Banking and Finance Disputes Drive Record International Arbitration Caseloads

July 22, 2019

A year ago, McGuireWoods reported on a surge of international arbitration caseloads in the major international arbitration administrating institutes due to increasing banking, finance and energy disputes. The caseload stream continues to flow and, according to statistics recently released by major international administrators, some of that is due to a continued increase in banking and finance claims.

As international dealings become more commonplace in the banking and finance sector, the advantages international arbitration holds over court proceedings for dispute resolution are becoming more apparent to potential users.

International Arbitration Administrators Report Record Caseloads

The continued growth of international arbitration as the primary means to resolve international disputes is reflected in recently released statistics on caseloads from last year:

  • A record number of arbitrations were referred to the London Court of International Arbitration (LCIA) under the LCIA rules.
  • A record number of new cases ─ 842 ─ were registered with the International Chamber of Commerce International Court of Arbitration (with the exception of 2016, which included 135 related small-claim cases arising from a single collective dispute).
  • The Arbitration Institute of the Stockholm Chamber of Commerce reported an unprecedented increase in the average dispute value, with the total value in dispute for all new cases in 2018 amounting to 13.3 billion EUR (despite a decrease in the total number of new cases registered, namely, 152 new cases registered compared to 200 new cases in 2017).
  • The International Centre for Settlement of Investment Disputes reported continued growth, with a record 56 new registered cases in 2018.

Banking and Finance Shifting From Courts to International Arbitration

Until recently, the banking and finance sectors traditionally turned to the courts to resolve disputes. Recent surveys of banking and finance users, however, show those users are leaning toward international arbitration in their international dealings. (See p. 29 of the Queen Mary University of London 2018 International Arbitration Survey on the Evolution of International Arbitration conducted in partnership with White & Case LLP.)

The proof is in the latest caseload statistics, which reveal a significant rise in the number of international arbitrations in the banking and finance sector. For example, the LCIA reported that 29 percent of all new cases involved the banking and finance sector (up from 24 percent in 2017). The International Centre for Dispute Resolution, which is the international arm of the American Arbitration Association, reported a 78 percent increase in financial services cases in business-to-business cases in 2018. (For details, see the American Arbitration Association’s announcement and key statistics.)

Benefits of International Arbitration and Further Developments

The benefits of international arbitration to the banking and finance sector are driving the sector’s reliance on it as a primary form of dispute resolution. Here are some of the most valuable aspects of international arbitration:

  • Enforcement of Awards Almost Anywhere. Unlike decisions from local courts, international arbitration awards are often enforceable in any of the 159 signatory states to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention). By way of example, this means a bank can take an arbitration award against a defaulting party or guarantor and attach it to that party’s assets in 159 countries — something that does not occur as simply with court decisions.
  • Choice of Arbitrator. Parties need not fear biased judges in a foreign court because the parties play a role in deciding who will be the fact-finders that decide their international arbitration. Parties can choose arbitrators based on experience, industry expertise and nationality. For instance, some arbitration rules prohibit appointment of an arbitrator with the same nationality as one of the parties to the arbitration. Some arbitration institutions also have specialist panels with recognised experts in finance from which parties may choose arbitrators.
  • Neutral Forum. International arbitrations typically are seated in neutral forums selected by the parties or, in some instances, by the administrator or the arbitrators. This ensures that the dispute is secure from the biases of local courts, providing a sense of comfort for parties seeking to bring claims against influential local companies or local government entities. Simply put, arbitration is a means to avoid bringing a claim against a government in its own courts.
  • Procedural Flexibility. Unlike court proceedings, parties in international arbitrations can tailor the arbitral procedure to their needs, either at the start of the underlying transaction when drafting their dispute resolution clause, or once a dispute arises. Among the numerous procedural options, parties can agree to restrict the number of written memorials or submissions, the amount of and presentation of evidence, the language of the arbitration and the location of hearings. Some arbitral rules also offer an expedited procedure. Such procedural planning can help control costs and make for a more efficient arbitration, as the parties can fit the process to their needs.
  • Finality of Decision. Absent party agreement, awards are not generally subject to appeal and can be challenged only on limited grounds.

These benefits also make international arbitration a valuable risk-mitigation tool. They provide a sense of security for lenders in international transactions, particularly those doing business in jurisdictions with poor reputations for the treatment of foreign investors. The deterrent for bad actors is, as explained above, that an international arbitration award can be enforced almost anywhere relevant assets are located.

Further developments opening the way for increased use of arbitration in the banking and finance sector include updated guidance from the International Swaps and Derivatives Association (ISDA) in December 2018 on the use of an arbitration clause with an ISDA Master Agreement. This guidance includes a range of model arbitration clauses for a larger number of arbitration institutions and seats.

In short, international arbitration is the most logical dispute-resolution mechanism for international banking and finance dealings. Besides providing an effective means to resolve disputes, it can serve as a risk-mitigation tool to counter the uncertainty of today’s global economic scene.

The McGuireWoods international arbitration team regularly advises banking and finance clients with international arbitration-related issues, including contractual provisions to lessen commercial risk. Most recently, the firm advised a major U.S. bank on its arbitration options for a large, complex matter involving guarantors in 10 foreign jurisdictions, and advised another major U.S. bank in a large investment in a foreign country’s power sector.

For further information

For further information, please contact the McGuireWoods international arbitration team.