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The International Chamber of Commerce (ICC) has revised its DOCDEX rules, allowing for all trade finance documentary instruments disputes to be solved electronically. The DOCDEX is a document-based procedure offering international bankers and traders a way to settle documentary instruments disputes in a non-adversarial way.

Not only is the DOCDEX process now completely digitised, but its scope has expanded to address any trade finance-related dispute, including trade loans, syndications, negotiable instruments, risk purchase agreements, conflicts of priority and fraud in letters of credit – all areas that are not otherwise covered by existing ICC banking rules, like the uniform customs and practice for documentary credits (UCP) and the uniform rules for demand guarantees (URDG).

DOCDEX helps safeguarding partnerships that are crucial to the banking and trade finance sectors. Daniel Schmand, ICC

Georges Affaki, chair of the legal committee of the ICC banking commission and chair of the DOCDEX drafting group, tells GTR of the reasoning behind the revision:  “I regularly answer questions and litigate cases whether in relation to URDG guarantees or non-URDG guarantees, and there are hundreds of expert members of the ICC banking commission in the same situation, so we found it difficult to restrict DOCDEX only to that small portion of trade finance instruments that were covered by the ICC banking commission rules. We discussed that at length and ultimately reached consensus on the opening of the scope of DOCDEX to any dispute in relation to trade finance including for contracts and instruments not governed by ICC banking commission rules like trade loans and participation or, indeed, non-URDG guarantees.”

Daniel Schmand, ICC banking commission chair, says: “Documentary disputes can severely impact, and often entirely halt, trade finance proceedings. And resolving them is not only a costly and lengthy process, it can also – if taken to court – irreparably damage relationships with trading partners. DOCDEX helps minimize the disruption caused by a dispute – not only eliminating the need for protracted litigation, but also safeguarding the partnerships that are so crucial to the banking and trade finance sectors.” The costs are shared between the parties and amount to either US$5000 or US$10,000, depending on whether the value of the dispute is up to or exceeds US$1mn.

The decision on the claim, usually offered within 30 days of the claim receipt, is made by a panel of independent experts nominated by the banking commission on a case-by-case basis, and revised by a commission technical advisor. The decision is non-binding unless the parties agree otherwise. “If the parties or one of the parties still decides to litigate the case, it can go ahead and bring the claim before a court, but then the other party can always produce the DOCDEX decision to indicate that this is what three experts from the ICC have indicated, and the judge may find that persuasive, and certainly more authoritative than certain expert witness reports,” says Affaki.

According to Affaki, in the majority of the cases a dispute arises because the parties genuinely and honestly believe they are right and the other party is wrong, so once three prominent experts explain the reasons why they are right or wrong, they are likely to change their minds and accept the settlement. The experts’ decision is based on international standard practice. “The idea is really to elevate the standard above local or regional practice and see what is done all over the world,” says Affaki, explaining: “If you were to find that a possible answer is based on local practice, which is contrary to what international standards as understood and applied by international bankers or traders would be, that would not be international standard banking practice.”

To contribute to the creation of a body of precedents that would further inform the trade finance community, and to enhance transparency, the ICC is also looking into publishing redacted decisions online.

The new rules have been in place since May 1, and Affaki encourages any member of the trade finance community to make use of DOCDEX: “Not enough bankers and traders are aware of DOCDEX, with the result that too many trade finance disputes go automatically to courts or arbitration with no intermediary tier of expert determination. Members of the ICC banking commission are certainly aware of DOCDEX, and they use it extensively – we’ve had so far 150 cases, but that is like one per thousand of the trade finance community in the world. We can do a much better job to explain to the world of trade finance that in addition to court and arbitration there is DOCDEX, which can offer a fast, cost-efficient alternative.”