A. Introduction

In view of the many failings in the financial markets, mostly banking generated transactions (financial instruments and securities products), questions may be asked: are the established 20th century dispute resolution bodies, including local courts and international organisations, up to the task of managing corporate as well as individual financial dispute business?

Are arbitration institutions’ structured roots capable to deal with the fast developing financial services industry and its instruments such as Derivatives and complicated cross border Documentary Credit instruments?[1]

Against such a background, the analysis in this  field should focus on the role of arbitration and the international instruments for the settlement of international financial disputes.

In so doing, comparison should be drawn to underline features inherent in some legal systems and to develop solutions to existing problems, and as they are pointed out solutions should be associated with the problems as it is always easier to dismantle problems that may have no solutions.

Researchers and authors are  not meant or rquired to make exhaustive examinations of all and every international instrument and financial arbitration law and system, as we should bear in mind the limited ability of any single contribution to deal with the many and diverse issues that may face the researcher as well as the reader.

The approach here is to review key issues befalling Financial Disputes, based on generally accepted principles and rules as evidenced by international conventions and usages and practices as widely known and regularly accepted within the Financial and Banking industry and to study whether issues are rising from dispute resolution processes failures or are they merely a continuation of a contributory system that is hard to change or develop?[2]

Traditionally and in contrast to commercial and insurance, Banking and Financial Disputes were referred to judicial adjudication rather than arbitration.[3]

Whether keeping with tradition or in respect for custom, financial institutions may, however, in view of the ensuing effect of several high profile cases of Financial Disputes over the last few years, corporate financial disputes are now receiving more and more attention especially in view of the inadequacy of unilateral or multilateral networks for the recognition of foreign judgments.

In addition, the present deflation of global market values worldwide as well as in the U.S and the EU in what is known as the “credit crunch”, has contributed to major corporate financial failures as well as an epic increase in financial disputes as well as “Retail Consumer v. Financial Institutions/Banks”.[4]

These circumstances have also caused lenders to re-examine existing commitments to lend and either to renegotiate the existing terms of existing loan commitments or to stop lending altogether.

In cases where a solvent lender refuses to honor their commitments, remedies available to the borrower may amount to a breach of contract.

However, if the financial industry is to start to resort to alternative methods of dispute resolution, how will arbitration develop in areas such as consumer and corporate finance, securities transactions, derivatives, documentary credit guarantees and sovereign and public sector loan?[5]

We should examine how arbitration can develop to meet the requirements of the banking and financial services industry in view of:

  • Multilateral treaties for the enforcement of Arbitral Awards
  • Arbitrators’ jurisdiction in face of Acts of State defenses
  • Speed and cost effectiveness.

B. Goals

To undertake the task of analyzing the efficacy of arbitration should be with the aim of determining the present adequacy in resolving disputes in the twin goals of banking and financial disputes and if these adequacies are actually being achieved under the current systems.

To examine the extent to which globalization has necessitated more effective and rigid dispute resolution mechanisms and appropriate incentive plans to strengthen the enforcement of arbitration awards, delving into the effects of the globalization of economies and integration of financial markets on financial dispute resolution within the EU and the world, keeping in line with the requisite statutory codes or rules which may fail to facilitate the governing of awards in such a way as to improve enforcement and which are currently stifling courts’ decisions in terms of enforcing foreign judgments.[6]

To aim towards an understanding of the issues stifling enforcement of foreign judgments at the national and international levels and the roles played by the local courts as well as the international organizations treaties such as IMF, International Bank for Reconstruction and Development, the Brussels and Lugano Conventions on the recognition and enforcement of foreign judgments,[7] to name but a few.

C. Objectives

What is Arbitration of Banking and Financial disputes and what makes up the volume?

Is arbitration of Banking and Financial disputes a National or International law issue?

Are all aspects of Banking and Financial disputes arbitrable?[8]

Debates, past and present, have focused on dispute resolution clauses in agreements and while no one dispute resolution clause will satisfy every segment of the financial services industry, the combination of given financial transactions in certain agreements will determine whether arbitration may or not be appropriate to the resolution of certain banking disputes from others.

Historically, financial disputes involved straightforward payment claims, thus involving simple questions of litigation with no much complex fact-finding issues, thus the lack of enthusiasm and faith in arbitration within the decades-long banking practices and within the in-house legal falcons of Financial Institutions.

Mohamed Raffa, LLM, FCIArb, ICCM

[1] Dow Jones, “Cracking Down on Arbitration-Award Evaders,” FA Magazine, Apr. 28, 2010

[2] Marcia Coyle, “Credit Crisis Spawns Arbitration Claims,” New York Law Journal, Apr. 2, 2009

[3] Mark Roe, Chaos and Evolution in Law & Economics (1996) Harvard Law Review (109), p.641

[4] Making It Up As They Go Along: The Role of Law in Securities Arbitration, 23 CARDOZO LAW REVIEW 991 (2002) (with Barbara Black)

[5] William W. Park, International Forum Selection (1995).

[6] Dicey, A. and Morris, J., Conflict of Laws , 10th ed., Lawrence Collins (1987)

[7] The Convention on Jurisdiction and Enforcement of Judgments in Civil and Commercial Matters, 9/1968

[8] “The arbitrability of a dispute concerns the question whether a dispute is capable of

settlement by arbitration under the applicable law.” New York Convention (1958) Article 2 (1)

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