KEY POINTS Feature ––Brexit has encouraged and financial institutions to reflect on the continued suitability of their choices. ––The effectiveness of a choice of English to govern transactions should remain unaffected by Brexit. ––After Brexit, the Brussels Regime on and enforcement will no longer apply. It is likely to be replicated in some form but there is currently uncertainty as to what will replace it. Banks and financial institutions are therefore reflecting on whether arbitration provides a suitable alternative. ––The reciprocal enforcement regime for arbitral awards provided in the New York Convention is unaffected by Brexit. An award made in the UK can be enforced in each of the EU member states and vice versa. ––However, there are a number of other relevant considerations for banks and financial institutions who wish to choose arbitration, including concerning interest, summary determination, multiple related , the choice of arbitrator and the suitability of arbitration procedure for complex financial markets disputes.

Authors Andrew Cannon and Hannah Ambrose Dispute resolution choices for banks and financial institutions in a post-Brexit world: opting for arbitration?

This article explores the enforcement of English judgments in the EU post-Brexit, on the Recognition and Enforcement of and the particular aspects of international arbitration that banks and parties Foreign Arbitral Awards 1958 (the New should consider when making their dispute resolution choices. York Convention), to which there are now 160 contracting parties. Significantly, outside the EU (and outside the scope of the EU’s With certain limited exceptions In this context, many banks and financial Brussels ), there is currently no n(eg project finance in emerging institutions have inevitably sought to weigh comparably effective regime for reciprocal markets), the banking sector has historically up the and benefits of including an enforcement of judgments. been less inclined than other sectors to arbitration clause in their transactions. embrace international arbitration. Banks This article explores the enforcement of NO “PUSH FACTOR”? DISINTEREST and financial institutions from across the English judgments in the EU post-Brexit, OF BANKS AND FINANCIAL

DISPUTE RESOLUTION CHOICES FOR BANKS AND FINANCIAL INSTITUTIONS IN A POST-BREXIT WORLD CHOICES BANKS RESOLUTION FOR DISPUTE AND FINANCIAL POST-BREXIT A IN INSTITUTIONS globe, and particularly in Europe, have for and the particular aspects of international INSTITUTIONS IN INTERNATIONAL many years preferred to enforce their English arbitration that banks and finance parties ARBITRATION law-governed agreements, and resolve their should consider when making their dispute Despite the exponential growth in recent disputes, in the of England. The resolution choices. years of international arbitration for resolving pairing has stood the banks in good stead. cross-border disputes in other sectors, the They have been able to rely upon a solid body BRIEF RECAP: WHAT IS financial sector has been slow to follow. Banks of law, both in terms of general law INTERNATIONAL ARBITRATION? and financial institutions, at least in Europe, principles and, particularly since the 2008 Arbitration is a system of dispute resolution have generally been comfortable with their financial crisis, on the interpretation of whereby parties agree that their disputes will traditional dispute resolution choices – often complex financial products, applied by the be resolved by an independent and impartial English governing law and exclusive English courts with rigour and predictability. , to the exclusion of the substantive court jurisdiction. For the majority of banks and financial jurisdiction of the courts of national legal The English courts and English law are a institutions, there has been no “push” factor systems. Arbitration shares many features very popular choice for parties doing business away from the English courts and towards of court litigation – in particular, it is an worldwide for many reasons, including: arbitration. However, the spectre of Brexit adversarial process which results in a decision ––the independence and expertise of the has encouraged many institutions – both (recorded in an arbitral award) which is and the efficiency of the English within the UK and in other EU member final and binding. The arbitration process is court process; states – to review their whole legal modus private and often awards can be confidential. ––the willingness to consider the operandi. Dispute resolution clauses have been Arbitral awards can be recognised and commercial purpose of a contract; included in the checklist of items to be enforced in courts around the world under ––decisions are largely reached on complex considered. the hugely successful New York Convention financial instruments by reference to

