International Financial Centers and Arbitration
Contents
- I. INTRODUCTION
- II. THE IMPORTANCE OF ARBITRATION IN THE FIELD OF INTERNATIONAL FINANCE
- III. ARBITRATION INSTITUTIONS IN INTERNATIONAL FINANCIAL CENTERS
- A. Dubai International Arbitration Centre
- B. International Arbitration Centre (Astana)
- C. Abu Dhabi Global Market Dispute Resolution Hearing Centre
- IV. STRUCTURES THAT CAN BE ESTABLISHED WITHIN THE ISTANBUL FINANCIAL CENTER
- V. CONCLUSION
ABSTRACT
In today's ecosystem, the ability of capital to easily move between countries has elevated goods, services, and capital markets from a national level to a global scale. One of the consequences of this globalization is that international investors are required to operate under different legal systems and judicial mechanisms in each country where they conduct business. As a significant alternative in international financial practice, there are various institutions established for the resolution of disputes through arbitration.
In this study, firstly, the significance of arbitration in the field of international finance and the reasons for its preference will be examined. Subsequently, the arbitration institutions established in major international financial centers in the Middle East and Asia will be analyzed. In the final section, based on this analysis, we evaluate whether a structure similar to those found in other international financial centers can be established at the Istanbul Financial Center (“IFC”) in our country.
Key Words: International Financial Center, International Arbitration, Dispute Resolution, Istanbul Financial Center
I. INTRODUCTION
The world's leading financial centers, with their status as being judicial domains independent of the jurisdiction of the country they are located in, provide investors an alternative other than being subject to the host country's judicial system through private and independent courts established within their frameworks and specialized arbitration institutions. Investors, in turn, favor arbitration over other dispute resolution methods in international investment and trade activities, as it offers a mechanism where they are equally represented.
The primary expectations of the investors from international arbitration are the resolution of disputes in a swift and cost-effective manner, reaching an acceptable outcome, and the existence of a system that ensures the enforceability of decisions.
II. THE IMPORTANCE OF ARBITRATION IN THE FIELD OF INTERNATIONAL FINANCE
According to the Report on Financial Institutions and International Arbitration[1] (“Report”) published by the Financial Institutions and International Arbitration Task Force of the International Chamber of Commerce ("ICC") Commission on Arbitration and Alternative Dispute Resolution on November 24, 2016, financial institutions that prefer to litigate in local courts within major financial centers such as London, New York, Hong Kong, and Frankfurt are increasingly open to the use of international arbitration for cross-border banking and financial disputes due to the changing and increasingly stringent regulatory environment, globalization, and the growing participation of parties from emerging markets in international finance.
The Report indicates that financial institutions tend to prefer arbitration in the following circumstances:
Ø When the transaction is significant and particularly complex;
Ø When confidentiality is a concern;
Ø When the counterparty is a state-owned entity;
Ø When the counterparty is located in a jurisdiction where the recognition of foreign court judgments is problematic, or where the enforcement of an arbitration award may be more straightforward.
One of the most fundamental challenges for financial institutions to date has been the country where the counterparty with whom they have a contractual relationship is located or the country where their assets are situated. Since, the enforcement of an arbitration award will need to be sought in that country. At this point, it will be enlightening to examine the core advantages that international arbitration can offer to financial institutions.
The increasing complexity of financial transactions and the generally technical nature of disputes related to financial services have become significant factors in the preference for expert arbitrators, arbitration institutions, and rules designed to resolve complex financial disputes. Therefore, the ability of the parties to choose expert arbitrators with sector expertise and experience is cited by financial institutions as a key advantage of arbitration, as opposed to concerns that the national court may lack expertise to deal with complex financial products.
Another advantage, particularly in commercially sensitive areas such as advisory services, and mergers and acquisitions, is the confidentiality and privacy offered by arbitration. Unlike court cases, arbitration hearings are not open to the public, and the parties can agree that the arbitration award and documents resulting from the arbitration should be confidential.
