Dispute Resolution Choices For Banks And Financial Institutions In A Post-Brexit World: Opting For Arbitration?

With certain limited exceptions (eg project finance in emerging markets), the banking sector has historically been less inclined than other sectors to embrace international arbitration. Banks and financial institutions from across the globe, and particularly in Europe, have for many years preferred to enforce their English law-governed agreements, and resolve their disputes, in the courts of England. The pairing has stood the banks in good stead. They have been able to rely upon a solid body of law, both in terms of general contract law principles and, particularly since the 2008 financial crisis, on the interpretation of complex financial products, applied by the courts with rigour and predictability.

For the majority of banks and financial institutions, there has been no "push" factor away from the English courts and towards arbitration. However, the spectre of Brexit has encouraged many institutions - both within the UK and in other EU member states - to review their whole legal modus operandi. Dispute resolution clauses have been included in the long checklist of items to be considered.

In this context, many banks and financial institutions have inevitably sought to weigh up the risks and benefits of including an arbitration clause in their transactions. This article explores the enforcement of English judgments in the EU post-Brexit, and the particular aspects of international arbitration that banks and finance parties should consider when making their dispute resolution choices.

BRIEF RECAP: WHAT IS INTERNATIONAL ARBITRATION?

Arbitration is a system of dispute resolution whereby parties agree that their disputes will be resolved by an independent and impartial tribunal, to the exclusion of the substantive jurisdiction of the courts of national legal systems. Arbitration shares many features of court litigation - in particular, it is an adversarial process which results in a decision (recorded in an arbitral award) which is final and binding. The arbitration process is private and often awards can be confidential. Arbitral awards can be recognised and enforced in courts around the world under the hugely successful New York Convention

on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (the New York Convention), to which there are now 160 contracting parties. Significantly, outside the EU (and outside the scope of the EU's Brussels Regulation), there is currently no comparably effective regime for reciprocal enforcement of court judgments.

NO "PUSH FACTOR"? DISINTEREST OF BANKS AND FINANCIAL INSTITUTIONS IN INTERNATIONAL ARBITRATION

Despite the exponential growth in recent years of international arbitration for resolving cross-border disputes in other sectors, the financial sector has been slow to follow. Banks and financial institutions, at least in Europe, have generally been comfortable with their traditional dispute resolution choices - often English governing law and exclusive English court jurisdiction.

The English courts and English law are a very popular choice for parties doing business worldwide for many reasons, including:

the independence and expertise of the judiciary and the efficiency of the English court process; the willingness to consider the commercial purpose of a contract; decisions are largely reached on complex financial instruments by reference to the practice of, and implications for, the financial market; and procedural benefits such as the availability of judgment in default or summary judgment. The English courts have developed a solid body of legal principles which they apply with a high degree of predictability. Parties can assess the legal effect of contractual terms in advance - a considerable contrast to a non-precedential system - and English law generally gives effect to parties' contractual bargain and admits limited scope for implied terms or influence by public policy changes.

Indeed, as almost all core principles of English contract law derive from English common law (and not EU law), the advantages of English law will remain after Brexit, whatever form it may take. Current indications are that banks and financial institutions with EU-related transactions wish to retain their choice of English law after Brexit if possible...