Andy Moody (left) and Yang Zhao (right) discuss the world’s first specialised arbitral institution in resolving disputes arising from complex financial transactions, the Panel for Recognised International Market Experts (P.R.I.M.E. Finance)
Financial institutions have traditionally been reluctant to refer disputes arising from financial transactions to arbitration. The key reason for the reluctance is that they have been well served by the courts, particularly in London and New York.
The courts have been able to handle sophisticated disputes and the precedential nature of their judgments have provided the markets with a reasonable degree of certainty as to the legal position in relation to complex financial transactions. However, there are drawbacks to litigation before national courts: lack of confidentiality; publicity; time and cost; enforcement issues (depending on where the parties and courts are located); and national judges in some court systems who may not be very knowledgeable about financial products.
These can all be problematic when relying on the courts. Arguably, the one most relevant to the Panel for Recognised International Market Experts (P.R.I.M.E. Finance) is enforcement. As complex financial transactions become increasingly global, court judgments rendered in one jurisdiction may be difficult to enforce in another jurisdiction. Conflicting judgments in different jurisdictions on similar issues are difficult to reconcile and inevitably affect legal certainty at the international level.
P.R.I.M.E. Finance was established to provide independent settlement of financial disputes through arbitration, mediation or expert determination, as a more flexible alternative to litigation in the major financial centres of New York and London. The idea of an independent financial dispute forum was initiated a few years ago, just before the financial crisis, by Professor Jeffrey Golden, visiting professor at the London School of Economics and Political Science. The idea behind P.R.I.M.E. Finance is that the rapid increase in the number of disputes relating to complex financial products together with the growing involvement of developing markets in the world financial marketplace demand such a neutral forum, which aims to offer a specialised and expedited resolution of technically complex disputes.
What it offers
The Hague already hosts well-known international tribunals such as the International Court of Justice, the Permanent Court of Arbitration and the Iran-US Claims Tribunal, and therefore provides a neutral location with a wide pool of talented arbitration professionals.
P.R.I.M.E. Finance has a panel of over 80 legal and financial market experts, from which its arbitrators will be exclusively appointed. This panel includes some of the world’s most prominent figures in both the legal and financial sectors, including Lord Woolf, former Lord Chief Justice of England and Wales, Lord Collins, former UK Supreme Court Justice, and Thomas Jasper, managing partner at Manursing Partners LLC and founder chairman of the International Swaps and Derivitives Association (ISDA). A complete list of the panel can be found on P.R.I.M.E. Finance’s website.
This panel, in Professor Golden’s words, is:
‘… the largest concentration in the world of international know-how about financial market law, documentation, practice and dispute settlement.’
Combined with its tailored procedural rules (see below), P.R.I.M.E. Finance is particularly suitable for resolving international financial disputes. Further, the flexibility and international enforceability of arbitration, as well as P.R.I.M.E. Finance’s unique expertise, may tip the balance against the banks’ desire for precedential case law, though as noted below, P.R.I.M.E. Finance has tried to address this concern by proposing to publish excerpts, or at times the entirety, of its awards. P.R.I.M.E. Finance’s mediation and expert determination rules together with its list of market experts should also prove popular in relation to complicated financial disputes.
The tailored rules
Compared with other major arbitral institutions, apart from its financial expertise, the P.R.I.M.E. Finance arbitral rules (the Rules) have a few notable and innovative features:
- The secretary general of the Permanent Court of Arbitration acts as an appointing authority, and he will make appointments of arbitrators from the P.R.I.M.E. Finance panel, if parties have failed to do so;
- The Rules have provisions relating to Emergency Arbitral Proceedings before the arbitral tribunal in the main proceedings has been appointed (Article 26a and Annex C);
- The Referee Arbitral Proceedings (Article 26b and Annex D) allow for fast-track proceedings, which result in an enforceable award within 30 to 60 days. This particular fast-track option is only open to parties that have agreed that the seat of the arbitration shall be in The Netherlands;
- The Rules include a general provision for expedited proceedings (Article 2a) which, compared with the Referee Arbitral Proceedings above, are available to all arbitrations administered by P.R.I.M.E. Finance irrespective of the seat of the arbitration; and
- To create a body of case law, Article 34(5) of the Rules allows P.R.I.M.E. Finance to publish excerpts of an award, in anonymous form, without consent of the parties; it may also publish an award in its entirety, in anonymous form, if no party objects to such publication within one month after receipt of the award.
The expectation is that proceedings conducted under the Rules will be shorter than other institutional rules and therefore will provide a speedy resolution of disputes when a fast decision is required by the parties. Time will tell if P.R.I.M.E. Finance’s arbitral process proves to be quicker in practice.
As noted above, one of the unique facets of P.R.I.M.E. Finance is that it intends to publish excerpts of its awards. These may provide a useful reference and even persuasive authorities for resolving financial disputes in the future. However, the precedential value of this body of cases may well prove to be elusive given that decisions may be made under a variety of governing laws or at different seats of arbitration. In any event, it may prove to be a future source of lex mercotoria in relation to complex international financial transactions.
ISDA, whose master agreement is used in the majority of over-the-counter derivatives transactions, is considering adopting an optional arbitration clause. If P.R.I.M.E. Finance can obtain support from ISDA in the near future, this may assist it in gaining traction with its main targeted clients, ie the major financial institutions. At the same time, having developing markets opt for this new and neutral forum will be another decisive factor for its future popularity. As Thomas Jasper said, persuading Chinese parties to consider P.R.I.M.E. Finance as an alternative is high on the agenda. In short, P.R.I.M.E. Finance may well become a very appealing forum if it can show it is truly different from the other international arbitration institutions and a true alternative to the courts in London and New York.
Andy Moody, partner and Yang Zhao, associate, Eversheds LLP.