUPPLY CHAIN FINANCING ............................................................................................... 83

VII. SCOPE OF WORK AND TYPE OF A MODEL INSTRUMENT ................................. 87

Annex I: WRS Initiatives By International and Regional Organizations at a Glance

 I. BACKGROUND INFORMATION

The purpose of this report is to examine the desirability and utility of a United Nations

Commission on International Trade Law (UNCITRAL) instrument on warehouse receipts. The

analysis shows that there are significantly different approaches towards warehouse receipts

legislation and regulation globally. The warehouse receipts-related documents published

by regional and international organizations such as the World Bank Group (“WBG”), the

European Bank for Reconstruction and Development (“EBRD”), the Food and Agriculture

Organization of the United Nations (“FAO”), the Organization of American States

(“OAS”), UNCITRAL, and the International Organization of Securities Commissions

(“IOSCO”) also reveal a number of differences. The UNCITRAL instruments that, in one

way or another, affect warehouse receipts (e.g., security rights in negotiable documents) do not

provide adequate and holistic guidance to countries seeking to legislate in the area of warehouse

receipts.

In March 2017, during the UNCITRAL Fourth International Colloquium on Secured

Transactions, the panel on warehouse receipt financing concluded that UNCITRAL

should develop an instrument on warehouse receipts in the form of a model law.1 Specifically,

the panel suggested

1
UNCITRAL Fourth International Colloquium on Secured Transactions (15-17 March 2017, Vienna), available at
https://uncitral.un.org/en/colloquia/security/papers_2017.

1
that this instrument should concentrate on “a modern general framework for the issuance and

transfer of warehouse receipts, the duties and rights of issuers and holders of warehouse receipts,

and the allocation of losses in case of a shortage of stored assets.”2 In addition, the warehouse

receipts instrument “could also address the use of warehouse receipts as collateral that are not

negotiable documents and especially the third party effectiveness of security rights in electronic

warehouse receipts.”3

In April 2018, the governments of the United States and Mexico submitted a proposal for an

UNCITRAL model law on warehouse receipts (Proposal). The Proposal was inspired by the

UNCITRAL Fourth International Colloquium on Secured Transactions and recommended that an

UNCITRAL Working Group should be established to “harmonize and modernize the legal

framework on warehouse receipts” for the purpose of creating a corresponding instrument, which

would “allow many businesses to benefit from a predictable and modern [regime] that facilitates

sales of warehouse receipts, as well as their use as collateral for loans, whether domestically or in

cross-border transactions.” The proposal addresses the desirability and the feasibility of the legal

regime.

The desirability component of the Proposal is underpinned by the assumption that an effective

warehouse receipts system benefits all of the participants in the commodity market, whether in

agriculture or other industries (e.g., mining), including producers, warehouse operators, traders,

and creditors. This assumption is generally accepted among international organizations and

2
UNCITRAL, Possible Future Legislative Work on Security Interests and Related Topics (April 20, 2017) at 11,
available at http://undocs.org/EN/A/CN.9/913.
3
Id.

2
governments alike, providing economic justification for warehouse receipt initiatives. The

Proposal also provides specific examples for the desirability of an UNCITRAL instrument,

including: i) the fact that a majority of economies still lack norms governing warehouse receipts;

ii) the need to harmonize existing standards on warehouse receipts promoted by international

organizations like the WBG and the EBRD; and iii) the growing importance of warehouse receipts

in supply-chain and value-chain financing.

The feasibility of the Proposal is premised on UNCITRAL’s unique position to engage in this type

of work that has already resulted in the adoption of international standards facilitating

modernization and harmonization of laws. Of relevance to warehouse receipts, those laws and

standards include: i) the United Nations Convention on Contracts for the International Carriage of

Goods Wholly or Partially by Sea (“the Rotterdam Rules”); ii) the UNCITRAL Model Law on

Electronic Transferable Records; and iii) the principles, recommendations, and model provisions

contained in the UNCITRAL texts on secured transactions. Although these model laws and

standards address some issues related to warehouse receipts, they do not provide a comprehensive

and systematic framework for a modern warehouse receipts regime. A future model instrument

would build on UNCITRAL’s extensive experience in developing international standards, the

warehouse receipts initiatives of other international organizations, and the practices of countries

in instituting warehouse receipts systems.

II. ASSESSMENT OF DOMESTIC LEGISLATIVE AND REGULATORY

FRAMEWORKS
This section covers the domestic legislative and regulatory framework on warehouse receipts and

related matters in the following six jurisdictions: Bulgaria, France, Malawi, Mexico, Philippines,

3
and the United Arab Emirates. The goal of this section is to assess the different

legislative/regulatory approaches to warehouse receipts systems (WRS) around the world and

illustrate the need for modernization. The approaches vary, for instance, some jurisdictions have a

general framework embedded in a code while others have stand-alone warehouse receipts laws.

Some enacted legal rules on electronic warehouse receipts (EWRs) while in others contractual

frameworks underpin the trading of EWRs. A few have also enacted specialized legislation

applicable to particular sectors, such as warehouse receipts covering agricultural products and gas.

Legal traditions have also shaped some of the approaches of legislative frameworks on warehouse

receipts. For instance, many civil law jurisdictions—following the French model—have

implemented a dual WRS, where the warehouse issues a warehouse receipt (also known as a

certificate of title) and a pledge bond (also known as a warrant). The warehouse receipt represents

ownership rights over the stored goods while the pledge bond is used to secure an obligation, such

as a loan to a farmer who deposited crop into a warehouse. In addition, some civil law jurisdictions

analogize warehouse receipts to negotiable instruments and securities, applying many rules

governing these instruments and securities interchangeably. In contrast, many common law

jurisdictions, especially those that follow the English law, do not have any legislation on

warehouse receipts whatsoever.

Many of the jurisdictions analyzed in this section are covered by the World Bank’s Enabling the

Business of Agriculture 2017 Report (hereinafter “EBA Report”). The EBA Report builds on the

World Bank’s Doing Business methodology and quantifies regulatory approaches and legal

barriers that affect the business of agriculture in 62 countries across 12 topic areas.4 The EBA

4
Enabling the Business of Agriculture, available at http://eba.worldbank.org/ (last accessed Sept. 20, 2018).

4
Report provides quantitative indicators on regulations for seed, fertilizer, machinery, finance,

markets, transport, water, and information and communications technology (ICT). Specifically,

the finance indicator measures, among others, the “use of agriculture relevant assets as movable

collateral and availability of credit information on low-amount loans, including from non-bank

lenders.” The Warehouse Receipts Index of the EBA Report measures the following five

characteristics of a WRS: i) the existence of a law regulating the operation of warehouse receipts;

ii) whether the warehouse operator is required by law to provide a performance guarantee, such as

a bond, an indemnity or guarantee fund, and/or insurance; iii) whether warehouse receipts are

negotiable; iv) which types of receipts may be issued (paper-based, electronic, or both); and v)

what information must be provided on a warehouse receipt in order for it to be legally valid (e.g.,

date of issuance, location of the storage facility, description of the goods, security right over the

goods etc.).

A. BULGARIA
Bulgaria’s WRS was rated first in a 2009 comparison of the systems in Eastern Europe and Central

Asia (“EECA”), prepared by the Food and Agricultural Organization of the United Nations

(“FAO”). The 2009 FAO assessment classified Bulgaria as an “advanced” warehouse receipt

WRS.5 Whether this remains the case after post-2009 legislative developments is arguable,

particularly after 2015, when Bulgaria’s National Assembly repealed the warehouse receipts law

applicable to the storage and marketing of grain on which the FAO assessment was based. Bulgaria

5
The use of warehouse receipts in agriculture in transition countries, p. 10 (FAO, 2009) (“For the last eight years,
the system has established itself as a major factor in stability of the grain market, and there have been no defaults
related to the activities of licensed public warehouses. The financial sector lends an annual 10 to 50 million euro
against warehouse receipts, depending on market prices. Some local traders finance their grain trading operations
completely on the basis of warehouse receipts and off-take contracts, without any fixed assets required by the
banks.”), available at http://www.fao.org/3/a-i3339e.pdf.

5
nevertheless meets the minimal requirements of a functional WRS, including specific rules

governing warehouse receipts, their transfers by negotiation, and performance guarantees.

Bulgaria’s current WRS is adversely affected by a lack of supervision with respect to warehouses

storing agricultural commodities (particularly grain) and a fragmented secured transactions

framework. Additionally, an underdeveloped commodity market and an absence of an EWR

exchange limit the potential of the WRS. The Law on Electronic Documents and Electronic

Services (2001)6 is insufficient to provide an adequate basis for institutionalization of EWRs.

In 2013, Bulgaria enacted a law, which provides for warehousing and an associated regulatory

framework with respect to crude oil and petroleum products. Moreover, Bulgaria’s experience in

eliminating its specific WRS for grain is illustrative of the challenges faced by other EECA

countries, such as Ukraine.

a. Legislative Framework
Bulgaria’s warehouse receipts laws are presently comprised of the: i) the Commercial Law

(1991),7 which is similar in form to a commercial code typically enacted in a civil-law jurisdiction

that contains provisions governing warehouse receipts transactions for all goods; and ii) the Law

on the Storage of Crude Oil and Petroleum Products (2013),8 which governs warehouse receipts

6
Law on Electronic Documents and Electronic Services (2001), available at
https://www.lex.bg/laws/ldoc/2135180800; see also Regulation (EU) No 910/2014, available at https://eur-
lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32014R0910.
7
Commercial Law (1991), available in Bulgarian at https://lex.bg/laws/ldoc/-14917630; available in English at
https://www.ebrd.com/downloads/legal/securities/bulgaria2.pdf.
8
Law on the Stockpiling of Crude Oil and Petroleum Products (2013), available in Bulgarian at
https://www.lex.bg/laws/ldoc/2135837969.

6
transactions for oil as well as provides for the associated regulatory framework. Accordingly,

Bulgaria’s WRS contains general, and commodity-specific, legislation.

Although the Law on the Storage and Marketing of Grain (1999),9 which governed warehouse

receipts transactions for grain, was repealed in 2015,10 some of its provisions are discussed below.

It was drafted with technical assistance provided by the United States Agency for International

Aid (“USAID”), during a period when international organizations were particularly active in

developing warehouse receipts systems for grain across the former Soviet sphere. Bulgaria’s

specific WRS for grain was eliminated due, at least in part, to the inability or unwillingness of the

government to fund its comprehensive regulatory framework.

The Law on the Stockpiling of Crude Oil and Petroleum Products was enacted for Bulgaria to

comply with the requirements set forth in Council Directive 2009/119/EC,11 which imposes an

obligation on European Union Member States to maintain minimum stocks of crude oil and

petroleum products.12 Whereas the Law on the Storage and Marketing of Grain was intended to

facilitate the fluid exchange of grain and grain products in an organized commodity market, the

Law on the Stockpiling of Crude Oil and Petroleum Products is primarily intended to secure

Bulgaria’s crude oil supply, nearly 99% of which is imported.13 This partly explains the more

9
Law on the Storage and Marketing of Grain (1999), available in Bulgarian at https://www.ciela.net/svobodna-
zona-normativi/view/2134424582/zakon-za-sahranenie-i-targoviya-sas-zarno.
10
Law on the Termination of the National Grain Service (2015), available in Bulgarian at
http://www.mzh.government.bg/media/filer_public/2018/03/26/zakon_za_zakrivane_nsz.pdf.
11
Council Directive 2009/119/EC (2009), available at https://eur-
lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2009:265:0009:0023:EN:PDF.
12
New Crude Oil and Petroleum Products Reserves Act; Changes to Director Qualifications Requirements,
available at http://www.newbalkanslawoffice.com/publications/new-crude-oil-and-petroleum-products-reserves-act-
changes-to-director-quali.
13
“Bulgaria: National Energy Indicators and Policy Challenges,” CENTER FOR STUDY OF DEMOCRACY, p. 6
(2014), available at www.csd.bg/fileSrc.php?id=22673.

7
restrictive regime of the Law on the Stockpiling of Crude Oil and Petroleum Products with respect

to transferring warehouse receipts.

Finally, the Law of Obligation and Contracts (1950)14 and the Commercial Law provide a regime

governing the creation, perfection and enforcement of possessory pledges over movable assets,

including warehouse receipts. The Law on Registered (Special) Pledges (1997)15 provides for non-

possessory pledges, some provisions of which also affect warehouse receipts.16 The framework

does not align with the international best practice, such as the UNCITRAL Model Law on Secured

Transactions (2016).

1. Types of Warehouse Receipts

The Bulgarian WRS contains two types of double paper warehouse receipts: i) for all goods

generally, and ii) for oil and petroleum products in particular. Bulgarian law does not recognize

non-negotiable warehouse receipts, a “single” warehouse receipt, or EWRs.

Article 577(1) of the Commercial Law provides that “[a]t the request of the bailor, the bailee shall

issue a warehouse receipt for the [deposited] good.” Article 577(2) provides that “[t]he warehouse

receipt…shall consist of a certificate of title and a pledge certificate,” and also enumerates the

14
Law of Obligations and Contracts (1950), available in English at http://www.bulgaria-law-of-
obligations.bg/law.html.
15
Law on Special (Registered) Pledges (1997), available in English at
https://www.ebrd.com/downloads/legal/facts/bulgaria.pdf.
16
See Georgi Tzvetkov and Lyoboslav Lyubenov, International Secured Transactions: Bulgaria, p. 1 (Oxford, 2010)
(“Since 1997, the modern techniques of non-possessory pledges, implemented in article 9 of the Uniform
Commercial Code (UCC) of the United States and the Model Law on Secured Transactions of the European Bank
for Reconstruction and Development (the “EBRD Model Law”), have made their way into Bulgarian secured credit
law”), available at http://www.dgkv.com/uf/publications/unc19bul.pdf.

8
elements that both parts must contain.17 A “double” paper warehouse receipt, thus consists of i) a

goods note, which evidences the holder’s right to receive the goods stored in the warehouse; and

ii) a pledge note, which evidences the holder’s security right.

The Law on the Stockpiling of Crude Oil and Petroleum Products provides for a special type of

warehouse receipt for oil and petroleum products.18 The Law on the Stockpiling of Crude Oil and

Petroleum Products recognizes the warehouse receipt as a type of “promissory security” that, in

turn, falls under the broader category of a security. This is the case in many EECA countries, where

warehouse receipts are also ordinarily classified as securities. Article 35(3) additionally provides

that “[a] warehouse receipt, issued for a quantity, stored in a warehouse, which is not registered

[i.e. licensed]… is invalid.” Article 35(4), moreover, provides that “[a] warehouse receipt shall be

issued after its entry into the warehouse registry of the respective warehouse on the basis of a

signed and written contract for deposit and shall consist of a goods note and a pledge note”. Article

35(5) further provides that the two parts of the warehouse receipt shall contain the elements

enumerated in Article 577(2) of the Commercial Law as well as four additional elements.19 Finally,

Article 35(10) provides that “[a] warehouse receipt shall be issued in a form approved by the

17
Both parts of the warehouse receipt must contain: 1. indication of the public warehouse and the sequence number
under the warehouse register; 2. name and address of the depositor; 3. type and quantity of goods and whether they
may be mixed with other goods; 4. time period for keeping the goods; 5. statement by the depositary that he shall
deliver the goods as agreed; 6. acts to be undertaken by the depositary for preservation of the goods; 7. information
whether the goods are insured, with whom, for what sum insured, against what risks and for what premium; 8.
amount of remuneration due and unpaid expenses prior to the issue of the warrant; 9. amount of ullage, except where
the goods have been accepted by numbers; 10. place and date of issue of the warrant; 11. signatures of the depositor
and the depositary.
18
Under Article 35(2) Law on the Stockpiling of Crude Oil and Petroleum Products, a warehouse receipt is defined
as a “security evidencing the stockpiling of [crude oil and petroleum products] under this Law.”
19
Those elements are as follows: i) the name “warehouse receipt for crude oil and petroleum products,” ii) the
registration number of the warehouse and the date it was entered into the warehouse registry, iii) the number and
date of the certificate of conformity regarding liquid fuels, and iv) the duration of storage.

9
President of the [State Reserve] and printed in accordance with the terms and procedures for

printing securities.”

2. Transfer of Warehouse Receipts

Transfers of warehouse receipts are governed by the relevant provisions of the Commercial Law.

However, there are some special rules governing transfers of warehouse receipts for oil. Articles

578-79 of the Commercial Law govern the procedure for transferring warehouse receipts,

including to secure obligations. Article 578(2) provides that the general rules governing the

transfer of a bill of exchange, and in particular Articles 466-70 and Article 475, apply to the

transfer of a warehouse receipt.20 Articles 468-69, in turn, provide that transfers of bills of

exchange may be completed by endorsement (in cases where the draft is made out to a named

individual), and delivery to the transferee. Article 578(1) additionally provides that warehouse

receipts may be transferred by endorsing the back side of both the goods note and the pledge note.

Pursuant to Article 578(3), an endorsement on the pledge note alone “shall constitute a right of

pledge on the goods deposited in favor of the endorsee.” Article 582 provides that “[t]he goods

deposited shall be returned to the depositor, or where a warehouse receipt has been issued, to the

holder of the receipt who is established through the continuous sequence of endorsements, against

presentation of the receipt.”

Article 35(9) of the Law on the Storage of Crude Oil and Petroleum Products provides that “[a]

warehouse receipt, and its components, may not be endorsed.” However, this would not preclude

20
The Bulgarian system for transferring bills of exchange appears to be based in part on the UN Convention
Providing a Uniform Law for Bills of Exchange and Promissory Notes (Geneva, 1930), available at
https://www.uncitral.org/pdf/english/texts/payments/billsnotes/X_12_e.pdf.

10
their transfer by other means, such as assignment. Article 35(9) additionally provides that “the

quantities of crude oil and petroleum products covering emergency reserves cannot serve as a

guarantee, except for a pledge to secure a bank loan for the purchase of crude oil and petroleum

products.”21 Accordingly, only acquisition security rights may be created with respect to the

commodity stored in such a warehouse. Emergency reserves transferred for collateral purposes,

moreover, are subject to restrictions, which limit the utilization of warehouse receipts for oil as a

commodity-financing instrument.

b. Regulatory Framework
The following summarizes the regulatory framework for warehouses relating to i) all goods; ii)

crude oil and petroleum products; and iii) grain (under the Law on the Storage and Marketing of

Grain repealed in 2015).

1. Generic Regulatory Framework

There is no comprehensive regulatory framework in place for public warehouses. Moreover, there

is no general requirement that warehouses obtain a license to accept goods for storage or issue

valid warehouses receipts. The Commercial Law imposes a duty on the bailee to enter the contract

[for the deposit of goods] in a warehouse registry that it must maintain.22 The procedure for

maintaining the warehouse registry and making valid entries therein is determined by the Ministry

of Justice.23 The Commercial Law provides a general requirement that warehouses insure the

21
See Law on the Stockpiling of Crude Oil and Petroleum Products (2013), Article 4, which provides that
automobile gasoline and gas oils, kerosene type jet fuels, and diesel fuel constitute “emergency reserves.”
22
Id. at 574(2).
23
Id. See also Regulation No. 3 on Warehouse Registers for a Public Warehouse, available at
http://www.justice.government.bg/Files/Naredba3.pdf.

