Use of arbitration in finance disputes

Litigation has traditionally been the forum of choice for resolving international finance disputes. However, globalisation and the increased involvement of parties from, and transactions relating to, emerging markets has increased the popularity of international arbitration for resolving finance disputes. 

This Quickguide provides an introduction to the use of international arbitration in the context of international financial disputes. It explains the factors to consider when deciding whether arbitration is appropriate for a particular transaction and also looks at the developments that have led to its increased use by the finance sector. Finally, the guide addresses the issues to consider when drafting an arbitration clause, both the essential elements of a clause and additional drafting options.

What is arbitration?

This Quickguide assumes a certain level of familiarity with international arbitration, its foundational principles and key features. For more details discussion of these fundamentals, see our Quickguide, Introduction to International Arbitration.

At its simplest, international arbitration is a contractual alternative to national court litigation for resolving disputes: Where parties choose to arbitrate their dispute, they are contracting out of the jurisdiction of national courts, in favour of having their dispute finally resolved in a private forum.

Key characteristics of international arbitration include that it is:

• Consent-based. A tribunal only has jurisdiction to determine a dispute when all parties agree this, typically through an arbitration clause in the contract underlying the dispute.
• Neutral. Parties choose the "seat" or "place" of arbitration, which can be a neutral jurisdiction, unconnected to the parties or their dispute, as well as a suitable set of institutional rules, such as those of the ICC, LCIA, or SIAC, and the individuals tasked with deciding their dispute.
• Flexible. Parties can tailor the arbitral procedure to suit the disputes that may arise.
• Private and confidential. Most arbitrations are private and confidential, meaning that disputes can often be resolved without the adverse impact of publicity, which may otherwise be associated with dispute resolution.
• Final and binding. Rights of challenge to arbitration awards are usually very limited, unlike court judgments that often face several rounds of appeal.
• Widely enforceable. The New York Convention enables enforcement of arbitral awards across more than 170 countries;¹ there is no comparable instrument for the enforcement of national court judgments.

Increased use of international arbitration in finance disputes

While some sectors, such as energy and natural resources, insurance and shipping, have long embraced arbitration, international financial transactions have, traditionally, favoured domestic courts, often in London, New York or Frankfurt. Financial institutions are familiar with these courts and consider that they can rely on them to produce sound judgments. 

However, this has changed in recent years, as seen in data from arbitral institutions. For example, caseload statistics from the London Court of International Arbitration (LCIA) and the International Court of Arbitration at that International Chamber of Commerce (ICC) see finance appearing second and third, respectively, in the top disputes sectors, while the China International Economic and Trade Arbitration Commission (CIETAC) has also classed finance as a "high-demand sector".²

Key drivers behind this increase include:

• Increased complexity in the nature of claims involving financial products. The disputes that arise, including, for example, disagreements over the results produced by complex financial models and formulaic calculations, require a deep understanding of both the financial products concerned and the financial markets. Decisions are also being taken by courts, which impact on global markets, for example, decisions on the close-out mechanics of industry standard contracts such as the ISDA Master Agreement. There is a concern that not all national courts are capable of making these decisions, whereas arbitration allows parties to appoint decision makers with the relevant expertise and avoids the creation of precedent.
• Greater involvement of parties from emerging markets in international finance. Arbitration is often preferred where enforcement of foreign judgments is likely to be problematic, given the comparative ease of enforcement of international arbitration awards under the New York Convention. For example, if a borrower is located in a jurisdiction where enforcing a domestic court judgment may be difficult or impossible, arbitration may present a better alternative.
• The introduction of summary and early determination procedures. Finance parties often value the speed and simplicity offered by certain summary judgment procedures available in litigation in some jurisdictions, such as before the English court. However, the majority of leading institutional arbitration rules, as well as some national arbitration laws (for example, the English Arbitration Act 1996, following its amendment in 2025³), now provide for similar early or summary determination procedures.

The ISDA Arbitration Guide

Globalisation is one of the drivers behind the increase in the use of arbitration in derivatives transactions. This prompted ISDA to publish a guide in September 2013 on the use of arbitration in the ISDA Master Agreement. The 2013 Guide included sample clauses for use in both the 1992 and 2002 Master Agreements. 

