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Arbitration clauses in ISDA master agreements

International Swaps and Derivatives Association updates guidance on the use of an arbitration clause with the 2002 or 1992 ISDA Master Agreement and replaces the 2013 Guide

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Published 1 March 2021

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  • Sectors
  • Financial services

International arbitration is increasingly recognised as the preferred dispute resolution mechanism for cross-border derivative transactions although historically parties typically opted for litigation, even when the dispute included an international component, and with English and New York laws as traditionally the chosen law and jurisdiction for these disputes

Today, however, there is an increasing number of parties to international financial transactions coming from emerging markets where it can be difficult (or impossible) to enforce foreign court judgments.

The International Swaps and Derivatives Association, Inc. (“ISDA”) originally published its arbitration guide in 2013 (the “2013 Guide”), which included an explanatory memorandum providing an overview of arbitration for parties to derivatives transactions, and included a wide range of model arbitration clauses that included the most popular arbitration rules and seats of arbitration.

The updated guide in 2018 (the “2018 Guide”) further reflected the continuing momentum toward the use of arbitration in the financial services sector generally, and in the derivatives context in particular.

A recap of the 2018 Guide

The 2018 Guide provides updated guidance on the use of an arbitration clause with the 2002 or 1992 ISDA Master Agreement and replaces the 2013 Guide. Like the previous edition, the 2018 Guide describes the key features of arbitration and sets out a wide range of model arbitration clauses, specifying the governing law of the Master Agreement and the arbitration clause.

The 2018 Guide contains the model clauses that were in the 2013 Guide, namely:

  • ICC Rules (with London, Paris or New York seat and English or New York governing law);
  • LCIA Rules (with London seat and English governing law);
  • AAA/ICDR Rules (with New York seat and governing law);
  • HKIAC Rules (Hong Kong seat and governing law of arbitration clause);
  • SIAC Rules (with Singapore seat and governing law of arbitration clause);
  • PRIME Finance Rules (with London, Paris or The Hague seat); DIS Rules (with Frankfurt seat); and
  • Swiss Rules (with Zurich or Geneva seat).

In addition, the 2018 Guide now contains model clauses for the following additional institutions: Stockholm Chamber of Commerce (SCC) Rules (Stockholm seat); DIS Rules (Frankfurt seat); Dubai International Finance Centre – London Court of International Arbitration (DIFC-LCIA) Rules (DIFC seat); and Vienna International Arbitration Centre (VIAC) Rules (Vienna seat).

The 2018 Guide further includes an LCIA Rules clause with a Dublin seat for use with the Irish-law governed Master Agreement developed by ISDA in the context of Brexit, as well as a cross reference to clauses intended to be used with the ISDA/International Islamic Financial Market Tahawwut Master Agreement and the ISDA 2002 Master Agreement that is governed by French law.

Attractiveness of arbitration in the ISDA context

Arbitration provides a viable alternative to litigation partly because the New York Convention (The Convention for the Recognition and Enforcement of Foreign Arbitral Awards 1958) harmonises recognition and enforcement laws applicable to arbitral awards among the approximately 160 contracting states globally and prohibits domestic courts from reviewing foreign arbitral awards on their merits. Arbitration in the derivatives context also provides scope for:

  • Party-nomination of arbitrators: allowing parties to select a tribunal with, for example, experience in transactions involving complex financial products, and a working knowledge of ISDA documentation; and
  • Use of party-appointed experts: in highly technical derivatives disputes the parties may regard this as a considerable advantage over any national court process which does not feature expert evidence in this way.

The model clauses provided in the 2018 Guide are also intended to assist parties with the framework of their dispute resolution clauses and have been tailored to reflect ISDA user requests with regard to arbitral institution, seat of arbitration, and applicable law. Each model clause is provided in a consistent format and identifies the necessary amendments to the underlying Master Agreement if arbitration is chosen

In addition to the model clauses, the 2018 Guide highlights a list of matters which parties may wish to add or modify in the model clauses, such as to add provisions on: evidential matters as to the scope of document production; summary judgment; multi-party disputes; and confidentiality.