614 October 2019 Butterworths Journal of International Banking and Financial Law DISPUTE RESOLUTION CHOICES FOR BANKS AND FINANCIAL INSTITUTIONS IN A POST-BREXIT FINANCIAL AND DISPUTE FOR RESOLUTION BANKS CHOICES WORLD Feature

the practice of, and implications for, the BREXIT: CLOSER EU-domiciled defendant where there is no ; and OF ARBITRATION AS A DISPUTE English party (or other Hague Convention ––procedural benefits such as the RESOLUTION POSSIBILITY non-EU party) involved (Art 26(6) of the availability of in or Across the EU, English court judgments Hague Convention). summary judgment. have been recognised and enforced on Without any replacement for the a predictable basis under the so-called Brussels Regime, and outside the Hague The English courts have developed a solid “Brussels Regime” (principally the recast Convention regime, each EU member state body of legal principles which they apply with Brussels Regulation (EU) 1215/2012). court will apply its own national rules when a high degree of predictability. Parties can The Brussels Regime will no longer apply asked to enforce an English court judgment. assess the legal effect of contractual terms after Brexit. In the case of a no deal Brexit, In many cases, these will allow enforcement, in advance – a considerable contrast to a the Regime will cease to apply immediately albeit with potentially increased cost or non-precedential system – and English law after exit, so from 1 November 2019 delay. So far as jurisdiction is concerned, if generally gives effect to parties’ contractual (as things currently stand). If there is a English proceedings are commenced first, an bargain and admits limited scope for implied deal, then the current rules will cease to EU member state court will have a discretion terms or influence by public policy changes. apply after the end of a transition period. under the rules in the Brussels Regime to Indeed, as almost all core principles of Assuming that the Draft Withdrawal stay its proceedings. These are rules which English contract law derive from English Agreement applies, this would be in 2021. apply to any proceedings commenced in a (and not EU law), the This has therefore prompted reconsideration non-EU member state court. It is unclear, advantages of English law will remain after by banks and financial institutions of their however, whether an EU member state court Brexit, whatever form it may take. Current jurisdiction clauses. would have power to stay its proceedings indications are that banks and financial The UK government has previously where its proceedings are first in time and institutions with EU-related transactions indicated that it would seek to reach an the English proceedings are second in time. wish to retain their choice of English law agreement with the EU that allows for close All of the uncertainty created by Brexit, after Brexit if possible, rather than choosing and comprehensive cross-border cooperation as to enforcement in particular, has led banks an EU member state law to govern their on a reciprocal basis. It has also indicated and financial institutions to consider whether transactions. that it will seek to participate in the 2007 arbitration provides an answer. The validity and effectiveness of any Lugano Convention, which would apply as contractual choice of law is very unlikely between the UK and Norway, Switzerland ENFORCEMENT OF LONDON-SEATED to be affected by Brexit. In other words, a and Iceland (and the EU, if no other ARBITRAL AWARDS IN EUROPEAN choice of English law (or any other law) in a agreement is reached). Both depend on MEMBER STATE COURTS POST- contract will continue to be effective, whether agreement with the EU. Neither would be in BREXIT in England or in the EU member states. place in the event of a no deal Brexit. In the The reciprocal enforcement regime of the This follows from the continued operation event of a deal, while there can and should be New York Convention is rightly presented as within the EU of the Rome I Regulation, optimism that appropriate agreement can be one of the key advantages of arbitration. The governing choice of law in contracts, which reached during the transition period, there is New York Convention obliges the courts of in effect enforces any choice of law made by of course no certainty. contracting parties to: contracting parties, whatever law they have The UK’s future accession to the ––stay proceedings brought before them if chosen. The Rome II Regulation, which Hague Convention on Choice of Court there is a valid and binding arbitration allows commercial parties to select in advance Agreements (30 June 2005) in its own agreement; and by contract, the law to govern their non- right (it is currently a party by virtue of ––recognise and enforce foreign arbitral contractual rights and liabilities, will also its EU membership) will provide a mutual awards with very limited exceptions. continue to apply in the EU after Brexit. recognition and enforcement mechanism If there is a transition period, Rome I will between the UK and EU member states if All the EU member states are contracting apply in the UK to contracts concluded nothing else is put in place, but it is limited parties to the New York Convention and the before the end of transition and Rome II to exclusive jurisdiction clauses. Further, UK is also a contracting party independently will apply in respect of events giving rise to there is some uncertainty around whether of its membership of the EU. The New York damage where events occurred before the end EU member state courts will apply the Convention contains very limited grounds of transition. Whether there is no deal or Hague Convention only to English exclusive on which recognition and enforcement of whether there is a deal, the choice of law rules jurisdiction clauses agreed after Brexit. an award can be refused. Enforcement of in Rome I and Rome II will be incorporated The Hague Convention will also not apply UK-seated arbitral awards and arbitration into English domestic law with appropriate in some other circumstances, including agreements in EU member states, and EU amendments after Brexit. to jurisdiction disputes in the court of an member state-seated arbitral awards and