11
goods stored in their facilities against damage caused by fire, flood, and earthquake.24 Thus, the

Commercial Law contains a few general rules of a regulatory nature relevant to warehouses. The

intention was for specific laws or regulations to provide for a detailed regulatory framework.

2. Former Regulatory Framework for Grain

Although a regulatory framework governing the storage of grain and issuance of corresponding

warehouse receipts is no longer in place, it is nevertheless informative to highlight some of its

features. This is because it is representative of many EECA countries, such as Ukraine, that

attempted to institute comparable regulatory frameworks and faced similar challenges, particularly

with respect to securing sufficient funding from the regulated participants to support the

supervisory regime. The regulatory regime thus has a significant impact on the commercial law

framework governing the issuance and transfers of warehouse receipts.

The Law on the Storage and Marketing of Grain empowered the Ministry of Agriculture and Food

(“MinAgro”) to provide for a “state policy regarding the production, marketing, storage and

processing of grain.”25 Accordingly, MinAgro issued corresponding rules and regulations,

particularly with respect to organizing the National Grain Service (“NGS”), which was a sub-

agency within MinAgro charged with implementing the WRS for grain, including administering a

central electronic registry of warehouse receipts issued by grain warehouses, 26 as well as

supervising warehouses to ensure compliance with the applicable standards.27

24
Id. at 575(4).
25
Law on the Storage and Marketing of Grain, Article 3.
26
Id. at 21(a).
27
Id. at 4.

12
The Law on the Storage and Marketing of Grain effectively provided for a mandatory licensing

requirement for public grain warehouses: only licensed warehouses could issue valid warehouse

receipts for grain,28 and unlicensed warehouses that accepted grain for storage were subject to

monetary sanctions.29 Although MinAgro acted as the primary licensing authority, the NGS

accepted and screened applications and sent a corresponding recommendation on whether or not

to approve the application to MinAgro. The NGS also issued certificates of registration to

warehouses that confirmed their compliance with the applicable rules and regulations regarding

the structure and maintenance of their storage facilities.30 The NGS recorded licensed warehouses

and registered storage facilities in a publicly accessible central electronic registry.31 Accordingly,

the WRS for grain contained a dual licensing regime with respect to warehouses: i) a licensing

requirement for entities engaged in the public storage of grain (i.e. operators), and ii) a registration

requirement for the grain storage facilities. In addition to infrastructural requirements, license

applicants also had to meet managerial requirements,32 provide a bank guarantee in favor of

MinAgro,33 and take out insurance, covering the grain stored in their facilities, against fire, flood,

and earthquake damage.34 Moreover, licensed warehouses were required to join the Guarantee

Fund, which indemnified depositors and holders of warehouse receipts in cases where participating

warehouses failed to meet their obligations.35

28
Id. at 16(3).
29
Id. at 33(1).
30
Id.
31
Id. at 11i and 13(1).
32
Id. at 11a.
33
Id. at 9(4).
34
Id. at 10(4).
35
Id. at 9a(1).

13
The NGS also supervised public grain warehouses, which primarily involved on-site inspections

of storage facilities.36 Where violations were discovered, the NGS was authorized to impose

sanctions on warehouses, including recommending to MinAgro that their license be revoked, and

removing their storage facilities from the central registry.37

The repealed Law on the Storage and Marketing of Grain thus provided a comprehensive, and also

quite complex, framework for regulating and supervising Bulgaria’s WRS, complete with: i)

regulatory and supervisory bodies; ii) mandatory licensing and registration requirements; iii)

warehouse and warehouse receipts registries; iv) performance guarantees; and v) an operational

guarantee/indemnity fund.

The elaborate regulatory framework that was provided for under the Law on the Storage and

Marketing of Grain did not function in a sufficiently cost-effective manner to financially sustain

the NGS over the long term. This seemed to be the case despite the fact that Article 4a of the Law

enumerated several possible sources of funding other than the state budget, which included: i)

licensing and registration fees; ii) certification fees (confirming the quality of the grain); iii)

monetary penalties imposed for violations; and iv) the collection of taxes.

There were several references in the Law to the trading of grain covered by warehouse receipts on

the commodity exchanges,38 and even the financial markets (in the case of warrants). 39 However,

no such organized trading was ever established, primarily due to an underdeveloped commodity

36
Supra note 25, Article 29(5).
37
Id. at 32(2).
38
See id. at 19(1), 23(3), and 33(1).
39
Id. at 19(2).

14
and financial market, including a general lack of associated trading infrastructure. 40 The use of

warehouse receipts for grain in Bulgaria was therefore limited to securing loans from banks, rather

than facilitating trades on organized exchanges.41 One of the reasons that the NGS was unable to

sustain itself from funds derived from market participants was an insufficient volume of

transactions on the grain market.

Notably, Ukraine faced a similar problem with respect to its WRS for grain. Rather than repealing

its corresponding warehouse receipts law, it eliminated its licensing and supervisory body and

never implemented its guarantee/indemnity fund. Presently, Ukraine is considering a proposal to

transfer licensing and supervisory functions to commodity exchanges regulated by a securities

exchange commission.

3. Regulatory Framework for Oil

The regulatory framework for storing oil and issuing corresponding warehouse receipts generally

aligns with that which was formerly in place with respect to grain until 2015. Accordingly, the

WRS for oil contains a regulatory and supervisory body vested with the authority to issue rules

and regulations, register (license) and supervise warehouses, and impose sanctions where

violations are uncovered.

The Law on the Stockpiling of Crude Oil and Petroleum Products provides that the “State Agency

‘State Reserve and Wartime Stocks’ [“the State Reserve”] … shall be a central body of the

40
Krasimir Davchev and Alexander Davchev, “Terms and conditions for launching a futures commodity exchange
trading in Bulgaria,” UNIVERSITY OF AGRIBUSINESS AND RURAL DEVELOPMENT, p. 101 (2015),
available at http://regions.uard.bg/index.php/regions/regions/paper/viewFile/21/12.
41
Id.

15
executive branch and shall perform the functions of… managing stockpiles.”42 Accordingly, the

State Reserve issues rules and regulations, such as “on Inspections, Conducted by the [State

Reserve]…” (“Regulation 1”).43 The State Reserve also “supervises the creation, storage, renewal,

use and restoration of the stockpiles,”44 which includes registering and inspecting warehouses.45

Rather than “licensing,” the Law on the Stockpiling of Crude Oil and Petroleum Products provides

a regime for “registering” warehouses, which is substantively the same as licensing.46 Only

warehouses registered with the State Reserve may store crude oil and petroleum products.47 The

State Reserve is authorized to conduct on-site inspections of the warehouses and storage

facilities.48 Where violations are uncovered, the State Reserve may terminate a warehouse

registration,49 as well as impose a range of other administrative penalties, including monetary

fines.50 Bulgaria’s WRS for oil thus consolidates regulatory, supervisory, and licensing functions

into a single government entity, the State Reserve.

c. Enforcement

42
Law on the Stockpiling of Crude Oil and Petroleum Products, Article 6(1). The stated aim of the Law on the
Stockpiling of Crude Oil and Petroleum Products is to “ensure the supply of liquid fuels in cases of a lack of supply
or significant interruption in supply of crude oil and petroleum products in the country, in other Member States of
the European Union, and/or pursuant to an effective decision of the International Energy Agency regarding the
release of stockpiles.”
43
Regulation No. 1 on Inspections, Conducted by the State Agency “State Reserve and Wartime Stocks” Pursuant to
the Law on the Stockpiling of Crude Oil and Petroleum Products (2014), available at
http://www.statereserve.bg/bg/assets/resourcedocuments/1549/NAREDBA_1_28_07_2014_%20ZA_%20PROVER
KI_%20po_%20ZZNN.pdf.
44
Supra note 42, Article 6(2).
45
Id. at 9.
46
Id. at 38(1).
47
Id. at (2).
48
Id. at 56(1).
49
Id. at 39(1).
50
Id. at 60-74.

16
Although Bulgaria’s secured transactions framework is comprehensive, it does not provide for a

“functional approach” to security over movable assets.51 A security right in a commodity covered

by a warehouse receipt may be perfected by registration or possession. The universally preferred

method of perfecting a security right in a commodity covered by a warehouse receipt is possession,

which is achieved upon delivery of possession and certification of the date contained in the written

possessory pledge agreement.52 The latter is not an element found in international best practice.

The order of priority with respect to commercial (possessory) pledges in relation to special

(registered) pledges is based on the time of perfection.53 Priority is therefore established according

to the earlier of: i) the date of certification of the possessory pledge agreement, and ii) the date of

registration of the special (registered) pledge.54 Many jurisdictions contain a special non-temporal

priority rule with respect to security rights in negotiable instruments and documents, where

possession (even subsequent to registration) is the superior method of perfection.55 However,

neither the Law on Special (Registered) Pledges, nor any other law, provides for a comparable

priority rule applicable to warehouse receipts.

Extra-judicial enforcement of the security right in a warehouse receipt is available, where the

following requirements are met: i) the pledge agreement is executed in writing with a certified

date, ii) the pledge agreement expressly provides for the sale of the encumbered asset without court

51
“Report on the Observance of Standards and Codes: Insolvency and Creditor/Debtor Regimes, Bulgaria,” p. 41
(WBG, 2016), available at http://documents.worldbank.org/curated/en/627841500888030145/pdf/117718-BG-ICR-
ROSC-Final-2016-EN-for-disclosure.pdf).
52
Commercial Law, Article 311.
53
Supra note 16, p. 38.
54
Id.
55
2016 UNCITRAL Model Law on Secured Transactions, art. 46(1).

17
intervention upon default by the debtor, and iii) the asset has a market price. 56 Extra-judicial

enforcement of special (registered) pledges of warehouse receipts is also recognized.

Finally, Article 583 of the Commercial Law provides that a “bailee shall be entitled to a lien over

the goods deposited for the payment of its fees.” A warehouse may then enforce its lien by selling

the deposited goods.

B. MALAWI
Malawi performed poorly on the warehouse receipts index of the 2017 World Bank “Enabling the

Business of Agriculture” report, scoring zero points.57 However, that evaluation was conducted

prior to the 2018 reform, and thus does not reflect the current state of warehouse receipt legislation

in Malawi. The reform was supported by the World Bank Group, which provided technical advice

on the drafting of the text, similar to the process that led to the enactment of the Personal Property

Security Act (PPSA) in 2013.

a. Legislative Framework
Malawi’s warehouse receipt system (WRS) is governed by the Warehouse Receipts Act of 2018

(WRA). The WRA is supplemented by other applicable laws, including the PPSA and the common

law and equitable principles relating to bailments, agency, fraud and misrepresentation, and sales

of goods.58 Under the WRA, a warehouse receipt may be issued by a warehouse operator covering

a broad range of commodities, agricultural or otherwise.

56
Id. at 43.
57
WORLD BANK, ENABLING THE BUSINESS OF AGRICULTURE 2017: MALAWI, 35-36 (2017).
58
IFC, A GUIDE TO THE WAREHOUSE RECEIPTS ACT 2018 IN MALAWI: STRUCTURING FACILITIES USING THE
WAREHOUSE RECEIPTS 2018, 3 (2018) (hereinafter “IFC GUIDE”).

18
 1. Types of Warehouse Receipts

The WRA was based on the U.S. Uniform Commercial Code (UCC) Article 7. It provides for both

negotiable and non-negotiable WRs. A WR is negotiable “if, by its terms, the goods are to be

delivered to bearer or to the order of a named person.”59 The holder of a negotiable WR acquires

the following rights: i) title to the document; ii) title to the goods; iii) all rights under the law of

agency or estoppel; and iv) other than claims arising from the WRA or the terms of the document,

including an obligation of the issuer to deliver the goods free of any claims or defenses. 60 WRs

may be issued in paper form or electronically. They may be converted from one form to the other

at the request of the holder.61

2. Transfer of Warehouse Receipts

Generally, if, by its original terms, a paper WR runs to the order of a named person, it may be

negotiated (transferred) by endorsement and delivery.62 If, by its original terms, the paper WR runs

to bearer, it can be transferred by delivery alone. These rules mirror those found in UCC Article

7.63 On the other hand, where the original terms of an EWR run to the order of a named person or

to bearer, the EWR can be transferred by control.64 The WRA provides for “due negotiation” of

WRs, which refers to the transfer of the WR to a holder that purchases it in good faith and for

value, without notice of any defense or claim, provided the negotiation was in the regular course

of business and the document was not received or, with respect to EWRs, control taken in

59
Section 9, WRA.
60
Section 28, WRA.
61
Section 6 & 8(3), WRA; IFC GUIDE, supra note 58, at 3, 5.
62
Section 25, WRA.
63
See UCC § 7-501.
64
Section 26, WRA.

19
settlement or payment of a monetary obligation. Transferees to whom a WR has been delivered

but not duly negotiated acquire only the title and rights that the transferor had actual authority to

convey.65

In addition to transfer of possession or control to the secured creditor, a security right may be

perfected by registration of a notice in the collateral registry created under the PPSA. Where the

goods are in the possession of the issuer of the WR, the security right perfected in the WR will

also be perfected in the goods. The PPSA provides a modern and effective framework for the

perfection of security rights in WRs and the determination of priority between competing claims.

It also governs the rights and remedies of secured creditors.66 The WRA supplements the PPSA in

that it contains rules on the priority rights of purchasers of negotiable WRs, granting purchasers

priority over perfected security rights in negotiable WRs where the purchaser: i) gave value; ii)

acquired the negotiable WR without actual knowledge that the transaction breached the security

agreement; and iii) took possession or control of the negotiable WR.67

Following its UCC 7 model, the WRA does not provide for a central warehouse receipt registry

for the registration of the issuance and transfer of WRs. However, the WRA provides for the use

of an electronic system/database by issuers of EWRs to evidence their transfer. The function of

such a system is to reliably establish that a person who has control of the EWR is the person to

65
Section 30, WRA.
66
Section 36, WRA.
67
Section 40(1), WRA.

20
whom the EWR was issued or transferred.68 However, it fails to stipulate the parameters for such

systems, leaving the development of technologies that satisfy this function to the private sector.69

b. Regulatory Framework
Malawi’s WRS lacks a main regulator, and the WRA does not specify one. As a result, it is not

clear which government agency is responsible for implementing the WRA. The Malawi WRS is

dominated by the activities of two (private) commodity exchanges - the Agricultural Commodity

Exchange for Africa (ACE) and the AHL Commodity Exchange (AHCX). Both exchanges operate

subject to their own internal rules that their participants must adhere to. Accordingly, commodity

trading in Malawi is governed by soft-law regulation, some of which is now superseded by the

WRA.70 ACE commenced operations in 2011, followed by AHCX in 2014.71

The Reserve Bank of Malawi (RBM) plans to bring a Commodity Exchange Directive (Directive)

into operation in April 2019.72 The Directive will forbid price manipulation, imposing penalties

for such activities, and prohibit commodity exchanges from trading (directly or indirectly) on their

own markets, except in exceptional circumstances with the permission of the RBM. 73 It will also

contain rules that grant the RBM power to license and regulate the commodity exchanges,74 as

well as prescribing financial requirements for commodity exchanges to remain solvent.75

68
Section 7, WRA.
69
IFC GUIDE, supra note 58, at 25.
70
This information is based largely on an interview with Kristian Schach Møller, the CEO of
ACE that Dr. Marek Dubovec, the Senior Research Attorney at NLCIFT, conducted in Lilongwe, Malawi, June 20,
2014. [hereinafter “Møller interview”]
71
Bob Baulch et al, Commodity Exchanges and Warehouse Receipts in Malawi: Current Status and their
Implications for the Development of Structured Markets, IFPRI Working Paper No. 25, 9 (Oct. 2018).
72
Id. at 8.
73
Id.
74
Id.
75
Id.

21
 1. Licensing/Certification Regime for Warehouses

The WRA does not contain any rules on licensing of warehouses. 76 The internal rules and

operations of the ACE and AHCX provide for such licensing requirements that warehouses must

meet to become eligible to store commodities covered by exchange-traded WRs.77 While the

AHCX operates its own warehouses, the ACE licenses private sector warehouses. Informal

warehouses called “rural storage places” are also associated with the exchanges. Smallholders

typically deposit their crops into these storage places from which they are delivered to aggregators.

The conditions of getting a license from ACE are set out in the ACE Warehouse Receipt System

Rules and Regulations (hereinafter “ACE Rules and Regulations”). According to Rule XV, ACE

reserves the right to inspect the storage facility to ensure that the warehouse satisfies the

requirements of the ACE Rules and Regulations. However, it is unclear to what extent ACE

actually conducts inspections of the warehouses. ACE maintains an electronic WR registry that

contains relevant information regarding issued WRs.78 Among other, the registry keeps track of

deposits, withdrawals, and transfers of ownership.79

2. Government-Supported Mechanisms for Protecting the Financial Interests of

Holders of Warehouse Receipts/Insurance

Malawi lacks a mechanism to protect the financial interests of WR holders. The WRA fails to

provide for indemnity/guarantee funds, bonds, or insurance by warehouse operators. This is in

addition to the lack of provisions on licensing and the absence of a regulator.

76
IFC GUIDE, supra note 58, at 4.
77
Id.
78
Id. at 18.
79
Id.

22
 c. Enforcement
With respect to security rights, the WRA defers to the PPSA in certain respects, including on

priorities and rights and remedies of the parties. The PPSA provides for the perfection of a security

right by one of three methods: i) registration; ii) possession; and iii) control. However, in the PPSA,

the use of control is restricted to deposit accounts and investment securities. The WRA expands

the application of control by allowing the perfection of a security right in EWRs.80 Likewise,

security rights in negotiable paper WRs may be perfected by registration of a notice in the collateral

registry or possession of the WR. The priority rules for security rights in goods covered by

nonnegotiable WRs follow the general priority rules of the PPSA that were based on UCC Article

7 and 9.81 In keeping with international best standards, a perfected security right in a negotiable

WR or EWR has priority over security rights perfected by other methods.

Secured creditors can enforce a security right extra-judicially where the debtor (grantor) does not

object to the removal of the collateral, which is not a concern for situations where the secured

creditor is in possession of the warehouse receipt. This conforms with modern standards that

recommend the availability of extrajudicial repossession. Although prior notice is not required for

repossession of the collateral, the PPSA requires the registration of an enforcement form

identifying the debtor, the secured party, and the collateral. However, it is unclear whether the

requirement to register an enforcement form applies to security rights perfected by possession or

control instead of registration. Other remedies provided by the PPSA include the right to dispose

80
Section 39, WRA.
81
See section 20, PPSA.

23
of the collateral and the retention of the collateral in satisfaction of the secured obligation (but,

only where the secured party has priority over the other competing claimants).

