The growing popularity of Arbitration in the banking and finance sector and why this trend will continue
Last month the London Court of International Arbitration (LCIA) released its 2018 annual casework report. This showed a notable increase in the proportion of cases relating to banking and finance: up by 5%, from 24% to 29%. Although this can partly be attributed to the continuing growth in the popularity of arbitration, there are other specific reasons why this is happening in the banking and finance sector.
First, with the continued geographical widening of the financial markets, there has been an increase in both the number of financial products available generally, and also in the demand for those products from emerging markets. Taken together, the need for more certain prospects of both justice and enforceability across national borders should things go wrong become correspondingly greater and as such more arbitration clauses are being written into the underlying contracts. For transactions involving emerging markets particularly, an arbitration clause is often favoured where a party or asset is in a jurisdiction where the courts are perceived as less reliable and/or no agreement can be reached on the choice of national court.
Second, the increasing complexity of financial products, and therefore the corresponding increasing complexity of the cases involving them, makes arbitration a popular choice. The disputes that are arising require a deep understanding of both the financial products and the financial markets involved. There is concern that some national courts may have an insufficient level of judicial experience and proficiency for such disputes, especially as they can affect global markets (i.e. regarding industry standard contracts such as the ISDA Master Agreement). Arbitration allows parties to appoint arbitrators with the relevant experience for the matter in question, sidestepping this concern.
Third, political developments mean that the advantages of international arbitration have a greater premium compared to the court-based alternative. For example, uncertainties surrounding Brexit have been cited as a reason why international arbitration is increasingly being chosen by the London based financial services sector as their favoured dispute resolution mechanism. Currently, the UK is a member of the EU and subject to the EU Judgments Regulation 1215/2012. The EU Judgments Regulation provides a framework for the recognition of court judgments issued in one EU member state (i.e. the UK), in the courts of another member state. However, with the UK’s impending exit from the EU there is perceived uncertainty over the mechanisms by which the continued reciprocal recognition of court judgments between the UK and the EU will continue. Arbitration avoids that problem, relying instead on the New York Convention 1958 for both the recognition and enforceability of awards – there is still no convention that provides for the reciprocal recognition and enforcement of court judgments with anything remotely close to the widespread acceptance of the New York Convention for arbitral awards.
Due to the increasingly globalised world in which we live, where there is political and economic uncertainty not only in emerging markets but also in well-established financial centres like London, it is likely that the LCIA’s 2019 annual casework report will show when it is released next year another uptick in the proportion of cases from the banking and finance sector.
JHA is a specialist dispute resolution firm, with a track-record of advising clients from the banking and finance sector, as well as many other sectors. Our experts have led on cases under a variety of different institutional rules including the LCIA, ICC and ICSID Rules, in many different seats and subject to various governing laws.
Draft Finance Bill 2020–21—promoters and enablers of tax avoidance schemes
Helen McGhee, senior associate at Joseph Hage Aaronson LLP, shares her insights on the Draft Finance Bill 2020–21 and its impact on promoters and enablers of tax avoidance schemes.
Apple and Ireland Win €13bn State Aid Appeal
The General Court of the European Union has today annulled the Commission’s decision regarding two Irish tax rulings in favour of Apple. The Commission had considered that the two rulings constituted State Aid, granting Apple €13bn in unlawful tax advantages.
The Price of Property
Helen McGhee looks at the present state of UK tax rules that must be considered when owning and disposing of UK property.
Inheritance tax problems in Finance Bill 2020
The rules on excluded property trusts are due to change with effect from royal assent. These changes are complex, and the new rules can have an unexpected and retroactive effect. Emma Chamberlain explores these rules to determine whether it may be necessary to exclude the settlor going forward as a beneficiary.
Trust Registration Service- 5MLD update
HMRC’s Trusts and Registration Service (TRS) was born back in 2017 as part of the implementation of 4MLD. 5MLD has mandated notable amendments to the operation of the TRS that clients and practitioners should not overlook. We have created a Q&A to help to navigate the new upcoming compliance obligations.