Butterworths Journal of International Banking and Financial Law October 2019 615 Feature

arbitration agreements in the UK, will be on, the claimant’s substantive case, would confirmed that the tribunal’s powers under unaffected by Brexit. likely be both beyond the tribunal’s express the ICC Rules were broad enough to Parties can choose a “safe” seat of powers and inconsistent with the tribunal’s accommodate summary determination. arbitration – a seat in a jurisdiction with a duty to give each party a reasonable The introduction of such provisions is well-drafted and clear legislative framework opportunity to put its case and deal with the anticipated to promote cultural change and for arbitration, an impartial and well-regarded case put to it. encourage arbitrators to take advantage of judiciary and a strong track record in However, arbitration is a creature of such powers where they have them. supporting arbitration and enforcing arbitral contract, and is underpinned by the principle Of course, the availability of summary awards. London meets this criteria, as do of party autonomy. determination in either forum – court or several other cities in EU member states. arbitration – should not be over-stated. “Party autonomy is the guiding principle As highlighted in the ISDA Arbitration ARBITRATION: FACTORS FOR in determining the procedure to be Guide 2018, the applicant must overcome FURTHER CONSIDERATION followed in an international commercial a very high hurdle to demonstrate that the FOR BANKS AND FINANCIAL arbitration. It is a principle that has been claim should be dismissed summarily. INSTITUTIONS endorsed not only in national , but Whilst the ease of enforcement of arbitral also by international arbitral institutions Interest awards across the EU is an inducement for worldwide, as well as by international Calculation of pre- and post-award interest banks and financial institutions to choose instruments such as the New York can have a significant impact on the arbitration, particularly whilst uncertainty Convention and the [UNCITRAL] Model quantum outcome of a dispute. Under the remains concerning the reciprocal Law.” Redfern & Hunter on International English Arbitration Act 1996 (AA 1996), recognition of English court judgments, Arbitration, 6th ed (pub. OUP) at para 6.07 which applies to any arbitration seated there are further considerations for banks in England, the parties are free to agree and financial institutions less familiar with In most , therefore, the on the powers of the tribunal to award the arbitration process. parties can agree to give the tribunal the interest. However, in the absence of any such Many international arbitral institutions power to dispose of a claim or defence, or a agreement the default provisions provide provide a basic model clause which will matter of fact or law, on a summary basis and that “the tribunal may award simple or generally be sufficient to create a binding can set out the basis on which it may do so compound interest from such dates, at such obligation to arbitrate. However, there are (for example, where an argument is manifestly rates and with such rests as it considers a number of matters which warrant without merit, or has no reasonable prospects meets the of the case – (a) on the particular consideration by banks and of success). A clause which provided that the whole or part of any amount awarded by the financial institutions when negotiating an tribunal could “hear and determine at any tribunal, in respect of any period up to the

DISPUTE RESOLUTION CHOICES FOR BANKS AND FINANCIAL INSTITUTIONS IN A POST-BREXIT WORLD CHOICES BANKS RESOLUTION FOR DISPUTE AND FINANCIAL POST-BREXIT A IN INSTITUTIONS arbitration agreement. stage of the arbitration any issue asserted by date of the award; (b) on the whole or part any party to be dispositive of any claim or of any amount claimed in the arbitration Early dismissal of claims or counterclaim, in whole or part, in accordance and outstanding at the commencement of defences, or points of fact or law with such procedure as the arbitrators may the arbitral proceedings but paid before the One of the attractions of the English courts deem appropriate, and the arbitrators may award was made, in respect of any period up has been the ability to obtain summary or render an award on such issue”, was found to the date of ” (AA 1996, s 49(3)). default judgment. Financial institutions value by the English court to be broad enough A similar discretion exists for post-award these procedures for their efficiency in the to accommodate the allegedly summary interest. context, for example, of simple claims procedure which the tribunal employed Parties therefore need to consider or when enforcing an on-demand . (Travis Coal Restructuring Holdings LLC v whether this broad discretion is appropriate Neither summary determinations nor awards Essar Global Fund Limited [2014] EWHC in their transaction and, if not, provide in in default of appearance have traditionally 2510 (Comm)). the arbitration agreement for the parameters been found in arbitration proceedings. Indeed, some well-known international within which the tribunal is empowered to In circumstances in which parties have arbitration institutions have introduced early order pre- and/or post-award interest. contracted out of the jurisdiction of the courts dismissal or early determination provisions by agreeing to arbitration, such procedures into their rules of arbitration, which are Multiple parties and multiple raise questions over access to justice and regularly incorporated by reference by parties contracts due process rights. In many jurisdictions, into their arbitration agreement (see, for It is regularly the case that finance determining disputes summarily, or making example, Rule 29 of the SIAC Rules 2016 transactions involve multiple related an award in default of the respondent’s and Art 43.1 of the HKIAC Administered agreements between a number of parties. appearance without hearing, and adjudicating Arbitration Rules 2018). The ICC also The same factual matrix can give rise to

