Time to change? Financial Services and International Arbitration – Litigation, Mediation & Arbitration

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Parties involved in certain industries, such as construction and engineering, oil and gas, and mining, often choose international arbitration as the forum for resolving disputes in their contracts because they are able to appoint arbitrators with specialist knowledge. As such, these parties constitute a large number of disputes heard by international arbitral institutions, such as the International Chamber of Commerce (“ICCIn contrast, parties operating in the financial services world have resorted to arbitration much less frequently.

The “ICC Dispute Resolution 2020 Statistics” report is revealing in this regard. The ICC reports that construction/engineering and energy-related disputes accounted for approximately 38% of all new cases in 2020.1 The ICC report indicates that “other sectors”, including financing, accounted for 5-7% of newly registered cases.2

Why the difference is so stark is difficult to determine, not least because financial services is a complex and heavily regulated industry, like industries whose participants turn to international arbitration institutions to resolve their disputes. Of course, many jurisdictions offer a specialist commercial court that regularly hears financial services disputes. But that does not mean that there is no room in international arbitration for disputes in the financial services sector to be heard with greater regularity, particularly when arbitration may offer the parties certain advantages. (described below) which are not easily obtained in national courts or not at all. .

For example, in 2013, the International Swaps and Derivatives Association (“ISDA“) published its first Arbitration Guide. The guide provided guidance to parties on the use of an arbitration clause in the 1992 and 2002 ISDA Master Agreement.3 In publishing this guide, almost a decade ago, ISDA said the guide was prepared:

“in response to a growing trend in derivatives trading in recent years to use arbitration as an alternative mode of dispute resolution to traditional choice of court litigation. This development is also due to the growing diversity counterparties and jurisdictions involved in derivatives trading globally.”4

The 2013 guide was later superseded by a new guide in 2018, which includes additional model arbitration clauses for more arbitration institutions and seats around the world.5

As ISDA recognizes, in the future, parties to other types of financial services contracts would be well served to consider the benefits of dispute resolution through arbitration. In arriving at this decision, certain factors must be taken into account, including whether:

a) Confidentiality is such a concern that the parties would not want their dispute to be public. Courts in Canada, for example, operate on the “open court principle,” so that the proceedings and the evidence used in the proceedings are open and accessible to the public by default.

(b) Enforcing a court order can be difficult. Parties to arbitration proceedings benefit from the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention“), to which many countries around the world are signatories.6 These countries have signed the New York Convention in order to agree to enforce arbitral awards made in other countries.

(c) The parties would benefit from having more than one arbitrator hear their dispute. International arbitration institutions offer the possibility of a panel of three arbitrators to preside over the procedure.

(d) The parties would benefit from having a specialist arbitrator or arbitrators familiar with the practice or contract in dispute.

e) The right of appeal is important to the parties. Unless otherwise agreed by the parties, the right of appeal is often very limited in arbitral proceedings. Arbitral awards offer parties greater finality sooner than is often offered by courts where there may be multiple levels of appeal.

Based on recent trends, the courts will likely continue to be the forum of choice for financial services litigation for the time being. However, parties and practitioners should consider the benefits of arbitration and whether to include arbitration provisions in their agreements in the future.

Footnotes

1.
ICC Dispute Settlement Statistics 2020, to the P. 17.

2.
ICC Dispute Settlement Statistics 2020, to the P. 17.

3. https://www.isda.org/2013/09/09/isda-publishes-the-2013-isda-arbitration-guide-2/

4. https://www.isda.org/2013/09/09/isda-publishes-the-2013-isda-arbitration-guide-2/

5. https://www.isda.org/2018/12/17/isda-publishes-2018-arbitration-guide/

6. A full list of Contracting States is available at: https://www.newyorkconvention.org/countries

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The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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