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]