Dispute Resolution with Documentary Dispute Expertise Decision

(This is the English translation of an article published in Mr. Song’s bi-weekly column in the Korean trade journal – Weekly Trade - Nov. 5, 2012.


Dispute Resolution with Documentary Dispute Expertise Decision


At present a party to a dispute can seek a Documentary Credit Dispute Expertise Decision (hereinafter called “docdex decision”) from the ICC Center for Expertise with a payment of USD 5,000 and a decision within a month.


Insertion of the docdex decision clause


When the LC contains the UCP clause as well as the docdex clause stating that disputes will be resolved by docdex decision, the parties to the LC will abide by the docdex decision.


Initially when the docdex was created in 1997, the insertion of the docdex clause with the UCP in all LCs was considered. However, because there can be many legal issues which may be outside the docdex competence, this was for the time being put on hold.


Application of the docdex clause


However when the individual LC contains the docdex clause subjecting dispute resolution to docdex decision, just as disputes are handled through arbitration instead of litigation through the arbitration clause in international contracts, the LC dispute would be resolved by docdex decision. Of course, for legal issues, which cannot be handled by the docdex, they will be dealt with by the courts. But most LC disputes involve the issue of documentary discrepancy which can be determined best by bank experts.  


The problem is that at present when such a dispute arises and the issuing bank and the negotiating bank have different views on the matter, there is only court resolution available. But as all people know by common sense, litigation is not your usual method of resolving disputes. Thus using litigation each time an LC dispute arises is simply not an option.


A dispute in the past


Some years ago an issuing bank refused payment based on spurious discrepancies. After exchanging a number of messages with the issuing bank, we suggested litigation to the exporter but after absorbing a substantial loss from the transaction, the file was closed by the exporter. If the LC at the time had the docdex clause, it would have been resolved very easily.


International bank experts have shared their experience that even without the docdex clause in the LC, when there is a dispute and a docdex decision has been obtained, the banks abide by the decision. It is good to know. But in order to ensure that this becomes the norm, it would be desirable to put the docdex clause in the LC.


Another effect of the docdex clause


The docdex clause brings with it an unexpected and beneficial effect. And this benefits all the parties in the LC transaction.


To become an international practice, there are two requirements. One is fairness and the other is cost effectiveness. And the docdex decision satisfies both requirements quite well. One can regard five thousand U.S. dollars as quite expensive but in LC litigation, expert opinion usually costs about ten thousand U.S. dollars. Thus if one can resolve a dispute with five thousand dollars within one month, that is a practical solution.


At present even if the instrument is an LC, when the country risk of the issuing bank is high, there is a request for confirmation of the said LC through an international bank. But LC confirmation usually requires an account relationship and the confirmation fees cannot be said to be cheap. 


In such a case, when the LC issued by a bank in a high country risk contains a docdex clause subjecting resolution of disputes by docdex decision instead of litigation, many exporters will be able to rely on the said LC.


In high country risk areas, the results of litigation are often uncertain and exporters may be concerned about the reliability of the LC. However, if the disputes under the LC are resolved by docdex decision and not by litigation, the reliability of the LC will be enhanced.  


General application of the docdex clause


And the docdex clause is not only appropriate for banks with high country risk but for all countries. Wherever the issuing bank may be located, it will add confidence to the LC and in actual disputes, instead of the usual litigation, it can be resolved by a docdex decision.


At present, the importer and the exporter put the arbitration clause in their international contracts. Thus when there is a dispute, it is resolved not by litigation but through arbitration.


Likewise, through the insertion of the docdex clause subjecting resolution of dispute to a docdex decision, the disputes can be easily handled with a docdex decision.


Currently the docdex decision can be followed or not followed by the parties in the LC because there is no docdex clause in the LC.


However, if the exporter and the importer agree in individual LC to include the docdex clause in the LC, all the parties in the LC will have to abide by the said clause.


Issues which cannot be resolved by docdex decision


We have seen the results of inserting the docdex clause in the LC above. LC disputes can be diverse and not only simple ones will arise and in difficult cases, it can be handled by litigation. However for the most part, LC disputes tend to be of the kind where the determination by the docdex decision is appropriate which is both fast and low cost and most of all without litigation.


The Documentary Credit Dispute Expertise which makes the docdex decisions was created by the ICC Banking Commission under its auspices in 1997. About seventy bank experts are in the said expertise and when a case is brought forth, three bank experts are chosen for review and determination of the said case and the decision is given within one month.


So far about a hundred cases have been decided by the docdex and the decisions have been published after the names of the actual parties have been ^Delete^d so that everyone can see its contents.


When we compare the court cases with the docdex decisions, we find that the conclusion and the reasoning are more or less the same. In LC litigation, bank expert opinion is usually presented and the court takes the said opinion into its considerations. And the above docdex panel is composed of the three bank experts who directly decide the case. We can say that the decision is made more efficiently than by litigation.


Already in international contracts, the arbitration clause for dispute resolution is a standard clause in most of them and such arbitrations are often handled by the Court of Arbitration of the ICC.


For companies doing international business litigating outside of doing business can be a very inefficient method and in order to maintain the relationship with the other party and yet at the same time to resolve differences of opinion which is quite natural through arbitration is a very sensible thought.


And dealing with disputes arising under LC through the use of the docdex decision is much in the same vein.


Note. DOCDEX – Documentary Credit Dispute Expertise


[Chang-Soon Thomas Song, First Expert / Attorney at Law, Trade and Services Division, Korea Exchange Bank,  thomas@keb.co.kr  Thomas.Song@azbar.org]


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