ISDA publishes its updated Arbitration Guide

16 Jan 2019 | 6 min read

Massimiliano Danusso, managing partner at Bonelli Erede and PRIME Finance expert, discusses the recent publication of the 2018 ISDA Arbitration Guide.

Why has ISDA updated its arbitration guide?

ISDA has published in December 2018 a second edition of its arbitration guide (the 2018 ISDA Arbitration Guide). The guide, as first published five years ago (the 2013 ISDA Arbitration Guide), has been updated in order to ensure that it remains up-to-date with users’ preferences, changes in arbitration laws and rules, and changes in market practice.

In particular, it responds to the growing trend to use arbitration for cross-border transactions, and is intended to assist market operators by providing a range of model clauses which may be used with the ISDA 1992 Master Agreement under English/New York Law, the ISDA 2002 Master Agreement or the new 2002 ISDA Master Agreement under Irish Law.

In this respect, the 2018 Arbitration Guide does refer to recent trends in international arbitration such as the rise in multi-party and multi-contract disputes, the advent of summary/early determination procedures, as well as the implications of recent decisions (such as the Russian Supreme Court ruling according to which a clause providing for arbitration under the ICC Rules needs to expressly state that the ICC International Court of Arbitration would administer the arbitration in order to be certain and enforceable: see Dredging and Maritime Management SA v InjTransStroy AO dispute).

How does the new guide differ from the previous version?

While the basic structure of the 2018 ISDA Arbitration Guide remains unchanged reflecting ISDA members’ broad satisfaction with the first edition, a number of new model clauses have been added in response to users’ feedback, and amendments have been made to the guidance notes to reflect changes in arbitral rules and market practice over the past five years.

The 2018 ISDA Arbitration Guide provides updated guidance on the use of an arbitration clause with an ISDA Master Agreement and includes an expanded range of model arbitration clauses for a greater number of arbitration institutions and seats around the world.

The 2018 ISDA Arbitration Guide now contains four additional model clauses for use with the 2002 and 1992 Agreements which, in no particular order, provide for arbitration:

  • under the SCC Rules with a Stockholm seat and choice of English or New York governing law (with the arbitration clause governed by Swedish law)
  • under the DIS Rules with a Frankfurt seat and a choice of English or New York governing law (with the arbitration clause governed by German law)
  • under the DIFC-LCIA Rules with a DIFC seat and a choice of English or New York governing law (with the arbitration clause governed by DIFC law), and
  • under the VIAC Rules with a Vienna seat and a choice of English or New York governing law (with the arbitration clause governed by Austrian law)

The model clauses in the 2013 ISDA Arbitration Guide remain and are partially amended to provide for arbitration:

  • under the ICC Rules with
    • a London seat and English governing law
    • a New York seat and New York governing law, and
    • a Paris seat, with a choice of English law or New York Law
  • under the LCIA Rules with a London seat and English governing law
  • under the AAA-ICDR Rules with a New York seat and New York governing law
  • under the HKIAC Rules with a Hong Kong seat and a choice of English or New York governing law (with the arbitration clause governed by Hong Kong law)
  • under the SIAC Rules with a Singapore seat and a choice of English or New York governing law (with the arbitration clause governed by Singapore law)
  • under the Swiss Arbitration Rules with a Zurich or Geneva seat and a choice of English or New York governing law, and
  • under the PRIME Finance Rules with
    • a London seat and English governing law
    • a New York seat with New York governing law, and
    • a seat in The Hague and a choice of English or New York law (but with the arbitration clause governed by Dutch law)

Some of the master agreements published by ISDA already contain arbitration clauses which are not included in the 2018 ISDA Arbitration Guide. For instance, the Schedule to the ISDA 2002 Master Agreement (French law) and the ISDA/IIFM Tahawwut Master Agreement (English or New York laws), depending on applicable law, provide for ICC arbitration in Paris, London, or New York.

How often, and why, do parties choose to use arbitration for their ISDA relationships?

The use of arbitration for use in connection with derivatives transactions governed under the ISDA documentation has been growing in the past six/seven years, especially in Asia and emerging markets and mostly since the introduction of the 2013 ISDA Arbitration Guide.

Arbitration can be particularly attractive for resolving disputes arising out of international transactions because the New York Convention harmonizes 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. In comparison, in the litigation panorama, the 2005 Hague Convention, the 2007 Lugano Convention and the 2012 Brussels I Regulation apply to the recognition and enforcement of court decisions on a much more limited scale (the broadest of which applies to 34 countries in total, including all EU Member States).

In this respect, parties have turned to arbitration as an alternative to litigation mainly for the advantages that the first compared to the latter offers (as explained in more detail below). Indeed, parties choosing arbitration under their ISDA agreements has the effect of deleting the jurisdiction clause set out in s 13(b) of the relevant Master Agreement and replacing it with an arbitration agreement.

What are the advantages and disadvantages for them doing so?

Arbitration has the advantages of neutrality, enforceability, finality, flexibility and confidentially, thus proving for an attractive alternative.

As noted in the 2018 ISDA Arbitration Guide, arbitration is an effective mitigation tool for those jurisdictions where there are concerns of bias or corruption. In this respect, arbitration may provide parties with greater control over how their disputes are resolved and, significantly, who will be appointed to determine the dispute.

In many cases, it may be significantly easier to enforce an arbitral award in another jurisdiction than to enforce a court judgment overseas.

Arbitration provides less chances of having a judgment brought in appeal.

Compared to litigation before the English courts, arbitration provides for a less formal process and less strict and rigid rules.

In arbitration there is greater scope for the proceedings and the award to be confidential.

Filed Under: Derivatives

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