The Development of Arbitration in International Financial Transactions

Abstract

IT HAS been said that bankers prefer judges to arbitrators.1 This is supported by the fact that international financial transactions are seldom the subject matter of international arbitration procedures. In recent years, however, it appears that the international financial community has been getting more and more accustomed to arbitration. With regard to financial matters, an international discussion has developed on the suitability and advisability of arbitration in this field.2 In the following article, arbitration will be briefly described and compared with the contrasting concept of judicial procedure, on the one hand, and the concept of other alternative dispute resolution (ADR) mechanisms on the other ( see II). Subsequently, arbitration will be discussed in its application to various types of conflicts in international financial transactions ( see III). Some procedural aspects of arbitration in financial matters will then briefly be discussed ( see IV) and some general conclusions drawn ( see V). ### (a) Court Procedures in Financial Matters Many contracts for international credit and bond issues contain forum clauses.3 In these clauses, banks prefer their home jurisdiction or a major financial centre such as London, New York or Frankfurt. If the clause is wisely drafted, it also reserves the right to pursue the borrower before other competent courts with jurisdiction over areas where the borrower's assets are located.4 The preference for forum clauses has sometimes been explained by the conservatism of the banking industry and its prevailing ‘herd mentality’.5 In other segments of the financial services industry, parties prefer arbitration clauses. This can be observed in project Financing and, more recently, in securities brokerage.6 In international lending, sovereign borrowers sometimes reject forum clauses that lead to another State's courts. One advantage of state court decisions is their binding effect backed by the authority of a state's jurisdiction. Another advantage lies in the fact that such …