Arbitration in Banking and Finance

This website is part of a joint research project of the Institute for Banking Law and the Center for Transnational Law (CENTRAL) at the University of Cologne, Germany. The project explores the potential of Alternative Dispute Resolution (ADR), especially arbitration and mediation, as instruments for a more cost- and time-efficient resolution of b2b-disputes in international banking and finance. The resolution of such disputes requires both industry-specific know-how and specialized legal knowledge. They can arise out of a wide variety of international banking and finance transactions, ranging from plain vanilla loan or project financing agreements to highly sophisticated derivative transactions, sovereign debt and asset management or private wealth agreements.

The increasing complexity and sophistication of financial markets and financial products as well as the lessons learned from the financial crisis of 2007/2008 all call for a larger variety and more sophisticated methods of dispute resolution in cross-border banking and finance transactions. The Corona crisis, Brexit, and the specificities of Islamic finance, whose increased breadth, sophistication and involvement of Islamic law bears a huge potential for arbitration as a viable alternative to dispute resolution by domestic courts, provide additional support for this diversified approach in settling b2b disputes in international banking and finance.

In addition to these arguments in favor of arbitration and ADR, the reasons which banks and other financial institutions have traditionally brought forth against the use of arbitration and ADR for the resolution of their b2b-disputes are no longer valid today. This has been confirmed in a number of key publications and reports in recent years:

• the ISDA Arbitration Guide of 2013 and the second edition published in December 2018,
• the Report on Arbitration in Banking and Financial Matters by a Working Group of the French Arbitration Committee (Comité français de l'arbitrage) published in May 2014,
• the Report on Financial Institutions and International Arbitration of the Commission on Arbitration & ADR of the International Chamber of Commerce (ICC), Task Force on Financial Institutions and International Arbitration of 2016, and
• the Report on Arbitration in Banking and Financial Matters of the High Legal Committee for Paris as a Financial Center (Haut Comité Juridique de la Place Financière de Paris) published in 2020.

At the same time, however, all of these publications confirm that banks and other financial institutions across the globe, probably because of the traditional antipathy against the use of ADR which has existed in that business for decades, are not exploiting the potential benefits of international commercial and investment arbitration to the full extent possible. Instead, bankers and banking lawyers are still caught in the old debate.

As a response to these observations, our research project intends to break through the vicious circle in which the discussion on the use of arbitration in banking and finance has been trapped for the past decades. Towards that end, the project pursues two goals. First, it is intended to help increase the awareness of banks and financial institutions of the benefits of dispute resolution through arbitration and mediation. Secondly, the information provided here is geared to assist those banks and financial institutions that have recognized the benefits of arbitration and mediation for their litigation strategy in making informed choices, an essential prerequisite for a cost- and time-efficient use of ADR. To this end, the website provides first-hand guidance as well as practical know-how on the use of arbitration and mediation for dispute resolution in international banking and finance transactions as well as sample contract clauses to ensure efficient resolution of disputes arising out of such contracts and a compilation of the growing literature in this field.

Please do not hesitate to contact us if you have questions, comments or ideas to improve this website further.

Klaus Peter Berger