C. FRANCE
The French legal system has significantly influenced many civil law systems globally. 82 The first

law on warehouses and warrants in France was adopted in 1848 as a response to the critical

industrial and commercial crisis the country was facing at that time. Manufacturers and retailers

had excess goods on their hands and could not sell them. To remedy this situation, the government

passed the 1848 Decree allowing dealers and manufacturers to store raw materials, goods, and

manufactured items in public warehouses certified by the state (“licensed warehouses”). 83 The

creation of the system of licensed warehouses was inspired by the English warrant system. 84 At

that time, the French Minister of Finance explained the purpose of the licensed warehouse as: “the

best way to remedy the [industrial and commercial crisis] is to encourage consumption by the

circulation [of goods and money] …; for now, idle collateral must be unlocked.”85

However, the licensed warehouse and warrants system introduced under the Decree were not

successful.86 Even though a few certified warehouses located in major cities flourished, most

certified warehouses went out of business.87 This situation was attributed to some flaws in the

Decree.88 Specifically, two main criticisms of the Decree were raised.89 First, only one document,

82
Philine Wehling & Bill Garthwaite, Designing Warehouse Receipt Legislation, Regulatory Options & Recent
Trends 77 (Food & Agriculture Organization of the United Nations, 2015).
83
48 Duv. & Boc. 111 (1848) (https://gallica.bnf.fr/ark:/12148/bpt6k54924258).
84
P. Nicole, Magasins Généraux, Docks et Warrants X, (Lambert, 2d ed., 1860).
85
Id.
86
Bruno J.-M. Dubron, Etude Juridique et Economique sur les Magasins Généraux, les Récépissés et les Warrants
18 (Faculté de Droit de Paris, 1898).
87
Id.
88
Id.
89
P. Nicole, Ibid. at X-XI.

24
serving for either the sale or the pledge of the stored goods, was issued to the depositor.90 Usually,

the goods were pledged for less than their full value; thus, if the depositor wanted to sell the

unencumbered goods, the depositor could not do so because the warrant was in the hands of the

secured creditor.91 Second, any endorsements of the warrant had to be registered in the

warehouse’s internal registry.92 This limited the circulation of the warrant, preventing it from

becoming a true negotiable document.93 Furthermore, the sale of the stored goods upon default by

the debtor had to be authorized by a judge.94

The French government eventually introduced a law aimed at improving the warehouse receipt

system. In 1858, the Law on Transactions Related to Goods Stored in General Warehouses

(“General Warehouse Law”)95 was enacted, with the goal of establishing, among others, a

warehouse receipt system comprised of two documents: a warehouse receipt and a warrant.

Later, the Ordinance n° 45-1744 of 1945 abrogated and replaced the previous provisions related to

warehouse receipts and commercial warrants. This ordinance shaped the current commercial

warehouse receipt law in France, maintaining the dual-document warehouse receipt system. In

2000, the Ordinance n° 2000-912 codified the provisions of the ordinance in the Code de

Commerce. More recently, France enacted Law n° 2011-525 in order to comply with the EU

Directive 2006/123/CE of December 21, 2006, related to services in the internal market. Prior to

2011, by virtue of Article L. 522-2 of the Code de Commerce, the process for granting a license to

90
Id.
91
Id.
92
Id. at XI.
93
Id.
94
Id.
95
58 Duv. & Boc. 201-13 (1858) (https://gallica.bnf.fr/ark:/12148/bpt6k5493907c/f6.image).

25
a warehouse operator required the Prefect to consult professional and inter-professional bodies.96

This consultation was in conflict with the EU Directive on services in internal market, which

prohibits competing actors from intervening in administrative authorization procedures.97

a. Legislative Framework
The French WRS is mainly governed by the Code de Commerce.98 Specifically, warehouses are

governed by sections 1-3 of Chapter II, Title II, Book V of the Code de Commerce;99 and

warehouse receipts and commercial warrants are governed by section 4 of Chapter II, Title II,

Book V.100

1. Types of Warehouse Receipts

Under current French law, warehouse receipts are issued as “to the order” documents.101 A

warehouse receipt must state: i) the name, occupation, and address of the depositor; ii) the nature

and description of the goods deposited, including their value; and (3) the indication that the stored

goods are covered by the general warehouse’s insurance policy.102 Furthermore, each warehouse

receipt “must have attached to it a negotiable instrument, known as a warrant, containing the same

wording as the receipt.”103 However, the depositor is not obligated to use the warrant, unless it

pledges the stored goods.

96
C. com. art. L. 522-2, version in force between September 21, 2000, and May 19, 2011.
97
Projet de loi prec. at 9.
98
C. com. arts. L. 522-1 et seq (Fr.).
99
Id. at arts. L. 522-1 et seq.
100
Id. at arts. L. 522-24 et seq.
101
Michel Cabrillac, Répertoire de Droit Commercial : Magasins Généraux § 58 (Dalloz, May 2016)
102
C. com. arts. L. 522-24 and R. 522-20
103
Id. at art. L. 522-25

26
 2. Transfer of Warehouse Receipts

The holder of the warehouse receipt and warrant may transfer them by endorsement, either together

or separately.104 If the holder transfers the warehouse receipt and the warrant together, the

transaction is considered a complete sale of the goods stored.105 However, if the stored goods were

pledged before the owner transfers the warehouse receipt, it can only transfer the warehouse receipt

– the warrant held by the creditor – and the buyer will take ownership of the stored goods subject

to the warrant.106 To be valid, the endorsement of the warehouse receipt and the warrant must be

dated.107 In addition, the endorsement of the warrant separate from the receipt must indicate the

total amount of the secured obligation, the due date for the repayment, and the name, profession,

and domicile of the creditor.108 Also, the transferee of a warehouse receipt or warrant must request

the registration of the transfer of the warehouse receipt in the registry maintained by the

warehouse.109 This registration requirement is mandatory for the first transferee of the warrant

separate from the warehouse receipt. If the first transferee of the warrant fails to register the

endorsement, the endorsement is not enforceable against third parties.110 However, this registration

requirement does not apply to future endorsements of the warrant. Nevertheless, in practice, a

subsequent transferee requests a registration.111

b. Regulatory Framework

104
Id. at art. L. 522-26.
105
Id. art. L. 522-28.
106
Id.
107
Id. at art. L. 522-29.
108
Id.
109
Id. at art. L. 522-27.
110
Michel Cabrillac, Warrant at § 43.
111
Id. at art. L. 532-36, making an express reference to the decree of March 12, 1859, which allowed this practice.

27
General warehouses are regulated under Chapter II, Title II, Book V of the Code de Commerce.112

As mentioned, only licensed warehouses can issue warehouse receipts. Warehouse operators must

obtain their license from a Prefect113 which is the French state’s representative at the Department114

level.115 The Code de Commerce does not provide minimum requirements regarding the operation

of a warehouse.116 These rules must be prepared by the warehouse operator and then approved by

the Prefect.117 In addition, national standard rules of operation apply to all general warehouses.118

For example, they include provisions on the classification of the goods that may be stored, the

obligation of a warehouse to be insured against fire, the conditions under which the warehouses

may deliver stored goods to the holder of a receipt, the issuance of warehouse receipts and

warrants, and so on.

Furthermore, warehouses must file a financial guarantee with the Prefect.119 The amount of the

guarantee is proportionate to the warehouse’s storage area, subject to a minimum threshold.120

112
C. com. arts. L. 522-1 et seq. (Fr.).
113
The Prefect’s role is defined in Article 72 of the French Constitution: “In the territorial collectivities of the
Republic, the representative of the State [i.e., the prefect], representing each member of the Government, is
responsible for the national interests, the administrative control, and the respect of the laws.” Their main missions
include: representing the state to local governments; security; safety; responsibility for official documents; ensuring
respect for legality.
114
The department is one of the three levels of government below the national level. It is the intermediary
administrative division of France between the administrative region and the city. There are 96 departments in
metropolitan France. Each department is administered by an elected body, and the prefect represents the government
in the department.
115
C. com. art. L. 522-1.
116
Id. at art. L. 522-17.
117
Id. at arts. L. 522-1 and R. 522-2.
118
Id. at art. L. 522-13.
119
C. com. art. L. 522-12.
120
Id. at art. R. 522-10.

28
The operations of general warehouses are supervised by the Prefect, in accordance with

regulations121 enacted by the Conseil d’Etat.122 These regulations provide that the Prefect has

unrestricted access to warehouses.123 It should be noted that the Prefect’s duty of supervision of

warehouses has been delegated to the Economic and Financial General Control Body of the

Ministry of Economy and Finance.124 Additionally, warehouse operators must file an annual report

with the Economic and Financial General Control Body of the Ministry of Economics and Finance.

c. Enforcement
On default, the holder of a warrant can pursue a sale of the collateral at a public auction. First, the

holder must deliver through a bailiff (huissier) or notary a deed of protest125 to the debtor.126 It

must then wait for eight days before taking any further action.127 The creditor loses its recourse

against the endorsers if the sale is not carried out within one month of the date of the protest.128

The sale must be by a public auction in accordance with Article L. 322-4. of the Code de Commerce

that must be properly advertised.129 In cities where the commercial court maintains a list of brokers,

the creditors will typically choose a broker from the list.130

The holder of a warrant has priority over other creditors. However, taxes and customs duties, as

well as storage and other similar fees, have priority. 131

121
Id. at arts. R. 522-17 through R. 522-19.
122
The Conseil d’Etat is the highest administrative court in France. In addition to its judicial power, it has regulatory
power when a law requests the Conseil d’Etat to provide guidance for the application of this law.
123
Id. at art. R. 522-17.
124
Id. at art. R. 522-19.
125
Id. at arts. L. 511-52 et seq.
126
Id. at art. L. 522-31.
127
Id.
128
Id. at art. L. 522-33.
129
Michel Cabrillac, Warrant at § 83.
130
Id. at § 82.
131
Id. at arts. L. 522-28 and L. 522-32

29
 D. MEXICO
Mexico scored 4.5 out of 5 points on the warehouse receipts index of the 2017 World Bank

“Enabling the Business of Agriculture” report.132 Mexico missed a perfect score because the

warehouse receipts legal framework currently does not provide for EWRs.133 It should be noted

that since 2015, Mexico has been engaged in a reform of its legal framework with the goal of

transitioning from a paper-based warehouse receipt to an electronic system.134 In parallel with this

transition, Mexico also intends to shift from a “double” warehouse receipts system (i.e., warehouse

receipt and pledge bond) to a single warehouse receipts system.135

In 2014, Mexico successfully reformed some aspects of its warehouse receipts legal framework.136

Among the changes introduced was the creation of a centralized electronic registry (Registro Único

de Garantías Mobiliarias) (RUCAM) in which warehouses must register the issuance and

cancelation of warehouse receipts and pledge bonds. Warehouses must also register in RUCAM

information about their premises (e.g., location, warehousing capacity, and classes of goods they

can receive for storage) as well as similar information about their field warehouses.

132
http://eba.worldbank.org/
133
Id.
134
Adalberto Elias, Recent Electronic Warehouse Receipts Developments in Mexico, Arizona Journal of
International & Comparative Law, Vol. 33, No. 1 (2016).
135
Id.
136
DECRETO por el que se reforman, adicionan y derogan diversas disposiciones en materia financiera y se expide
la Ley para Regular las Agrupaciones Financieras [Decree by which provisions in financial matters are reformed,
added or abrogated and by which the Law Governing Financial Groups is enacted](Jan 10, 2014), available at
http://www.diputados.gob.mx/LeyesBiblio/ref/lgtoc/LGTOC_ref21_10ene14.pdf .

30
In 2017, Mexico received USD$120 million from the International Bank for Reconstruction and

Development for the “Grain Storage and Information for Agricultural Competitiveness Project.”137

The main goal of the project was to increase “the competitiveness of small and medium private

agricultural production units in the center and south of the country, where poverty is widespread

and indigenous populations abound, by providing access to transparent pricing information of

agricultural commodities, increasing access to financial mechanisms in the sector, while

strengthening the warehouse system, and supporting investments in human capital to reduce post-

harvest losses.”138

a. Legislative Framework
The provisions governing warehouses receipts and pledge bonds are scattered throughout different

bodies of law. The main laws affecting the Mexican WRS system are the following: i) the General

Law on Credit Instruments and Operations (Ley General de Títulos y Operaciones de Crédito)

(“CI Law”);139 ii) the General Law on Auxiliary Organizations and Credit Activities (Ley General

de Organizaciones y Actividades Auxiliares del Crédito) (“Auxiliary Organizations Law”)140; and

iii) the Commerce Code (Código de Comercio).141

137
International Bank for Reconstruction And Development, Project Appraisal Document on a Proposed Loan in
the Amount Of US$120 Million to the United Mexican States for the Grain Storage and Information for Agricultural
Competitiveness Project (March 3, 2017), available at
http://documents.worldbank.org/curated/en/263681490714537272/pdf/Mexico-PAD-main-03072017.pdf . See also
Disbursement Letter for Loan 8729-MX, available at
http://documents.worldbank.org/curated/en/375101513357039205/Official-Documents-Disbursement-Letter-for-
Loan-8729-MX-Closing-Package.
138
International Bank for Reconstruction And Development, supra note 137 at 12.
139
Ley General de Títulos y Operaciones de Crédito [General Law on Credit Instruments and Operations], arts. 229
– 251, available at http://www.diputados.gob.mx/LeyesBiblio/pdf/145_220618.pdf.
140
Ley General de Organizaciones y Actividades Auxiliares Del Crédito [General Law of Auxiliary Credit
Organizations and Activities], available at http://www.diputados.gob.mx/LeyesBiblio/pdf/139_090318.pdf.
141
Código de Comercio [Commerce Code], available at
http://www.diputados.gob.mx/LeyesBiblio/pdf/3_280318.pdf

31
 1. Types of Warehouse Receipts

Mexico’s WRS utilizes two documents: a warehouse receipt (certificado de depósito) and a pledge

bond (bono de prenda). The WRS is generic, applicable to any goods. However, specific

provisions have been enacted to apply to warehouse receipts (and pledge bonds) covering

agricultural products.142

Warehouse receipts and pledge bonds are considered “credit instruments” (títulos de crédito) and,

as such, are mainly governed by the CI Law.143 The term “credit instrument” covers not only

documents of title (títulos representativos de mercancías) (e.g., warehouse receipts and bills of

lading), but also negotiable instruments (e.g., bills of exchange). As such, many rules applicable

to negotiable instruments also apply to documents of title.144 According to Article 19 of the CI

Law, documents of title confer upon their holder the exclusive right to dispose of the goods

described in the document.145

A warehouse receipt represents ownership rights over the goods deposited in the warehouse.146

The pledge bond, on the other hand, may be used to create a security right over the goods described

in the warehouse receipt.147 No bearer warehouse receipts or pledge bonds are allowed. Both the

warehouse receipt and the pledge bond must include the following information: i) name, signature

and location of the warehouse in which the goods are deposited; ii) date of issuance and sequential

number, which must be identical for both the warehouse receipt and pledge bond; iii) a statement

142
Id., art. 11 Bis 1.
143
LGTOC, supra note 139, arts. 229 – 251.
144
Id. art. 251.
145
Id., art. 19.
146
Id., art. 229.
147
Id.

32
as to whether the goods must be segregated or may be commingled; iv) a detailed description of

the goods, including nature, quantity and quality; v) the time of the deposit; vi) name of the

depositor; vii) a statement as to whether the deposited goods are subject to taxes; viii) a statement

as to whether the goods are insured and, if so, the amount of the insurance; and ix) the storage fees

owed to the warehouse, if any.148

Warehouse receipts and pledge bonds can only be issued by a licensed warehouse (Almacén

General de Depósito); warehouse receipts issued by any other person or legal entity “would not

have the effect of a credit instrument.”149 This means that the principles common to credit

instruments would not apply to such documents.

i. Agricultural Sector

Although warehouse receipts and pledge bonds can be issued for any type of commodity, whenever

these instruments cover agricultural products they must satisfy additional requirements. For

instance, warehouse receipts covering agricultural products must include the following additional

information: i) the statement as to whether they are basic or strategic agricultural products as

defined by the Sustainable Rural Development Law;150 ii) the place of production; iii) the year and

agricultural production cycle as well the quality pursuant to the applicable regulations; iv) a

statement as to whether the price of agricultural products is hedged and, if so, any details; v) a

148
LGTOC, supra note 139, arts. 231.
149
LGTOC, supra note 139, arts. 229. This is the rule unless the goods are generically categorized in the warehouse
receipt, in which case, a warehouse can issue several pledge bonds, which do not need to be adhered to the
warehouse receipt.
150
Ley de Desarrollo Rural Sustentable [Sustainable Rural Development Law], art. 3(XXIII), available at
http://www.diputados.gob.mx/LeyesBiblio/pdf/235_200618.pdf. Defines basic and strategic products as those “that
are part of the diet of the majority of the population or differentiated by region, and those agricultural products
which production process is related with significant segments of the rural population or national strategic
objectives.”

33
metric unit (e.g., kilograms, liters or meters) applicable to the product and a declaration of its value

by the depositor; and vi) the insurance term.151

2. Transfer of Warehouse Receipts

Warehouse receipts can be issued in negotiable or non-negotiable form.152 When negotiable they

can be transferred by endorsement and delivery. 153 A security right (pledge) over the goods

represented by a warehouse receipt can be created either by the endorsement and delivery of a

warehouse receipt or by the issuance of the pledge bond.154

The warehouse receipt and the pledge bond can be transferred together or separately. When

transferred separately for the first time, the issuing warehouse must be involved in the transfer.155

It is at this moment when the following information must be added to the pledge bond: i) the name

of the transferee of the pledge bond; ii) the amount of the loan the pledge bond secures; iii) interest

rate; iv) duration of the loan, which cannot extend beyond the expiration of the term of the deposit;

v) the signature of the transferee of the pledge bond; and vi) a statement by the warehouse or

financial institution that the warehouse receipt has been marked as being subject to a pledge

bond.156 Both the warehouse and the holder of the warehouse receipt are responsible for damages

caused by any omissions or inaccuracies in the information on the pledge bond.157

151
Auxiliary Organizations Law, supra note 140, art. 11 Bis 1.
152
LGTOC, supra note 139, arts. 241.
153
Id., arts. 25-27.
154
Id., art. 334(VI).
155
Id., art. 236.
156
Id., art. 232.
157
Id., art. 236.

34
As mentioned, the warehouse receipt and the pledge bond confer different rights. The holder of

both instruments together is considered the unrestricted owner (pleno dominio) of the stored

goods.158 Such a holder can withdraw the deposited goods at any time by presenting both

instruments to the warehouse, subject to the payment of taxes and storage fees.159 On the other

hand, if transferred separately, the ownership rights of the holder of the warehouse receipt alone

are limited by the rights of the holder of the pledge bond.160 This means that the warehouse receipt

holder can only obtain possession of the goods stored in the warehouse by paying any taxes and

storage fees owed, as well as by paying to the warehouse a sum equal to the loan secured by the

pledge bond.161 It should be noted that it is a common banking practice for both instruments to be

transferred together.162

b. Regulatory Framework
The main warehouse regulators are the Ministry of Finance (Secretaría de Hacienda y Crédito

Público), the National Banking and Securities Commission (Comisión Nacional Bancaria y de

Valores) (CNBV), the Ministry of Economy (Secretaría de Economía) and the Ministry of

Agriculture (Secretaría de Agricultura, Ganadería, Desarrollo Rural, Pesca). The regulatory

authority of each one of the listed entities derives mainly from the Auxiliary Organizations Law.163

The Auxiliary Organizations Law classifies warehouses into four tiers: i) those that provide

services to the agricultural and fisheries sectors only; ii) those that store all types of goods; iii)

bonded warehouses that also satisfy i) and ii); and iv) those warehouses that satisfy i) – iii) and

158
Id., art. 239.
159
Id.
160
Id., art. 240
161
Id.
162
RAÚL CERVANTES AHUMADA, Títulos y Operaciones de Crédito at 162, Editorial Porrúa (2007).
163
Auxiliary Organizations Law, supra note 140, arts. 5, 22 Bis 2, and 22 Bis 7.

