The banking and finance industries have historically chosen litigation as their preferred dispute resolution, generally in the New York or London courts. Due to increased globalization and participation from emerging markets (e.g., Africa and Asia), international arbitration of banking and finance disputes is rising in popularity.
According to the London Court of International Arbitration (LCIA), banking and finance disputes accounted for 26% of the cases administered under LCIA rules in 2021, up from 20% in 2020. Loan and other facilities agreements accounted for 21% of LCIA arbitrations in 2021, up from 16% in 2020.[1]
The benefits of arbitration for the banking and finance industries are apparent, and include:
Enforcement of Judgments. Strategic considerations at the onset of a dispute often include analyzing whether issues will arise enforcing a judgment and if so, options to alleviate such enforcement issues. Unlike judgments from local courts, which can be difficult to enforce in other countries, international arbitration awards are generally enforceable in any of the 172 signatory states to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention).
Neutrality. Due to globalization, banking and finance disputes often include parties from emerging markets (e.g., Africa and Asia). While a financial institution may prefer the familiarity of a New York or London court, its counterparty may fear “home court advantage” by litigating in the financial institution’s national court and consequently, may prefer its local jurisdiction. International arbitration provides a neutral forum thereby removing the perception of local court bias and perceived lack of infrastructure to provide swift dispensation of legal redress to external entities.
Specialized Arbitrators on Complex Transactions. Banking and finance disputes often involve complex transactions and complicated loan or other facilities agreements. Unlike in litigation where assignment of a judge is random and may yield someone unfamiliar with the subject matter, parties to an arbitration can select decision-makers with relevant experience and expertise. Arbitrators are pooled from experienced industry sector specialists, including retired former judges, who will lend to the process the wealth of experience amassed during their careers. In addition, certain industry sectors will have a stock of arbitrators that have a focused area of specialism.
Privacy and Confidentiality. Unlike court proceedings where matters are open to the public and decisions are readily accessible, arbitration allows the parties to maintain privacy and confidentiality—hearings are not open to the public, and the parties can agree to maintain confidentiality of information and evidence. This confidentiality is particularity useful because it lessens the degree to which unfavorable precedent may result from unfavorable rulings.
Availability of Summary Dispositions. Historically, resolution of a case through summary judgment or a similar summary disposition was only available in litigation—arbitrators commonly allowed parties a more fulsome opportunity to set out their respective cases. Recently, however, arbitration tribunals provide for resolution by summary disposition where:
(i) a claim is manifestly without legal merit or outside the jurisdiction of the tribunal (see, e.g., Article 41(5) of the International Centre for Settlement of Investment Disputes[2]; Rule 29 of the Singapore International Arbitration Centre Arbitration Rules[3]; Article 26 of the China International Economic and Trade Arbitration Commission Investment Arbitration Rules[4]; and Article 22.1(viii) of the London Court of International Arbitration Rules[5]);
(ii) a claim is suitable for determination by summary procedure including where a party is not entitled to judgment even when the facts in its favor are assumed true (see, e.g., Article 39 of the Arbitration Institute of the Stockholm Chamber of Commerce Arbitration Rules[6]); and
(iii) both of the above standards are applicable (see, e.g., Article 43.1 of the Hong Kong International Arbitration Centre Administered Arbitration Rules[7]).
The International Chamber of Commerce (ICC) Arbitration Rules do not expressly provide for summary disposition, but in a Practice Note, the ICC stressed that Article 22 of its rules allows a party to apply for expeditious determination of a claim that is manifestly unmeritorious.[8]
Similarly, arbitration rules issued by the Panel of Recognised International Market Experts in Finance (P.R.I.M.E Finance) – which is a specialized forum for banking and finance dispute resolution – also provide for early determination where a claim is manifestly without legal merit, inadmissible, or outside the jurisdiction of the tribunal.[9] The P.R.I.M.E Finance rules were designed with complex financial disputes in mind, including those involving derivatives, sovereign lending, investment and advisory banking, financing, private equity and asset management, and emerging areas such as fintech. The existence of authorities such as P.R.I.M.E. Finance highlights the growing popularity and acceptance of resolving banking and finance disputes through international arbitration.
[1] LCIA 2021 Annual Casework Report available at: https://www.lcia.org/lcia/reports.aspx
[2] http://icsidfiles.worldbank.org/icsid/icsid/staticfiles/basicdoc/partf-chap05.htm#r41; see also https://icsid.worldbank.org/procedures/arbitration/convention/process/manifest-lack-legal-merit/2006#:~:text=Arbitration%20Rule%2041(5)%20provides,unnecessarily%20consume%20the%20parties’%20resources.
[3] https://siac.org.sg/wp-content/uploads/2022/06/SIAC-Rules-2016-English_28-Feb-2017.pdf
[4] https://droitfrancechine.org/wp-content/uploads/2019/01/CIETAC-International-Investment-Arbitration-Rules-China-International-Economic-and-Trade-Arbitration-Commission.html
[5] https://www.lcia.org/Dispute_Resolution_Services/lcia-arbitration-rules-2020.aspx#Article%2022
[6] https://sccarbitrationinstitute.se/sites/default/files/2022-11/arbitrationrules_eng_2020.pdf
[7]https://www.hkiac.org/sites/default/files/ck_filebrowser/PDF/arbitration/2018%20Rules%20book/2018%20AA%20Rules_English.pdf
[8] https://iccwbo.org/media-wall/news-speeches/icc-court-revises-note-to-include-expedited-determination-of-unmeritorious-claims-or-defences/
[9] https://acc.primefinancedisputes.org/files/2021-11/211111-Prime-booklet-for-web.pdf