Time To Reconsider? Post-Brexit, Now Is A Good Opportunity For The Finance Sector To Take A Second Look At The Key Benefits Arbitration Offers To…

10 May 2021

Bryan Cave Leighton Paisner LLP

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As we discussed in our It's Good To Talk article as part of ourEmerging Themes in Financial Regulation 2021 publication, manybanks and financial institutions operating in the UK havehistorically tended to favour exclusive English Court jurisdictionclauses as their preferred dispute resolution method, particularlywhen facing EU-based counterparties, given the ease of enforcementthrough EU Member States. Arbitration clauses have tended to onlybe used to mitigate enforcement risk when emerging markets areinvolved.

With arbitration being one of the fewareas unaffected by Brexit (the ease of enforcing arbitrationagreements and awards internationally, including across the EU, hasnot changed), Brexit provides a fresh incentive for the financesector to take a second look at arbitration. Arbitration offers itsusers many benefits, but there are key draws that should be ofparticular interest to banks and financial institutions, some ofwhich we cover here.

Of equal value to confidentiality, the ability for a party tochoose an arbitrator to hear its dispute is another strongattraction of arbitration. In arbitration, a party has theopportunity to consider the nature of the dispute that has arisenand the experience and sector knowledge that it would be beneficialfor an arbitrator to have in determining the dispute, so that theycan choose the best candidate with the right expertise. A partycould select an arbitrator from the finance sector with specifictechnical knowledge and experience, or an arbitrator from a legalbackground who is experienced in resolving banking and financedisputes. This feature is highly valued by most parties.

If selecting an arbitrator is a daunting prospect, help is athand. Arbitral institutions have lots of experience in appointingarbitrators suitable for the relevant dispute. Of particularinterest in this regard is P.R.I.M.E. Finance, the Panel ofRecognised International Market Experts in Finance. Launched in2012, P.R.I.M.E Finance offers a specialised forum for resolvingbanking and finance disputes and they have their own arbitrationrules, based on the UNCITRAL arbitration rules. The rules arecurrently under review, with a draft published for publiccomment. The public consultation closed on 22 March 2021 andthe latest version of the rules is expected to be publishedshortly. One of P.R.I.M.E. Finance's key selling points is itspool of over 200 legal and financial experts from which to choosearbitrators. You are not tied to choosing from that pool, but ifyou're not sure who to select as arbitrator, it is a good placeto start. These arbitrators are not exclusive to P.R.I.M.E. and youcould nominate them if you were using different arbitration rules.At least on the UK side, the pool mainly seems to be drawn from thelegal sector, although P.R.I.M.E. Finance's description of thepanel says that the pool also includes central bankers, regulatorsand derivatives market participants. The P.R.I.M.E. Finance Rulesare not used as often as other institutional arbitration rules, butare worth bearing in mind.

Banks and financial institutions are often concerned about theprospect of parallel proceedings in different jurisdictions,particularly in more complex transactions, such as in a typicalproject finance deal, where there are multiple contracts betweenmultiple parties, which relate to the same transaction or series oftransactions.

While it is generally easier to join third parties toproceedings in court litigation, it is less of a concern inarbitration, as many arbitration rules now include enhanced joinderand consolidation provisions. Joinder provisions typically allow athird party to be brought into a dispute at the request of a party,provided that the third party and the applicant party consent inwriting. Arbitral tribunals also often have the power, in certaincircumstances, to consolidate two or more sets of arbitrationproceedings to form a single set of proceedings, so that a singletribunal will determine all the issues, avoiding the risk ofinconsistent outcomes in different jurisdictions. This can usuallybe done when there is a series of related transactions and thedocuments all contain an arbitration agreement in substantially thesame form. The LCIA Rules 2020, in particular, go quite farregarding the consolidation of multiple proceedings, as they allowa tribunal to consolidate an arbitration with one or more otherarbitrations even if the arbitration agreement is between differentparties, but arises out of the same transaction or series ofrelated transactions.

If the possibility of parallel proceedings is a particularconcern, arbitration could be reserved for transactions where thereare only two parties, in order to avoid any risk.

As we considered in our It's Good To Talk article, several of themajor arbitral institutions have introduced express provisionsallowing for summary determination of claims and defences, allowingarbitrators to rule that any claim or defence is manifestly withoutmerit and to issue an award to that effect more quickly thanbefore. This is a significant change and should make arbitrationmore attractive to banks and financial institutions, who valuequick mechanisms for certain types of dispute, such as debtactions. This development puts arbitration on a more level playingfield with court proceedings, where summary judgments arecommonplace.

With Brexit providing a fresh impetus to reconsider your disputeresolution methods of choice, the advantages that arbitration canoffer banks and financial institutions should be carefullyconsidered to see if it is time for a change. We have already seensignificant growth in the use of arbitration by this sector, andrecent developments indicate that this is a trend that is set tocontinue.

Originally published 21 April 2021.

The content of this article is intended to provide a generalguide to the subject matter. Specialist advice should be soughtabout your specific circumstances.

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Time To Reconsider? Post-Brexit, Now Is A Good Opportunity For The Finance Sector To Take A Second Look At The Key Benefits Arbitration Offers To...