In recent years, international arbitration is increasingly recognised as the preferred dispute resolution mechanism for cross-border derivative transactions, particularly those involving parties from emerging markets. The key reasons for the increasing popularity of arbitration include the growing diversity of counterparties and jurisdictions involved in derivatives trading, worldwide enforceability of arbitral awards against assets located in 150 countries, access to neutral and specialist decision-makers, and confidentiality requirements.

Due to the complexities and considerable risks associated with derivative transactions and the customers’ varying degrees of financial sophistication, there is potential for legal uncertainty and propensity for disputes. Common types of claims or defences raised by customers in derivative transactions include contentions that (i) they did not have the capacity to enter into the transactions; (ii) the transaction documents are inaccurate or incomplete; (iii) the valuation of the derivative position is wrong; (iv) the financial institution mis-sold the financial products to the customer; (v) the financial institution has breached a duty of care owed to the customer; (vi) the financial institution made a misrepresentation inducing the customer to enter into the transactions; and (vii) the transactions are invalid or unenforceable under the alleged mandatory provisions of the law of the place of the customer. 

Oct-Dec 2014 issue

Hong Kong International Arbitration Centre