The following article was written by ArbDB Member Michael Cover and first appeared in the Solicitor's Journal.
Private dispute resolution will pave the way for party controlled and economical mediation between parties in finance disputes, believes Michael Cover
Private dispute resolution comprises a range of non-court based approaches involving the appointment of a neutral or neutrals. These processes cover arbitration, mediation, adjudication (including dispute boards) and expert determination.
Such methods of dispute resolution share a number of key characteristics. These include (i) a third party neutral(s) appointed and paid for by the parties or over whose selection the parties have some influence; (ii) it is a confidential or at least private process entered into by the agreement of both parties. This is either following a dispute resolution clause in an agreement or a submission agreement which may be done on an ad hoc or institutional basis.
These dispute resolution methods have in the past, been categorised as alternative dispute resolution (ADR). They are however, very much a mainstream method and could better be described as Private Dispute Resolution or PDR.
Just how mainstream they are is difficult to judge. There is no overall complied figure even for the UK. The Centre for Effective Dispute Resolution Mediation Audit 2012 indicated that approximately 8,000 mediations are conducted in the UK annually. For arbitration, if one takes the London Maritime Arbitrators Association (LMAA), the London Court of International Arbitration (LCIA) and the International (ICC) figures, together with an allowance for purely ad hoc arbitrations, we might get to 4,000 arbitrations in the UK, with most having an international element.
PDR remains relatively low profile. Perhaps this is why government and politicians show little interest despite the huge invisible earnings that PDR generates for major centres such as London. This is huge business. An international arbitration hearing might be generating fees of US$100,000 per day for those in the hearing room.
To that must be added the value of other services, such as restaurants, hotels and travel. If each of, say, 10,000 PDR cases were to average US$100,000 each, that would indicate a total value of at least US$1bn to UK plc.
Pros and cons
Speed or rather timely resolution is often quoted as an advantage of PDR. Mediation can generally be arranged quickly and the mediation itself may last a day or a few days, perhaps over more than one session. The success rate on the day and shortly afterwards is high, perhaps as high as 75 per cent of cases settling.
PDR should be more cost-effective than court-based litigation but make no mistake; a long-running international arbitration will be very expensive. A lot of this is down to the calibre of the arbitrator or arbitrators, who have considerable power to regulate procedure and keep costs under control. Additionally, arbitration awards are much more readily enforced across international borders as a result of the New York Convention.
PDR and financial services disputes
The financial services sector is no stranger to disputes. Due to the varying level of complex transactions, disputes may arise in a number of ways. They may be commercial or regulatory.
With regards to regulatory disputes, the Financial Services Authority (FSA) had previously implemented a mediation scheme designed to resolve disputes between the FSA and its regulatees. The scheme provided results and there is no reason why a similar initiative will not work for the newly developed Financial Conduct Authority.
Disputes also arise between firms of financial advisers and their representatives relating to commissions payable.
These disputes can be mediated and arbitrated effectively. There is currently a large amount of what one might call hedge fund litigation being pursued through the English Courts. It appears both sides want a 'fight to the death', no doubt much to the delight of their lawyers.
This illustrates another advantage of all forms of PDR - party control. PDR can only be embarked upon by agreement, either by a dispute resolution clause in an agreement, or by an agreement to submit the dispute to PDR after it has arisen.
PDR initiatives in financial services
There are several initiatives in the financial services industry such as P.R.I.M.E Finance (Panel of Recognised International Market Experts in Finance) developed to resolve complex financial disputes, and the International Swaps and Derivatives Association (ISDA). In September 2013, ISDA, for example, published its Arbitration Guide. This provides model dispute resolution clauses that lead to arbitration under appropriate rules and with an appropriate Seat (juridical place) of the arbitration. Expedited procedures are available.
Fast track arbitration procedures are also provided for. For the future, this means that disputes relating to the derivatives markets are likely to be an increasing feature of international arbitration.
Finding a neutral
Many international and national organisations have panels of experts. The Chartered Institute of Arbitrators, the ICC and the LCIA are a few examples. Alternatively, the neutrals can be approached directly; the lawyers may well know which neutral or neutrals would be appropriate or they may be approached via sets of chambers.
There are a wide range of options in private dispute resolution or PDR in financial services disputes. Parties are offered considerable flexibility and privacy and when properly managed, value for money.
Courts have been associated for too long as the only method of achieving justice. We may have to think more about dispute and conflict resolution and even a degree of closure (and occasionally reconciliation).
Michael Cover FCIArb C.Arb is a barrister, independent accredited mediator and chartered arbitrator