12 March 2012 | By Joanne Harris
9 July 2014
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Back in the halcyon days of 2007, when the world had not yet gone to hell in a handbasket, then finance partner at Allen & Overy Jeffrey Golden, gave a speech at a conference in the Hague.
During this speech Golden suggested that it would be useful for the finance community to have some sort of dispute resolution centre to deal with the complex issues arising from financial disputes.
The proposal was greeted warmly by delegates, but it remained nothing more than a good idea for the next few years. Now, Golden’s off-the-cuff comment has become reality. In January this year a galaxy of legal experts in finance and dispute resolution gathered in the Hague for a conference celebrating the official launch of the very concept that Golden originally proposed.
Prime Finance is a new initiative in the world of dispute resolution, set up to help resolve complex disputes in a specific area, as well as improve the knowledge of the judges that deal with such issues.
Prime stands for Panel of Recognised International Market Experts, at present a group of 82 finance and litigation experts with an estimated 2,000 years of collective experience in their field. The list is impressive. It includes partners from top firms around the world, leading academics, top silks, general counsel of major financial institutions and judges from a variety of countries, including recently-retired Supreme Court Justice Lord Collins of Mapesbury. Prime’s advisory board is chaired by former Lord Chief Justice, Lord Woolf. It is a not-for-profit project, with the administrative fees for arbitration being ploughed back into the organisation. Training and other resources are provided for through grants.
Golden, now chair of Prime’s management board and a visiting professor at the London School of Economics and Political Science, says that although the project was first mooted pre-2008, its realisation was accelerated by the financial crisis.
He points out that the response to the crisis has predominantly been an increase in regulation, but says this is not necessarily the best way to deal with the issues arising from it.
“We don’t want to unnecessarily restrict innovation or even risk-taking,” he says.
“Both of these are hard-wired into human nature. Derivatives don’t destroy businesses, people do. Moreover, we’re not sure that we want to put all our eggs into a single basket of better regulation.”
Care and share
The fall of Lehman Brothers and the knock-on effect, Golden says, can be described in medical terms.
“After the financial crisis in 2008 we could see that we had seriously, if not terminally, ill financial institutions,” he explains, adding that the court system can be compared to hospitals. “Are all the courts that may be called upon to hear complex product cases adequately staffed to do so? Do they have the necessary surgeons to step in as required?”
Indeed, if it works as planned, Prime will act both as a kind of respite home – an alternative to hospital – as well as a medical school to support the judiciary.
The work that judges have done since the crisis to handle complex financial cases is praised by practitioners. Clifford Chance partner and Prime panel member Habib Motani says: “If you look, for example, at a lot of the recent Lehman cases, they’re looking at products, they’re looking at documentation, and it’s quite common for the judges concerned to make comments like, ‘these are complex transactions’. They’ve done a fine job in understanding what’s going on but this is something they’re facing for the first time. Part of the issue for them is getting to grips with what’s going on.”
Latham & Watkins litigation partner Volker Schäfer notes that when cases take place outside the UK, there is often an issue with contracts having to be translated from English. He and Latham associate Christine Gärtner add that it is impossible to choose the judge for a case, so although there are judges who are experts in complex financial issues, they are not necessarily assigned when it matters.
Prime’s aim to train judges is, believes Golden, one of its most important tasks.
“The courts have played a huge role in fleshing out statutory regulation in the past,” Golden points out. “We need people who are comfortable enough to interpret this new regulation and pass on relevant interpretations of others.”
The vast majority of financial instruments are governed by the International Swaps & Derivatives Association (Isda) master agreement. The terms of the Isda agreement have come under scrutiny by courts in the UK and around the world as parties pick through the insolvencies of companies such as Lehman Brothers and MF Global. In a sense, the Isda agreement has become a type of global law, applicable in both civil and common law jurisdictions.
Golden argues that this widespread use of the agreement makes it crucial that judges understand it, as well as understanding the ramifications of the way it is applied.
“If a judge anywhere in the world makes a wrong decision interpreting one of these terms, that mistake goes whoosh around the world – and that’s a systemic risk,” he points out.
Prime will provide training for judges in finance issues, as well as training for finance experts on arbitration and mediation. The organisation is also building a database of judgments and precedents in cases involving complex transactions. The database will compile cases from around the world, translating them where necessary and providing a unique resource.
Members of the panel will also be available to hire as expert witnesses in traditional court cases, or to form the basis of arbitral panels. The idea, according to Golden, is that a litigator would act as the ‘anchor’ for a panel, flanked by two finance experts, providing an alternative dispute resolution mechanism.
Prime has drawn up arbitration and mediation rules based on the UNCITRAL arbitration and conciliation rules. The rules are currently out to industry consultation.
Parties will be able to choose the location of any arbitration, and the idea is that the panel of experts will be expanded to cover all major jurisdictions.
Providing an effective dispute mechanism for developing markets is something that is close to Golden’s heart.
