Arbitration as a dispute resolution process for swaps and derivatives disputes – The ISDA 2013 Arbitration Guide

04 December 2013

Claire Morel de Westgaver

The ISDA 2013 Arbitration Guide (Arbitration Guide), released on 9 September 2013 is significant – not necessarily in its content, but in representing an increasing acceptance within the financial services sector of arbitration as a mechanism for dispute resolution. While historically financial institutions in particular have been critical of arbitration as a method for resolving financial disputes, the ISDA 2013 Arbitration Guide forms part of a growing trend in the use of arbitration in the financial services sector. 

The Arbitration Guide is the result of a two year consultation on the use of arbitration for disputes arising in connection with derivatives transactions documented under the 1992 or 2002 Master Agreement (Master Agreements). The Arbitration Guide contains an introduction to arbitration and provides a choice of eleven model arbitration clauses (Model Clauses) as an alternative to the existing dispute resolution regime provided for in the Master Agreements - which currently provides for disputes to be referred to either New York or English courts depending on the choice of the parties. Each Model Clause includes:

  • A governing law provision which specifies the law governing the Master Agreement (English or New York Law) and where appropriate a governing law provision which specifies the law governing the arbitration agreement;
  • The choice of the seat of the arbitration (eight options – see below); 
  • The choice of institutional rules (seven options – see below); 
  • A provision that deletes the existing jurisdiction clause; and
  • A provision amending the existing clauses concerning process agents and waiver of immunity in order to bring them in line with the choice of arbitration.

Taking into account the alternative choices of seat and institutional rules, the eleven Model Clauses comprise 18 combinations which reflect members' input and current international arbitration practices. Depending on their choice of seat of the arbitration, for which the options include London, New York, Paris, The Hague, Hong Kong, Singapore, Geneva and Zurich, parties may choose between the following institutional rules: the Arbitration Rules of the London Court of International Arbitration (LCIA), Rules of Arbitration of the International Chambers of Commerce (ICC), the American Arbitration Association International Dispute Resolution Procedures (IDRC), the Arbitration Rules of P.R.I.M.E. Finance (an institution launched in 2011 and dedicated to the resolution of finance disputes), the Hong Kong International Arbitration Centre (HKIAC) Administered Arbitration Rules, the Arbitration Rules of the Singapore Arbitration Centre (SIAC) and the Swiss Rules of International Arbitration.

Bird & Bird's comment:

The inclusion of arbitration clauses in standard form agreements is not unique to ISDA. The Loan Market Association has, for example, now incorporated an option for parties to agree to LCIA arbitration in certain of its standard facility agreements. The presence of arbitration as a dispute resolution mechanism in standard financial documentation is the natural result of a trend within the financial services industry, driven in part, by the post financial crisis increase in bank/financial institution default rather than counterparty default and a desire for confidential resolution of disputes. Indeed we have seen first-hand a growing interest in arbitration for banking and finance disputes, an area in which our financial services and arbitration lawyers are increasingly being asked to advise. 

As the Master Agreements are estimated to govern around 90% of over the counter swaps and derivatives transactions around the world, this is a trend that is only going to increase.

For a more detailed analysis of the use of arbitration in the financial services sector, see: Banking and finance arbitration on the rise – a trend to follow?, originally published by Financier Worldwide in April 2013 (reprinted with permission from the publisher).