A new edition, the 2018 ISDA Arbitration Guide, was published in 2018, providing an expanded range of "ISDAfied" model arbitration clauses for a larger number of arbitral institutions and seats around the globe. In 2020, further updates to the 2018 Guide were made to reflect changes in law in certain jurisdictions and revisions to institutional arbitration rules. 

The iterations of the ISDA guide reflect the increasing use of arbitration in finance transactions, including for complex derivatives transactions.

P.R.I.M.E. Finance

The concern over the ability of the courts to deal with complex disputes resulted in the establishment, in 2012, of P.R.I.M.E. Finance.⁴  Based The Hague P.R.I.M.E. offers mediation, arbitration and other dispute resolution services tailored to the finance sector. It developed its own arbitration rules, adapted to the needs of the financial markets, and maintains a panel of experts and arbitrators – which includes representatives from both mature and developing markets, dealers and end-users, legal experts and market experts. The experts are available to either arbitrate disputes or offer their expertise for the benefit of arbitrators and judges in other forums. The P.R.I.M.E. Finance Arbitration Rules were revised in 2022, following an extensive consultation.

Available data shows, however, that there have been few arbitrations under the P.R.I.M.E. Rules. Given the increase in the prevalence of finance disputes seen in the caseload statistics from generalist institutions, like the ICC and LCIA, this suggests that the P.R.I.M.E. Rules have not been widely adopted in arbitration agreements. This may reflect financial institutions' increasingly familiarity with, and confidence in, arbitration as a means of dispute resolution, meaning they see less need for specialist rules. 

Summary procedures now available

As discussed, the ability to secure a relatively speedy resolution via the summary judgment procedure before courts in some jurisdictions was a key reason why financial institutions traditionally preferred litigation to arbitration. Where the disputes most likely to arise are 'straightforward' debt claims, this was a means to achieve a quick resolution of the dispute. Historically, a similar procedure was not available in arbitration. 

That is no longer the case. Various arbitral institutions now include in their rules a procedure for summary disposal or early determination of disputes. This includes:

• the Singapore International Arbitration Centre (SIAC);
• the SCC Arbitration Institute (SCC);
• the Hong Kong International Arbitration Centre (HKIAC);
• the LCIA;
• the ICC; and
• the CIETAC.

It should be noted, however, that these rules may apply a higher threshold for summary determination than that for summary judgment before, for example, the English court. 

The Brexit effect

On 31 January 2020, Brexit took effect and the UK left the EU. Although Brexit does not affect international arbitration, it may have contributed to the increased use of arbitration due to its impact on court jurisdiction clauses, and the enforcement of English court judgments, in EU Member States.

The Recast Brussels Regulation determines the rules applied by EU Member State courts when giving effect to court jurisdiction clauses and the enforcement of judgments from one EU Member State's court in other Member States.⁵ Those rules ceased to apply to UK court judgments from 1 January 2021, once the Brexit transitional period ended. 

As no replacement for those rules has yet been agreed, there remains some uncertainty about the enforceability of court jurisdiction clauses and English court judgments given under them within the EU. As a result, where enforcement within the EU is a concern, contracting parties may prefer to incorporate an arbitration provision. 

When will arbitration be more appropriate than litigation?

Whether arbitration is the appropriate dispute resolution mechanism for a particular transaction will depend on the particular circumstances. Factors that should be considered include: 

