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Britain’s Island of Stability in the Post-Brexit Era

Even Britain’s most fervent Leavers would admit that Brexit, if and when it actually happens, is expected to bring about some dramatic changes in the UK. In the face of the uncertainties, which will only increase if there is a so-called “no deal” Brexit, there is still one bastion of influence that is likely to remain in place, at least for the foreseeable future: the dominance of English law in international commercial transactions.

English law is continuously and consistently the most popular legal system for the resolution of disputes between parties from different countries who contract together for business purposes. Impressively, this fact is also true where those transactions have little or no connection at all to England and Wales. Indeed, most of the work of Asserson’s litigation department arises from these types of circumstances. An illustrative example, realistic in all aspects, is of a Dutch entrepreneur residing in the Netherlands who invests in a textile factory in Nigeria, and for this purpose contracts with a local company in Lagos. In addition to the numerous provisions that a contract of this nature is likely to include – mutual obligations, timeframe for performance, payment, and shipping – such contracts are also likely to include a provision that sets out how future disputes between them would be resolved. Clearly this clause is crucial in the event of a dispute, although at the time of transacting it is sometimes overlooked due to its inherently divisive nature in a time where the parties are optimistic about embarking together on a new exciting economic adventure.

Prudent parties, however, resist the temptation of rushing through the disputes clause, and devote time to think and agree on the legal framework that will best balance their respective interests. Returning again to the parties above, a disagreement might arise about which law should govern their relationship. Where both parties are relatively equal in their negotiation power, the Nigerian company owner would most probably refuse to accept the authority of the law of the Netherlands, which is based on civil law and is practiced in the Dutch language. For similar reasons, Nigerian law would put the Dutch entrepreneur in a position of inferiority in the event that a dispute between the two parties does eventually arise.

In their attempt to overcome this obstacle, the reasonable parties will aim to agree on a legal system that is neutral, conducted in a language they both understand and has a reputation to be transparent and impartial. In the English-speaking world, still heavily influenced by the Anglo-American culture, the parties’ pursuit of a suitable legal system will usually lead them to the doorstep of the English and US legal systems. In considering these options, European, Asian and African nationals with no particular connection to the United States may well find that in addition to the geographical distance there are also some institutional disadvantages in the latter option. These include the subordination of state law to a federal system, with an appeal process and jurisdictional rules that are not intuitive for nationals of non-federalist countries; the use of jury in civil cases, which necessarily limits the ability of potential litigants to predict legal outcomes; the lack of reputable special commercial courts, which in turn also limits the local courts’ jurisprudence on commercial cases; a relatively heavy and expensive process for disclosure of documents, which in England and Wales is becoming increasingly more proportionate and efficient;[1] and the highly exclusive federal Supreme Court, which hears only around 80 cases a year.[2] These limitations, among others, make American law less attractive for non-American litigants and in turn highlight the notable strengths of the second common law alternative.

English law is designed and conducted with relative simplicity, is rich with precedent and manpower, its laws and court procedures are easily accessible and explained online, and the commercial courts in London have gradually earned a reputation of unmatched quality and professionalism.[3] Indeed, the Commercial Court in London is the world’s leading forum for the resolution of disputes in the fields of international trade, shipping and insurance.[4] In light of this, the Dutch entrepreneur and the Nigerian company owner have more than one good reason to choose English law over any other option, and statistically speaking they are more likely than not to do so. The numbers speak for themselves: in the year between March 2018 and March 2019 no less than 60% of the litigants in the Commercial Courts in London were non-UK nationals from 78 different countries, and this trend appears to be on the rise.[5] A 2018 survey conducted by White & Case and Queen Marry University of London found that London is the world’s most preferred seat of arbitration, and, interestingly, that “More than half of the respondents [to the survey] think that Brexit will have no impact on the use of London as a seat”.[6] A separate report released on 1 April 2019 seems to support these findings, as it shows that in 2018 a record number of arbitrations were referred to the London Court of International Arbitration (LCIA).[7] 76% of the disputes in 2018 were governed by English law and in 11% of the cases the sum claimed exceeded USD 100M.[8] Another striking finding is that only 20.6% of the parties to arbitrations commenced under the LCIA Rules in 2018 were UK parties, with the remaining 79.4% choosing to come to London from abroad.[9]

Importantly, the adoption of English law by non-UK actors is not just limited to the domestic courts in London or the LCIA: in the arbitration centers of Singapore and Hong Kong, the two leading Asian centers in the field, the most popular foreign law is English law,[10] and this is also the case in the international arbitration centers of Stockholm,[11] Abu Dhabi,[12] and Paris, where quite remarkably English law is in use even more than French law.[13]

Upon analyzing this data, as well as considering the fact that about a third of the world’s population today is subject to common law – a system of law originating in and influenced by England – one may conclude that the global hegemony of English law is perhaps the most tangible remnant of the glorious days of the British Empire.

