Since the establishment of PRIME Finance in January there has been much debate on how much the body will be used and how much influence it will have on the financial sector. Here James Cooper, partner, and Zoe Millington Jones, associate, at global law firm Clyde & Co, take a closer look at the new set up.
What Is PRIME Finance and How It Works
PRMIE Finance is a new body based in The Hague which started working in January this year to resolve complex financial disputes.
Its selling points include a panel of senior experts in the field of finance as well as dispute resolution who can be appointed as arbitrators.
Origins After the Financial Crisis
The financial crisis led to concerns that ordinary courts could not cope with cases involving complex financial products such as derivatives and calls were made for the establishment of an arbitral institute for complex financial disputes. PRIME Finance (the Panel of Recognized International Market Experts in Finance) was set up to assist judicial systems in the settlement of disputes on complex financial transactions.
PRIME Finance aims to facilitate dispute settlement and promote legal certainty in the interpretation of financial products. Its backers even consider that it will encourage stability in the global financial markets. The body grandly claims that it will represent “the single greatest source in the world” of knowledge and experience of documentation, law and market practice for derivatives and other complex financial products.
Arbitration Trends in Financial Disputes
In recent years, there has been an increased use of arbitration to resolve disputes in the financial sector, especially in emerging markets. One of the advantages of international arbitration over court litigation is enforceability: an international arbitration award is enforceable in most countries in the world in light of the fact that there are 146 parties to the New York Convention. In contrast, court judgments can be difficult to enforce in a foreign jurisdiction in the absence of a bilateral treaty recognising reciprocal judgments. Another advantage of international arbitration is that the parties can select one or more arbitrators with applicable experience. Arbitration awards are also final and not ordinarily subject to appeal.
PRIME Finance joins a list of arbitral institutions that hear financial disputes and so one question is whether another body is needed. PRIME Finance’s differentiating factor is the background of its 82 panel experts, currently listed on the PRIME Finance website. They are described as having over 2,000 years’ experience in the financial markets. The dispute resolution experts include retired judges such as Lord Collins of Mapesbury (a former Justice of the Supreme Court of the United Kingdom) and Lord Woolf of Barnes (the former Lord Chief Justice of England). The finance experts include academics, central bankers, representatives from private practice and derivative market participants. The individuals have clearly been chosen for their extensive knowledge of the complex financial arrangements available on the market. Apart from acting as arbitrators in financial disputes, the panel experts will also act as mediators and independent experts in court proceedings and train judges who have less experience in complicated modern financial products. However, the high profile of the panel experts does raise the question of how much time they will have to hear disputes and how quickly it will be possible to set a date for an arbitration, where the default position is that three arbitrators will be appointed.
Key Features of PRIME Finance Arbitration Rules
PRIME Finance has its own set of arbitration rules. These are modelled on the popular UNCITRAL (2010) arbitration rules, but adapted for financial disputes. Parties can agree on the place of arbitration and it is intended for the panel of experts to include experts in all major jurisdictions including emerging markets. However, it is clear that it is going to take some time for PRIME Finance to build a list of experts in emerging markets.
PRIME Finance’s arbitration rules allow PRIME Finance to publish an award in its entirety in anonymised form where the parties do not object within one month after receipt of the award. PRIME Finance will also have the power to publish without the parties’ consent excerpts of awards or orders in anonymised form. If used, this power would provide helpful guidance to the financial sector where many disputes relate to the terms of financial products sold widely by different market participants. Court judgments are public and a judge making a ruling on the interpretation of a contractual term of a product can have a profound impact on the market but arbitrations do not normally assist in providing clarity or legal certainty as decisions are confidential and do not carry any precedential value. However, it remains to be seen how many losing parties to disputes resolved by PRIME Finance will actually consent to publication of the entirety of an award even on an anonymous basis, where they may have concerns that their identities could be guessed. Also, decisions of PRIME Finance will only have persuasive value, as opposed to precedential value and tribunals will be required to apply the governing law chosen by the parties. Accordingly, achieving global consistency will be a challenge..
The parties will be able to agree to shortened timelines in expedited proceedings. Another feature of the PRIME Finance arbitration rules is the power to appoint an emergency arbitrator or a referee (where the parties have chosen The Netherlands as the seat of the arbitration) to assist parties who need urgent provisional measures but cannot wait for an arbitral tribunal to be appointed. These measures will not prejudice the final decision of the tribunal. Again, the availability of the high-profile experts is key: will they feasibly be able to assist at short notice?
Industry Responses and Future Prospects for PRIME
The International Swaps and Derivatives Association (ISDA) consulted with its members last year regarding the use of arbitration to resolve disputes arising under the ISDA Master Agreement. Members were asked whether ISDA should publish clauses suitable for arbitration under the rules of a number of arbitral institutions including PRIME Finance. ISDA has not yet published the feedback it has received but ISDA’s endorsement of PRIME Finance as a suitable arbitral institution would obviously encourage market participants to refer disputes to PRIME Finance.
It is early days for PRIME Finance and it is not yet apparent how much the body will be used nor how much influence it will have on the financial sector. None of its decisions have yet been published on its website. What is clear is that the founders of PRIME Finance have already managed to convince a number of prominent specialists to act as panel experts. The question is whether this will persuade the financial services industry that PRIME Finance is a dispute resolution option which should be taken seriously.