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Shorter Reads

Arbitration clauses in ISDA master agreements

International Swaps and Derivatives Association updates guidance on the use of an arbitration clause with the 2002 or 1992 ISDA Master Agreement and replaces the 2013 Guide

Published 1 March 2021

Associated sectors / services

  • Arbitration
  • Financial services

Authors

International arbitration is increasingly recognised as the preferred dispute resolution mechanism for cross-border derivative transactions although historically parties typically opted for litigation, even when the dispute included an international component, and with English and New York laws as traditionally the chosen law and jurisdiction for these disputes

Today, however, there is an increasing number of parties to international financial transactions coming from emerging markets where it can be difficult (or impossible) to enforce foreign court judgments.

The International Swaps and Derivatives Association, Inc. (“ISDA”) originally published its arbitration guide in 2013 (the “2013 Guide”), which included an explanatory memorandum providing an overview of arbitration for parties to derivatives transactions, and included a wide range of model arbitration clauses that included the most popular arbitration rules and seats of arbitration.

The updated guide in 2018 (the “2018 Guide”) further reflected the continuing momentum toward the use of arbitration in the financial services sector generally, and in the derivatives context in particular.

A recap of the 2018 Guide

The 2018 Guide provides updated guidance on the use of an arbitration clause with the 2002 or 1992 ISDA Master Agreement and replaces the 2013 Guide. Like the previous edition, the 2018 Guide describes the key features of arbitration and sets out a wide range of model arbitration clauses, specifying the governing law of the Master Agreement and the arbitration clause.

The 2018 Guide contains the model clauses that were in the 2013 Guide, namely:

  • ICC Rules (with London, Paris or New York seat and English or New York governing law);
  • LCIA Rules (with London seat and English governing law);
  • AAA/ICDR Rules (with New York seat and governing law);
  • HKIAC Rules (Hong Kong seat and governing law of arbitration clause);
  • SIAC Rules (with Singapore seat and governing law of arbitration clause);
  • PRIME Finance Rules (with London, Paris or The Hague seat); DIS Rules (with Frankfurt seat); and
  • Swiss Rules (with Zurich or Geneva seat).

In addition, the 2018 Guide now contains model clauses for the following additional institutions: Stockholm Chamber of Commerce (SCC) Rules (Stockholm seat); DIS Rules (Frankfurt seat); Dubai International Finance Centre – London Court of International Arbitration (DIFC-LCIA) Rules (DIFC seat); and Vienna International Arbitration Centre (VIAC) Rules (Vienna seat).

The 2018 Guide further includes an LCIA Rules clause with a Dublin seat for use with the Irish-law governed Master Agreement developed by ISDA in the context of Brexit, as well as a cross reference to clauses intended to be used with the ISDA/International Islamic Financial Market Tahawwut Master Agreement and the ISDA 2002 Master Agreement that is governed by French law.

Attractiveness of arbitration in the ISDA context

Arbitration provides a viable alternative to litigation partly because the New York Convention (The Convention for the Recognition and Enforcement of Foreign Arbitral Awards 1958) harmonises recognition and enforcement laws applicable to arbitral awards among the approximately 160 contracting states globally and prohibits domestic courts from reviewing foreign arbitral awards on their merits. Arbitration in the derivatives context also provides scope for:

  • Party-nomination of arbitrators: allowing parties to select a tribunal with, for example, experience in transactions involving complex financial products, and a working knowledge of ISDA documentation; and
  • Use of party-appointed experts: in highly technical derivatives disputes the parties may regard this as a considerable advantage over any national court process which does not feature expert evidence in this way.

The model clauses provided in the 2018 Guide are also intended to assist parties with the framework of their dispute resolution clauses and have been tailored to reflect ISDA user requests with regard to arbitral institution, seat of arbitration, and applicable law. Each model clause is provided in a consistent format and identifies the necessary amendments to the underlying Master Agreement if arbitration is chosen

In addition to the model clauses, the 2018 Guide highlights a list of matters which parties may wish to add or modify in the model clauses, such as to add provisions on: evidential matters as to the scope of document production; summary judgment; multi-party disputes; and confidentiality.

Associated sectors / services

  • Arbitration
  • Financial services

Authors

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