In light of this, it is doubtful that Brexit can materially weaken the widespread usage of English law on the transactions that drive and shape the global economy. While there is a possibility that in the immediate aftermath of leaving the EU the procedure for enforcing English court judgments in EU Member States might be somewhat more complex, this can hardly be regarded as a difficult issue to solve and will likely be addressed quickly by the UK and the EU. In any event, this potential challenge has no impact on the enforcement of arbitral awards rendered in the UK, which is governed by the international New York Convention which is entirely independent from EU Law.

Evidently, a combination of historical circumstances and practical considerations has led to a firm entrenchment of English law as the international legal currency of commercial transactions. Its implementation has now become so dominant that it is hard to imagine that even an extraordinary political occurrence like Brexit could undermine its desirability in the next transaction between a businessman from one country and his or her business partner from another. Ultimately, the advantages of English law are not directly related to nor are they a corollary of Britain’s membership in the EU. Accordingly, it is reasonable to assume that those advantages will survive Britain’s exit from the EU. As such, just as the English language is expected to remain the lingua franca post-Brexit of international commerce (even, notably, in the EU itself), there are strong grounds to believe that English law will similarly remain the leading governing system of law in commercial cross-border disputes worldwide.

By: Tomer Treger, Associate, Dispute Resolution

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[1] Notably, see Practice Direction 51U – Disclosure Pilot for the Business and Property Courts. This Practice Direction provides a two-year pilot scheme in the Business and Property Courts, and applies as of 1 January 2019 to existing and new proceedings. The pilot introduces a process of Initial Disclosure which substantially limits the traditional Standard Disclosure.

[2] Supreme Court website, available at: www.supremecourt.gov/about/justicecaseload.aspx.

[3] See, e.g., Mark Sachs, “The Competitive Advantage of English Law – An Internationalist Perspective” Thomas Cooper (25 April 2017), available at: www.thomascooperlaw.com/competitive-advantage-english-law-internationalist-perspective/ (“England stands out in terms of the volume and quality of decided cases in the commercial sphere. Other common law courts also produce important precedents and these are sometimes cited in other common law jurisdictions. But England stands above the others in this respect.”).

[4] See Legal UK, “The Strength of English Law and the UK Jurisdiction”, Courts and Tribunals Judiciary (4 August 2017), available at: https://www.judiciary.uk/publications/legaluk-the-strength-of-english-law-and-the-uk-jurisdiction/; See also “The UK Legal Sector: Legal Services are Great”, UK Ministry of Justice (14 December 2017) https://www.gov.uk/government/publications/legal-services-are-great, page 3 (“English law is the most popular choice of law in the world for commercial contracts and it governs about 40% of all global corporate arbitrations.”).

[5] Portland Litigation Consulting, “Commercial Courts Report 2019”, available at: https://portland-communications.com/pdf/Commercial-Courts-Report-2019.pdf?utm_medium=email&utm_campaign=Send%20email&utm_content=Send%20email+&utm_source=Email%20marketing%20software&utm_term=here;

[6] White & Case, “2018 International Arbitration Survey: The Evolution of International Arbitration”, page 9, available at: http://www.arbitration.qmul.ac.uk/media/arbitration/docs/2018-International-Arbitration-Survey-report.pdf.

[7] LCIA website, available at: https://www.lcia.org/News/2018-annual-casework-report.aspx. Page 4 to the LCIA 2018 Annual Casework Report notes that “In 2018, 317 arbitrations were referred to the LCIA, of which 271 were referred under the LCIA Rules – representing the highest number ever recorded in a single year”.

[8] Ibid., pages 10-11.

[9] Ibid., page 8-9.

[10] HKIAC website, available at: http://www.hkiac.org/about-us/statistics; SIAC website, available at: http://siac.org.sg/2014-11-03-13-33-43/facts-figures/statistics/71-resources/frequently-asked-questions.

[11] SCC website, available at: https://sccinstitute.com/statistics/.

[12] ADGM website, available at: https://www.adgm.com/legal-framework.

[13] ICC Dispute Resolution Bulletin 2018, issue 2, page 61, available at: https://cdn.iccwbo.org/content/uploads/sites/3/2018/07/2017-icc-dispute-resolution-statistics.pdf.