Financial Institution Arbitration

Samridhi Dutta || Student of Campus Law Centre ( samridhidutta.47@gmail.com )

|| Dec 8 2022 ||

Institutional Arbitration is an arbitration proceeding that is carried out in compliance with institutional arbitration rules and is supervised by an arbitral institution with responsibility for a variety of elements relating to the composition of such arbitration panels, administrative, financial and similar considerations. In this context, “arbitration” refers to the management of the dispute resolution process by a specialised institution.^[1] Financial institution, like any other business, engages in commercial transactions and arbitration may be used to settle disputes arising from the purchase or sale of goods, services, or equity stakes in other companies. In addition, the industry covers numerous specific types of transactions and financial activities.

Initiatives have been taken to promote and encourage financial  institution arbitration internationally, such as^[2]:

1. P.R.I.M.E. Finance (Panel of Recognised Market Experts in Finance): The organisation was established in January 2012, in The Hague. The centre provides mediation, arbitration, and other conflict resolution services to the financial industry and has its own arbitration rules that have been tailored to satisfy the requirements of the financial markets.

2. The 2013 ISDA Arbitration Guide: In September 2013, ISDA published a guide on the use of arbitration in the ISDA Master Agreement. The Guide was revised in 2018 to offer a broader selection of  model arbitration clauses for a wider variety of arbitral institutions and seats around the world.

3. The Financial List: The Financial List is a specialised, cross-jurisdictional list designed to meet the specific business requirements of cases involving financial matters. The list can address the following situations:^[3]

• Typically involving transactions worth more than £50 million,
• That necessitates expert judicial knowledge of financial markets, and
• Raise significant issues for the sector.

4. ICC Report on Financial institutions and international arbitration: The International Chamber of Commerce (ICC) published a report in November 2016,^[4] confirming that arbitration is a suitable method for resolving disputes in many areas of banking and finance activity.^[5]

It has been an emerging trend to use arbitration in certain specialist avenues of finance, some of which are listed below^[6]:

a.) Derivative dispute arbitration: The use of Arbitration for dispute resolution may be attractive to financial parties who can select arbitrators with specialised derivatives expertise in this sector.

b.) Disputes related to sovereign finance: The most prevalent dispute witnessed in this avenue is non-payment, the more complex issues in sovereign financing include may include debt restructuring, the liability of the state arising from an investment treaty, and other similar conflicts which may require expert arbitration

c.) Regulatory disputes: There has been a growing receptiveness to arbitration of breaches in regulations. It is now not uncommon for disputes between consumers and financial institutions to go into arbitration.

d.) International Finance Disputes: In cases where parties belong to different states, arbitration is considered the most appropriate mode of dispute resolution. Given the diversity in the international financial market, it may not be ideal to pursue litigation in domestic courts to resolve conflict.

Scope of Financial Institution Arbitration in India

There was no provision for institutional arbitration in India until the Indian Arbitration and Conciliation (Amendment) Act 2019. International arbitration centres like Singapore and Hong Kong have been chosen by parties due to the lack of institutionalised arbitration in India. As a result of the 2019 Amendment Act, institutionalised arbitration is being encouraged in India. One of the objectives of the act was to set up the Arbitration Council of India (ACI), an independent body for alternative dispute resolution. The act provides for the appointment of arbitrators to arbitral institutions designated by the Supreme Court and High Courts to facilitate institutional arbitration in India. Arbitration has the potential to play a more significant role in the settlement of financial disputes. Financial institutions can greatly benefit from the increased use of arbitration, and from proceedings that are specifically tailored to their needs. While some countries have arbitration institutions providing services for the resolution of financial conflicts, India is yet to join the ranks.

Conclusion

Arbitration as a method of dispute resolution is preferred because of the degree of autonomy, the parties to dispute exercise a greater degree of control over the proceedings and can maintain a higher degree of confidentiality. Financial disputes generally require a greater degree of privacy, to avoid media coverage that can invoke public distress and cause stock price fluctuation which can have lasting grave long-term impacts on goodwill and financial stability, therefore parties to such disputes prefer to resolve their disputes privately by consulting an institution that has expertise in dealing with disputes of financial nature, rather than going to courts. The current model of arbitration prevailing in India is one where a retired judge presides over arbitral proceedings and often they lack expertise and knowledge in finance and finance-related matters which leads to unsatisfactory resolution of disputes. While institutional arbitration itself is not a new phenomenon, it is still gaining a foothold in India, with the Arbitration Council of India (ACI) having been set up in 2019. India set out on the path to join the ranks of other elite international arbitration institutions and created a forum for redressal of grievances of specialised characteristics locally so parties do not have to approach arbitration institutions abroad for the resolution of their disputes. However, since institutional arbitration is relatively new in India, there is still a long way until Indian arbitration institutions can claim to be at par with their well-established international counterparts.

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^[1]  Institutional Arbitration, Jus Mundi, available at: https://jusmundi.com/en/document/publication/en-institutional-arbitration  (last visited on May 7,2022)

^[2]Use of arbitration in finance disputes. Ashurst, available at: https://www.ashurst.com/en/news-and-insights/legal-updates/quickguide—use-of-arbitration-in-finance-disputes/ (last visited on May 7,2022)

^[3]Financial list: FAQ. Courts and Tribunals Judiciary, available at: https://www.judiciary.uk/publications/financial-list-faq/ (last visited on May 9, 2022)

^[4]ICC COMMISSION REPORT “Financial institutions and international arbitration” (2016), available at: https://cdn.iccwbo.org/content/uploads/sites/3/2016/11/icc-financial-institutions-and-international-arbitration-icc-arbitration-adr-commission-report.pdf (Last visited May 7,2022)

^[5]Briefing Note. (2016, November). Cliffordchance.com/Briefings.html., available at: https://www.cliffordchance.cnoom/content/dam/cliffordchance/briefings/2016/11/icc-examines-the-use-of-international-arbitration-by-financial-institutions.pdf., (last visited on May 9,2022)

^[6]Briefing Note. (2016, November). Cliffordchance.com/Briefings.html., available at: https://www.cliffordchance.cnoom/content/dam/cliffordchance/briefings/2016/11/icc-examines-the-use-of-international-arbitration-by-financial-institutions.pdf., (last visited on May 9,2022)

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