Coastline newsletter / 2010 edition

ISSUE 32 Apr2010

Using ICC Tools in times of financial crisis

By Gary Collyer

As the ICC publish the results of their latest Trade Finance Survey* a consistent message that is being heard globally is one of ever growing disputes over whether or not documents comply under a documentary credit. This situation can be said to be endemic of the fact that we are still in the midst of one of the worst financial crises on record. (*to be discussed in the next Newsletter)

Whilst most of these issues are eventually resolved, amicably or otherwise, a small percentage still require the involvement of external bodies such as courts, arbitrators or ICC offices, to help resolve the underlying dispute. Courts and arbiters rely on the involvement of expert witnesses and legal professionals to argue a respective point of view, are supported by a mountain of previous case law and can take a long time to come to court and for a decision to be reached. The services offered by the ICC offer a more practical, direct and, often, quicker result.

These services, ICC Opinions or DOCDEX decisions, rely upon varying degrees of information and involvement, but it should be noted that the results are not binding on the parties. However, armed with a DOCDEX decision in your favour, it can offer a credible submission in any legal proceedings. It should be noted that the ICC reserves the right to withdraw any Opinion that is subject to any legal proceedings that are under consideration of the courts at the time of approval.

In this Newsletter, I usually discuss the latest ICC Opinions. However, the postponement of last week's Banking Commission meeting intended to take place in Beijing, means that I am shifting the focus of this Newsletter onto the process involved in obtaining an ICC Opinion or DOCDEX Decision and I also offer some guidance on how to get the most out of these offerings should you ever have the need to seek the ICC's involvement in your case.

ICC Official Opinions

At the outset, it must be said that not all ICC Opinions involve a dispute between parties. Whilst most disputes involve two banks, these may also be in respect of issues between the applicant and the issuing bank, beneficiary and the nominated, confirming and/or issuing bank.

Opinions may also be requested in respect of:

  • Clarification and interpretation of ICC rules;
  • To counter 'bad practice' by banks;
  • To educate and provide training in Documentary Credits, Collections, Reimbursements and Guarantee matters;
  • To respond to changes in industry practices during the lifetime of a revision of the concerned rules; and, finally,
  • To establish an international standard banking practice in respect of the issue under discussion.

Those of you that follow the ISBP publication, which hopefully is all of you (!), will have noted that around 90+% of its content originated from previously approved ICC Opinions. The same will apply to the revision that is currently under way.

Whatever the reason for which an Opinion is being requested, there are some key points that must be noted in order that you receive the form of response that you may be looking for. The request for an Opinion:

  • Must be presented through an ICC National Committee or local Banking Association;
  • Be in a word format, avoiding attachments wherever possible and, in order to focus upon the points to be considered, should be as short as possible;
  • Must fully outline the issues to be considered i.e., credit states AAA whereas BL states BBB, and issuing bank has refused citing XXX and refers to sub-article 20 (a) (i); and
  • Must clearly indicate the issues or questions for which responses are sought. The ICC Banking Commission agreed some time back that responses to Opinions will only address the issues or questions that have been raised by the initiator. If the issue(s) or question(s) is/are not the correct one(s) then you may not get the answer that you were anticipating!

It should also be noted that:

- Some ICC National Committees have indicated that they are in a position to provide their own analysis and conclusion to the request. In this event, their analysis and conclusion forms part of the submission to the ICC in Paris. The ICC Banking Commission will either agree or disagree with their findings, in their conclusion to the request; and

- Opinions are approved approximately every 6 months, but interim draft responses are provided. Requests for Opinions must be submitted to the local ICC National Committee of Banking Association at least 10 weeks prior to a Banking Commission meeting. The draft response is not valid until approved and cannot be used in any correspondence with the other concerned party, if any.

Since the November 2009 ICC Banking Commission meeting, the Opinions are now segregated into two categories – Official Opinions and Educational Opinions. A request for an Educational Opinion will be handled in the same way as an Official one, except that the Opinion will not be discussed or approved at the respective Banking Commission meeting. This service is designed for requests that may have been covered in earlier Opinions or where the initiator is merely looking for the Officers of the Banking Commission to support the view(s) expressed in the request.

There is no fee charged by ICC Paris for an Official or Educational Opinion.

DOCDEX Decisions

DOCDEX stands for 'Documentary Instruments Dispute Resolution Expertise'. The service covers disputes in relation to transactions subject to UCP, URR, URDG and URC.

Unlike the Official Opinions where only one party submits a version of events, which may or may not be supported by additional documents, the DOCDEX process mirrors to an extent the legal process in requiring that the parties submit full copies of their files in relation to the dispute. In this way, for example, the communications sent by one bank to another should clearly be evident in each other's submissions.

The review of these submissions is completed by three experts that the ICC Centre for Expertise will assign to the case. The experts are drawn from a list maintained by the Centre for Expertise. Experts are nominated by their institutions and local ICC National Committee to be considered for inclusion on the list. These experts will not be located in the countries of the parties involved and remain anonymous to the parties.

The expert's task is to review the submissions that have been made and consider the issues that have been raised by one or both parties. They will then come to a unanimous or majority decision based on their deliberations.

As this process requires the review of often extensive paperwork, the experts are recompensed for their efforts and the initiator is responsible for the payment of the fee (unless the initiator and the other party - known as the respondent - agree otherwise). The standard fee is USD5,000 but for transactions with a value of more than USD500,000 the ICC may increase the fee up to USD10,000

The basic process can be summarized as follows:

  • Initiator – presents the request
  • addressed to the ICC International Centre for Expertise (Centre)
  • there is no need for any previous agreement on DOCDEX as the dispute  resolution means
  • the submission must contain 4 complete sets of documents (1 for each of the experts and 1 for retention by the Centre)
  • Centre - informs the Respondent and requests their reaction
  • Respondent - may submit an answer
  • this should contain a statement formally requesting a DOCDEX decision
  • if the Respondent does not provide such a statement, the final DOCDEX process will still continue based on the initiator's submission and decision will be made available to the Initiator only (claused to the effect that only the initiator submitted documentation)

Since the rules were revised in 2002, to encompass transactions subject to URC and URDG, there have been approximately 90 cases determined, with 30% of these filed in 2008-2009 alone.

Similar to approved ICC Official Opinions, DOCDEX decisions are periodically made available in ICC Publications and can be reviewed on the DC-PRO site (information on this service is available at: DC PRO product page

A copy of the DOCDEX rules can be downloaded from the following link: please CLICK HERE

And finally, a free webinar that I conducted for Coastline Solutions as part of the BAFT-IFSA learning series, entitled Trade Update 2010, is available to you at the following address:

Trainees who complete ISP Master qualify for 12 PDUs towards recertification for the Certified Documentary Credit Specialist (CDCS) accreditation offered by BAFT-IFSA and IFS.

ISP Master is an advanced online training service in ISP98 and Standby Credits.

The course content is written Professor James Byrne of The Institute of International Banking Law & Practice in association with Gary Collyer, Technical Adviser to the ICC Banking Commission.

For full information on ISP Master and for a free evaluation of the service, please CLICK HERE

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