Arbitrating Financial Disputes

Mr. Finizio talked about the state of use of arbitration amongst the financial sector. On the one hand, arbitration is advantageous because of its enforceability, procedural flexibility, confidentiality, finality, and choice of arbitrators with specialized financial expertise. On the other hand, arbitration is still largely considered disadvantageous because of (i) the belief that parties need to go to court to seek interim relief before they constitute an arbitral tribunal; (ii) the absence of summary proceedings and the perceived inability of arbitral tribunals to issue a default award when a party fails to appear; (iii) concerns about the availability of joinder and consolidation; (iv) the uncertainty caused by the inability to establish precedent; (v) the potential for higher expenses; (vi) the perceived lack of transparency and familiarity with arbitration; and (vii) limitations of an arbitral tribunal’s powers in insolvency proceedings. He pointed out that these perceived disadvantages of arbitration had already been addressed in several arbitral rules, which often now provide for the appointment of emergency arbitrators to decide applications for interim relief before a tribunal is constituted and the mechanisms for joinder of additional parties and consolidation of separate proceedings.

According to Mr. Finizio, financial institutions tend to favor arbitration over litigation when the transaction is significant or particularly complex, confidentiality is a concern, the counter-party is state-owned, or when the counter-party is a jurisdiction where recognition and enforcement of foreign judgments may be more difficult compared to the recognition and enforcement of arbitral awards. When they do choose arbitration, these institutions prefer institutional arbitration over ad hoc arbitration; the major seats; English as the language; three-member tribunals with the president chosen by the party-appointed arbitrators; and industry expertise and experience, availability and responsiveness, common sense, language skill, independence and impartiality in selecting arbitrators. Finally, Mr. Finizio highlighted the ICC Task Force recommendations for arbitration procedures for financial disputes.