In addition to all this, when a party from an emerging market is involved, the biggest advantage that international arbitration has over national court litigation is related to enforcement. Indeed, arbitration awards are generally more easily enforceable internationally than foreign court decisions, under the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“New York Convention”). Therefore, if the seat of the arbitration court is in a state party to the New York Convention, the award can be enforced in any of the other signatory states.
III. ARBITRATION INSTITUTIONS IN INTERNATIONAL FINANCIAL CENTERS
A. Dubai International Arbitration Centre
The Dubai International Financial Centre (“DIFC”) was designed as an independent financial-free zone to provide a legal and regulatory framework to create a safe environment for growth, progress, and economic development across a broad region, primarily in the United Arab Emirates (“UAE”). All businesses registered in the DIFC are subject to the DIFC laws (“DIFC Laws”), which govern the daily operations of firms and individuals in the DIFC.
Since its establishment in 2004, the DIFC Administration has introduced a wide range of civil and commercial DIFC Laws. One of these is the DIFC Arbitration Law, which was introduced in 2008 and amended in 2013. In case the parties agree that any dispute between them will be resolved by arbitration and specify the DIFC as the seat of arbitration, the arbitration provisions of the UAE Civil Procedure Code do not apply. Where the DIFC is the seat of arbitration, all aspects of such arbitration are governed by the DIFC Arbitration Law. Unlike the arbitration provision of the UAE Civil Procedure Code, the Arbitration Law is an English language law.
Prior to Dubai Law No. 34, which came into force in 2021, DIFC’s own arbitration institution was the DIFC-LCIA Arbitration Centre, which was established in 2007 as a joint venture between DIFC and the London International Arbitration Centre (“LCIA”) and was governed by the DIFC-LCIA Arbitration Rules. However, with Dubai Law No. 34, DIFC-LCIA was abolished and subsequent arbitrations were begun to be administered by the Dubai International Arbitration Centre (“DIAC”). DIAC has a branch in DIFC, one of the leading financial centers in the Middle East, Africa and South Asia.
DIAC was established in 1994 as the Commercial Conciliation and Arbitration Centre, an initiative of the Dubai Chamber of Commerce and Industry. Then, by Dubai Decree No. 10 dated 2004, it was renamed the Dubai International Arbitration Centre. Since September 2021, DIAC is no longer an initiative of Dubai Chambers, and has a three-tiered structure consisting of a board of directors, an arbitration tribunal and an administrative body.
DIAC has a portfolio of experienced arbitrators from six continents and with a variety of legal and industry backgrounds. Dispute resolution methods cover a variety of sectors including real estate, engineering and construction, corporate and commercial, finance and investment, logistics, energy, oil and gas.
As part of Dubai’s efforts to consolidate its position as an international dispute resolution hub, DIAC has introduced new Arbitration Rules in 2022. DIAC’s 2022 Arbitration Rules promote speed, efficiency and sustainability of proceedings. Under the 2022 Arbitration Rules, DIFC is the default seat of arbitration for DIAC, and the DIFC Arbitration Law applies to arbitration proceedings.
B. International Arbitration Centre (Astana)
The Astana International Financial Centre (“AIFC”) is one of the most important financial centers in the Eastern Europe and Central Asia region. The AIFC is an independent jurisdiction that began operating in 2018. The International Arbitration Centre (“IAC”) provides an economical and expeditious alternative to court litigation to resolve civil and commercial disputes at the AIFC. It considers disputes that the parties have agreed to be resolved by arbitration.
It has its own procedural rules modelled on international practice. It has a panel of international arbitrators and mediators with many years of experience in arbitration and mediation in commercial law, including trade, construction, oil and gas, financial services, banking, energy, Islamic finance, intellectual property and insurance. The IAC is also an appointing authority, appointing arbitrators and mediators from its panel for arbitrations and mediations conducted at the IAC or elsewhere.
