New P.R.I.M.E. Finance Arbitration Rules

Introduction

P.R.I.M.E. Finance has announced revisions to its arbitration rules which enter into force on 1 January 2022 (2022 P.R.I.M.E. Finance Arbitration Rules). This article considers the key changes introduced by the 2022 P.R.I.M.E. Finance Arbitration Rules and the practical benefits of international arbitration for resolving finance sector disputes.

P.R.I.M.E. Finance

The Panel of Recognised International Market Experts in Finance (P.R.I.M.E. Finance) is a specialist organisation dedicated to resolving financial disputes. It offers alternative dispute resolution (ADR) services, such as arbitration and mediation, and facilitates engagement with sector experts and advisers. The current P.R.I.M.E. Finance arbitration rules entered into force in 2016, consisting of a modified version of the UNCITRAL Arbitration Rules (as revised in 2010) adapted to suit complex financial transactions. Arbitrations under the P.R.I.M.E. Finance Arbitration Rules are administered by the Permanent Court of Arbitration at The Hague (PCA).

In 2020, the organisation launched a review of its arbitration rules to ensure they remain fit-for-purpose and continue to reflect best practices. P.R.I.M.E. Finance’s revised arbitration rules are the result of that review. They enter into force on 1 January 2022.

Camilla Macpherson, Head of Secretariat, P.R.I.M.E. Finance Foundation, said about the new rules:

“The new P.R.I.M.E. Finance Arbitration Rules offer a highly attractive means of dispute resolution to financial institutions, their customers and counterparties. Fundamental to P.R.I.M.E. Finance’s mission is reducing uncertainty and creating stability and confidence in global finance, and the re-launch of the Rules is a key part of achieving this aim.”

Importantly, the changes reflected in the 2022 P.R.I.M.E. Finance Arbitration Rules seek to streamline the procedural arbitration framework, reflecting the importance of speedy resolution for financial market users.

Fundamental to P.R.I.M.E. Finance’s mission is reducing uncertainty and creating stability and confidence in global finance, and the re-launch of the Rules is a key part of achieving this aim.

Arbitration of financial disputes

Participants in the financial services sector routinely face complex, technical disputes. Despite the potential benefits of international arbitration, such as the ability to ensure subject-matter expertise in those who adjudicate the dispute, the finance sector has not traditionally embraced arbitration as a form of dispute resolution in the same way as other industries such as construction and energy.

Nevertheless, financial institutions increasingly have turned to arbitration in recent years. For example, the International Swaps and Derivatives Association (ISDA) arbitration guide provides model arbitration clauses for the ISDA Master Agreement. Other arbitral institutions, namely the International Chamber of Commerce Court of Arbitration (ICC), the London Court of International Arbitration (LCIA), and the Singapore International Arbitration Centre (SIAC), have reported a steady increase in disputes from the banking and finance sector.

This trend reflects the following factors, among others:

• Financial products are increasingly complex, as technological innovation allows for the development and delivery of services in novel and bespoke ways. This is evident, for example, in the use of distributed ledger technology and automation. Disputes arising from detailed financial models and bespoke instruments require a high level of technical understanding. Arbitration gives the parties an opportunity to appoint subject-matter experts to determine their claims.
• Complex financial products and transactions increasingly involve parties from emerging markets. International arbitration is the preferred method of dispute resolution in circumstances where parties have concerns about bringing their disputes before domestic courts. This may be for various reasons, such as a perceived lack of neutrality of the judiciary (particularly where there is little separation with the state), concerns about the rule of law, bribery and corruption, or local courts (and juries) lacking the requisite experience in resolving complex financial disputes.
• Similarly, international arbitration is the preferred choice where the enforcement of a foreign court judgment may be problematic. This is due to the comparative ease of enforcement of foreign arbitral awards under the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) which has been implemented in nearly all regions of the world.
• International arbitration, particularly in the case of complex cross-border disputes, is recognised as offering procedural benefits over domestic litigation, including procedural flexibility, confidentiality, efficiency and finality.
• With the increasing bargaining power of counterparties to financial transactions, particularly in emerging markets, it is often no longer acceptable to insist upon the traditional default of providing for jurisdiction of the courts of England and Wales or the Southern District of New York. International arbitration offers parties an alternative neutral forum that is not tied to any particular legal system.

Key changes

P.R.I.M.E. Finance has prioritised the following elements in updating its arbitration rules: flexibility, procedural efficiency, transparency, and the resolution of urgent matters.

