The International Swaps and Derivatives Association (“ISDA“) has released a number of model arbitration clauses for use with the ISDA 2002 Master Agreement and ISDA 1992 Master Agreement (Multicurrency – Cross Border), which are the market leading standard form agreements for documenting derivatives transactions. This development follows an extensive consultation process amongst ISDA’s members that started in January 2011.
The model clauses, together with guidance notes on arbitration, have been issued to ISDA’s members for further comment. The deadline for comments is 31 May 2013. Herbert Smith Freehills will be providing comments on the model clauses as part of the consultation process; please contact us if you would like to discuss ISDA’s proposals or would like to feed in any comments. ISDA plans to hold a number of follow-up meetings before finalising the model clauses and publishing them for use.
The model clauses have been drafted on the basis that they will be included in the Schedule to a Master Agreement. As such, they are principally intended for use when entering into new Master Agreements, although they are readily adaptable for use when amending an existing Master Agreement so as to provide for arbitration.
The model clauses provide for six different combinations of governing law, arbitral rules/institution and seat of arbitration as follows:
- English law; London seat; Rules of Arbitration of the International Chamber of Commerce (the “ICC Rules”);
- New York law; New York seat; ICC Rules;
- English law; London seat; Arbitration Rules of the London Court of International Arbitration (LCIA);
- Choice of English or New York law (except for the arbitration agreement itself, which is to be governed by Hong Kong law); Hong Kong seat; Arbitration Rules of the Hong Kong International Arbitration Centre (HKIAC);
- Choice of English or New York law (except for the arbitration agreement itself, which is to be governed by Singapore law); Singapore seat; Arbitration Rules of the Singapore International Arbitration Centre (SIAC); and
- New York law; New York seat; International Arbitration Rules of the American Arbitration Association – International Centre for Dispute Resolution (AAA-ICDR).
ISDA has stressed that these choices reflect preferences expressed by members during the consultation process, rather than ISDA’s own preferences. It has reminded members that there are other reputable seats and arbitral institutions, and has not ruled out the possibility of preparing additional model clauses in the future.
One arbitral institution that is not covered by the model clauses is The Panel of Recognised International Market Experts in Finance (“PRIME Finance“), which was launched in January 2012 and aims to provide a bespoke forum for the resolution of complex financial disputes. However, PRIME Finance has previously issued its own model arbitration clauses for use with the ISDA Master Agreements. Click here to access our previous blog post on this development.
Notably, the model clauses do not include an “optional” arbitration clause (i.e. a clause which gives one or both parties the right to choose between arbitration and litigation once a dispute has actually arisen), a possibility that was raised during the consultation process. The model clauses also do not provide the option of using “fast-track” arbitration procedures, an issue that was also raised during the consultation process. “Fast track” arbitration procedures are sometimes seen as a way of addressing what is perceived as the main disadvantage of arbitration as a means of resolving derivatives related disputes, namely the lack of any default or summary judgment mechanisms of the kind available in many court systems (which can make it quicker and more straightforward to obtain judgment debts in some cases).