Rise in Financial Arbitration
Litigation has typically been the forum of choice for dispute resolution in international finance. However, the continuing globalisation and increased involvement of parties from different jurisdictions in cross-border transactions led to international arbitration becoming one of the most frequently used means of resolving disputes. It may also be the result of a compromise between parties who would rather avoid the risks of litigating in the courts of their counterpart’s jurisdiction. It must be mentioned that finance sector hasn’t embraced arbitration in the same way as other sectors (shipping, energy, etc.). Though recently the sector has seen an increase in the general use of international arbitration to resolve financial disputes and that is expected to increase further. The main drivers behind this increase are the rising complexity in the nature of claims involving financial products and the increasing involvement of parties from the emerging markets in international finance.
Globalisation is one of major driving forces behind the increase in the use of International arbitration. One of the major reasons for preferring litigation over arbitration was its ability to provide a relatively speedy resolution through the summary judgment procedure which was previously not available in the method of arbitration. However, this is no longer the case since several arbitral institutions now include a procedure for summary disposal or early resolution of disputes. These arbitral institutions include the Singapore International Arbitration Centre (SIAC), The Arbitration Institute of the Stockholm Chamber of Commerce (SCC), The International Court of Arbitration of the International Chamber of Commerce (ICC), etc.
As mentioned above the main reason behind the increasing use of international arbitration is the rising involvement of parties from emerging markets in international finance. There are several advantages of using international arbitration apart from just resolving disputes in a hassle free manner. It offers neutrality, like it allows the parties to choose a neutral seat of arbitration and the parties can also ensure that the composition of the tribunal is neutral. Arbitration also has the advantage where the parties can choose the arbitrators and they can also choose an arbitrator with experience and knowledge. Hence, expertise is not a concern in arbitration. It offers privacy and confidentiality unlike litigation. The process of arbitration is flexible as the procedure is developed in a way to meet the parties’ requirements. However, the biggest advantage that international arbitration has over national litigation is the power of enforcement.
In spite of all the advantages, international arbitration has certain shortcomings. When it comes to speedy redressal, international arbitration can be just as slow, if not slower that litigation and the process is highly expensive in certain countries. It doesn’t have a provision for additional parties to join and thereby consolidate the proceedings, which again makes it expensive as well as time consuming. The arbitration awards do not have a binding precedent and they lack a sense of finality to them.
In spite of all its shortcomings, there is no denying the fact that international arbitration is on a rise. While some participants in the financial sector remain reluctant to resort to arbitration, it continues to remain a fact that financial institutions stand to benefit substantially from the increased use of arbitration.