616 October 2019 Butterworths Journal of International Banking and Financial Law DISPUTE RESOLUTION CHOICES FOR BANKS AND FINANCIAL INSTITUTIONS IN A POST-BREXIT FINANCIAL AND DISPUTE FOR RESOLUTION BANKS CHOICES WORLD Biog box Andrew Cannon is a partner at Herbert Smith Freehills LLP. Email: [email protected] Feature Hannah Ambrose is a senior associate at Herbert Smith Freehills LLP. Email: [email protected]

disputes under more than one of these As noted above, arbitration is a additional factors which banks and financial agreements, involving different parties. contentious procedure with similar institutions should consider to ensure It is key for finance parties to note that characteristics to litigation in the English that the arbitration process to which they an arbitral tribunal does not have the same courts – the parties make submissions and agree suits their needs. As indicated in the case management powers as the English witness and expert is filed to assist Report of the ICC Task Force on Financial court when it comes to consolidating the tribunal in reaching its determination. Institutions and International Arbitration, related arbitration proceedings and joining However, arbitration is generally understood which examined a wide range of banking parties. This can be addressed by way of to strike a balance between common law and and financial activities, including derivatives, a carefully drafted arbitration agreement approaches to dispute resolution. international financing, advisory matters under which the parties all agree that As such, parties familiar with litigation in and , one size may not a tribunal has the power to consolidate the English courts may be surprised at some fit all. n disputes under related agreements and to of its traditional features. In particular, a join all parties to those related agreements typical arbitration involves an emphasis on to an existing arbitration. written arguments and the hearing A connected consideration is whether all features only opening and closing documents in a transaction should include legal submissions. This clearly contrasts arbitration provisions. For example, in an with the approach to complex financial acquisition finance transaction, disputes disputes in the English courts, in which the under agreements within the package parties may be expected to spend days, if not may be more efficiently resolved and enforced weeks, outlining their factual and legal cases in the local courts, rather than through to the . arbitration, notwithstanding the of Notably, consistent with the principle parallel proceedings. of party autonomy described above, parties can agree a procedure which suits the nature Arbitrating disputes: of their dispute. Therefore, to the extent decision-makers and procedures that parties consider that the complexities It is usually the case in international of their transaction warrant longer oral arbitration that parties can have some submissions, it is within their power to agree influence over the composition of the this. Where no agreement is forthcoming, tribunal – many arbitration agreements it will be a matter for the tribunal to decide provide that each side to a dispute can based on the relevant submissions of the nominate an arbitrator. This enables respective parties. a with a simple debt claim to appoint It is also possible for the parties to a black-letter who is likely to enforce address in their arbitration agreement other the borrower’s obligations, whereas a significant aspects of their dispute resolution bank which has a claim under an ISDA procedure, such as interim relief (from both can nominate an arbitrator with financial the tribunal and the courts of the seat), in markets experience, who is both familiar a way which suits the transaction in question with the terms of the ISDA Master and the nature of the disputes most likely Agreements, and the practical effect of to arise. their operation. Indeed, at least one arbitral institution – P.R.I.M.E. Finance – has CONCLUSION been set up with the purpose of identifying International arbitration offers banks and a pool of arbitrators and experts with financial institutions the certainty of a Further Reading: expertise in financial markets transactions, “tried and tested” reciprocal enforcement ––Arbitrating multi-party and multi- including those with regime across the UK and the EU (and contract disputes (2018) 10 JIBFL 616. experience, central bankers and former beyond). It can offer other advantages ––Arbitration and financial institutions: . Outside the specialist auspices of – including privacy, finality and the an overview (2018) 4 JIBFL 236. P.R.I.M.E. Finance, other international potential to choose an independent and ––LexisPSL: Banking & Finance: arbitration institutions can readily impartial arbitrator with the characteristics Governing law, jurisdiction and identify suitably qualified and experienced and expertise suitable to the dispute in arbitration clauses in finance arbitrators. question. However, there are a number of documents.

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