‘Arbitration is the Savile Row of dispute resolution. It’s not the M&S off-the-rack suit, you can create a bespoke arbitration clause that does almost anything you want it to do,’ said Kenneth Beale, an arbitration partner at Boies Schiller Flexner in London. Is it then any surprise that financial institutions are increasingly opting to use arbitration for dispute resolution?
Beale was one of a host of top names speaking at Legal Business’ 2019 International Arbitration Summit in November when he made that comment, setting out how much things have changed in the financial services sector in recent years.
Discussing how the financial sector is more open to using arbitration for dispute resolution, Beale recalled a pitch to a leading financial institution just five years ago in which he was told: ‘I detest international arbitration, it’s absolutely wrong for banks like ours so I have no interest in what you have to say.’
Fast forward to 2019 and the London Court of International Arbitration (LCIA) reported that 29% of all of its cases started in 2018 were financial services disputes – a five percentage point increase from 24% in 2017.
Drawing on these figures, Beale’s colleague – Boies Schiller’s recently-appointed managing partner Natasha Harrison – chaired a discussion looking at the reasons behind the change in mindset, asking panellists if arbitration would further grow in popularity.
Tunde Ogunseitan, counsel at the International Chamber of Commerce (ICC) International Court of Arbitration, argued that ‘the finance industry is embracing arbitration’, particularly for loan and M&A-related disputes.
According to Beale this change is being led by hedge funds, rather than traditional banks, and by banks in emerging markets such as Asia and the Middle East.
He pointed out that in contrast to the UK, for institutions operating in jurisdictions where the courts are not always seen as neutral or reliable, ‘international arbitration has for a while been their first choice.’
Patrizia Masselli, litigation, investigations and enforcement director at Barclays, echoed the point, despite having reservations for her own organisation. She noted that while Barclays continues to see the English courts as its natural forum, ‘for financial institutions that deal especially in emerging markets, or in countries like the UAE, where the wide discretionary power over the courts makes litigation more unpredictable, arbitration is probably the right choice’.
Despite this perception that it is emerging markets driving the trend, Essex Court Chambers’ Graham Dunning QC argued that London’s strength as a financial centre is likely to have impacted on increasing adoption, pointing out that other arbitral tribunals are not seeing the same increase in financial institution arbitration.
‘When you trust a forum, why do you need to change it?’
Patrizia Masselli, Barclays
In 2018, only 12% of Hong Kong International Arbitration Centre disputes were allocated to financial services, while in the ICC Court, finance and insurance disputes together accounted for between 5% and 8% of all disputes. Even the Singapore International Arbitration Centre attributed only 10% of its cases to a catch-all category, including financial services disputes as well as energy, insurance and intellectual property disputes.
However, where there is an increase, Dunning QC pointed to the growing pool of arbitrators with financial experience and the confidentiality of hearings as key drivers which will likely lead to a ‘snowball’ effect in financial services arbitration.
To date though, these shifts have not been enough to persuade Masselli to move away from the courts. ‘When you trust a forum, why do you need to change it?’ she argued, highlighting the cost, the absence of precedent-setting decisions and the slow arbitration process as causes of concern for banks. Ogunseitan argued that the flexibility of arbitration means these concerns can be avoided if parties are willing to work together but it was not enough to change her mind.
Attendees at the summit also heard from rising stars in arbitration, who discussed the challenges of breaking into the industry.
‘It has traditionally been dominated by older, male figures, and that’s not necessarily for bad reasons, but just the way it is,’ noted Rachael O’Grady, a senior associate in the international arbitration practice at Mayer Brown.
According to Claire Morel de Westgaver, arbitration and construction disputes partner at Bryan Cave Leighton Paisner, this is starting to change. ‘There is a new generation of Millennials coming through – a generation of very bold people, who are seizing opportunities. The new generation is no longer waiting in the ranks to be promoted by law firms. People are demanding and seizing opportunities. We are seeing young people opening up boutique firms, we are seeing people who start sitting as an arbitrator before they are promoted to partner and people becoming full-time arbitrators on their own.’
Morel de Westgaver warned that law firms need to get to grips with how to develop this talent. ‘It is law firms’ responsibility to try to support lawyers and they should do it if they want to retain talent.’
O’Grady agreed and identified some challenges for more junior practitioners, including ‘getting exposure to good work, exposure to the industry at events like this’ and encouraged firms to allocate resources to younger practitioners, to send them to conferences, let them write articles and let them take speaking slots offered to older practitioners.
Samuel Pape, an associate at Latham & Watkins, added that mentoring junior colleagues is a worthy investment in the long run.
The panel also offered advice for those looking to break into the field, with Morel de Westgaver encouraging junior lawyers to make themselves invaluable and consider ‘what do I have that others do not?’, such as having lived in a particular country, or knowledge of particular subjects. O’Grady added, ‘get as much experience as possible’ warning that ‘you don’t want to pigeon-hole yourself too much, without meaning to, too early on. Arbitration is in itself somewhat niche’.
‘There is a new generation of Millennials coming through – very bold people, who are seizing opportunities.’
Claire Morel de Westgaver, BCLP
The panel pointed to an ongoing need to improve diversity but argued that ‘the trajectory is somewhat positive’, even if there is still a lot to be done.
The need to improve diversity of all forms was reiterated in the final session of the day, where attendees heard clients’ perspectives on arbitration. Dominic Buckwell, general counsel at Seaco Global, shared how he would like to see more arbitrators with commercial backgrounds outside of the law, while Shell’s senior legal counsel Shanna Svensson noted the value of having tribunals with less experienced members, who are often willing to dedicate more time and enthusiasm.
The event marked Legal Business’ fifth International Arbitration Summit. More than 100 senior practitioners gathered at The Brewery in London to discuss the latest big issues facing the industry, with sponsoring firms including the likes of McDermott Will & Emery, Eversheds Sutherland, Boies Schiller and Stewarts. Other issues discussed during the day included cultural differences in arbitration, the Prague Rules, opportunities and challenges in arbitration funding, and potential reforms to the industry. LB