Experts stress on issues and challenges of resolution of international trade disputes arising out of LCs through use of ADR in Bangladesh

Alternative dispute resolution (ADR) methods may just be the answer to resolving disputes between the parties contracting under letters of credit (LC) in international trade deals, especially during the economic fallout of the Covid-19 pandemic.

Importers and exporters normally require intermediaries such as banks or alternative financiers to guarantee payment and the delivery of goods.

Cash advances or trade credits on open accounts are usually used after the buyer and seller develop a trusted relationship.

Therefore, trade finance structures are used to support these relationships.

The rules of an LC are issued and defined by the International Chamber of Commerce through their Uniform Customs & Practice for Documentary Credits (UCP 600), used by producers and traders worldwide.

However, an LC creates an issue for sellers, as the payment will be based on the documentation, and not the actual goods or services provided. Sellers need to be certain that the goods mentioned in the agreement are exactly as they are, with every minute detail included.

Moreover, the disadvantage for the buyer is that the payment is connected to the documentation and not the actual provision of goods and services. Buyers need to ensure that all received products are exactly per specifications and have no flaws or damages before they create the necessary documentation that proves that they have received the goods.

Experts at a webinar on Saturday stressed specifically on the issues and challenges of resolution of international trade disputes arising out of LCs through use of ADR in Bangladesh.

Bangladesh International Arbitration Centre (BIAC), the first registered ADR institution of the country, and Dhaka Chamber of Commerce & Industry (DCCI), organized the webinar, said a press release.

With ADR institutions like BIAC and other institutions existing in the region, the webinar was aimed at suggesting greater transparency on how the ADR processes,  including arbitration and mediation work, and how they can provide relatively inexpensive and quick access to the resolution of disputes arising out of LCs, particularly in the developing nations.

Shams Mahmud, DCCI president and managing director of Shasha Denim Ltd and Shasha Garments Ltd, emphasized the importance of LC in businesses in developing national trade competency.

Bangladesh had the highest level of practicing ICC Rules in settling LC related international cross-border trade disputes, said Vincent O’Brien, director, International Chamber of Commerce-UAE.

To businesses, time is money, and to save both time and money, ADR can be the best practice to resolve such disputes, he added.

Md Ahsan-uz Zaman, managing director and CEO of Midland Bank Limited, recalled his experience of a banker and emphasised incorporation of ADR clause in both local and international LCs.

He stressed on the need of creating awareness about ADR and favoured new guidelines for resolution of cross border trade disputes in order to do away with discrepancies in LC.

The BIAC can play an important role through its established rules to help resolve disputes arising out of LC, in addition to the processes followed by various forums in Singapore, Paris and London, said Khaled Aziz, managing director & chief operating officer, Standard Chartered Bank.

There are issues and departures from conditions of commercial contracts which are not suitable to be resolved by the judicial process at the first instance. ADR can be a way forward to resolve such disputes, said MS Siddiqui, convener, DCCI Special Committee on SDG Affairs-2020.

DCCI member and advocate at the Supreme Court Barrister Shahedul Azam underscored the need of adequate and proper drafting of an ADR clause in additional contract outside of the LC, which can help prevent trade disputes.

BIAC CEO Muhammad A. (Rumee) Ali said that BIAC, as the only licenced ADR centre of Bangladesh, has arbitration, mediation and other methods of ADR in their agenda, and emphasised further cooperation with DCCI to help resolve commercial disputes in both domestic and international trade. 

He also stressed the need of provision of an ADR clause in commercial contracts and synchronising LC with Pro Forma Invoice so that interests of banks and parties are well protected.