Luxembourg is a highly important and well-known financial centre in the world. Nevertheless in the past investors have not always chosen Luxembourg as a jurisdiction to litigate. In recent years, a trend has emerged where Luxembourg has become a jurisdiction for finance dispute resolution. That is, for example, in the area of investment fund and banking regulation, investor conflicts or in relation to the use of various financial instruments. This trend is particularly important to give investors confidence to invest via Luxembourg structures and to expand certain areas important for diversifying Luxembourg’s position as a leading financial centre – such as in relation to the traditional market for M&A and restructurings. That is why Elon Musk (or the Elon Musks of tomorrow) would certainly be well inspired to resolve his/their next financial dispute via Luxembourg.
Luxembourg is a highly important and well-known financial centre in the world.
On the one side, this is simply a natural development and a mirror of Luxembourg’s success as a major financial market. To say it in simple terms: the higher the number of investors, investments, and related market players, the higher the probability that conflicts may arise, along with the need for out-of-court or in-court dispute resolution.
On the other side, the above development can be explained because Luxembourg can provide what investors seek in the area of dispute resolution: a predictable, neutral and pragmatic jurisdiction that can resolve conflicts with the help of highly skilled international legal finance experts.
Regardless of such rather natural development, it is, however, also very important for Luxembourg to be a leader in and to be known for finance dispute resolution and for professionals to promote this aspect of the place as well.
The importance of finance dispute resolution for the Grand-Duchy
Luxembourg’s financial industry relies very much on Luxembourg’s capacity to provide innovative financial instruments to investors, investment funds, banks, and other market players. This is why Luxembourg is termed a “Silicon Valley” of financial legal products.
Financial legal products, however, are intrinsically linked to the law and the legal system that shape such products. To provide a simple example: in a credit relationship, encompassing thus a large variety of financial products existing on the Luxembourg market, there is always the possibility that the debtor defaults or acts otherwise in non-compliance with the credit relationship. Therefore, a precise system of norms that can protect against such non-compliance is necessary.
Yet, black letter law is not sufficient in this respect. The strength of such a normative system depends on its capacity to be enforced in case of a dispute, thus an efficient court system is needed, one that is independent, reasonably fast, has expertise on the subject matters under dispute, and allows for an efficient execution of the judgement, domestically and internationally.
Important in this context is that the Grand-Duchy is not the only player developing and offering sophisticated financial legal products, neither in Europe nor certainly not in the global arena. Therefore, its leading position very much depends on its underlying legal system and its ability to guarantee to parties the enforcement of rules in relation to the above referred legal products when and if necessary. That, in turn, provides legal certainty and grounds investors’ confidence in Luxembourg’s financial instruments and in the idea of investing via Luxembourg structures. In that respect, legal certainty also bolsters other related areas, such as traditional M&A and restructuring markets, important for the diversification of Luxembourg’s financial market and the vertical integration of its financial and corporate offers.
Traditional state court dispute resolution is only one of the tools available in the case of a conflict.
Luxembourg innovation in the area of dispute resolution
Traditional state court dispute resolution is only one of the tools available in the case of a conflict. Particularly in finance dispute resolution, arbitration proceedings are appreciated due to their characteristics, such as privacy and the speed of the proceedings. Arbitration proceedings are a private dispute resolution procedure in which the parties agree to appoint one or several arbitrators (who are private parties such as lawyers or economists) to provide a legally binding decision on the disputed matters.
It is expected that the Luxembourg legislator will soon adopt a modernisation law on arbitration. With this, Luxembourg can become an excellent alternative to London, Paris or Switzerland for arbitration proceedings. That allows Luxembourg to offer a holistic package to international investors, making Luxembourg even more attractive as a financial centre.
Luxembourg: becoming a hub for international dispute resolution?
If one envisions Luxembourg as a Silicon Valley of legal solutions, the next step for Luxembourg may be to become also a hub for international finance dispute resolution. Particularly in the area of alternative dispute resolution such as arbitration proceedings, the dispute does not necessarily have to be resolved in loco. Centrally located in Europe, with an international labour force expert in finance matters and already a central hub for many other finance topics, Luxembourg can and should have a major part to play in international (finance) disputes. It should not be forgotten that Luxembourg has also housed another dispute area for many years: due to the location of the Court of Justice of the European Union in Luxembourg, it is already the major place for dispute resolution on EU legal matters.
P. Kinsch, Le droit commun et l’avenir du droit luxembourgeois, in Instutut Grand-Ducal Actes de la Section des Sciences Morales et Politiques, Vol XXI, p. 44 where the author refers to a news paper article from the Luxembourg Wort dated 9 June 2015 and titled "Luxemburg ist das Silicon Valley for rechtliche Innovation" with reference to the Lebanese banker that coined the term.
It should be noted that also the notion of “legal system” does not only encompass the court systems, but also regulators such as the financial supervisory authority that arguably works in a highly efficient manner in Luxembourg. See also Legal system and financial markets, Speech by Lorenzo Bini Smaghi, Member of the Executive Board of the ECB, Frankfurt am Main, 26 October 2007.
J. Shillito, “Luxembourg positions to capture global M&A boom”, Delano, 7 June 2022, .
Projet de loi 7671 portant réforme de l’arbitrage et modification du titre I. du Livre III. «Des arbitrages» du Nouveau Code de procédure civile.
See on this also « Initiative purement privée», Interview by Pierre Sorlut with Prof. André Prüm in the d’Lëtzebuerger Land, dated 25 June 2021: .
Note that also the EFTA Court is situated in Luxembourg.
In order to give a proportion: For 2021, the Court of Justice of the European Union had 1720 new cases, 1723 completed cases and 2541 pending cases.