• The location of the parties and their assets. A key issue for banks and other financial institutions is the jurisdiction in which their contractual counterparty is based, and where its assets are located. Should it be necessary to enforce against that party or its assets, those jurisdictions will be crucial. The New York Convention provides a mechanism to enforce arbitral awards with relative ease, compared to the complexities that can arise in enforcing national court judgments. The Convention provides few grounds on which enforcement can be resisted and, with over 170 contracting State parties,⁶ its global reach is very extensive.
• Counterparty preferences. Counterparties from some jurisdictions, in particular emerging markets, may be reluctant to submit to the jurisdiction of, for example, the English or New York courts. A State and State-owned entity may also be unwilling (or, depending on its local law, unable) to submit to the jurisdiction of a foreign court. Meanwhile, a financial institution will likely be hesitant to agree to litigate before the local courts of the borrower, particularly where there is some connection to the State itself. International arbitration offers the solution: neutrality. The parties can designate a neutral jurisdiction as the seat of arbitration, while still providing in their agreement for the tribunal to apply, for example, English or New York law when determining the merits of the dispute. Further, choosing arbitration also ensures that the composition of the tribunal is neutral, independent and impartial.
• Importance of confidentiality and privacy. Another advantage of arbitration, particularly for commercially sensitive areas, is the privacy and confidentiality it can offer. Unlike court litigation, arbitration hearings are typically not open to the public. Some jurisdictions' arbitration laws, as well as various institutional arbitration rules, provide that arbitration is confidential. The parties can also expressly agree this.
• Finality and availability of appeal rights. The fact that there are generally only limited grounds on which an arbitral award can be challenged (and very rarely any right of appeal) means that awards carry a high degree of finality. This is particularly so when compared to court judgments, which are often subject to one or more levels of appeal. While this finality can be a double-edged sword, depending on which party is successful in the arbitration, it is often advantageous and desirable to finance parties.
• Expertise of decision makers and procedural flexibility. Where it is anticipated that disputes could be particularly complex, and the parties want the ability to select decision-makers with relevant expertise or experience, this speaks in favour of arbitration. Similarly, the procedural flexibility inherent in arbitration allows the parties to tailor the procedures to their transaction.
• Importance of setting a precedent. Arbitration is a private dispute resolution mechanism, based on the consent of the parties. It follows that arbitral awards, even if they become public, does not give rise to any binding precedent. Often this may be a neutral factor for parties. However, there may be instances where setting a binding precedent in the market is not desirable, meaning that arbitration might be preferred. On the other hand, where an authoritative and generally binding ruling on the meaning of a standard form contract is required, national court litigation may be preferable.
• Joining additional parties and consolidating disputes. Where disputes under multiple related agreements or involving additional parties are possible, this may favour litigation over arbitration. In appropriate circumstances, many national courts have inherent jurisdiction to join additional parties to proceedings or to consolidate multiple cases into a single one. This can be complex in arbitration, due to the requirement for consent. Although many arbitration rules now provide for joinder and consolidation, these cannot bind non-parties to the arbitration agreement.

Split or hybrid clauses: the best of both worlds?

Dispute resolution clauses that restrict one party to bringing disputes in a single forum, while the other party can elect between different forums, are popular in financial transactions. It is common for the party with less bargaining power (usually the borrower) to be restricted either to arbitration or litigation before the courts of a particular jurisdiction, while the other party (typically the lender or other finance parties) can elect between them. So, for example, the clause could limit the borrower to commencing English-seated arbitration, while the lenders have the option to litigation before a specified court (or even in any court of competent jurisdiction). 

These clauses are often referred to as "unilateral" or "asymmetric" clauses. They are a subset of so-called hybrid clauses, which can provide for a range of options or procedures, including, for example, a requirement that the parties attempt to resolve their dispute by mediation or negotiation for a period before commencing arbitration. 

Asymmetric clauses appear frequently in finance agreements. Their obvious advantage is to give the finance parties significant flexibility to decide where and by whom a dispute should be determined, which can be exercised taking account of the circumstance of a particular dispute once it arises, while limiting their exposure to proceedings commenced by the borrower to a single jurisdiction. For example, if it is a 'straightforward' debt claim, the bank may prefer to go to the English courts and seek summary judgment. Alternatively, if assets have been moved and enforcement becomes an issue, the bank can choose to go to international arbitration.

Despite their understandable popularity, caution must be exercised, as some jurisdictions consider them to be unfair and invalid because, for example, they are not considered an unconditional reference to arbitration (where only one party has the right to refer the matter to arbitration) or that they are unfair and against public policy (given that they strongly favour one party). In many jurisdictions, these clauses are also untested in the courts. There is, therefore, the potential that by seeking to preserve flexibility, a lender could find itself facing litigation in the particular jurisdiction it had hoped to avoid, or could face difficulties when seeking to enforce an award made pursuant to a hybrid clause in such jurisdiction. 

