The German Institution of Arbitration (DIS) has issued a model arbitration clause specifically tailored for use with the 2002 ISDA Master Agreement, the financial industry standard service agreement for OTC derivatives transactions. DIS views this as “yet another step in broadening the DIS’s portfolio for different industry sectors and attracting new domestic and international users.” Here’s a closer look:
The model clause provides for arbitration under the DIS Rules and for Frankfurt as the seat of the arbitration. So far, the model clauses referred to arbitral seats and arbitral institutions outside of Germany. The clause proposed by DIS is designed to be used where the underlying agreement is a 2002 ISDA Master Agreement.* The drafters envisaged that the Master Agreement itself will be governed by English or New York law, but the arbitration clause will be subject to German law.
The provisions on Governing Law and Section 13(b) of the ISDA Master Agreement on Jurisdiction would be modified as follows:
Governing Law. This Agreement (excluding Section 13(b) (Arbitration) which shall be governed by German law) and any non-contractual obligations arising out of or in connection with it shall be governed by and construed in accordance [with English law/New York law (excluding conflict of laws principles)].
Section 13(b) shall be deleted in its entirety and replaced with the following:
(i) Any dispute, claim, difference or controversy arising out of, relating to or having any connection with this Agreement, including any dispute as to its existence, validity, interpretation, performance, breach or termination or the consequences of its nullity and any dispute relating to any non-contractual obligations arising out of or in connection with it (a “Dispute”), shall be referred to and finally resolved by arbitration.
(ii) The arbitration shall be conducted in accordance with the Arbitration Rules of the German Institution of Arbitration (the “DIS”; the “Rules”). Capitalised terms used in this Section which are not otherwise defined in this Agreement have the meaning given to them in the Rules.
(iii) [Option 1: The arbitral tribunal shall consist of one arbitrator, who shall be appointed in accordance with the Rules.]
[Option 2: The arbitral tribunal shall consist of three arbitrators. The members of the arbitral tribunal shall be appointed in accordance with the Rules.]
[Option 3: The arbitral tribunal shall consist of three arbitrators. The members of the arbitral tribunal shall be appointed in accordance with the Rules, save that the president of the arbitral tribunal shall be nominated by the DIS Appointing Committee.]
(iv) The seat or legal place of arbitration shall be Frankfurt/Main, Germany.
(v) The language used in the arbitral proceedings shall be English.
Why would parties consider taking a dispute under an ISDA Model Agreement to Frankfurt? I can think of several reasons, speed and costs being the ones coming to mind first: Arbitration in Frankfurt under the DIS Rules is likely to be less expensive than its London or New York counterparts, and potentially also faster, in particular if conducted in a civil law spirit. At the same time, there is no shortage of experienced lawyers in Frankfurt to draw upon as arbitrators or counsel.
And then there is Brexit, which might have an impact, legally and practically. In terms of practicality, with more market players expecting to move to Frankfurt, it might make sense to have the arbitration on the ground. And from a legal perspective, it could be beneficial that the Frankfurt courts would have jurisdiction over setting aside proceedings and other ancillary litigation, as they will continue to deliver judgments capable of EU wide recognition under the Brussels I Regime, whereas it is uncertain whether the London courts will still be able to produce judgments that enjoy freedom of movement.
* The DIS Website provides commentary on how to use the model clause with a 1992 ISDA Master Agreement.