FINANCE ARBITRATION
Banks and financial institutions have traditionally favoured litigation over arbitration for resolving their contractual disputes. As a result, most banking and finance contracts refer disputes to the courts of London and New York. Courts in England and Wales and New York are considered to be bank-friendly, and their judges commercially-minded and able to understand sophisticated financial instruments.
There are also a number of practical reasons why banks and financial institutions have historically favoured litigation. These include the fact that judges have a number of powers available to them which banks and financial institutions frequently use to protect their interests, such as the power to render default or summary judgments. Banks and financial institutions have also been known to make use of the public nature of litigation, especially to put pressure on defaulting debtors.
Litigation incorporates a right to appeal first instance decisions to higher courts, which gives banks and financial institutions greater opportunity to achieve the outcome they desire. Finally, in common law jurisdictions, court judgments give rise to binding precedent, which is considered to contribute to commercial certainty.
Some of these factors would speak against arbitration as a means of resolving financial disputes. For example, arbitration proceedings are typically confidential and arbitral awards are not generally subject to appeal, but rather can only be challenged based on limited grounds which predominantly relate to procedural matters. They also do not give rise to precedent.
Oct-Dec 2020 issue
Freshfields Bruckhaus Deringer LLP