These risks can be mitigated by: 

• checking the governing law of the contract, the arbitration clause, and the designated seat of arbitration, to make sure they recognise the use and validity of such clauses;
• considering the position under the law of the jurisdiction where the borrower is incorporated or operates, and any other jurisdiction in which it may be necessary to enforce against assets; and
• ensuring that the operation of the clause is clear, including setting out precisely the circumstances in which the option may be exercised and by when. For example, if the borrower commences arbitration in accordance with the clause, can the lender still exercise its option to refer the dispute to litigation and, if so, by when must it make that choice?

In any case, it is essential to take local advice in the relevant jurisdictions and the party considering such a clause should weigh carefully whether the addtional flexibility outweighs the potential risks.

Drafting the arbitration clause: key issues to consider

A key benefit of arbitration is the parties' ability to tailor the arbitration clause to suit their particular circumstances. However, it is critical that the clause is carefully drafted. If the arbitration agreement is unclear, or does not satisfy certain form requirements, there is a risk it could be unenforceable and that disputes end up before a national court. 

The leading arbitral institutions publish model arbitration clauses, which address the basic, essential elements of an arbitration agreement, and are tried and tested (we provide links to some of these at the end of this Quickguide). These often provide a good starting point for drafting. However, by their nature, such clauses are only samples, and may need to be tailored or adapted. When in any doubt, specialist advice should be taken. 

In the following sections, we outline the essential issues to address for a valid and effective arbitration clause, including factors to consider in the particular context of finance disputes. 
For more detailed discussion, see our Quickguide, International Arbitration Clauses.

Essential elements of an effective arbitration agreement

Clear and unequivocal submission to arbitration

The most critical feature of any arbitration clause is that it contains a clear and unequivocal agreement by the parties to refer their disputes to final and binding determination by arbitration. The clause should also clearly identify which disputes the parties are agreeing to refer to arbitration. Generally, this should be broad in scope, to ensure that all disputes can be settled in one forum, avoiding parallel disputes and the risk of inconsistent decisions. 

This is particularly important in the context of financing transactions involving emerging markets. There are many examples of borrowers from these jurisdictions seeking to litigate disputes relating to the transactions before their local courts, arguing, for example, that the particular dispute which has arisen falls outside the scope of the arbitration clause or engages some mandatory aspect of local law. Those courts may have less experience of arbitration than others, meaning clarity and breadth of the arbitration agreement take on heightened importance.

Choose a "safe" seat of arbitration

The legal place, or "seat" of arbitration is another crucial matter to specify. This legal concept "anchors" the arbitration to a particular jurisdiction and it is the procedural law of that jurisdiction that will govern the arbitration. Usually expressed as a city (such as London or Paris), getting the seat right is crucial. It affects a range of issues, including the courts that have supportive and supervisory jurisdiction over the arbitration. It will also determine certain mandatory procedural rules that apply, as well as the "nationality" of the award, which will be important if it is necessary to enforce it overseas.

In choosing a seat, the parties must consider both the arbitration legislation enacted in the particular jurisdiction, and its courts' attitude to, and experience of, international arbitration. Where the parties are from different jurisdictions, they should choose a neutral jurisdiction, which has a modern arbitration law and sophisticated courts, which are experienced in complex commercial disputes and arbitration. It may be convenient to align the seat of arbitration with the governing law of the parties' main contract, however, this is not necessary. For example, there is no reason why a dispute relating to an English-law governed facility agreement cannot be determined by arbitration seated in Singapore. Popular seats of arbitration, which are considered to be "safe," include London, Paris, New York, Geneva, Singapore and Hong Kong. 

Institutional or ad hoc arbitration

The parties also need to decide whether to opt for institutional or ad hoc arbitration. If institutional arbitration is chosen, this means that the parties agree to arbitrate under the procedural rules of an arbitration institution, which, in return for a fee, will administer the arbitration. 