35
also provide financing. The regulatory requirements vary depending on the tier in which the

warehouse operates. Warehouses are responsible for any losses or damage to the stored goods

inasmuch as there is a discrepancy with the description of the goods in the outstanding warehouse

receipt.164

1. Field Warehouses

A field warehouse is a storage facility, typically located on the property of a business that received

a loan from a bank. Field warehouses are mainly regulated by the CNBV.165 The CNBV issues

regulations as well as guidelines on the management and preservation of the goods stored in field

warehouses.166 Warehouses must establish a contingency reserve for purposes of covering

potential claims arising from losses in field warehouses.167

2. Warehouse Receipts Registry

In 2014, Mexico reformed its WRS legal framework to provide for a centralized warehouse

receipts (and pledge bonds) registry known as RUCAM administered by the Ministry of

Economy.168 RUCAM’s objective is to provide increased legal certainty to lenders when securing

obligations with pledge bonds.169 Warehouses must register issuances, modifications, and

164
Auxiliary Organizations Law, supra note 140, art. 11 Bis.
165
Id., art. 17.
166
Id.
167
Auxiliary Organizations Law, supra note 140, art. 16-A.
168
Auxiliary Organizations Law, supra note 140, art. 22 Bis 6.
169
Iniciativa de Decreto por el que se reforman, adicionan y derogan diversas disposiciones de la Ley General de
Organizaciones y Actividades Auxiliares del Crédito y de la Ley General de Títulos y Operaciones de Crédito (May
2013), available at
http://www.shcp.gob.mx/ApartadosHaciendaParaTodos/reformafinanciera/doctos/07_alnacenes_sofomes_08052013
.pdf

36
cancelations of warehouse receipts and pledge bonds.170 RUCAM is free of charge and can be

searched by the general public. It should be noted that the warehouses’ omissions or mistakes in a

RUCAM registration have no effect on the validity of outstanding paper warehouse receipts and

pledge bonds.171

Aside from warehouse receipts and pledge bonds, warehouses are also required to register in

RUCAM information on their premises, including field warehouses.172 Other information that

could be registered in RUCAM includes judicial or administrative decisions affecting goods stored

in warehouses.

3. Regulation of Warehouses Dealing with Agricultural and Fisheries Products

When storing agricultural and fisheries products, warehouses must comply with an additional

regulatory requirement, which is registration in a registry (Sistema Integral de Información de

Almacenamiento de Productos Agropecuarios) (“AG Registry”) administered by the Ministry of

Agriculture.173 The Registry is publicly accessible electronically, and free of charge.174 The

information warehouses must furnish to the AG Registry include: i) report of deposits and

withdrawals of agricultural products; ii) report of warehouse receipts and pledge bonds issued,

canceled, and transferred; and iii) phytosanitary or zoosanitary reports.175

c. Enforcement

170
Auxiliary Organizations Law, supra note 140, art. 22 Bis 6. d.
171
Id.
172
Id.
173
Id., 22 Bis 2.
174
Id.
175
Id.

37
The rules for enforcing a security right created through a pledge bond are different from those

applicable to the traditional pledge in that the former provide for an extrajudicial procedure.176 The

legal device through which the enforcement process is initiated is known as protesto, a device

imported from the negotiable instruments section of the CI Law.177 Upon default, the secured

creditor must present the pledge bond to the warehouse that issued the corresponding warehouse

receipt and formalize the protesto against the holder of the warehouse receipt with the assistance

of a notary public.178 The protesto is formalized after the warehouse operator makes a notation in

the pledge bond stating that the pledge bond was presented at the warehouse at the time when the

debt became due and that it was not fully paid.179 The holder of the pledge bond must then proceed

to give notice of the default to all previous endorsers of the pledge bond.180 The holder of the

pledge bond must afterwards request (within a period of eight days following the formalization of

the protesto) that the warehouse sell the goods through a public auction.181

The sale proceeds of the deposited goods must be distributed by the warehouse as follows: i) any

taxes; ii) storage fees; iii) the obligation secured by the pledge bond.182 Any surplus is then remitted

to the holder of the corresponding warehouse receipt.183

E. PHILIPPINES

176
LGTOC, supra note 139, arts. 242-250.
177
Id.
178
Id., art. 142.
179
Id., art. 242.
180
Id.
181
Id., art. 243.
182
Id., art. 244.
183
Id.

38
The current paper-based WRS in the Philippines is rated highly under the World Bank’s “Enabling

the Business of Agriculture” warehouse receipts index, scoring 4.5 out of a possible 5 points.184

However, more detailed assessments have evaluated its WRS less favorably. The EBRD/FAO

Guide, for instance, identified a number of issues negatively impacting the WRS, including an

outdated and overly complex legal framework, as well as an absence of out-of-court enforcement

procedures and central warehouse receipts registry.185 A more recent assessment echoed these

problems.186 Such deficiencies have prompted recent efforts to reform its WRS as well as the

corresponding secured transactions framework in accordance with international best practices.

a. Legislative Framework

The legislative framework for the Philippine WRS is fragmented, comprising several statutes and

regulations, as well as separate systems for commodities generally and grains and sugar in

particular. The main laws governing the Philippine WRS are i) the Warehouse Receipts Act

(1912), which applies generally to all “goods”187; ii) the Bonded Warehouse Act (1937), which

applies to most “commodities”188; and iii) the National Food Authority Act (1981), which is

184
Philippines assessment, Enabling the Business of Agriculture indexes, WORLD BANK
http://eba.worldbank.org/data/exploreeconomies/philippines/2017#eba_fina.
185
EBRD/FAO Guide, p. 114.
186
Warehouse Receipts as a System for Improving the Efficiency of Rice and Corn Marketing in the Philippines,
PHILIPPINE INSTITUTE FOR DEVELOPMENT STUDIES (Dec 2016), available at
https://dirp3.pids.gov.ph/websitecms/CDN/PUBLICATIONS/pidsdps1645.pdf .
187
The Warehouse Receipts Act (1912), § 58 (“ ‘Goods’ means chattels or merchandise in storage or which has been
or is about to be stored”), available at http://www.chanrobles.com/acts/actsno2137.html.
188
The Bonded Warehouse Act (1937) (“ ‘commodity’ shall mean any farm, agricultural or horticultural product;
animal and animal husbandry or livestock, dairy or poultry product; water, marine or fish product; mineral,
chemical, drug or medicinal product; forestry product; and any raw, processed, manufactured or finished product or
by-product, good, article, or merchandise, either of domestic or of foreign production or origin, which may be traded
or dealt in openly and legally”), available at http://www.chanrobles.com/acts/actsno3893.html. The Bonded
Warehouse Act, which originally applied to warehouses engaging in the storage of rice, was amended in 1948 to
cover all commodities, see Republic Act 247, available at
http://www.chanrobles.com/republicacts/republicactno247.html#.W-HAGaeZMWo.

39
limited to food products/commodities, but mainly applies to grains.189 Thus, the Philippine WRS

includes general as well as sector/commodity-specific WR legislation. The Warehouse Receipt

Act governs the form and transfer of warehouse receipts, whereas the Bonded Warehouse Act and

National Food Authority Act provide separate regimes for regulating and supervising warehouses.

In addition to the above, the Personal Property Security Act (2018) contains rules governing the

creation, perfection and enforcement of a security right, applicable to WRs.

1. Types of Warehouse Receipts

The Warehouse Receipt Act governs the form of WRs, which must satisfy several requirements.190

Where a warehouse issues a non-conforming WR (e.g., a WR omitted one or more of the

enumerated elements), it may be liable to any person for loss or damage caused by such non-

conformance.191 The Warehouse Receipt Act recognizes negotiable WRs, which are “receipt[s] in

which it is stated that the goods received will be delivered to the bearer or to the order of any

person named in such receipt.”192 Non-negotiable warehouse receipts193 must be clearly marked

“non-negotiable” or “not negotiable.”194 The Warehouse Receipt Act neither recognizes “double”

189
the National Food Authority Act (1981), available at
https://lawphil.net/statutes/presdecs/pd1981/pd_1770_1981.html. The National Food Authority Act, which was
issued by presidential decree, effectively replaced the National Grains Industry Development Act (1972).
190
The Warehouse Receipt Act (1912), § 2 (a WR “must embody within its written or printed terms: (a) The
location of the warehouse where the goods are stored, (b) The date of the issue of the receipt, (c) The consecutive
number of the receipt,(d) A statement whether the goods received will be delivered to the bearer, to a specified
person or to a specified person or his order, (e) The rate of storage charges, (f) A description of the goods or of the
packages containing them, (g) The signature of the warehouseman which may be made by his authorized agent, (h)
If the receipt is issued for goods of which the warehouseman is owner, either solely or jointly or in common with
others, the fact of such ownership, and (i) A statement of the amount of advances made and of liabilities incurred for
which the warehouseman claims a lien. If the precise amount of such advances made or of such liabilities incurred
is, at the time of the issue of, unknown to the warehouseman or to his agent who issues it, a statement of the fact that
advances have been made or liabilities incurred and the purpose thereof is sufficient.”)
191
Id.
192
Id. at 5.
193
See id. at 4 (a non-negotiable warehouse receipt is “[a] receipt in which it is stated that the goods received will be
delivered to the depositor or to any other specified person”).
194
Id. at 5.

40
WRs nor EWRs. The Philippine WRS thus provides for a “single,” paper WR, which may be either

negotiable or non-negotiable. However, some special characteristics exist with respect to the form

of WRs issued for grain and sugar, which are discussed below.

2. Transfer of Warehouse Receipts

The Warehouse Receipt Act governs transfers of WRs. Article 37 provides that “[a] negotiable

receipt may be negotiated by delivery… [w]here, by the terms of the receipt, the warehouseman

undertakes to deliver the goods to a bearer.” Where the WR is issued to a named holder, Article

37 also requires an endorsement. Article 41, moreover, recognizes the principle of due negotiation,

which means that “[a] person to whom a negotiable receipt has been duly negotiated acquires

thereby… i) [s]uch title to the goods as the transferor had to convey to a purchaser in good faith

for value, and also such title to the goods as the depositor or person to whose order the goods were

to be delivered had to convey to a purchaser in good faith for value;” and ii) “[t]he direct obligation

of the warehouseman to hold the goods according to the terms of the receipt as fully as if such

warehouseman had contracted directly with him.” Article 42 governs situations where a WR has

been transferred but not negotiated, in which case the transferee “acquires the title to the goods

subject to the terms of any agreement with the transferor.” Finally, Article 48 protects good-faith

purchasers of WRs.195

195
Article 42 provides that “[w]here a person having sold, mortgaged, or pledged goods which are in warehouse
and for which a negotiable receipt has been issued, or having sold, mortgaged, or pledged the negotiable receipt
representing such goods, continues in possession of the negotiable receipt, the subsequent negotiation thereof by the
person under any sale or other disposition thereof to any person receiving the same in good faith, for value and
without notice of the previous sale, mortgage or pledge, shall have the same effect as if the first purchaser of the
goods or receipt had expressly authorized the subsequent negotiation.”

41
Sections 50-55 of the Warehouse Receipt Act criminalize various actions and failures related to

the unlawful transfer/delivery of goods covered by warehouse receipts including: i) issuing a WR

without receiving the underlying goods; ii) issuing a WR containing false statements; iii) issuing

a duplicate not marked as such; iv) delivering goods without a WR; and v) accepting goods for

which the depositor holds no legal title.

The Philippine WRS presently lacks a central warehouse receipts registry for the issuance and

transfer of WRs. It also lacks an EWR system. However, a bill currently being deliberated in

congress would provide for an EWR system where the issuance and transfer of EWRs would be

recorded in a central warehouse receipts registry.

b. Regulatory Framework
Section 3 of the Bonded Warehouse Act empowers the Department of Trade and Industry (“DTI”)

to regulate and supervise warehouses storing and issuing WRs covering all commodities other than

food products. Warehouses must apply for a license from DTI annually, which includes the

requirement to post a bond for “not less than thirty-three and one third percent of the market value

of the maximum quantity or [commodity] to be received.”196 In addition to posting of a bond,

licensed warehouses are also required to insure commodities stored in their facilities against fire.197

Finally, licensed warehouse must “keep a complete record of the [commodities] received, of the

receipts issued therefor, and of all receipts returned to and cancelled,” and submit corresponding

196
The Bonded Warehouse Act (1937), § 4.
197
Id. at 6.

42
reports to the DTI.198 The DTI may “suspend or revoke a license for any violation or failure to

comply with any provision of this Act or of the rules and regulations made by virtue thereof.”199

The National Food Authority Act authorizes the National Food Authority (“NFA”), which is a sub-

agency within the Department of Agriculture (“DOA”), to register, license and supervise

warehouses engaging in the storage of food products/commodities.200 To these ends, in 2006, the

NFA issued the Revised Rules and Regulations on the National Food Authority on Grain Business

(“NFA Regulations”), which provide a detailed framework for regulating and supervising

warehouses engaging in the storage of grains, particularly rice and corn. Under Article 1 of the

NFA Regulations, grain warehouses are required to obtain a license from the NFA in order to

engage in grain-storage services.201 Where a grain warehouse wishes to issue negotiable WRs, it

must obtain a “franchise,” which is “a privilege granted to an owner/operator of NFA licensed

bonded warehouse...”202 Franchised grain warehouses must adhere to higher standards with respect

to financial solvency and storage capacity.203 Finally, the NFA is tasked with providing both

negotiable as well as non-negotiable warehouse receipts to the relevant grain warehouses.204

198
Id. at 9.
199
Id. at 11.
200
National Food Authority Act (1981), § 7(b).
201
NFA Regulation VI, §§ 1-3, available at http://www.nfa.gov.ph/images/files/archive/rules-regulations.pdf. The
requirements for obtaining a license under the NFA Regulations include paying a guarantee/bond “to secure the
faithful compliance of the applicant’s obligations and responsibilities,” and also taking out fire insurance from an
NFA-accredited insurer.
202
Id. at VII, § 1.
203
Id. at 2-3.
204
Id. at 1.

43
Although the Bonded Warehouse Act and NFA Regulations require payment of a guarantee/bond

as one of the requirements for obtaining a warehousing license, some banks do not consider such

requirements to be adequate for purposes of accepting commodities covered by a WR as collateral

for a loan.205 The Quedan Financing Programme (“QFP”), which was introduced in 1978,

attempted to remedy this problem by providing an alternative guarantee mechanism for protecting

secured creditors against insolvent warehouses. The QFP provides grain warehouses with the

option of becoming accredited (on a voluntary basis) by the Quedan and Rural Credit Guarantee

Corporation (“Quedancor”), which compensates secured creditors for up to 80% of the

unrecovered value, in the event that the warehouse fails.206 In addition to the general regulatory

framework for all warehouses, a separate regime exists for warehouses issuing warehouse receipts

for grains and sugar.

c. Enforcement
The Personal Property Security Act (2018) provides a regime for creating, perfecting and enforcing

security rights in the WRs and the goods they cover. According to the Department of Finance

(“DOF”), one of the aims of the Act is to “develop a professional, regulated warehousing industry,

which issues receipts that can be used as collateral by lenders and can be traded by investors and

industry players.”207 Unlike the repealed Chattel Mortgage Act (1906), the Personal Property

Security Act allows secured creditors to enforce their rights without a court order “if the security

205
EBRD/FAO Guide, p. 31.
206
Id. In order to become accredited, warehouses must submit i) a copy of the certificate of franchise, ii) a
warehouse receipt, iii) a stock inspection report, iv) an affidavit of stock ownership and evidence that the stock is
insured, and also v) pay a guarantee/bond to the NFA amounting to one-third of the value of the commodities storied
in its facilities. Accredited warehouses must also allow Quedancor officials to inspect their facilities.
207
Law on secured transactions a boost to Philippines’ competitiveness, PHILSTAR GOLOBAL,
available at https://www.philstar.com/business/2018/02/04/1784260/law-secured-transactions-boost-philippines-
competitiveness#EeAdfH6VfXKQ1JeM.99.

44
agreement so provides.”208 This rule also applies to negotiable documents such as paper WRs.209

Accordingly, the legal framework for warehouse receipts now provides for out-of-court

enforcement mechanisms in the event of debtor default, which was not accounted for in the

EBRD/FAO Guide’s assessment of the Philippine WRS.210

F. UNITED ARAB EMIRATES

The United Arab Emirates (“UAE”) has a paper and an electronic warehouse receipts system (“e-

WRS”). The paper WRS lacks many of the support structures provided for under the e-WRS,

which is overseen by a securities exchange commission, regulated by a private market authority

with a mandate to organize a commodity market within its jurisdiction, and supervised by a

commodity exchange and central clearing counterparty (“CCP”). The e-WRS utilizes a modern

EWR platform, which facilitates the issuance, transfer and registration of EWRs, including for

collateral purposes. Notably, the e-WRS is primarily utilized for transactions involving metals and

plastics, rather that agricultural products like grains. Participation in the e-WRS is conditioned on

entering into various standard-form contracts with the market authority, which stipulate the terms

for accessing the EWR platform and other relevant trade infrastructure, such as the commodity

exchange. Although some aspects of the UAE’s e-WRS are provided for in legislation, its main

elements are contained in operating agreements and exchange rules. A similar framework exists

in South Africa.

208
The Personal Property Security Act, § 47, available at
http://www.officialgazette.gov.ph/downloads/2018/08aug/20180817-RA-11057-RRD.pdf.
209
Id. at 48(b) (“Upon default, the secured creditor may without judicial process… [in] a negotiable document
perfected by possession, proceed as to the negotiable document or goods covered by the negotiable document.”).
210
EBRD/FAO Guide, p. 114.

45
Although the UAE’s paper WRS lacks the support structures of its electronic counterpart, it meets

the minimal requirements of a functional WRS, including specific norms pertaining to warehouse

receipts, their transfer by negotiation and mandatory licensing and insurance for warehouses. The

applicable secured transactions framework contains several deficiencies, particularly the absence

of general out-of-court enforcement mechanisms, even in relation to possessory pledges.

Moreover, despite the fact that the e-WRS incorporates many of the most modern warehouse

receipts practices, the absence of a corresponding EWR law limits its application to those

participating in the system. As a result, it may not provide for the same kinds of rights contained

within the paper system, which is governed by a WR legislation of general application, exposing

the participants to a number of risks especially with respect to claims arising under the framework

outside of this closed system. Nevertheless, UAE’s e-WRS has proven effective at supporting a

commodity market, where trades are settled by delivery as well as in cash. It has also proven to be

an effective financing platform, facilitating the use of EWRs as collateral.

a. Legislative Framework
The UAE contains laws applicable to paper warehouse receipts as well as specific laws applicable

to EWRs. The Commercial Transactions Law (1993)211 provides for generally applicable rules

governing paper WRs, including their issuance and transfer, as well as the rights and duties of

holders and warehouses. The Commercial Transactions Law also contains rules governing

possessory pledges, including in paper WRs, which may also be found in the Civil Code (1985).212

Finally, the Law on Pledging Movable Properties as Security for Debts (2016) (“the Law on

211
Commercial Transactions Law (1993), available in English at
https://www.wipo.int/edocs/lexdocs/laws/en/ae/ae007en.pdf.
212
Civil Code (1985), available in English at https://lexemiratidotnet.files.wordpress.com/2011/07/uae-civil-code-
_english-translation_.pdf.

