July 01, 2016

Expert Witnesses? Expert Tribunals? New Tools for Resolving Complex Financial Disputes

By Judge Elizabeth S. Stong and Camilla Perera-De Wit

Even the most casual observer of courts and financial marketplaces would have to note the growing number, and growing complexity, of financial market disputes since the global financial crisis. And if news reports and the volatility of markets are any guide, this situation is not likely to change anytime soon. All of these disputes are significant to the participants, and many may have systemic consequences as well. But many courts may lack the experience and expertise in financial matters that may be necessary to address the increasingly complex and technical questions that can arise in such cases in an effective way. What can courts and parties do in order to be prepared to deal with such matters when they arise? The answer to this question has several parts and includes dispute resolution tools both within and outside of the traditional court system.

Some background is helpful to understand the context of these issues. Since the collapse of Lehman Brothers in September 2008, there has been a significant increase in the number of complex financial product disputes that have been litigated or arbitrated. The numbers involved can be huge—it has been reported that outstanding over-the-counter (OTC) derivatives contracts total hundreds of trillions of dollars. Tribunals, including courts and arbitration panels, charged with deciding disputes arising from these and other complex financial transactions may lack training in the legal issues and experience in the commercial realities implicated by these cases. As a result, decisions can be unpredictable and sometimes conflicting, can entail significant delays, and may even be unenforceable outside of the issuing jurisdiction.

Against this background, academics, lawyers, and judges have come together to consider how to improve the prospects for sound and effective decision making and dispute resolution in these matters, wherever they arise. The result of their collaboration is a new entity, P.R.I.M.E. Finance, which is based at the Peace Palace in The Hague, Netherlands. P.R.I.M.E. Finance stands for Panel of Recognized International Market Experts in Finance, and P.R.I.M.E. Finance’s activities consist of dispute resolution services including arbitration and mediation, judicial capacity building and education, and the compilation of a central database of international precedents and resources.

P.R.I.M.E. Finance is a specialized dispute resolution facility, dedicated to improving both processes and outcomes in financial market dispute settlement. With the support of the Dutch government, it officially opened its doors in The Hague in 2012. P.R.I.M.E. Finance has a particular focus on issues arising in connection with industry-standard documentation, as well as comparative law and market practices for derivatives and other complex financial products. P.R.I.M.E. Finance recently joined forces with the Permanent Court of Arbitration in The Hague, which makes it possible for parties to disputes involving complex financial transactions to have enhanced access to an expert roster of arbitrators, mediators, and experts to resolve their disputes and an experienced and well-equipped Secretariat to provide administrative support. And as specialized business and commercial courts are established in both the developed and the developing worlds, opportunities for judicial training and capacity building have expanded as well.

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