There is no need to choose an institution based in the designated seat of arbitration. An institution can administer an arbitration seated anywhere in the world. 

Popular arbitral institutions include:

• the International Court of Arbitration at the International Chamber of Commerce (ICC);
• the Hong Kong International Arbitration Centre (HKIAC);
• the Singapore International Arbitration Centre (SIAC);
• the London Court of International Arbitration (LCIA); and
• the China International Economic and Trade Arbitration Commission (CIETAC).⁷

We explore the factors that should be weighed when choosing an institution, and the differences between the leading institutions' rules, in more detail in our Quickguide, Which Institution?.

By contrast, ad hoc arbitration is conducted without the involvement of any arbitral institution. The parties and the tribunal, once appointed, must manage the entire process. This means the parties must negotiate terms of appointment and fees with the individual arbitrators and manage all logistical arrangements, and the arbitrators will need to spend more time proportionately on case management. While the parties can, in theory, draft a set of arbitral rules themselves, this is not recommended and almost never done. In practice, they will either leave the procedure to be determined entirely by the tribunal or adopt a set of rules specifically written for ad hoc arbitration, for example, the UNCITRAL Rules.⁸

While ad hoc arbitration is widely accepted in some sectors (such as commodities and shipping), for financial transactions, institutional arbitration will almost always be preferable. Reasons for this include the wide availability under institutional rules of emergency arbitrators to grant urgent relief, provisions covering summary determination, expedited arbitration, joinder and consolidation, transparent costs provisions and, increasingly, requirements that arbitrators render their awards within a certain timeframe. In addition, it should be noted that only institutional arbitration is recognised in some jurisdictions, meaning that an award rendered in an ad hoc arbitration may be unenforceable there.

Tribunal: number of arbitrators, appointment and qualifications

Parties are often attracted to arbitration because they can have a role in selecting the arbitrators that will determine their dispute. As well as specifying the number of arbitrators and how they are to be appointed, the parties can provide for the arbitrators to have experience or expertise in a particular industry, be members of trade body or other organisation, or be qualified to practice law in a particular jurisdiction. Such provisions are common in arbitration agreements. However, it is important that any criteria are clear and objectively ascertainable (avoid phrases like "sufficient experience" or "adequate expertise"), and not defined too narrowly, as this leave an insufficient pool of arbitrators who are able or willing to accept appointment. Parties should never specify a named individual as arbitrator.

In the context of financial transactions, one option is to specify that the arbitrators must be selected from the panel of experts and arbitrators maintained by, for example, P.R.I.M.E. Finance, or a similar organisation.

Governing law and separability

Choice of law clauses are separate from arbitration clauses, since these set out the applicable law regulating the parties' rights and obligations under the main agreement, by which substantive questions are to be judged.⁹ Arbitration clauses contained within another contract, such as a facility agreement, are considered independent agreements, separable from that other contract. This is known as the principle of separability and is important to ensure that the arbitration clause survives the invalidity or termination of that other agreement, leaving the arbitrators with jurisdiction to determine the dispute. It follows from the principle of separability that the arbitration agreement can have a different governing law from the contract it is contained within. 

Where the arbitration clause is silent as to the law that governs it, different jurisdictions apply different rules to determine the issue. Typically, this will be either the law that governs the main contract or the law of the seat of arbitration. To avoid uncertainty, it is always advisable to expressly choose the law applicable to the arbitration agreement and it will usually be convenient for this to be the law of the seat of arbitration.

Confidentiality

While some institutional rules provide for arbitration to be confidential, this is not always the case and the scope of those confidentiality obligations, where they exist at all, varies significantly. Similarly, while the law of some popular seats of arbitration (such as England) implies an obligation of confidentiality, there are exceptions to these obligations and not all laws do this. Therefore, where confidentiality is important to the parties, they should expressly provide for this in their agreement. Several of the leading institutions provide standard wording for such clauses.¹⁰ Alternatively, select arbitration rules that contain a broad confidentiality obligation, such as the SIAC Rules.

Language of the arbitration

It is advisable, particularly where the parties are from jurisdictions that speak different languages, to specify the language in which the arbitration will be conducted. Usually, this should be the language in which the transaction documents are drafted.  