46
Pledge”)213 provides for a non-possessory pledge, the establishment of a modern collateral registry

and out-of-court enforcement mechanisms. However, the secured transactions framework is highly

fragmented with multiple laws applying to different security devices that could be taken over the

same asset, including warehouse receipts.

There is no law of general application that governs the UAE’s e-WRS. Rather, the e-WRS is

contained within the operating framework of the Dubai Multi Commodities Centre (“DMCC”),

which is a private trade and finance entity formed by the Dubai Government in 2002 with a

mandate to set up an infrastructure capable of supporting a commodities marketplace within its

“free zone.” The federal constitution, the federal laws concerning free zones and the powers

reserved by the individual emirates under the federal structure, allow each emirate to establish free

zones for certain activities.214 Free zones are permitted to enact their own laws and regulations in

specific areas,215 which is also the case in the DMCC free zone.216 The DMCC free zone is

described as “the world’s leading commodity focused ecosystem.”217 The DMCC, moreover, “is

the Government of Dubai Authority dedicated to establishing Dubai as the global gateway for

commodity trade.”218

213
Law on Pledging Moveable Properties as Security for Debts (2016), available in Arabic at
https://www.mof.gov.ae/Ar/lawsAndPolitics/govLaws/Documents/‫رهن‬%20‫األموال‬%20‫المنقولة‬%20‫ضمانا‬%20‫لدين‬.pdf.
214
“Doing Business in the UAE,” LATHAM & WATKINS LLP, p. 2 (Second Edition) available at
https://www.lw.com/thoughtLeadership/doing-business-in-the-uae.
215
Id.
216
Dubai Multi Commodities Centre Authority Free Zone Rules and Regulations (Third Edition, 2012), available in
English at https://www.dmcc.ae/application/files/4915/0832/8310/FreeZoneRulesandRegulations2012-
Fullversion_5.pdf.
217
“Tradeflow Brochure: Enabling efficient transparent trade,” DMCC, p. 2, available at
https://www.dmcc.ae/application/files/5615/2385/5725/Tradeflow_Brochure_Update_2018_single_pages_for_web_
1.pdf.
218
Id.

47
To those ends, the DMCC instituted an EWR platform called “Tradeflow.”219 In order to gain

access to Tradeflow, participants must enter into a standard-form Corporate Access Agreement

with DMCC,220 and participating warehouses must additionally enter into a Warehouse Operating

Agreement221 with the DMCC. Together, the Corporate Access Agreement and Warehouse

Operating Agreement provide for a regulatory as well as supervisory regime in relation to

warehouses issuing EWRs through the DMCC platform. Transfers of EWRs are governed, in part,

by the By-Laws of the Dubai Gold and Commodities Exchange (“DGCX”), 222 which is a

subsidiary of the DMCC.

Another source of rules applicable to the UAE’s e-WRS include the Clearing Rules of the Dubai

Commodities Clearing Corporation (“DCCC”),223 which is a subsidiary of the DGCX. The

Clearing Rules provide for norms governing the settlement of EWR transactions as well as

guarantee mechanisms. Finally, Appendix 2 of the Corporate Access Agreement, titled “Rules for

Taking Security Over DMCC Tradeflow Warrants” (“Security Rules”), provides for a separate

regime governing security rights in EWRs issued via Tradeflow. The activities of the DMCC,

DGCX and DCCC are overseen by the Securities and Commodities Authority, which licenses

commodity exchanges and their participants, including clearing houses and brokers.

219
Id.
220
DMCC Tradeflow Corporate Access Agreement, available in English at
http://6164.stage.omobono.com/application/files/1314/8061/2881/DMCCTradeflow-CorporateAccessAgreement-
NewLogo.pdf.
221
DMCC Tradeflow Warehouse Operating Agreement, available in English at
https://www.dmcc.ae/application/files/7215/0174/4190/DMCCTradeflowWarehouseAgreement-newlogo_1.pdf.
222
DGCX Exchange By-Laws (2018) available at https://www.dgcx.ae/exchange-by-laws.
223
DCCC Clearing Rules, available at http://www.dccc.co.ae/clearing-rules.

48
Although the UAE does not have an EWR law of general application, the Law on Electronic

Commerce and Transactions (2006)224 provides the legal basis for transactions with WRs on

Tradeflow. However, the Law falls short of making EWRs the functional equivalents of their paper

counterparts. The legal basis for transactions involving EWRs is therefore largely contractual in

nature.

1. Types of Warehouse Receipts

UAE’s WRS provides for a double paper WR and at least three types of EWRs. Article 183(1) of

the Commercial Transactions Law provides for a double (paper) warehouse receipt covering all

goods, which is composed of i) a storage receipt, which evidences the right to the deposited goods;

and ii) a pledge receipt (warrant), which evidences a security right. Article 183(1) further provides

that a warehouse receipt must contain the following information: i) the depositor’s name, ii)

occupation and domicile, iii) the type, nature and quantity of the goods deposited, iv) the name

and location of the warehouse, v) the name of the insurer of the goods (if any), and vi) such other

particulars as are required to identify the goods and indicate their value.

UAE’s e-WRS system provides for at least three types of EWRs: i) a Dubai Commodity Receipt

(“DCR”), which is a “receipt representing a commodity… stored in a warehouse owned or

operated by a DCR Issuing Member”; ii) a Dubai Gold Receipt (“DGR”), which is a “receipt

representing gold or silver stored at a vault owned or operated by a DGR Issuing Member; and iii)

224
Law on Electronic Commerce and Transactions (2006), available in English at
https://www.wipo.int/wipolex/en/text.jsp?file_id=316895. The Law on Electronic Commerce and Transactions is
based on the UNCITRAL Model Law on Electronic Commerce, see “Text and Status,” available at
http://www.uncitral.org/uncitral/en/uncitral_texts/electronic_commerce/1996Model_status.html.

49
a Warrant, which is a “paper certificate or electronic document representing and evidencing

ownership of goods stored in a facility owned and operated by a DMCC Tradeflow Member.”225

2. Transfers of Warehouse Receipts

There are separate regimes for transfers of paper WRs. Article 185(1) of the Commercial

Transactions Law provides that a (paper) WR may be issued to a named holder or a bearer. In

cases where the WR is issued to a bearer, Article 185(2) provides that the holder may transfer it

(together or separately) by endorsement.226 Article 187(1) provides that the holder of both the

storage and the pledge receipt is entitled to take delivery of the goods deposited. Finally, Article

187(3) provides that the holder of a storage receipt without the pledge receipt “has the right to

recover the goods deposited provided that he satisfies the obligation secured by the pledge receipt.”

Transfers of EWRs are completed via EWR platforms, or “Systems,” that correspond to the type

of EWR issued through those platforms.227 The DMCC owns each of the individual EWR

platforms, which are generally referred to as “Tradeflow.228 Tradeflow not only facilitates the

225
Exchange By-Laws, supra note 222, pp. 5 and 12.
226
Article 186 of the Commercial Transactions Law provides for rules with respect to the endorsement of a
warehouse receipt: i) an endorsement of the warehouse receipt must be dated; ii) where the warehouse receipt is
transferred separately, the endorsement must contain the sum of the debt secured by the pledge receipt, the maturity
date, the creditor’s name, occupation, domicile and the signature of the endorser; and iii) the endorsement and
pledge receipt must be registered in the books of the warehouse.
227
Exchange By-Laws, supra note 222, pp. 6 and 12 (The DCR System is the “electronic system owned by DMCC
for the issue, transfer and pledging of commodity receipts other than [DGRs],” whereas the Warrant System is the
“electronic system owned by DMCC for the issue, transfer and pledging of Warrants in relation to commodities
stored inside the [UAE]”).
228
Tradeflow Brochure, supra note 217, p. 3 (The DMCC defines Tradeflow as “a dedicated flexible and customised
online platform for registering possession and ownership of commodities stored in UAE based storage facilities”).

50
transfer of rights to commodities utilizing EWRs, but also records the same transfers into its central

registry, including the registration of ownership, its transfers and pledges.229

The DCR and DGR may be transferred by way of an electronic endorsement and/or delivery. The

DGCX by-laws provide that a seller completes a transfer of a DCR or a DGR within Tradeflow

through the issuance of a Delivery Notice, which is defined as “[a]n advice… issued to the [DCCC]

by a Seller intending to deliver a commodity in satisfaction of an [exchange contract].” 230

Accordingly, the DCR and DGR are used as settlement/delivery instruments for exchange

contracts, and in particular futures. Upon sending a Delivery Notice through Tradeflow, the seller

must appoint either the DMCC or the DCCC to act as its agent to complete the delivery.231

The Warrant may be transferred by way of electronic endorsement, which effects a transfer of

ownership to the underlying commodity. Article 4.1(a) of the Corporate Access Agreement

provides that a seller completes a transfer of a Warrant within Tradeflow by the issuance of a

Transfer Notification, which is a “request to transfer the legal title to a Warrant and the Goods

represented by the Warrant via DMCC Tradeflow to a Transferee.” Article 4.1(c) provides that

“[a] Transferee acquires by virtue of a Transfer Notification: i) such title to the Goods as the

Transferor had the power to convey to a purchaser in good faith for value; and ii) the benefit of

229
Id. (Tradeflow is further described as “the centralized internet based online commodities title receipt system
developed by DMCC”).
230
Exchange By-Laws, p. 6.
231
The delivery instructions must include one or more of the following: i) instruct a participating warehouse (issuer)
to cancel the DCR/DGR covering the commodity located at the warehouse; ii) instruct a participating warehouse to
issue two or more DCRs/DGRs covering such commodity in place of the cancelled DCR/DGR; and/or iii) instruct
DMCC to endorse by way of transfer to a Buyer or Buyers determined by the [DCCC], the DCR/DGR or
DCRs/DGRs covering such commodity. The specific terms of the delivery are contained in the relevant provisions
of each exchange contract and generally provide for settlement by immediate delivery, delivery at a future date, or
payment in cash.

51
the obligation of the Storage Operator to hold the Goods for him according to the terms of the

Warrant as if the Storage Operator had contracted directly with him.”

The Security Rules provide for a separate regime governing security rights in an EWR, which may

be completed by way of pledge and Security Notification, which is “a notification sent by the Legal

Owner of a Warrant to DMCCA via DMCC Tradeflow… instructing DMCCA to hold that Warrant

as security of the Tradeflow creditor identified in that notification.”232 Thus, transfers for trading

purposes are achieved by way of a Delivery Notice or a Transfer Notification, whereas transfers

for collateral purposes are achieved by way of a Security Notification.

b. Regulatory Framework
The UAE’s regulatory framework is composed of i) a general framework applicable to all

warehouses, and ii) a specific framework applicable to warehouses participating in the electronic

system owned and operated by the DMCC.

1. General Framework

The UAE’s WRS does not provide for regulatory, supervisory or licensing bodies with a general

power. The Commercial Transactions Law provides for both mandatory licensing as well as

insurance, which apply to all warehouses issuing negotiable (paper) WRs, no matter the location

of the warehouse or commodity stored therein. The individual governments of each emirate have

instituted their own separate regime, particularly as they relate to the licensing of warehouses.

Local governments (e.g., the Economic Department of the Dubai Government) issue licenses to

232
Corporate Access Agreement, supra note 220, p. 4.

52
warehouses.233 Although each emirate provides for their own specific licensing requirements,

Article 178(2) of the Commercial Transactions Law requires public warehouses to obtain a license

in order to issue negotiable (paper) WRs.234 The Commercial Transactions Law also contains a

general insurance requirement for public warehouses.235

2. Specific Framework

The Dubai Government vested regulatory, supervisory and licensing powers over the commodity

market generally, and the e-WRS in particular, in the hands of the DMCC. The DMCC has

delegated some of these powers to its subsidiary DGCX. Finally, the DCCC, which is a subsidiary

of DGCX, is a “Central Counter Party [“CCP”], providing clearing and settlement for exchange-

traded derivatives contracts executed on [DGCX],” as well as performing risk-management,

collateral-management and guarantee functions.236 The activities of each of the above entities is

regulated to some degree by the UAE’s securities exchange commission, which licenses

commodity exchanges and its participants, including brokers and clearing houses. Notably, the

SCA and DMCC signed a memorandum of understanding that provides for collaboration and

technical assistance in the development of applicable rules and regulations with respect to various

market products, which may also include exchange-traded EWRs.237

233
“Commercial Permits Guide,” DUBAI GOVERNMENT, available at
http://www.dubaided.ae/PublicationsDocument/Commercial-Permits-English.pdf#search=warehouse.
234
Article 178(3) of the Commercial Transactions Law defines public warehouses as warehouses that receive goods
for deposit and issue a corresponding goods receipt and pledge receipt (i.e. a double warehouse receipt) covering
those goods. Article 195 further provides that violations of the licensing requirement may be criminally prosecuted.
235
Article 178(4) of the Commercial Transactions Law provides that “[a]ny person exploiting a public warehouse
shall cover it with an insurance against the risks of fire, perishing and theft.”
236
“About DCCC,” available at http://www.dccc.co.ae/about-dccc.
237
“SCA signs MOU with DMCC” (The MoU “provides for the identification of the scope of collaboration and
technical assistance in the applicable rules and regulations in the field of securities, commodities, futures, options,
and other market products”), available at https://www.sca.gov.ae/english/news/pages/articles/2015/2015-1-18.aspx.

53
In order for a warehouse operator to access Tradeflow, it must become a DMCC Member, which

is achieved by entering into the Corporate Access Agreement with the DMCC. The Warehouse

Agreement provides that “[t]he DMCC may, at any time, require the Storage Operator to make the

Storage Facility available for an inspection and shall provide the Storage Operator with reasonable

notice of the date and time of the inspection.”238 In addition to the DMCC, the DCCC provides

collateral management services for creditors.239 The main guarantee mechanism contained in the

e-WRS is a “Clearing Guarantee,” which exchange participants must provide.240

c. Enforcement
There are separate secured transactions frameworks for the paper WRS and the e-WRS. A security

right in a double WR can be perfected by possession or registration. Article 165(1) of the

Commercial Transactions Law provides that a security right is perfected when the WR is delivered

to the creditor. However, the Commercial Transactions Law does not provide for extra-judicial

enforcement with respect to possessory pledges.241 Under the Law on Pledge, a security right in a

WR may be perfected by registering a pledge of the WR in the collateral registry. The Law on

Pledge provides for extra-judicial enforcement of the pledged asset so long as it is explicitly

provided for in the pledge agreement.242

238
Id.
239
“Approved Banks for Non Cash Collateral,” available at http://www.dccc.co.ae/approved-banks-for-non-cash-
collateral, see also http://www.dccc.co.ae/margin-information (The DCCC has also established a risk management
framework, which “is underpinned by a system of initial margin, daily marking-to-market procedures and additional
margins”).
240
Exchange By-Laws, supra note 222 (A Clearing Guarantee is a “guarantee by a Guarantor Clearing Member in
the form prescribed by the [DGCX] from time to time pursuant to which that Guarantor Clearing Member
guarantees to each Member (other than the Guaranteed Member) Contracts entered into by that Guaranteed Member
and agrees to accept for registration in its name with the [DCCC] all contracts entered into by that Guaranteed
Member”).
241
Article 172 of the Commercial Transactions Law provides that where a “pledgor fails to pay on the date of
maturity the debt secured by the pledge, the pledgee may, after the lapse of seven days from the date of service of
notice on the debtor to pay, submit a petition to the Court to the effect of authorizing him to sell the mortgaged
asset.”
242
“New Mortgage Law in UAE – briefing on key issues,” CLIFFORD CHANCE LLP, p. 7 (2017).

54
Although the Law on Pledge applies to all types of movable assets, including EWRs, it does not

apply in free zones such as the DMCC. Accordingly, a security right registered within Tradeflow

would not be enforceable under the Law on Pledge.243 However, Rule 3 of the Security Rules,

which applies in the DMCC, provides for an out-of-court enforcement mechanism by way of a

Close Out Security Instruction that may be sent through Tradeflow to the DMCC. Rule 3 provides

that upon receipt of a Close Out Security Instruction, the DMCC may sell the Warrants and apply

the proceeds to satisfy the claims of the pledgee.

The Commercial Transactions Law provides for a warehouseman lien. 244 Like the pledge, it may

not be enforced without a court order. The same is also true with respect to the DMCC-operated

e-WRS. In order to enforce the “Storage Operator’s lien,” an operator must send a notification via

Tradeflow “to the relevant Legal Owner and simultaneously (if applicable) to any Tradeflow

secured creditor” with a demand stating the following: i) the Storage Operator’s claim; ii) a

demand for payment of the claim to be settled within 14 days; and iii) a statement that unless the

claim is paid within the time specified the Storage Operator will seek a court order authorizing the

sale of the goods by auction.245

III. INITIATIVES ON WAREHOUSE RECEIPTS BY INTERNATIONAL AND

REGIONAL ORGANIZATIONS

243
“Pledge through DMCC Tradeflow Platform,” AL TAMIM & CO, available at https://www.tamimi.com/law-
update-articles/pledge-through-dmcc-tradeflow-platform/.
244
Commercial Transactions Law, supra note 211, Article 194(1).
245
Corporate Access Agreement, supra note 220, Article 5.7 (“Enforcement of a Storage Operator’s Lien”).

55
Several organizations have promulgated principles, policies and standards applicable to every

aspect of warehouse receipts systems (“WRS”), including i) the World Bank Group (“WBG”), ii)

the European Bank for Reconstruction and Development (“EBRD”), iii) the Food and Agriculture

Organization of the United Nations (“FAO”), and iv) the Organization of American States

(“OAS”). The United Nations Commission on International Trade Law (“UNCITRAL”) and the

International Organization of Securities Commissions (“IOSCO”) have promulgated standards and

principles applicable to some specific aspects of a WRS such as security rights and electronic

transferable records.