Since the establishment of PRIME Finance in January there has been much debate on how much the body will be used and how much influence it will have on the financial sector. Here James Cooper, partner, and Zoe Millington Jones, associate, at global law firm Clyde & Co, take a closer look at the new set up.
PRMIE Finance is a new body based in The Hague which started working in January this year to resolve complex financial disputes.
Its selling points include a panel of senior experts in the field of finance as well as dispute resolution who can be appointed as arbitrators.
The financial crisis led to concerns that ordinary courts could not cope with cases involving complex financial products such as derivatives and calls were made for the establishment of an arbitral institute for complex financial disputes. PRIME Finance (the Panel of Recognized International Market Experts in Finance) was set up to assist judicial systems in the settlement of disputes on complex financial transactions.
PRIME Finance aims to facilitate dispute settlement and promote legal certainty in the interpretation of financial products. Its backers even consider that it will encourage stability in the global financial markets. The body grandly claims that it will represent “the single greatest source in the world” of knowledge and experience of documentation, law and market practice for derivatives and other complex financial products.
In recent years, there has been an increased use of arbitration to resolve disputes in the financial sector, especially in emerging markets. One of the advantages of international arbitration over court litigation is enforceability: an international arbitration award is enforceable in most countries in the world in light of the fact that there are 146 parties to the New York Convention. In contrast, court judgments can be difficult to enforce in a foreign jurisdiction in the absence of a bilateral treaty recognising reciprocal judgments. Another advantage of international arbitration is that the parties can select one or more arbitrators with applicable experience. Arbitration awards are also final and not ordinarily subject to appeal.
PRIME Finance joins a list of arbitral institutions that hear financial disputes and so one question is whether another body is needed. PRIME Finance’s differentiating factor is the background of its 82 panel experts, currently listed on the PRIME Finance website. They are described as having over 2,000 years’ experience in the financial markets. The dispute resolution experts include retired judges such as Lord Collins of Mapesbury (a former Justice of the Supreme Court of the United Kingdom) and Lord Woolf of Barnes (the former Lord Chief Justice of England). The finance experts include academics, central bankers, representatives from private practice and derivative market participants. The individuals have clearly been chosen for their extensive knowledge of the complex financial arrangements available on the market. Apart from acting as arbitrators in financial disputes, the panel experts will also act as mediators and independent experts in court proceedings and train judges who have less experience in complicated modern financial products. However, the high profile of the panel experts does raise the question of how much time they will have to hear disputes and how quickly it will be possible to set a date for an arbitration, where the default position is that three arbitrators will be appointed.
PRIME Finance has its own set of arbitration rules. These are modelled on the popular UNCITRAL (2010) arbitration rules, but adapted for financial disputes. Parties can agree on the place of arbitration and it is intended for the panel of experts to include experts in all major jurisdictions including emerging markets. However, it is clear that it is going to take some time for PRIME Finance to build a list of experts in emerging markets.
PRIME Finance’s arbitration rules allow PRIME Finance to publish an award in its entirety in anonymised form where the parties do not object within one month after receipt of the award. PRIME Finance will also have the power to publish without the parties’ consent excerpts of awards or orders in anonymised form. If used, this power would provide helpful guidance to the financial sector where many disputes relate to the terms of financial products sold widely by different market participants. Court judgments are public and a judge making a ruling on the interpretation of a contractual term of a product can have a profound impact on the market but arbitrations do not normally assist in providing clarity or legal certainty as decisions are confidential and do not carry any precedential value. However, it remains to be seen how many losing parties to disputes resolved by PRIME Finance will actually consent to publication of the entirety of an award even on an anonymous basis, where they may have concerns that their identities could be guessed. Also, decisions of PRIME Finance will only have persuasive value, as opposed to precedential value and tribunals will be required to apply the governing law chosen by the parties. Accordingly, achieving global consistency will be a challenge..
The parties will be able to agree to shortened timelines in expedited proceedings. Another feature of the PRIME Finance arbitration rules is the power to appoint an emergency arbitrator or a referee (where the parties have chosen The Netherlands as the seat of the arbitration) to assist parties who need urgent provisional measures but cannot wait for an arbitral tribunal to be appointed. These measures will not prejudice the final decision of the tribunal. Again, the availability of the high-profile experts is key: will they feasibly be able to assist at short notice?
The International Swaps and Derivatives Association (ISDA) consulted with its members last year regarding the use of arbitration to resolve disputes arising under the ISDA Master Agreement. Members were asked whether ISDA should publish clauses suitable for arbitration under the rules of a number of arbitral institutions including PRIME Finance. ISDA has not yet published the feedback it has received but ISDA’s endorsement of PRIME Finance as a suitable arbitral institution would obviously encourage market participants to refer disputes to PRIME Finance.
It is early days for PRIME Finance and it is not yet apparent how much the body will be used nor how much influence it will have on the financial sector. None of its decisions have yet been published on its website. What is clear is that the founders of PRIME Finance have already managed to convince a number of prominent specialists to act as panel experts. The question is whether this will persuade the financial services industry that PRIME Finance is a dispute resolution option which should be taken seriously.