Other factors to consider and more complex drafting options

The core principle underlying arbitration is party autonomy. It follows that, subject to an irreducible core of obligations to ensure due process and fairness, parties can generally provide for whatever they want in their arbitration agreement. In the following sections, we outline other factors that parties may wish to consider and more complicated drafting options. However, it is important to note that simplicity is often preferable when drafting arbitration agreements and, if the parties are considering adding additional features or processes to increase flexibility, they should consider: first, whether that flexibility will actually be used in practice and, second, whether its availability outweighs any associates risks. 

Specialist advice should always be taken when drafting arbitration clauses.

Multiple related contracts and multi-party disputes

As mentioned above, one of the disadvantages of arbitration is that arbitrators, unlike judges, do not have the authority to join additional parties to the arbitration or consolidate related arbitrations without the additional parties' consent. Where there are inter-related contracts (as is common in complex financial transactions, which often comprise a suite of finance and security agreements), and the parties want any related disputes to be heard together or to give a tribunal the power to join into the arbitration the various parties to the different contracts, it is possible to cater for this. Some institutional rules already contain joinder and consolidation provisions, however, their scope is often narrow. It may be possible to expand these powers in the context of the particular transaction, however, advice on the drafting should always be sought.

Carve-out clauses

It is generally desirable that all disputes should be resolved in a single forum, for example, arbitration. It is for this reason that the scope of the parties' submission to arbitration should be both clear and broad. There may, however, be situations where it is desirable carve out particular type of dispute to be resolved in another forum, such as before a court or by way of expert determination. For example, the security documents in a complex financial transaction may be carved out, as it can be quicker to enforce some security before a court, or a dispute as to certain calculations in a derivatives transaction might be referred to expert determination. 

Carve-out clauses are not risk free, however, and careful drafting is required. In the security documents hypothetical scenario, for example, it is not unknown for a debtor to take advantage of ambiguities in the drafting and commence litigation under the security documents in its local courts, but then seek to package up all disputes for resolution in that forum.

Asymmetric or unilateral options

As noted, these clauses seek to ensure that the borrower in a financial transaction can only commence proceedings against the lender(s) in a single jurisdiction or forum (for example, arbitration), while the lender(s) can elect to pursue the borrower either in that single forum or another specified option (for example, litigation before any court of competent jurisdiction), at their election. 

These clauses have been popular with finance parties as a way of limiting their exposure to proceedings, while according to themselves as much flexibility as possible. However, while such clauses have been upheld in some common law jurisdictions, such as England, doubts have been raised about their validity in jurisdictions such as France, Poland and the UAE. Given the potential risks associated with this, their popularity has waned somewhat. 

Consideration of the potential jurisdictions involved (including the parties' home jurisdictions, the seat of arbitration and potential places of enforcement), as well as careful drafting is required. 

Waiver of appeal rights

While limited rights of challenge to arbitral awards (usually relating to substantive jurisdiction and serious procedural irregularities) will always be available, some jurisdictions provide for additional, non-mandatory rights of appeal. For example, the English Arbitration Act 1996 provides for the possibility of an appeal to the court on points of (English) law (see Section 69). 

Parties can agree to waive the right to appeal on a point of law in order to ensure that an award is final and binding, to the extent that waiver is permitted by the laws of the relevant state. This can be done expressly in the parties arbitration clause or by the adoption of certain institutional rules (such as the ICC and LCIA rules), which also include this waiver. However, parties to finance transactions may prefer to retain the right to appeal on points of law, so they should always check the position under their chosen institutional rules and, if necessary, disapply the waiver of the right to appeal. 

Sample clauses

Most institutions publish recommended sample clauses for use when their institutional rules are to be adopted. These are revised from time to time, taking account of market and legal developments, as well as updates to an institution's own rules. Therefore, it is advisable to check the relevant institution's website. We list the key institutions and provide links to their sample clauses below.

Note that the clauses are only sample clauses. They may need to be modified to take into account requirements of national law and the specific requirements of the contracting parties. However, they provide useful examples of a basic arbitration clause and can easily be adapted.