Article

by Chang-Soon Thomas Song

In 1997, the ICC Banking Commission created a task force to look into the possibility of an expert panel-based dispute resolution system for letters of credit transactions. Although litigation and arbitration had been around for a long time, and both had been used to resolve L/C disputes, they were seen as too lengthy and too costly to parties seeking a rapid and cost-effective system of dispute resolution.

After several months of analyzing the situation and examining possible alternatives, the DOCDEX system was born. Though originally the system was only used to settle disputes under letters of credit, in 2002 the rules were amended to include other ICC rules - the Uniform Rules for Collections (URC) and the Uniform Rules for Demand Guarantees (URDG). DOCDEX now stands for Documentary Instruments Dispute Resolution Expertise.

The better alternative

Last year, our bank pursued a letter of credit litigation involving a very large sum. The alleged discrepancy was a mistyping of one of the digits in the ten-digit L/C number. The case was litigated in the trial court, the intermediate court and finally the Supreme Court. The Supreme Court held that the mis-typing of the L/C number was a valid discrepancy. Had the DOCDEX decision been used to resolve the issue, the result could well have come out differently.

In another case, an issuing bank refused payment on spurious grounds and although our bank protested strongly, the issuing bank maintained its position. We suggested litigation to the exporter, but he took the loss and closed the file. If the L/C had included a DOCDEX clause, the bank would have been able to resolve the case without going to court.

These two cases are illustrations of how DOCDEX can be a better alternative to court decisions in resolving disputes.

Incorporation

When the rules for DOCDEX were drafted, there were discussions on whether to suggest that they be incorporated in L/Cs alongside the UCP. But due to the diverse types of disputes which may arise under L/Cs with some issues legal in nature that could not be handled by the DOCDEX expert panels, it was thought wise to leave the incorporation of the rules up to the parties.

A DOCDEX decision does not bind the parties to follow the decisions issued by the expert panels; it only serves as an objective determination of the issues involved in a documentary dispute. Moreover, unlike arbitration, a DOCDEX procedure can be instigated even if only one of the parties agrees to use it. Nonetheless, the decisions rendered can be persuasive if the parties later decide to go to court, and if both agree, the parties have the option of making DOCDEX binding. In fact, armed with a DOCDEX decision, the parties may decide not to go to court at all.

Even if a binding DOCDEX clause is inserted in the contract, if the dispute deals with legal issues outside the ICC rules, the matter will have to be litigated in court. Normally, however, this situation will not arise, since the DOCDEX experts will advise the parties that they are not competent to render decisions on legal issues.

The procedure

In the DOCDEX procedure, the parties, or one of them, submit a request for a DOCDEX decision to the ICC Centre for Expertise. The Centre appoints three ICC banking experts to review the issues presented and render their decision, usually within a period of 30-60 days, in favour of one of the parties. Unlike the official opinions issued by the ICC Banking Commission, which only give a snapshot of the facts, the DOCDEX decisions are much more comprehensive. Included in the text are a list of the documents submitted, the reasoning behind the experts' decision and an interpretation how specific articles of the ICC rules apply in the case. This makes for a more complete source of information for practitioners.

DOCDEX and the UCP

With regard to L/Cs, DOCDEX can be particularly useful to resolve disputes concerning alleged discrepancies. Of course, many of these disputes can be settled by the parties without the necessity of going through a dispute settlement process. The UCP has a default rule concerning the presentation period of 21 days after shipment. When the letter of credit is silent as to the presentation period, it is deemed to be 21 days after shipment. Though the period can be seven days or 14 days rather than 21 depending on the agreement between the exporter and the importer, more often than not the 21-day period prevails.

Consequently, even if a number of discrepancies are noted in the refusal advice sent by the issuing bank, all discrepancies may be remedied and represented. Without the need to argue about whether the discrepancies cited are valid or not, the beneficiary can simply correct the discrepancies and represent the shipping documents accordingly. The 21-day presentation period after shipment provides ample time to cure the relevant shipping documents.

Suppose, however, that the presentation period is only seven days after shipment. In such a case, the beneficiary might not have time to correct the discrepancies and to represent documents. Late presentation could be the basis of the standard refusal notice in case one of the parties refused to allow re-presentation.

In this case, it would be necessary for the beneficiary to argue with the issuing bank that the discrepancies on which the refusal advice was grounded are not valid. Normally this argument will not have an end because both sides will argue that each side is correct. However, if the DOCDEX clause has been incorporated into the letter of credit, then one of the parties can send the issue to DOCDEX, and the experts will render an expeditious decision.

The arbitration alternative

As noted, there are other paths to dispute resolution; arbitration can also be considered. Although arbitration procedures are carried out under the relevant substantive and procedural legal rules, they are faster than court litigation and the procedures are confidential.

Unlike DOCDEX, however, arbitration requires the agreement of both parties and the incorporation of the arbitration clause in the contract. If this is done, arbitration, unlike DOCDEX, is automatically binding. However, arbitration can be considerably more expensive and time-consuming than DOCDEX.

For letter of credit arbitration, the parties can use the highly regarded ICC Court of Arbitration. In addition, there is a special letter of credit arbitration procedure administered by the International Center for Letter of Credit Arbitration. Once a dispute is referred to the Center, it will be dealt with by expert arbitrators. The Center, created after extensive consultation with corporate, legal and banking representatives throughout the world, was founded as a result of an initiative from within the letter of credit community. The Center was formally established in September of 1996 and is located in metropolitan Washington, D.C.

Conclusion

As noted, a DOCDEX decision can be persuasive if the parties later decide to go to court. One case in point was a letter of credit dispute in Singapore concerning the automatic adjustment clause relating to the price of oil in which one of the parties presented a DOCDEX decision in its favour. The court considered the decision, found it convincing and ruled for the party that prevailed in the DOCDEX case.

In the 15 years since its inception, more than 100 disputes on this and other matters have been handled by using DOCDEX, and practitioners have come to appreciate the convenience and costeffectiveness of the process. To keep DOCDEX up to date, ICC has now embarked on a project to revise the DOCDEX rules. An updated version may be approved sometime in 2013.

A final note for practitioners: ICC has recently published DOCDEX Decisions 2009-2012, the third volume in its series of DOCDEX cases. The publication, which is well worth reading, contains a number of important decisions rendered under UCP 600.

Chang-Soon Thomas Song, Esq. is First Expert/ Attorney at Law, Trade and Services Division, Korea Exchange Bank, Seoul, Korea. His e-mail is thomas@keb.co.kr and Thomas.Song@azbar.org

The book ICC DOCDEX Decisions 2009- 2012 can be ordered at www.iccbooks.com