Following the release by the International Swaps and Derivatives Association (“ISDA“) of various draft model arbitration clauses for use with the 1992 and 2002 versions of the ISDA Master Agreement together with an introductory note on arbitration (see link to previous post here), ISDA’s Financial Law Reform Committee (“FLRC“) recently met in Singapore to discuss the proposals.

The FLRC meeting forms part of the wider ISDA consultation process on the use of arbitration as a means of resolving disputes in the OTC derivatives sector. Traditionally, market participants have favoured New York or English court jurisdiction. However, in light of the increasing prevalence of cross-border transactions involving emerging markets jurisdictions, the perceived advantages of arbitration – most notably the availability of enforcement mechanisms for arbitration awards under the New York Convention – have been favourably noted by market participants and have driven ISDA’s consultation process.

The consultation is ongoing, closing on 31 May 2013, and comments are welcome. The FLRC will be meeting on 18 June 2013 at ISDA’s offices in London to discuss the feedback received.  

At the FLRC meeting, which was chaired by ISDA Senior Director, Dr. Peter Werner, members discussed ISDA’s draft model clauses which 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 (ICC);
  • 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).

Topics that were discussed at the meeting included (amongst other things):

  • The possibility of future publication of further draft clauses providing for other seats or arbitral rules such as, for example, those of UNCITRAL or those of the Panel of Recognised International Market Experts in Finance (P.R.I.M.E. Finance);
  • The rationale behind providing draft clauses to be included in new ISDA Master Agreements (as opposed to amendment clauses for existing agreements);
  • The scope of the tribunal’s jurisdiction under the draft model clauses with respect to non-contractual claims;
  • Whether add-on options would be desirable (e.g. in respect of fast-track proceedings and/or options to litigate) – optional wording is currently limited to the specification of the number of arbitrators; and
  • The rationale behind discouraging parties to provide for governing laws other than English or New York in their ISDA Master Agreements so as not to damage the universal standard that the ISDA Master Agreement currently provides.

In addition to discussion of the six ISDA draft model clauses, members also discussed the separate model clauses released earlier in the year by P.R.I.M.E. Finance, which were prepared independently of ISDA (click here to access our previous blog post on this development). Representatives of P.R.I.M.E. Finance attended the meeting to present these model clauses and respond to queries from members. In particular, it was noted that, unlike ISDA’s draft model clauses, those published by P.R.I.M.E. Finance were drafted as amendments to existing ISDA Master Agreements – although P.R.I.M.E. Finance’s representatives also stated its intention to publish model clauses for new Master Agreements.

The ISDA draft model clauses and introductory note will remain open for consultation until 31 May 2013 and a further FLRC meeting will be held in London in June 2013 to discuss members’ feedback. 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.