Flexibility

Given the multi-party and multi-contract nature of many finance disputes, the 2022 P.R.I.M.E. Finance Arbitration Rules include new provisions on joinder (Article 31), consolidation (Article 32), single arbitration under multiple contracts (Article 33), and coordination of proceedings (Article 34).

Consolidation will be permitted not only where all claims are made under the same arbitration agreement, but also where claims under multiple (but compatible) arbitration agreements arise out of (a) the same legal relationship, (b) principal and ancillary contracts, or (c) the same transaction or series of transactions (Article 32.1). Similarly, claims arising in those circumstances, even if arising under multiple contracts, may be made in a single arbitration (Article 33.1). It is possible that, in time, these types of mechanisms may be used to accommodate mass claims proceedings.

Separately, in light of the challenges presented by COVID-19 and contemporary arbitration practice generally, the 2022 P.R.I.M.E. Finance Arbitration Rules permit virtual hearings and virtual examination of witnesses (Articles 18.2, 27.3).

Procedural efficiency

Many of the changes introduced by the 2022 P.R.I.M.E. Finance Arbitration Rules are aimed at promoting efficiency of arbitral proceedings.

Importantly the 2022 P.R.I.M.E. Finance Arbitration Rules make it clear that a party may also request early determination of a claim or defence on the basis that it is manifestly outside jurisdiction, manifestly inadmissible, or otherwise without legal merit (Article 35). This is particularly important to finance sector parties.

The 2022 P.R.I.M.E. Finance Arbitration Rules make it clear that a party may also request early determination of a claim or defence

Other amendments made to the procedure for arbitrator appointments (Articles 8 to 11) remove various administrative steps that appeared in the 2016 rules. The 2022 P.R.I.M.E. Finance Arbitration Rules now also provide that if the parties have not agreed on the number of arbitrators within 30 days of commencement of the arbitration, a sole arbitrator (rather than a panel) will be appointed (Article 7). These changes should reduce some of the costs associated with arbitral proceedings and simplify decision-making.

Also, under the revised rules, a tribunal will be required to convene a case management conference within 30 days of being constituted (Article 16), and must render its final award within either 60 days (in the case of a sole arbitrator) or 90 days (in the case of three arbitrators) of closing of the hearing or receipt of the last substantive submissions, whichever is later (Articles 38, 39). This should also promote efficiency and a speedier resolution of the dispute.

Transparency

The 2022 P.R.I.M.E. Finance Arbitration Rules respond to the push for greater transparency in arbitration, in order to enhance predictability and improve confidence among users. For example, unless a party objects, P.R.I.M.E. Finance will be permitted to publish anonymised awards (Article 39.10). Tribunals will also have the power to invite or grant leave to a third party to appear as amicus curiae and make submissions (Article 29).

Parties will also be required to disclose third-party funding arrangements for any claim or defence, as well as the identity of any third-party funder (Articles 5, 6, 12).

Additionally, whereas the 2016 rules specified that tribunal fees must be “reasonable”, under the revised rules arbitrator fees will now be calculated either at an hourly rate or in accordance with the amount in dispute (Article 49.1), offering greater predictability of the costs of arbitration.

Emergency and expedited arbitration

The 2022 P.R.I.M.E. Finance Arbitration Rules offer emergency arbitration for parties in need of urgent interim measures (Article 25), and provide for expedited proceedings where the amount in dispute is less than EUR 4 million or where the parties agree (Article 17). In the case of expedition, the rules retain a measure of flexibility in the sense that the PCA may decide at any time, at the request of the tribunal or a party, to convert the arbitration from expedited to ordinary proceedings (Article 17.2).

Conclusion

According to Professor Dr Georges Affaki, who chaired the drafting group, the 2022 P.R.I.M.E. Finance Arbitration Rules “herald a new era in banking dispute resolution”. Professor Affaki stated that: “The new P.R.I.M.E. Finance Arbitration Rules are rules of their time. They draw on broad experiences from around the world, both in finance and in arbitration practice. They achieve an optimal balance between empowering arbitral tribunals to rule on all the situations that may arise in the course of the proceedings, while also ensuring the transparent and fair treatment of the parties, including amid situations of urgency.”

The revised rules are well-crafted to meet the needs of financial institutions. By responding to the reality of multiparty disputes, the need for efficiency of proceedings, and the push towards greater transparency, P.R.I.M.E. Finance is positioning itself to seize on the trend towards using international arbitration to resolve complex financial disputes.