ISDA Arbitration Guide – one year on

One year on since the International Swaps and Derivatives Association ("ISDA") published its 2013 Arbitration Guide, the ISDA Arbitration Committee recently met in London to discuss the reception to the Guide, and to consider any proposals for amendment or expansion.

The Guide was published in September 2013 following an extensive consultation process involving all levels of ISDA's global membership. Along with an overview of arbitration, the Guide contains model arbitration clauses for use with the ISDA 2002 Master Agreement and the ISDA 1992 Master Agreement (Multicurrency – Cross Border), the market leading standard form agreements for documenting over-the-counter derivatives transactions. The model clauses are designed to be included in the Schedule to new Master Agreements, but are also readily adaptable for use when amending an existing Master Agreement to provide for arbitration.

Herbert Smith Freehills has been involved throughout the consultation process and attended the Arbitration Committee meeting on 1 December 2014. It was clear from participants at the meeting that the publication of the Guide was received positively by both market practitioners and arbitration specialists, and that it remains of interest to a wide audience. This reception is consistent with the growing appeal of arbitration in the derivatives markets (and the broader financial services sector) over the past four years, a sector that has traditionally favoured English or New York court jurisdiction. A fair amount of anecdotal use of the Guide has also been reported, particularly within emerging markets, although there are no hard statistics on the uptake to date.

Proposals for amendments to the Guide focussed on providing more bespoke information on arbitration specifically tailored to the derivatives market, including:

• a greater emphasis on the prospects for parties to protect derivatives investments though investment arbitration, in view of the decision in Deutsche Bank AG v Democratic Socialist Republic of Sri Lanka (ICSID Case No. ARB/09/2) which found that a hedging agreement qualified as an 'investment' for the purposes of the Germany-Sri Lanka bilateral investment treaty and the ICSID Convention;
• addressing the derivatives market's apparent desire to appeal awards within the arbitration process, mentioning, for example, the AAA-ICDR's optional appellate rules;
• further explanation of optional arbitration clauses;
• further explanation of the different urgency measures available under the various arbitral rules, including the option to appoint an emergency arbitrator, where applicable; and
• explanation of the differences between arbitral institutions in terms of the specialisation of arbitrators available for appointment under their rules.

The Arbitration Committee also considered suggestions from ISDA Members to extend further the current suite of arbitration clauses offered in the Guide, including the use of Frankfurt, Stockholm or the Dubai International Finance Centre as seats.

The Guide already provides for a number of different combinations of arbitral rules/institution and seats of arbitration, reflecting the preferences of ISDA Members during the previous consultation process, including the ICC Rules (London, New York or Paris seat), LCIA Rules (London seat), AAA-ICDR Rules (New York seat), HKIAC Rules (Hong Kong seat), SIAC Rules (Singapore seat), Swiss Chambers’ Arbitration Institution Rules (Zurich or Geneva seat), and PRIME Finance Rules (London, New York or The Hague seat).

ISDA is committed to keeping the Guide, including the current combinations of rules and seats, under review, and is open to receiving further input from ISDA Members in this regard.

To discuss ISDA's Arbitration Guide or use of arbitration in financial markets contracts, please contact Nicholas Peacock, Partner, Dominic Kennelly, Associate, Emily Blanshard, Associate, or your usual Herbert Smith Freehills contact.