A new financial dispute resolution body, the Panel of Recognised International Market Experts in Finance (“PRIME Finance“), had its official launch in The Hague last month. Its aim is to provide a bespoke forum for the resolution of complex financial disputes. These would include cases relating to derivatives, swaps, wholesale financial market trading and other financial products.
The initiative coincides with a consultation process by the International Swaps and Derivatives Association (“ISDA“) as to the inclusion of arbitration as a dispute resolution option in its standard form contract. PRIME Finance is one of the arbitration options currently being considered. It also reflects the increasing use of arbitration clauses in these agreements, particularly where emerging markets are involved. In such cases, the superior enforcement mechanism for arbitration awards under the New York Convention compared with court judgments from (e.g. the London High Court) is crucial.
PRIME’s dispute resolution offering includes its own panel of expert arbitrators and customised arbitration rules, as well as mediation and expert services.
In addition it proposes to offer:
- judicial training, to enhance understanding of derivatives and other financial market transactions;
- library and database services covering relevant judicial decisions; and
- working groups to provide law reform recommendations.
Whilst, traditionally, court jurisdiction has been commonly selected to resolve financial disputes, it will often be the case that generalist judges will be insufficiently experienced and/or qualified to deal with the complexity and specialised nature of disputes arising in this sector. PRIME Finance claims to have assembled a panel of arbitrators and other finance experts that “include some of the most senior people in the financial markets with collectively over 2,000 years of experience”. They range from sitting judges to central bankers, regulators, representatives from private practice and derivative market participants.
The Rules are based heavily on the UNCITRAL Arbitration Rules (which are widely used in ad hoc arbitrations worldwide) but with three important customisations:
- Expedited Proceedings: they allow the parties to agree shortened timelines to rapidly settle urgent disputes, subject however to the agreement of the arbitral tribunal;
- Urgent measures: they provide improved options for parties seeking urgent provisional measures:- either an ‘Emergency arbitrator’ to be appointed from the approved list of experts or a ‘Referee’ (under the Dutch Referee Arbitration Rules). In both cases the results are not binding on the tribunal once established and cannot prejudice their final decision. The latter is only available where the seat of the arbitration is in the Netherlands;
- Transparency: the Rules expressly permit excerpts of the award to be published without party consent, or for the entire award to be published in anonymised form, provided neither party objects within 1 month of receipt of the award. This is intended to further the predictability of the financial markets by creating a body of law in this area.
It remains to be seen whether this forum will become a popular option: the support of ISDA will be crucial in the coming months. However, it has significant support in the legal sector. Its Advisory Board is chaired by former Lord Chief Justice of England and Wales, Lord Woolf and the panel includes former UK Supreme Court judge and Herbert Smith partner, Lord Collins, as well as around 80 finance and dispute resolution experts. At the same time, for now, the PRIME list of experts is rather senior and the list of dispute resolution experts in particular is fairly small. It is questionable whether an assembly of three such persons (a three person tribunal being the default under the PRIME rules) will be well placed to resolve disputes on a timely (let alone expedited) basis. The proposed use of such busy arbitrators as ‘Emergency Arbitrators’ (appointed within 72 hours) also looks somewhat unrealistic.
In any event, the increased use of arbitration for complex financial disputes is inevitable as globalisation progresses and as banks are increasingly caught out with court judgments that are unenforceable in the debtor’s home jurisdiction. The PRIME initiative is to be welcomed and interested parties should be encouraged to engage fully to assist its establishment and fine-tuning.
For further information in relation to dispute resolution options for finance agreements and the resolution of complex financial disputes, please contact your usual Herbert Smith contact, or else Dispute Resolution partner Nick Peacock.