For instance, WBG published a toolkit titled “A Guide to Warehouse Receipt Financing Reform:

Legislative Reform” (“WBG Guide”).246 The IFC of the World Bank Group published a guide

titled “Warehouse Finance and Warehouse Receipt Systems: a Guide for Financial Institutions in

Emerging Economies” (“IFC Guide”).247 The EBRD and FAO jointly published a guide titled

“Designing Warehouse Receipt Legislation: Regulatory Options and Recent Trends”

(“FAO/EBRD Guide”).248 OAS recommended the adoption of “Principles for Electronic

Warehouse Receipts for Agricultural Products” (“OAS Principles”).249 IOSCO published a series

of reports (“IOSCO Reports”) on the regulation of commodity markets and relevant storage

infrastructure that informs some WRS-related aspects.250 UNCITRAL published a “Model Law on

246
WBG, A Guide to Warehouse Receipt Financing Reform: Legislative Reform (2016), p. iii,
available at http://documents.worldbank.org/curated/en/885791474533448759/pdf/108450-WP-PUBLIC.pdf
(last accessed Sept 17, 2019).
247
IFC, Warehouse Financing and Warehouse Receipts Systems: A Guide for Financial Institutions in Emerging
Economies (2013), available at https://www.mongolbank.mn/conference/books/01.pdf.
248
EBRD/FAO, Designing Warehouse Receipt Legislation: Regulatory Options and Recent Trends (2014),
available at http://www.fao.org/3/a-i4318e.pdf.
249
OAS, Principles for Electronic Warehouse Receipts for Agricultural Product (2016), available at
http://www.oas.org/en/sla/iajc/docs/CJI-doc_505-16_rev2.pdf.
250
See, for example: IOSCO, Commodity Storage and Delivery Infrastructures: Good or Sound Practices ,
Consultation Report (June 2018), available at https://www.iosco.org/library/pubdocs/pdf/IOSCOPD604.pdf,

56
Electronic Transferable Records” (“Model ETR Law”), which could provide the legal basis for the

issuance and transfer of electronic documents of title.251

All of these publications provide for WRS principles, policies and standards, including i) the scope

of the WRS; ii) the benefits of instituting an EWR system; iii) transfers of WRs; iv) regulation of

the WRS and supervision of warehouses; v) licensing regime for warehouses; and vi) protection

of the rights of creditors with a security right in a commodity covered by a WR. The following

subsections discuss those principles, policies and standards. For a table comparing the publications

discussed below see Annex I.

A. SCOPE
Most warehouse receipts laws apply generally to any type of asset that may be stored in a

warehouse. Some warehouse receipts laws apply only to a specific sector of the economy (e.g.,

agricultural products) or a specific type of commodity (e.g., grain).

B. ELECTRONIC WRS
A WRS may be paper-based, electronic, or both. Virtually all of the publications recognize the

advantage of instituting an electronic system. An electronic system, for instance, provides for a

speedier and more secure method of transferring WRs. However, an electronic system often

requires establishing a new legal, regulatory and trading infrastructure, which may prove

difficult/costly for emerging economies.

IOSCO, Principles for the Regulation and Supervision of Commodity Derivatives Markets (Sept 2011), available at
http://www.iosco.org/library/pubdocs/pdf/IOSCOPD358.pdf, IOSCO, The Impact of Storage and Delivery
Infrastructure on Commodity Derivatives Market Pricing (May 2016), available at
https://www.iosco.org/library/pubdocs/pdf/IOSCOPD530.pdf.
251
Model Law on Electronic Transferable Records (UNICATRAL, 2017), available at
http://www.uncitral.org/pdf/english/texts/electcom/MLETR_ebook.pdf.

57
The IFC Guide identified a trend towards establishing an electronic WRS beginning in the 1990s,

either within the framework of commodity exchanges, such as the London Metal Exchange or the

Ethiopian Commodity Exchange (“ECE”), or within the framework of public systems applicable

to all warehouses.252 The OAS Principles provide for an electronic WRS for agricultural products,

based on the experience of the United States, in which warehouses issue and transfer EWRs via

platforms set up by government-licensed EWR providers. The OAS Principles define EWR

providers as “an entity that issues or releases [EWRs], which may be the warehouse operator itself

or a third-party service provider operating on behalf of the warehouse.”253 Under the OAS

Principles, an EWR provider would administer a platform for the issuance, transfer and registration

of EWRs, including for collateral purposes. The OAS Principles provide a detailed regime for

regulating EWR providers.

It is therefore generally recognized that an electronic system provides for a more efficient and

secure WRS. However, in instituting such a system, the entity charged with implementing the

EWR platform should be clearly defined, and may be: i) a government entity, such as a financial

regulator/securities exchange commission; ii) a commodity exchange; or iii) private government-

licensed EWR providers.

C. TRANSFER OF WRS
Transfers of WRs are uniformly governed by the principle of negotiability. Transfers may be

concluded for purposes of selling the underlying commodity or for purposes of securing the

252
IFC Guide, p. 29.
253
OAS Principles, p. 5.

58
repayment of a loan. A WR law should clearly define WRs as negotiable documents of title,

allowing for the transfer of property rights, including security rights in the underlying commodity

via delivery of the WR. The taking free rules commonly included in WR legislation establish that

transferees take negotiable WRs free of any competing claims in the underlying commodity, so

long as certain requirements are met. On the other hand, WRs not intended to be traded or pledged

may be issued as non-negotiable, thereby limiting their circulation. However, they may still be

transferred to third parties by assignment.

There are different regimes for transfers of paper WRs. Transfers of paper WRs require an

endorsement (if the WR is made out to a named holder) and physical delivery of the WR to the

transferee. Delivery of possession would also have the effect of making the security right effective

against third parties. The WBG Guide contemplates the delivery of the “single” WR while the

EBRD/FAO Guide, taking into account the civil-law approaches, contemplates the “double” WR

system – the receipt itself and a pledge bond/warrant. Despite the issuance of two documents,

creditors regularly take possession of both, so the practical effect of making security rights

effective against third parties in both systems is the same.

The WRS should provide a method for the “delivery” of EWRs which achieves a functionally

same effect as transferring possession, equipping the transferee of an EWR with the equivalent set

of rights granted to the transferee of a paper equivalent. The concept of control emerged as the

functional equivalent to effectuate transfers of EWRs. The WBG Guide, for example, states that

“[d]elivery of a negotiable electronic document is through voluntary transfer of control. The

control concept as applied to negotiable [EWRs] is the substitute for both possession and

59
endorsement as applied to negotiable tangible documents of title.”254 The same concept of control

is referenced in the OAS Principles, which provide that “the person in control of [an EWR]… is

entitled to the same rights as the depositor”.255

In the context of EWR systems, most jurisdictions have established central registries to record the

issuance and transfers of EWRs. It is important to distinguish between WR registries that i) merely

record the issuance of WRs, and those that ii) act as platforms giving legal effect to the issuance

and transfers.256 In the case of the former, registration may be a condition of validity designed to

protect transferees against fraudulent issuance of WRs. In the case of the latter, the registry would

not only perform these functions, but also give effect to transferring rights embedded in EWRs.

Transfers of EWRs may require the assistance of a third party. The OAS Principles envision a

WRS in which EWR platforms are administered by licensed EWR providers. The IFC Guide, on

the other hand, contemplates EWRs being integrated into an existing platform set up by a

commodity exchange. In other cases, the EWR platform could be administered by a government

entity, such as a financial regulator or a ministry of agriculture.

D. REGULATION OF WRS AND SUPERVISION OF WAREHOUSES

All of the organizations involved in promulgating WRS principles, policies and standards provide

that an entity should be authorized to regulate the WRS through the issuance of rules and

254
WBG Guide, p. 82.
255
OAS Principles, p. 8.
256
IFC Guide, p. 31 (“Registries may either be paper-based or electronic; in the latter case, they are an integral part
of an e-WR system. Indeed, the move to an electronic system facilitates the establishment of a registry, as the central
server provides the data that a registrar will need—i.e., the link between an identified physical inventory and its
corresponding WR—and an audit trail of past transactions”).

60
procedures. Such rules and procedures would generally provide a regime for the implementation

of the WRS, such as instituting and administering a WR registry or EWR platform, as well as for

supervising warehouses storing goods and issuing corresponding warehouse receipts. The power

to issue rules and procedures governing specific aspects related to the operations of the WRS is

ordinarily vested with a statutorily-authorized government entity. Historically, countries have

empowered either i) financial regulators; or ii) ministries/departments of agriculture to fulfill this

function. Governments have vested regulatory powers on financial regulators whenever

warehouses have been perceived as auxiliary financial institutions and, as such, as an echelon of

the overall financial system. More recently, the regulatory function is being placed with securities

exchange commissions, which could facilitate the use of warehouse receipts as a trading

instrument as well as a settlement instrument for futures.

One of the most important functions a WRS regulator fulfills is instituting a regime for supervising

warehouses and warehouse operators. While the regulatory function generally concerns issuing

rules and procedures with respect to the operations of the WRS, the supervisory function generally

concerns policing warehouses and warehouse operators in order to ensure that they adhere to

regulations as well as applicable standards for storing commodities and issuing corresponding

warehouse receipts. In jurisdictions where a ministry/department of agriculture is empowered to

regulate the WRS, the supervisory function is often placed in the hands of a department within the

ministry/department of agriculture. However, the supervisory function does not necessarily have

to be fulfilled by a government entity, and virtually all of the organizations involved in

promulgating WRS principles, policies and standards contemplate that the supervisory function

could also be delegated to a non-government entity, such as a trade association or a commodity

61
exchange. In the absence of an adequate supervisory regime for warehouses, the supervisory

function may be fulfilled by private collateral management/inspection companies or banks. The

WBG and IFC Guides pay considerable attention to the role of collateral management/inspection

companies in the system of supervising warehouses.257

Among the functions a supervisory body typically fulfills are: i) instituting and/or implementing a

licensing regime; ii) conducting on-site inspections; and iii) imposing sanctions for violations,

such as license revocation/suspension and monetary fines. The supervisory body’s most important

function is implementing a licensing regime for warehouses, which provides the legal basis for the

associated supervisory regime.

E. LICENSING REGIME FOR WAREHOUSES

Depending on the jurisdiction, the permission to engage in warehousing activities may be given in

the form of a “license,” “certificate of registration,” “certification,” and/or “accreditation.” Some

jurisdictions use more than one of these terms, giving each a different meaning. For example,

warehouse receipts laws may provide that only “licensed” warehouses may engage in the storage

of commodities, but only “licensed” and “accredited” warehouses may issue negotiable warehouse

receipts.

The main purpose of licensing is to supervise the activities of warehouses and thereby assure

depositors, buyers and creditors that they deal with an entity that satisfies the minimal requirements

without incurring the cost of investigating whether that is in fact the case. A well-functioning

257
See WBG Guide, p. 35 (“It is critical to assess the appreciation of the market of the trustworthiness of local
storage or collateral management companies, as they will be destined to play a key role in inspiring trust in the
WRS”).

62
licensing regime should minimize various risks, especially those associated with fraud and

improper storage. Other purposes of licensing include providing for uniform and predictable

warehousing practices and procedures, and also funding the supervisory regime for warehouses

through fees.258

The WBG Guide highlights that a warehouse receipts law should not contain a general licensing

requirement for warehouses storing goods and issuing warehouse receipts covering those goods.

“There should be no limitations on the types of movable assets to which the law applies… although

the implementation of the licensing regime may be limited to certain kinds of commodities (e.g.,

all agricultural commodities or grains and pulses).”259 However, the EBRD/FAO Guide also

considers systems in which the warehouse receipts laws require all warehouses and/or warehouse

operators to obtain a license prior to storing goods and issuing warehouse receipts. Accordingly,

such laws ordinarily provide for a general prohibition against engaging in warehousing activity

without obtaining a license and in some cases impose administrative and even criminal penalties.

Warehouse receipts legislation typically designates an authority to license warehouses, which can

be either i) a government entity, such as a ministry/department of agriculture, the financial

authorities or a securities exchange commission; or ii) a non-government entity, such as a trade

association or commodity exchange. It is not uncommon for the licensing functions to be divided

among several entities, whether or not governmental.

258
IFC Guide, pp. 36-37 (“At the outset, a regulatory agency may be funded primarily through grants, but it should
be fully self-sufficient over time… This self-financing should be realized mainly through levies on licensed
warehouses, though additional income may be generated through laboratory and other services. There may be a
fixed charge for all warehouses and a variable component related to throughput or licensed capacity”).
259
WBG Guide, p. 58.

63
The warehouse receipts legislation may also establish general licensing requirements, which are

typically supplemented with more detailed requirements through regulations. The EBRD/FAO

Guide groups such requirements as: i) infrastructural, which pertains to standards concerning the

facilities and equipment used to store and take proper care of a particular commodity; ii)

managerial, which deals with the competence and ability of an entity to manage a warehouse; iii)

personnel, which concerns the training and qualifications of warehouse staff, particularly those

engaged in grading commodities; and iv) operational rules and fees, which relate to procedures

governing the storage and delivery/release of a commodity.

In addition to the above, licensing regimes ordinarily provide for mechanisms to ensure that

warehouses fulfill their obligations to depositors, buyers and creditors. Among such guarantee

mechanisms are requirements that warehouses and warehouse operators take out insurance and/or

post a bond to cover risks associated with damage or loss of the stored commodity as well as

negligence and fraud. Some systems also provide for a guarantee fund to indemnify holders of

warehouse receipts in cases where participating warehouses fail to meet their obligations to such

holders. The guarantee/indemnity fund may be a separate entity from the licensing authority and

may impose additional requirements for warehouses to participate. Additionally, the fund may

carry out supplementary supervision functions of its participants.

F. PROTECTION OF THE RIGHTS OF SECURED CREDITORS

The WBG Guide emphasizes the need for warehousing legislation reform to address certain

aspects of security rights in a commodity covered by a warehouse receipt. In particular, the WBG

Guide foresees situations in which a creditor perfects a security right, by registration, in a

64
commodity that is subsequently deposited into a warehouse. In such cases, the corresponding

warehouse receipt may be delivered to another second creditor, resulting in a priority conflict

between the registered security right of the first creditor and the possessory security right of the

second creditor. According to the WBG Guide, “[t]he modern approach is to provide in the

warehouse legislation that the second creditor has priority if it takes without knowledge that the

goods are encumbered and the first creditor acquiesced to the warehousing of the goods.”260 In

some jurisdictions, it is sufficient for the second creditor to take without knowledge, irrespective

of the any consent of the first creditor to the storage of goods. Knowledge standards may also vary

from the existence of a security right to the knowledge of a violation of the security right. In some

jurisdictions (e.g., those which do not recognize warehouse receipts as negotiable documents of

title), the priority may be determined simply based on the first-in-time, first-in-right principle.

Many jurisdictions lack any priority rule to resolve this conflict.

Some warehouse receipts legislation also provides for remedies upon default of a debtor that

should be coordinated with the rules of secured transactions laws. In many, especially civil-law

jurisdictions, warehouse receipts financing has been popular because the relevant laws that

generally prohibit extra-judicial enforcement provided for exceptions, including for possessory

pledges. Modern secured transactions laws typically allow secured creditors, including those with

a security right in a warehouse receipt, to realize the collateral without a court order upon default

by the debtor. Accordingly, where modern secured transactions laws have been enacted,

warehouse receipts legislation should provide that enforcement of the rights of creditors with a

security right in a warehouse receipt is governed by such laws. In the absence of applicable modern

260
Id.

65
secured transactions law, WR legislation may provide for specific enforcement mechanisms,

which present some peculiar features not commonly associated with other types of secured

transactions, such as the collateral (warehouse receipt) already being in possession of the secured

creditor and the often perishable nature of the underlying commodity.

G. GAPS IN THE EXISTING PRINCIPLES, POLICIES AND STANDARDS

The documents considered above provide for a fairly complete framework for instituting a modern

WRS, particularly if considered together. However, there are a number of issues that remain

insufficiently addressed. First, a recommendation may be reflective of a system that operates

efficiently under certain conditions. For instance, although the OAS Principles provide for a

general framework with respect to designing such a system for agricultural commodities, it is based

on the practice in the United States where government-licensed providers operate EWR platforms

on a competitive basis. This system may not be workable in many jurisdictions and therefore other

models, such as ones where a government entity or a commodity exchange administers an EWR

platform, should also be considered. Moreover, there are many issues with respect to transferring

electronic warehouse receipts that are left largely unaddressed, particularly regarding the legal

mechanisms for transferring rights, which are quite different from those related to the transfer of

paper warehouse receipts.

Second, there is a lack of guidance with respect to the role of regulators in the regulatory, licensing,

and supervisory functions they ought to perform. One advantage of empowering securities

exchange commissions and commodity exchanges with regulatory and supervisory functions is

that this could facilitate the creation of an organized market for warehouse receipts and thereby

lead to utilizing such receipts as settlement/trading instruments. An organized market would allow

66
creditors to more quickly liquidate the underlying commodity upon default of the debtor. Finally,

an organized market would have a positive impact on fair and transparent commodity price

formation.

Third, the WRS principles, policies and standards focus largely on a system for small and medium-

sized farmers. However, there is insufficient discussion of the feasibility and practice of utilizing

warehouse receipts in other sectors of the economy, such as the extractive sector (e.g., minerals

and oil/gas), raw materials, inventory of general nature, etc.

Finally, the WRS principles, policies and standards do not sufficiently canvass the role of field

warehousing as a means for creditors to exert control over the commodities covered by a

warehouse receipt. Such practices are not uncommon in developing economies, but their cost

structure makes them suitable only for larger transactions.

H. COMPARING & CONTRASTING WRS PRINCIPLES, POLICIES AND STANDARDS

Some of the WRS principles, policies, and standards reflect significant differences with regard to

specific aspects. For instance, whereas the WBG Guide only provides for rules governing a

“single” warehouse receipt, the EBRD/FAO Guide also considers rules of a “double” warehouse

receipt system. This is an important issue that has hampered any progress with respect to

developing a model law on WR at the OAS. This is an issue that a future UNCITRAL instrument

should explore.

Another example relates to licensing whereby the WBG Guide provides that a warehouse receipts

law should not contain a mandatory licensing requirement for warehouses, whereas the

67
EBRD/FAO Guide contemplates systems in which a mandatory licensing requirement applies to

all warehouses. Furthermore, whereas the EBRD/FAO Guide places emphasis on the role

governmental institutions play in supervising warehouses, the WBG and IFC Guides also consider

the possible role of private-sector entities such as collateral management/inspection companies in

carrying out this function. These differences may be attributed to the jurisdictions on which the

respective guides focused. The WBG and IFC guides, for instance, are reflective of the American

approach to the WRS, whereas the EBRD/FAO Guide takes into account some aspects of the civil

law tradition. Despite these differences, however, the WBG, IFC and EBRD/FAO guides all

provide for a flexible framework that takes into account variations with respect to a given

jurisdiction’s legal tradition as well as economic circumstances. While regulatory and licensing

aspects may be outside the scope of a future UNCITRAL instrument, a section in a guide to

enactment should be dedicated to these issues.

I. OTHER INITIATIVES
The International Organization of Securities Commissions (hereinafter “IOSCO”) is recognized as

the global standard setter for the securities sector.261 IOSCO works closely with the G20 and the

Financial Stability Board (FSB) to advance the global regulatory reform agenda for the securities

industry.262

261
International Organization of Securities Commissions, About IOSCO, available at
https://www.iosco.org/about/?subsection=about_iosco (last accessed Sept 20, 2018).
262
Id.