“In developing markets we’re seeing increasing usage of financial products – sometimes complex financial products – to promote sustainable development,” he says, by way of example. “That’s important because these are often risk-shifting tools but it means that the parties will find themselves uncertain how to resolve issues arising that may be more usual or familiar in more mature markets.”
Golden points to products such as currency swaps as an example – changes in exchange rates can leave a party short, with no obvious means of recouping the loss.
Barings Asset Management general counsel Sandie Okoro, who sits on Prime’s management board, is leading the search for experts in emerging markets, particularly Africa and Latin America.
“As emerging markets they’re going to be big players going forward,” Okoro notes. “The great advantage of Prime is that it can also come to you in your local jurisdiction if that’s appropriate so any local customs can be taken into account. It’s very portable.”
She says that although finding experts in emerging markets might be harder than in jurisdictions such as the UK or US, it is possible. “They may be more unknown than in certain jurisdictions but they’re out there,” she says.
Okoro and Golden both believe that the need for experts in developing countries is going to grow as their economies emerge and the use of financial products becomes commonplace.
“Finance is a global institution, so when you’re in anything to do with finance you automatically start crossing jurisdictions. It’s not just a one-way process,” Okoro points out. “As these complex products across the globe become used more widely, I think you’ll find that Prime is very well-placed to deal with any disputes that arise from that.”
The quality of the experts appointed so far attracts praise from market participants, and looks likely to be Prime’s key selling point.
“Looking at the people from the perspective of the arbitration community, it’s all well-known big names,” says Gärtner. “These are people with a lot of experience.”
“We’ve got some of the finest legal brains in the world on this,” agrees Okoro.
Golden says that the timing of the project has helped bring the panel together, coming after two or three decades of rapid development within the financial markets and when many members are heading towards retirement and are ready to pass on their years of knowledge and experience.
“What does appeal is the idea of being a kind of guardian to preserve the documentation legacy and understanding of market practice of all that was achieved over a period of decades,” he says. “There’s a huge amount of appeal at a personal level for our experts to be involved in this project at this juncture in time, and with this particular group of people.”
Motani says: “The source of the Prime Finance initiative is that actually there are people out there for whom this isn’t the first time to look at these sorts of things, for whom these aren’t complex transactions.”
Tool of the trade
It is too early to say what the take-up of Prime will be. The panel is designed to be relevant for both buy-side and sell-side, able to address issues that affect all market participants. Golden says a pipeline of cases is already beginning to develop, less than two months after the launch.
Schäfer suggests that if Prime delivers on its promises of providing quick, cheap and enforceable dispute resolution mechanisms, it could prove popular.
“One of the reasons why arbitration became popular was the goal to have a more efficient, faster, cost-effective dispute resolution mechanism. Whichever organisation is closer to that goal will ultimately succeed. That’s what users want,” he says.
Motani acknowledges that Prime is another tool in the box for resolving financial disputes. “It’s up to people to use this. It’s simply one of the choices at the end of the day,” he says.
Okoro, however, is confident there is a need for what the panel is trying to do.
“It’s going to be what’s needed in the future, because fundamentally change and innovation are what the world’s about. I feel that there has to be a much more international approach to solving disputes. It might not be needed now this minute, but it certainly will be needed in five minutes’ time,” she concludes.
Chair: Jeffrey Golden, visiting professor at the London School of Economics and Political Science, formerly a partner at Allen & Overy
Paul Arlman, board member of the World Legal Forum foundation, chair of the Dutch branch of Transparency International, formerly director of the World Bank and the European Investment Bank
Willem Calkoen, retired partner at NautaDutilh and former chair of the Section on Business Law of the International Bar Association
Daniel Cunningham, partner at Quinn Emanuel Urquhart & Sullivan, formerly US counsel to International Swaps & Derivatives Association (Isda)
Gay Huey Evans, vice-chairman of the board and non-executive European chairman Europe of Isda and non-executive director of the London Stock Exchange Group
Sandie Okoro, general counsel at Barings Asset Management, director of International Lawyers for Africa and a trustee of LawWorks
Lucien Wong, managing partner of Singapore firm Allen & Gledhill and board member of the Monetary Authority of Singapore
Chair: Lord Woolf of Barnes, former Lord Chief Justice of England and Wales and now a member of Blackstone Chambers.
Nout Wellink, former president of the Dutch Central Bank and former chairman of the Basel Committee on Banking Supervision
Antonio Sáinz de Vicuña, general counsel for the European Central Bank
Thomas Jasper, managing partner of Manursing Partners and founder chairman of the International Swaps and Derivitives Association
Thierry Porté, operating partner at JC Flowers & Co and former president of Japan’s Shinsei Bank
The Honourable Sir David Baragwanath QC, president and presiding judge of the Appeals Chamber of the UN Special Tribunal for Lebanon; presiding judge of the Court of Appeal of Samoa and a retired judge of the Court of Appeal of New Zealand
Prime Finance is a new initiative designed to offer an alternative to traditional dispute resolution, focused on the finance sector. With a panel of leading experts in finance and litigation ready to pool their deep knowledge, the project could fill a much-needed gap in the market.