P.R.I.M.E. Finance – A New Dispute Resolution Option for the Financial Sector

The Panel of Recognised International Market Experts in Finance, ("P.R.I.M.E. Finance" or "PRIME"), is a newly established dispute resolution body based in The Hague, officially launched in January 2012.1

PRIME aims to provide a bespoke forum for the resolution of complex financial disputes, including cases relating to derivatives, swaps, wholesale financial market trading and other financial products.

In recent years, there has been an increase in the use of arbitration as a means of resolving disputes in the financial sector, an area where English or New York court jurisdiction has traditionally been favoured by market participants. This trend is driven by globalisation and the increasing prevalence of cross-border finance transactions, particularly those involving emerging markets. It is also driven by the perceived advantages of arbitration, most notably the availability of enforcement mechanisms for arbitration awards under the New York Convention that, for the most part, are superior to the enforcement options available for court judgments.  

ISDA2 is currently undertaking a consultation on the inclusion of arbitration as a dispute resolution option in its standard form contract; and PRIME is one of the options being considered.3 Given the prevalence of ISDA standard form documentation, it would be an enormous boost to PRIME if its arbitration rules are chosen for use in ISDA's model arbitration clause.  Peter Godwin, Dominic Roughton and David Gilmore provide an overview of their observations.

Arbitration under the PRIME Rules

The PRIME arbitration rules are closely based on the UNCITRAL arbitration rules but contain a number of notable amendments:

• Expedited proceedings – parties can agree shortened procedural timelines to settle urgent disputes, subject to approval by the arbitral tribunal (Article 2a).
• Urgent measures – a party in urgent need of provisional measures that cannot await the constitution of the arbitral tribunal can apply for the appointment of an "Emergency Arbitrator" pursuant to the "Emergency Arbitration Rules". Orders made by the Emergency Arbitrator are not binding on the arbitral tribunal as eventually constituted and so will not prejudice the arbitral tribunal's final decision (Article 26a and Annex C).
• Transparency – the rules permit PRIME to publish excerpts of awards, or the whole award in anonymised form, provided that neither party objects within 1 month of receipt of the award (Article 34). The intention is to further the predictability of the financial markets by creating a body of law in this area which is accessible to all.

While the UNCITRAL rules are commonly used in ad hoc arbitrations worldwide, the PRIME rules attempt to "institutionalise" the UNCITRAL rules by providing for the arbitral proceedings to be administered by PRIME.

The Panel

PRIME claims to have assembled a collection of experts who have sufficient qualifications and experience to deal with the complexity and specialised nature of disputes arising in the financial sector. Its 80-strong panel includes "some of the most senior people in the financial markets with collectively over 2,000 years of experience in the markets"4, ranging from judges to central bankers, regulators, representatives from private practice and derivative market participants.

Lord Woolf, the former Lord Chief Justice of England and Wales, will act as the Chairman of the Advisory Board. The panel will be comprised of many distinguished experts, including former Member of the Supreme Court of Japan, the Honourable Justice Kunio Hamada, and two past Herbert Smith partners, Lord Collins, a former Justice of the United Kingdom Supreme Court, and Lord Gold, formerly Herbert Smith's senior partner.

Core services

Apart from offering customised arbitration rules and its own panel of expert arbitrators, PRIME aims to provide a broad range of services, including:

• mediation of disputes between parties;
• acting as independent experts in court;
• judicial training, to enhance understanding of derivatives and other financial market transactions;
• building and maintaining a database of judicial decisions regarding financial transactions; and
• identifying areas in need of legal reform and providing recommendations.

Comment

The global financial crisis laid bare the complexity and scale of the financial industry and the instruments which underpin it. The magnitude of the amounts at stake and the widespread use of standard documentation, such as the "ISDA Master Agreement", highlighted the need for expertise and a consistent approach in the resolution of disputes in the financial sector.

Whilst, traditionally, court jurisdiction has been commonly selected to resolve financial disputes, it will often be the case that generalist judges will be insufficiently experienced and/or qualified to deal with the complex and specialised nature of disputes arising in this sector. Further, court judgments are not easily enforceable in the debtor's home jurisdiction if that country is not party to a treaty providing for the recognition and enforcement of foreign judgments.

The expertise of its arbitrators and the enforceability of arbitral awards in other jurisdictions through the New York Convention are therefore important advantages by which PRIME can differentiate itself from national courts and, to a certain extent, other arbitral bodies.

It is too soon, however, to predict PRIME's ultimate success as a dispute resolution institution, as much will depend on a number of factors, including the outcome of ISDA's consultation process. Whilst parties will no doubt be impressed by the calibre of the list of arbitrators on PRIME's panel, they may be concerned about the lack of experience of the institution itself. This could lead to parties using PRIME's list of arbitrators, yet entrusting the management of the arbitration to another institution.

In any event, the increased use of arbitration to resolve complex financial disputes is inevitable with the march of globalisation and the PRIME initiative is an interesting development which should be welcomed.

1 www.primefinancedisputes.org.

2 International Swaps and Derivatives Association.

3 http://herbertsmitharbitrationnews.com/2012/06/28/consultation-underway-on-the-use-of-arbitration-under-the-isda-master-agreements/.  

4 http://www.primefinancedisputes.org/index.php/about-us.