68
In June 2018, IOSCO published a report on “good and sound practices” for commodity storage

and delivery infrastructure (hereinafter “IOSCO Report”).263 The IOSCO Report is based on

previous IOSCO reports that generally aimed to develop recommendations “on regulation and

supervision of commodity derivatives markets to strengthen transparency and address market

abuse.”264 In the context of warehouse receipts and commodity markets, the IOSCO Report seeks

to provide guidance on relevant storage infrastructure265 (e.g., warehouses, silos, tanks, etc.) and

their relevant oversight bodies266 (e.g., market authority, trading venue, central counterparty, etc.)

to assist in identifying and addressing issues “that could affect commodity derivatives’ pricing and

in turn affect market integrity and efficiency.”267

The IOSCO Report recommendations are mainly designed to address disparities in practices

related to the storage of physical commodities and storage infrastructure operations. 268 These

practices were categorized into five broad areas for potential reform: i) oversight; ii) transparency;

iii) conflicts of interest; iv) fees and incentives; and v) operations.269 The recommendations in each

one of these areas can be divided into three categories: i) preventive practices that seek to establish

263
IOSCO, Commodity Storage and Delivery Infrastructures: Good or Sound Practices, Consultation Report,
CR05/2018 (June 2018), available at https://www.iosco.org/library/pubdocs/pdf/IOSCOPD604.pdf (last accessed
Sept. 20, 2019) [Hereinafter “IOSCO Report”]
264
IOSCO, Principles for the Regulation and Supervision of Commodity Derivatives Markets, FR07/11 at 5 (Sept
2011), available at http://www.iosco.org/library/pubdocs/pdf/IOSCOPD358.pdf (last accessed Sept. 20, 2018). See
also IOSCO, The Impact of Storage and Delivery Infrastructure on Commodity Derivatives Market Pricing,
FR03/2016 (May 2016), available at https://www.iosco.org/library/pubdocs/pdf/IOSCOPD530.pdf (last accessed
Sept. 20, 2018).
265
Relevant Storage Infrastructure is defined as “any physical infrastructure used to store or transfer commodities as
part of the physical delivery process related to a commodity derivative contract, whether the commodities are held
for a short or long-term period. Depending on the nature of the commodity this may include warehouses, grain
elevators, sheds, silos, tanks, pipelines, marine vessels, open storage areas, vaults or other forms as appropriate to a
deliverable commodity.” See IOSCO Report, supra note 261, at 4.
266
Relevant Oversight Bodies are defined as “a market authority, such as a trading venue, a central counterparty
(CCP), a self-regulatory organization or a statutory regulator that oversees an RSI. This oversight can be through
direct governance, at arm’s length or indirectly.” See IOSCO Report, supra note 261, at 4.
267
Id., at 1.
268
Id., at 2-3.
269
Id.

69
good governance and dispute resolution procedures; ii) monitoring practices that seek to address

issues as they arise in order to mitigate deleterious effects; and iii) punitive practices which

address, through resolution, behaviors after the fact.270

The following are examples of recommendations found in the IOSCO Report: in the area of

Oversight, “[warehouses and silos] linked to trading venues…should adhere to the Good or Sound

Practices [in the IOSCO Report].”271 “[Relevant oversight bodies] may promulgate certain rules

to prevent behaviors by [warehouses and silos] that could negatively impact the price discovery

process.”272 In addition, “legislative bodies could consider granting express direct oversight of

[warehouses and silos] to financial regulators.”273 In the area of Transparency, “trading venues and

[central counterparties] could be expected to implement a periodic audit procedure for [warehouses

and silos].”274 Equally, “trading venues should have policies and procedures in place to address

any [warehouse or silo] audit deficiencies.”275 With respect to Fees and Incentives, “[relevant

oversight bodies] could require that [warehouses and silos] establish a fee structure that

incentivizes on-time delivery.”276 In addition, “[relevant oversight bodies] could institute a penalty

structure on [warehouses and silos] for failure to deliver or delay of delivery.” 277 In the area of

Operations, “financial regulators may require that there is an appropriate management and record-

keeping system in place for [warehouses and silos] to properly record, audit and reconcile, on a

periodic basis, the throughput of commodities.”278

270
Id.
271
Id., at 17.
272
Id.
273
Id.
274
Id., at 18.
275
Id.
276
Id., at 19.
277
Id.
278
Id., at 19-20.

70
 a. IOSCO Principles in Action

The EBRD is supporting a legal reform project undertaken by the National Securities and Stock

Market Commission (NSSMC), Ukraine’s securities regulator, aimed at supplementing the current

WRS model, administered by the Ministry of Agrarian Policy and Food (MinAgro) with an

electronic one regulated by the NSSMC.279 The proposal draws an inspiration from the IOSCO

Report.280 This approach represents a shift from previous warehouse receipts reform projects,

because the focus is on establishing a market for EWRs that would allow their trading and use as

collateral similarly to conventional securities, administered by a securities regulator. The IOSCO-

inspired WRS would result in the migration of Ukraine’s WRS away from the regulatory

infrastructure established by MinAgro for the agrarian sector, into that instituted by NSSMC for

the financial sector. The NSSMC would regulate commodity exchanges that trade EWRs for many

different types of commodities, not just for grain.281 In this proposed environment, the commodity

exchanges would oversee warehouses by requiring adherence to the applicable standards.282 One

of the most attractive features of NSSMC’s proposal is that it delegates oversight functions to

private entities, such as commodity exchanges, which may be viewed positively in those

jurisdictions where governmental entities do not have the capacity to exercise such functions, or

where the private sector generally lacks confidence and trust in governmental entities.

279
See NSSMC will develop a market for warehouse receipts, STOCKWORLD, available in Ukrainian at
https://www.stockworld.com.ua/ru/news/nktsbfr-budiet-razvivat-rynok-skladskikh-svidietiel-stv (last accessed
August 7, 2018).
280
See, e.g., The Impact of Storage and Delivery Infrastructure on Commodity Derivatives Market Pricing (OICU-
IOSCO, 2016).
281
Supra note 279
282
Supra note 235.

71
 IV. APPLICATION OF UNCITRAL MODEL LAW ON ELECTRONIC

TRANSFERABLE RECORDS

A. OVERVIEW OF THE MODEL ETR LAW

The 2017 UNCITRAL Model Law on Electronic Transferable Records (“Model ETR Law”)283

aims to “enable the legal use of electronic transferable records [“ETRs”] both domestically and

across borders.”284 The Model ETR Law “applies to [ETRs] that are functionally equivalent to

transferable documents or instruments [“TDIs”].”285 ETRs are increasingly relevant for developing

countries seeking to establish a market for EWRs to facilitate farmers’ access to credit.286 They

are a primary feature of a paperless trade environment.287

The Model ETR Law is divided into three chapters: i) general provisions; ii) provisions on

functional equivalence; and iii) use of ETRs. Chapter II provides for the “functional equivalency”

of TDIs and ETRs, especially with respect to their issuance and transfer. Article 11(1) provides

that “[w]here the law requires or permits the possession of a [TDI],” such as a warehouse receipt,

“that requirement is met with respect to an [ETR] if a reliable method is used: (a) to establish

exclusive control of that electronic transferable record by a person; and (b) to identify that person

as the person in control.” Article 11(2) further provides that “[w]here the law requires or permits

283
UNCITRAL Model Law on Electronic Transferable Records (2017), available at
http://www.uncitral.org/pdf/english/texts/electcom/MLETR_ebook.pdf
284
“Summary of UNCITRAL Model Law on Electronic Transferable Records,” available at
http://www.uncitral.org/uncitral/en/uncitral_texts/electronic_commerce/2017model.html
285
Id. TDIs are defined as “paper-based documents or instruments that entitle the holder to claim the performance of
the obligation indicated therein and that allow the transfer of the claim to that performance by transferring
possession of the document or instrument. Transferable documents or instruments typically include bills of lading,
bills of exchange, promissory notes and warehouse receipts.”
286
Id.
287
Id.

72
transfer of possession of a [TDI], that requirement is met with respect to an [ETR] through the

transfer of control over the electronic transferable record.”

Chapter III deals with the use of ETRs, including the endorsement, and replacement of a

transferable document or instrument with an ETR and vice versa. For instance, Article 15 provides

that “[w]here the law requires or permits the endorsement in any form of a [TDI], that requirement

is met with respect to an [ETR] if the information required for the endorsement is included in the

[ETR].” Accordingly, when certain requirements are met, the Model ETR Law provides that the

issuance and transfer of a TDI in electronic form will have the same legal effect as a similar

transaction done in paper form. The Model ETR Law may thus provide a legal framework for

dematerialization of a well-designed legal framework for paper WRs. The section below examines

how Mexico’s efforts to institutionalize an EWR system could be aided by this model.

B. MEXICO EWR AMENDMENTS

The Mexican warehouse receipts legal framework is mainly comprised of two laws: i) the CI Law;

and ii) the Auxiliary Organizations Law. In 2016, Mexico began the amendment process for

implementing an EWR system.

b. Implementation of an EWR

The proposed amendments were designed in a way that leaves the door open for the potential

digitalization of other credit instruments (títulos de crédito — an umbrella term covering all

negotiable documents and instruments governed by the CI Law) if the Mexican government

decides to do so in the future. This was achieved by incorporating the concept of control from the

73
U.S. Uniform Electronic Transactions Act (“UETA”)288 and the Model ETR Law into the general

section of the CI Law.289

In the drafting process, the Mexican Ministry of the Economy (“Ministry”) expressed reservations

with the use of the term “control” even though it agreed with its legal and practical effect. This

was because the Ministry was concerned that the introduction of a new and revolutionary concept

such as control would encounter unnecessary political opposition. Thus, while avoiding the use of

the term “control,” the elements of control were embedded in the amendment, and these elements

were adapted to the terminology already present in the CI Law. As such, the amendment equated

a person in control of an electronic credit instrument under the Model ETR Law to a “holder”

(tenedor) of the electronic credit instrument.

Proposed Article 17 Bis of the CI Law provides for the following: “A person becomes a holder of

an electronic credit instrument only when the information system…provides indubitably that such

a person is the person to whom the credit instrument has been issued or transferred. An information

system should be understood as a system for generating, sending, receiving, storing or otherwise

processing data messages.” Article 17 Bis was drafted with the consideration that the Mexican

government intended to rely on the existing infrastructure (RUCAM) as the information system

for the issuance and transfer of EWRs. Furthermore, proposed Article 17 Bis 1 of the CI Law

288
Uniform Electronic Transactions Act, at
http://www.uniformlaws.org/shared/docs/electronic%20transactions/ueta_final_99.pdf (last accessed April 25, 2017)
[Hereinafter “UETA”].
289
Since the Model ETR Law was still work in progress at the time the Legislative Proposal was developed, the
control concept was mainly based on UETA.

74
provides: “… a person becomes the holder of an electronic credit instrument when the instrument

is issued and/or transferred per the following rules:

a) The credit instrument is unique, identifiable and, except as provided in (d),

unalterable.

b) The credit instrument identifies the holder as:

i. The person to whom the electronic credit instrument has been

issued;

ii. The person to whom the electronic credit instrument has been

transferred.

c) The credit instrument was transferred to and is maintained by the person

claiming to be its holder.

d) Any revision of the credit instrument is readily identifiable as authorized or

unauthorized.

As shown by Mexico, the implementation of an EWR system using the concepts enshrined in the

Model ETR Law is feasible as long as a country has a functional warehouse receipts law. However,

the needs of most emerging economies go much beyond the introduction of EWRs as counterparts

to paper receipts.

V. NEED FOR MODERNIZATION

The following section summarizes the warehouse receipts systems of five countries, divided into

two categories: i) countries without warehouse receipts legislation and regulatory framework –

75
Cameroon, Nigeria, and Poland; and ii) countries with a partially developed warehouse receipts

system – Belarus and Russia.

This section illustrates that jurisdictions with WRS at various levels of development either lack

some essential elements or are deficient in other respects. An UNCITRAL instrument for

warehouse receipts could greatly facilitate modernization of those aspects and fill any gaps. While

jurisdictions may attempt to undertake these efforts on their own, constructing a functional and

comprehensive system would be aided by a model framework that does provide for all of those

elements.

A. COUNTRIES WITHOUT WAREHOUSE RECEIPTS LEGISLATION AND REGULATORY

FRAMEWORK

a. Cameroon

Cameroon’s legal framework is characterized by its “bijural system,” where English common law

controls in the two Anglophone regions of the Northwest and Southwest, and French civil law

controls in the eight francophone regions.290 There is no law of general application governing

warehouse receipts.291 In addition, there is no regulatory framework for warehouses and their

operators (or collateral managers).292 Warehousing relationships are governed by the principles of

general law, mainly contract and deposit.293 The creation and perfection of security rights is

290
Cameroon Legal System, HG, available at https://www.hg.org/legal-articles/cameroon-legal-system-7155.
291
Enabling the Business of Agriculture: Moveable Collateral – Warehouse Receipts (WBG Index) – Cameroon,
WBG available at http://eba.worldbank.org/data/exploreeconomies/cameroon/2017#eba_fina.
292
Cameroon - Warehouse Receipt System: Making Progress in Market, Finance and Post-harvest Risk
Management, IFAD, available at http://p4arm.org/app/uploads/2018/05/Cameroon_WRS_policy-brief_EN.pdf.
293
Id.

76
governed by the OHADA Uniform Act (2010),294 which provides for extra-judicial enforcement

mechanisms. 295

Warehouse financing in Cameroon is based on two separate models: i) the third-party holding

system, where a collateral manager operates a warehouse on the premises of the borrower; and ii)

the community inventory system, where commodities are stored in warehouses under the control

of producer organizations.296 However, neither financing scheme utilizes warehouse receipts, and

studies found that these arrangements are “fraught with risks of fraud and defaults.”297 As a result,

the International Fund for Agricultural Development (“IFAD”) recently recommended that

Cameroon enact a comprehensive law for a WRS, including the licensing of warehouses and

collateral managers, and that any such law should recognize warehouse receipts as negotiable

documents of title.298

b. Nigeria

Although the agricultural and mining sectors serve as backbones of the economy, Nigeria still

lacks a WRS of general application, including legal and regulatory norms.299 The Nigerian

government has attempted to institute a warehouse receipts system in 2013 through the

294
OHADA Uniform Act (2010), available at
http://www.ohada.org/attachments/article/482/AUDCG_EN_Reviewed_Unofficial_Translation.pdf.
295
Enhancing Structured Lending into Francophone African Countries: OHADA Adopts a Major Reform of its
Uniform Act Organizing Security Law, MAYER BROWN (2011) (“[T]he amended OHADA Uniform Act now
allows self- appropriation of the secured asset… which allows the secured lender to take possession of the asset and
sell it even without a court order”), available at https://www.mayerbrown.com/files/Publication/a1e8d808-ecb2-
4a7c-9bf3-16b21edc5e0e/Presentation/PublicationAttachment/f449f57d-5cd9-491e-8c63-179a59f48f85/10768.PDF.
296
Cameroon - Warehouse Receipt System, supra note 292.
297
Id.
298
Id.
299
See WBG Index, available at http://eba.worldbank.org/en/data/exploreeconomies/nigeria/2017#eba_fina. Nigeria
received 0 out of a possible 5 points for its warehouse receipts system. To the question of whether “there a law
regulating the operation of warehouse receipts in your country,” the WBG Index answered “no.”

77
development of a bill.300 The bill provided for the establishment of the Nigerian Independent

Warehouse Regulatory Agency, which would regulate and supervise the proposed warehouse

receipts system.301 It also provided for a licensing regime for warehouses, including performance

guarantees such as insurance and posting of bonds.302 The bill also recognized negotiable (paper)

warehouse receipts, which could be transferred for trading or collateral purposes, including on a

commodity exchange – the Nigerian Commodity Exchange (“NCX”).303

The NCX launched a pilot program in 2014 aimed at establishing an EWR system for agricultural

products.304 However, the NCX has not been able to attract the necessary volume to maintain its

operations.305 This may be attributed to the lack of a modern warehouse receipts legal framework.

The Secured Transactions in Movable Assets Act (2017) (STMAA)306 provides a modern

framework for creating and perfecting security rights in movable assets, including documents of

title. The STMAA permits extra-judicial enforcement in the event of default by the grantor.

However, its provisions are predicated on the existence of a modern WRS, which would give

creditors the confidence to accept WRs as collateral.

300
The Warehouse Receipts and Other Related Matters Bill, available at
http://nass.gov.ng/document/download/8203.
301
Id.
302
Id.
303
Id.
304
The Privatisation of the Commodities Exchange and Prospects for the Diversification of the Nigerian Economy,
DETAIL, available at
https://www.detailsolicitors.com/media/archive1/newsletters/TheFutureofNigeriasEconomyStartswiththePrivatizatio
nofitsCommoditiesExchangeClean.pdf.
305
Id.
306
The Secured Transactions in Movable Assets Act (2017), available at
https://www.cbn.gov.ng/Out/2017/CCD/STMA%20ACT,%202017.pdf

78
 c. Poland

Although a warehouse receipts law was passed in 2000 with technical support provided by the

United States Agency for International Development (USAID), the law was never fully

implemented due to lack of funding, particularly that needed to establish the guarantee/indemnity

fund.307 The fate of Poland’s WRS for grain is illustrative of a general trend in of Eastern European

countries failing to implement (e.g., Ukraine) or completely dismantling (e.g., Bulgaria) similar

systems. However, unlike Ukraine and Bulgaria, which maintain the basic elements of a WRS,

Poland’s legal framework no longer recognizes negotiable warehouse receipts, much less provides

for an associated regulatory framework. While Article 853(2) of the Civil Code308 provides that a

warehouse operator must issue a “storage receipt” to the bailor upon deposit of the goods, the

storage receipt is not recognized as a negotiable document of title that may be transferred by

endorsement for trading or collateral purposes. The relevant sections of the Civil Code contain

norms with respect to the rights and obligations of warehouses, but do not impose mandatory

licensing or insurance.309

B. COUNTRIES WITH A PARTIALLY DEVELOPED WAREHOUSE RECEIPTS LEGISLATION AND

REGULATORY FRAMEWORK

307
United Nations Conference on Trade and Development – Expert Meeting on Financing Commodity-Based Trade
and Development, UNCTAD (2004), (“[T]he law was passed in 2000. However, the potential funding for the
indemnity fund was never allocated because of disagreements with the Polish National Bank. Following the passing
of the Polish warehouse receipt law in late 2000 nothing happened in terms of its implementation.”), available at
https://unctad.org/en/Docs/ditcmisc200419a1_en.pdf. See also Warehouse Finance and Warehouse Receipt Systems:
A Guide for financial institutions in emerging economies, IFC (2013) (“Partial or failed implementation of
[warehouse receipts] initiatives in the region has been attributed to a lack of initial consensus among government
institutions, donors, and the private sector about key priorities and program components. In some countries,
including Poland and Slovakia, government intervention was maintained at a high level, resulting in farmers not
being interested in storage using WRs.”), available at https://www.mongolbank.mn/conference/books/01.pdf.
308
Civil Code, available at https://supertrans2014.files.wordpress.com/2014/06/the-civil-code.pdf.
309
Id. at articles 853-859.