The IAC offers parties flexibility in choosing the rules and procedures they wish to use to resolve their disputes at the IAC. Parties may agree that the IAC:
Ø Administer arbitration under the IAC Arbitration and Mediation Rules. (These rules include procedures for expedited arbitrations, appointment of emergency arbitrators, and resolution of investment treaty disputes.);
Ø Administer arbitration under the United Nations Commission on International Trade Law (“UNCITRAL”) Arbitration Rules or special arbitration rules.
Ø Administer mediation under the IAC Arbitration and Mediation Rules or special mediation rules.
Ø Provide other alternative dispute resolution methods.
The IAC has an e-Justice system that allows parties to file cases electronically from anywhere in the world without the need to be physically present at the IAC premises. Video hearings take place when an arbitrator or mediator determines that an in-person hearing or meeting is not necessary or appropriate
C. Abu Dhabi Global Market Dispute Resolution Hearing Centre
Abu Dhabi Global Market (“ADGM”) is one of the world’s leading international financial centers, located in the capital of the UAE. ADGM was established in 2013 as a financial free zone with its own civil and commercial laws in the Emirate of Abu Dhabi, under the Federal and Abu Dhabi legislation.
The ADGM Board of Directors enacted the ADGM Arbitration Regulation on December 17, 2015. This Regulation is based on the Model Law on International Commercial Arbitration published by UNCITRAL (“UNCITRAL Model Law”). The UNCITRAL Model Law is a widely recognized global standard for arbitration regulation. Judges of the ADGM courts can serve as arbitrators under the ADGM Arbitration Regulation.
The ADGM Dispute Resolution Hearing Centre (“DRHC”), established to support dispute resolution in the Middle East and North Africa region, is a center for arbitration hearings and mediations, providing services in line with international practices and equipped with advanced hearing facilities.
The DHRC has an arbitration framework based on the UNCITRAL Model Law and ADGM arbitration awards are internationally enforceable under the New York Convention. In addition, as an independent and impartial hearing venue, the DRHC can be booked by the parties regardless of the governing arbitration institution or seat of arbitration.
IV. STRUCTURES THAT CAN BE ESTABLISHED WITHIN THE ISTANBUL FINANCIAL CENTER
The IFC, which sets out to integrate with international markets in the field of finance and to provide an effective ecosystem and aims to become a global center, does not currently have an independent arbitration institution established within its own structure. In particular, within the scope of the realization of the goal of becoming a global financial center, the IFC can contribute to the realization of this goal by following the path followed by some other important international financial centers with the same goal in terms of dispute resolution and by establishing an internationally accepted, independent and impartial arbitration institution and specific arbitration rules to be applied to the arbitrations to be held.
In determining the arbitration rules to be applied, the arbitration rules that are applied and accepted internationally can be taken as a basis. In this way, the hesitation of the parties to be subject to rules that they do not know or are not familiar with can be prevented. Especially as stated under heading II above, when the tendency of financial institutions to prefer arbitration and the advantages provided by arbitration are taken into consideration, it is evaluated that an impartial and independent arbitration institution to be established and the arbitration rules to be implemented in the IFC can make a significant contribution to the IFC becoming a global financial center by increasing its attractiveness.
V. CONCLUSION
Considering the tendency of international financial institutions to resolve their disputes through arbitration and the advantages provided by arbitration, a special arbitration institution can be established within the IFC in order to increase the IFC's attractiveness, as in some other important international financial centers. While the establishment of an arbitration institution within the IFC is not a necessity, it is evaluated that the establishment of the relevant arbitration institution will provide added value to the IFC in terms of the attraction it will provide for financial institutions to be located in the financial center within the scope of dispute resolution.
[1] https://iccwbo.org/wp-content/uploads/sites/3/2016/11/icc-financial-institutions-and-international-arbitration-icc-arbitration-adr-commission-report.pdf