79
 a. Belarus

There is limited potential for the development of an effective WRS in Belarus because the

agricultural and mineral sectors are highly dependent on the government.310 Nonetheless, its legal

framework recognizes warehouse receipts as negotiable documents of title, which may be sold or

used as collateral. Specific norms related to warehouse receipts can be found in the Civil Code.311

For instance, Article 802 provides for three types of warehouse documents, two of which (the

“single” and the “double” warehouse receipts) are recognized as securities that may be transferred

by endorsement and delivery of possession. Similar three-part warehouse receipts frameworks are

found in other Eastern European jurisdictions, including Russia and Ukraine. Although the Civil

Code includes rules pertaining to the rights and duties of holders of each type of warehouse

document, as well as the rights and duties of warehouses, it does not require mandatory licensing

or insurance with respect to warehouses. The Civil Code and the Law on Pledge provide for the

creation and perfection of security rights over virtually any movable asset, including warehouse

receipts, as well as extra-judicial enforcement where it is explicitly provided for in the

corresponding pledge agreement.312

Recently, the Administration of the President and the Council of Ministers drafted regulations

relating to the issuance and circulation of warehouse receipts, including the operations of the

warehouse receipts registry, but those regulations are yet to take effect.313 Belarus therefore lacks

310
The use of warehouse receipts in agriculture in transition countries (“FAO Assessment”) p. 45 (FAO, 2009),
available at http://www.fao.org/3/a-i3339e.pdf.
311
Civil Code, available at https://www.wipo.int/edocs/lexdocs/laws/ru/by/by027ru.pdf.
313
See Report on the Work of the Department of Securities of the Ministry of Finance in 2014, available at
http://www.minfin.gov.by/upload/depcen/otchet/dcb2014.pdf.

80
detailed rules with respect to the transfer and registration of warehouse receipts, as well as the

associated regulatory framework.

b. Russia

A 2009 assessment of its WRS conducted by the FAO placed Russia in a group of countries within

Eastern Europe and Central Asia (“EECA”) with a “partially developed” system.314 The FAO

Assessment characterized countries with a partially developed warehouse receipts system as

having corresponding legislation that mostly aligns with international best practice, but where

implementation of the core elements, such as a licensing and supervisory regime for warehouses

or performance guarantees, had not yet been fully completed.315 The FAO’s assessment of Russia’s

WRS appears to be unchanged after almost a decade, as confirmed by the World Bank’s

Warehouse Receipts Index, under which Russia scored 3.5 out of the maximum 5 points.316

Specific norms pertaining to the WRS can be found in the Civil Code.317 Article 912 provides for

three types of (paper) warehouse documents: i) the nonnegotiable warehouse slip; ii) the negotiable

“single” warehouse receipt; and iii) the negotiable “double” warehouse receipt. Accordingly,

similar to Belarus and Ukraine, Russia’s warehouse receipt system provides for two warehouse

receipts that are negotiable documents of title.318 The Civil Code and the Law on Pledge govern

the creation and perfection of a security right over various movable assets including warehouse

receipts, and permit enforcement of pledges without recourse to the courts.319

314
FAO Assessment, supra note 310, p. 10.
315
Id.
316
WBG Index – Russia, available at http://eba.worldbank.org/en/data/exploreeconomies/russian-
federation/2017#eba_fina.
317
Civil Code, available at http://www.consultant.ru/document/cons_doc_LAW_9027/#dst0.
318
Like Ukraine and Belarus, the single and double warehouse receipts are explicitly recognized as securities.
319
Id. at Article 349.

81
Although Russia’s framework recognizes negotiable warehouse receipts, it does not provide

licensing or insurance requirements with respect to warehouses, either through legislation or

corresponding regulations. The Russian government is considering the adoption of a standalone

warehouse receipts statute – the Bill on Double and Single Warehouse Receipts.320 The Bill would

impose a licensing (certification) requirement for warehouses issuing negotiable double and single

warehouse receipts, and create a warehouse receipts registry.321 However, since 2012 no steps have

been taken to enact the Bill.322 In addition to the Bill on Double and Single Warehouse Receipts,

a bill on warehouse receipts was recently introduced in parliament, which would apply exclusively

to grains.323

VI. USE OF WRS IN CROSS BORDER CONTEXT

A. EGRAIN

eGrain is a U.S. platform licensed by United States Department of Agriculture for the issuance and

transfer of grain EWRs.324 The following is an example of a common international transaction at

eGrain’s platform that involves the use of an EWR as collateral: a Saudi Arabian grain trader has

an account and controls a grain EWR at eGrain.325 The Saudi Arabian firm transfers the grain

EWR to a European bank (lender) that also has an account at eGrain. After the European Bank

obtains control of the EWR, it wires the loan to the Saudi Arabian grain trader. In this transaction,

320
Bill No. 134369-6 on Double and Single Warehouse Receipts, available at
http://sozd.parliament.gov.ru/bill/134369-6.
321
Id.
322
Id.
323
Marianna Bazarova, Warehouse Receipts: Problems and Perspectives, available at http://www.del-
p.ru/docs/sklad.html.
324
eGrain, available at https://www.egrain.com/
325
Telephone interview with John D. Hill, Vice President, eGrain (May 19, 2016).

82
non-U.S. parties rely on a U.S.-based EWR platform for purposes of using U.S.-grown and

warehoused grain as collateral for a loan. The EWR used as collateral was issued by a U.S.

warehouse.

B. SUPPLY CHAIN FINANCING

Warehouse receipt financing allows exporters and importers of agricultural commodities or other

assets to access credit using warehouse receipts as collateral. Warehouse receipts are key

components of supply chain financing especially when the chain involves “dry” commodities,

goods, or metals. In recent years, international organizations have paid considerable attention to

the use of warehouse receipts in supply chain financing. The IFC, ADB, and EBRD, for instance,

have worked on developing warehouse receipts financing products that not only provide working

capital to small farmers and agricultural producers in supply chains, but also short-term financing

to exporters in emerging markets that sell to large international companies.326

In 2015, the Asia-Pacific Economic Cooperation forum (“APEC”) published a comprehensive

guide titled “A Guidebook on Trade Supply Chain Finance” (“the APEC Guide”), 327 which

summarizes the role of warehouse receipts in import/export trade based on the experience of

several Asian countries. The APEC Guide highlights the importance of warehouse receipts in

supply chain finance, but also the associated problems and risks that arise in the cross-border

326
Trade Finance and SMEs, WTO (2016), available at
https://www.wto.org/english/res_e/booksp_e/tradefinsme_e.pdf.
327
A Guidebook on Trade and Supply Chain Finance, APEC (2015) (“APEC Guide”), available at
https://www.apec.org/-/media/APEC/Publications/2015/11/Guidebook-on-Trade-and-Supply-Chain-Finance/APEC-
book-web.pdf.

83
context, where rules pertaining to warehouse receipts may vary drastically depending on the

jurisdiction.328

The APEC Guide identified import and export financing products in which warehouse receipts

play a role. In the former, an importer obtains a loan from a bank to purchase goods from a foreign

seller, which will subsequently be stored in a pre-approved warehouse. The importer pledges the

warehouse receipt covering those goods to the bank as collateral for the loan.329 Ordinarily, import

financing is facilitated by a warehouse (collateral) manager that supervises the import process at

the port, which could include verifying the weight and quality of the imported goods and issuing

a survey report as well as quality and weight certificates.330 Generally, the warehouse (collateral)

manager undertakes all of these actions prior to accepting the goods for storage in one of its

facilities and issuing a warehouse receipt to replace the bill of lading issued by the carrier.331 The

bank, importer, and the collateral manager would typically enter into a collateral management

agreement (“CMA”), stipulating the terms of storage and issuance/delivery of the warehouse

receipts to be used as collateral.332

Under collateral management agreements, companies that specialize in managing collateral

operate either their own or a third party’s storage facility.333 CMAs are prevalent in countries with

328
One of the most famous cases involving fraud in Asia took place at Qingdao port in China, where multiple
fraudulent warehouse receipts for the same stock of metals stored in the warehousing facility were used as security
interest to obtain financing from multiple creditors. The total exposures of banks and large global trading companies
totaled as much as US$900 million and involved 100,000 tons of aluminum, 200,000 tons of alumina, and 20,000
tons of copper. See Regulatory Issues Affecting Trade and Supply Chain Finance, APEC, p. 25 (2015), available at
https://apecmsmemarketplace.com/sites/default/files/doc/15_smewg40_0071.pdf.
329
APEC Guide, supra note 327, p. 26.
330
Id.
331
Id.
332
Id.
333
Marek Dubovec & Adalberto Elias, A Proposal for UNCITRAL to Develop a Model Law on Warehouse Receipts,
Uniform Law Review, Volume 22, Issue 4, 1 December 2017, at 720.

84
insufficient warehousing infrastructure and with an inadequate or inexistent warehouse receipt

legal framework.334 CMAs usually involve non-negotiable warehouse receipts and their fee

structure is prohibitive for most SMEs.335

The APEC Guide also outlines the procedures involved in export financing, including the sale of

goods to international buyers.336 The supply chain begins with the goods stored in the warehouse

and continues from the warehouse to the ship and on to the final buyer. In such cases, the exporter

typically enters into a forward sales agreement with an international buyer. 337 The goods are

transported by sea and stored in a pre-approved warehouse at the destination.338 As part of the

agreement, a collateral manager is appointed by the bank.339 Once the goods arrive at the port of

discharge, the warehouse (collateral) manager verifies and inspects the goods before issuing a

warehouse receipt to the order of the bank.340

a. Types of Warehouses in Supply Chain Financing

The APEC Guide identified two types of warehouses that facilitate supply chain financing: i)

bonded warehouses; and ii) non-bonded warehouses. The former are warehouses clustered within

a “bonded area” or “bonded zone” at ports along the coast awaiting clearance by customs, both

with respect to imported and exported goods.341 The bonded area is supervised by the customs

authorities, which ensures that the goods are not released until the payment of import duties.342

334
Id.
335
Id.
336
Id. at 27.
337
Id.
338
Id.
339
Id.
340
Id.
341
Id. at 10.
342
Id.

85
While goods remain within the bonded area, they are considered to be in an offshore territory. 343

According to the APEC Guide, “[t]he jurisdiction and type of law that will apply if the goods are

in a bonded area is critical in the case of the enforcement of the security.” In cases where a

borrower has defaulted and the collateral is stored in a bonded warehouse, the creditor is required

to present the pledge document, the storage agreement, and the corresponding warehouse receipt

in order to sell the goods via a registered import/export company.344 The import/export company

may either sell the goods domestically (after clearing customs) or re-export them, which is the

preferred option given that bonded zones are ordinarily located on the coast or at a seaport.

Import financing typically involves a complex procedure by which the goods arrive at a seaport

and are then transported to a non-bonded warehouse located outside the bonded zone.345 In such

cases, the bank finances the importer and takes the bill of lading as security, which is then replaced

by warehouse receipts.346 Once the cargo arrives at the destination, the bank employs a warehouse

(collateral) manager to accept delivery of the cargo from the carrier and clear the cargo through

customs.347 After the cargo is cleared, the collateral manager transports it to a non-bonded

warehouse and issues a warehouse receipt to the importer’s bank.348 The CMA typically provides

that the collateral manager will not release the goods until instructed by the bank.349

343
Id.
344
Id.
345
Id. at 11.
346
Id.
347
Id.
348
Id.
349
Id.

86
 VII. SCOPE OF WORK AND TYPE OF A MODEL INSTRUMENT

UNCITRAL should consider developing a model law on warehouse receipts accompanied by a

guide to enactment. This instrument should be prepared in consultation with other regional and

international organizations that have undertaken work in the field of warehouse receipts, especially

the FAO, the EBRD, the OAS, the World Bank, UNIDROIT, and IOSCO. At a minimum, the

model law should cover the following issues: (a) clear definitions of key concepts and terms,

including the warehouse receipt; (b) information required in a warehouse receipt; (c) the form in

which a warehouse receipt may be issued; (d) negotiable and non-negotiable warehouse receipts;

(e) fundamental duties of warehouse operators; (f) responsibility for loss or damage to stored

goods; (g) irregularities, misdescription of goods, and over-issue of warehouse receipts; (h)

transfers of warehouse receipts by negotiation, assignment, control or otherwise; (i) rights of

transferees of warehouse receipts providing priority and taking free rules consistent with the

approaches of the UNCITRAL Model Law on Secured Transactions; (j) rights of buyers of goods

covered by warehouse receipts; (k) substitution and removal of goods from the warehouse; (l)

termination of storage; (m) third-party effectiveness of security rights in electronic warehouse

receipts; (n) third-party effectiveness of security rights in non-negotiable warehouse receipts; (o)

(judicial and extrajudicial) enforcement of a security right in a warehouse receipt building on the

UNCITRAL Model Law on Secured Transactions; (p) warehouseman’s lien and its enforcement;

and (q) transitional matters. Of particular importance will be the development of rules facilitating

transfers of EWRs for trading and collateral purposes, building on the Model ETR Law and the

Rotterdam Rules.

87
Additional aspects related to warehouses and warehouse receipts should also be considered either

in the model law or in the guide to enactment, including: (a) licensing of warehouses; (b) regulation

of warehouses; (c) insurance and bonding of warehouses; (d) maintenance of adequate reserves;

(e) maintenance of accounting records; and (f) trading of warehouse receipts on exchanges. A

guide to enactment may also contain model provisions typically inserted in regulations. It would

be especially important to outline some of the approaches to guaranteeing the performance of

warehouses, since many jurisdictions fail to establish such mechanisms, which undermines the

confidence of users.

A model law should be flexible enough to support the development of a modern warehousing

infrastructure for organized (exchange) trading of EWRs, including their use as collateral. This

would be reflective of the recent trend of assimilating EWRs to securities. It should also provide

strong incentives to transition away from a paper system.

Work in the area of warehouse receipts does not appear to be suitable for an international

convention since a vast majority of transactions are local. Moreover, development of a guide would

not aid those countries in the process of reforming their warehouse receipts frameworks as such

guides have already been developed by other institutions in the recent past.

88
 ANNEX I:
WRS INITIATIVES BY INTERNATIONAL AND REGIONAL
ORGANIZATIONS AT A GLANCE
 WRS INITIATIVES BY INTERNATIONAL AND REGIONAL ORGANIZATIONS AT A GLANCE

Scope e-WRS Transfers Licensing Performance Registry Rights of Type of Warehouse

guarantees secured Receipts Covered
creditors
WBG350 Not limit the types Instituted if Depend on Licensing and Require To give notice Not subject to Single
of movable assets deemed whether the WR registration adequate to prospective registration and
the law applies to appropriate and is negotiable or should be insurance lenders and to rights should
(the licensing practical (p. 57) non-negotiable voluntary and coverage for the confirm validity extend to
regime may be (p. 87) failure to obtain warehouse (p. and subsequent bankruptcy
limited to certain a warehouse 18) transfers to proceedings (p.
commodities) (p. operator’s purchasers (p. 54)
58) license or 58)
to register a
warehouse
document
should not affect
the WRs validity
or enforceability
as against the
warehouse
operator or any
transferor (p.
18)
IFC351 Establish the types More secure and Based on the Warehouses Need to To minimize the Protected by acts Single and double (p.
of commodities efficient systems principle of may or may not establish a form risk of forgery recognized in the xii)
and warehouses (p. possible than in negotiability, be licensed of guarantee or (p. 30) law providing for
34) the past (p. vii) which is a under a indemnity fund creation,
prerequisite to government to protect perfection and
efficient transfer scheme, or may depositors and priority of a
of title (p. 3) be accredited in financiers in the security right (p.
some event of 25)
other way—e.g., warehouse
by an industry failure,
association or a nonperformance
commodity , or fraud (p. 23)
exchange (p. 6)

350
WBG, A Guide to Warehouse Receipt Financing Reform: Legislative Reform (2016),
available at http://documents.worldbank.org/curated/en/885791474533448759/pdf/108450-WP-PUBLIC.pdf
(last accessed Sept 17, 2019)
351
IFC, Warehouse Financing and Warehouse Receipts Systems: A Guide for Financial Institutions in Emerging Economies (2013), available at
https://www.mongolbank.mn/conference/books/01.pdf.

1
 EBRD/FAO352 Determine the set Functional Governed by May be required Include Legislation may Have the right Single and double (p.
of goods or equivalents to principle of for warehouses mandatory establish a to seize and 366)
commodities that paper WRs, negotiability (p. to operate and insurance, government liquidate the
warehouse receipts which facilitate 35) issue receipts. performance registration underlying stored
can be issued for commerce and bonds, letters of system goods and
(p. 4) reduce transfer Legislation credit, and/or an for warehouse recover the debt
costs (p. 4) assigns a indemnity fund receipts and (p. 5)
Provides guidance competent (p. 4) determine the
for general as well institution to responsibilities
as license and of the
sector/commodity- inspect registration
specific WR laws warehouses, and office (p. 5)
determines this
institution’s
mandate (p. 4)
OAS353 Encompass Encouraged as Transferee Carried out by Require Recording of Rights provided Single and double (p.
electronic an alternative to acquires rights an appropriate, warehouses to transactions for under a 6)
warehouse receipts paper WRs (p. equivalent to independent carry insurance involving EWRs modern secured
used for 2) those transferred governmental or other forms as collateral (p. transactions
agricultural by negotiation authority or of coverage to 6) regime applicable
products (p. 4) of paper WRs private entity (p. indemnify the to WRs (p. 9)
(p. 7) 9) depositor and/or
any third parties
(p. 9)
IOSCO354 Could be Encompasses May be Could be carried N/A N/A N/A N/A
determined by an “electronic facilitated using out by market
exchange’s rules entitlements” an exchange’s authority, an
used to describe such as a electronic exchange,
the regulatory warrant or trading platform central
framework for the electronic (2011, p. 9) counterparty, or
operation of warehouse a self-regulatory
trading venues and receipt (2016, p. organization
of central iv) 2018, p. 4)
counterparties
(2018, p. 4)

352
EBRD/FAO, Designing Warehouse Receipt Legislation: Regulatory Options and Recent Trends (2014), available at http://www.fao.org/3/a-i4318e.pdf.
353
OAS, Principles for Electronic Warehouse Receipts for Agricultural Product (2016), available at
http://www.oas.org/en/sla/iajc/docs/CJI-doc_505-16_rev2.pdf.
354
See, for example: IOSCO, Commodity Storage and Delivery Infrastructures: Good or Sound Practices, Consultation Report (June 2018), available at
https://www.iosco.org/library/pubdocs/pdf/IOSCOPD604.pdf; IOSCO, Principles for the Regulation and Supervision of Commodity Derivatives Markets (Sept
2011), available at http://www.iosco.org/library/pubdocs/pdf/IOSCOPD358.pdf; IOSCO, The Impact of Storage and Delivery Infrastructure on Commodity
Derivatives Market Pricing (May 2016), available at https://www.iosco.org/library/pubdocs/pdf/IOSCOPD530.pdf.

2
 UNCITRAL355 Applies to Electronic May be done in N/A N/A N/A N/A N/A
“electronic warehouse electronic form,
transferable receipts may be including the
records,” which classified as endorsement
generally include electronic and the delivery
warehouse transferable of possession,
receipts, but not records, which which is
securities and are functionally facilitated by the
financial equivalent to “control”
instruments (§ 1) paper warehouse concept (§§ 10-
receipts (§§ 2 11)
and 10)

355
UNCITRAL Model Law on Electronic Transferable Records (2017), available at http://www.uncitral.org/pdf/english/texts/electcom/MLETR_ebook.pdf.