The use of the legal sector by domestic and international parties is a huge contributor to the British economy in terms of:
- Jobs – with over 300,000 people directly employed;
- GDP – generating roughly 1.6% at around £30.6 billion per year; and
- International trade – with an annual surplus of approximately £3 billion.
These figures are impressive – even more so when one realises that the British legal sector accounts for 20% of all fee revenue received by lawyers in Europe, and that about half of the revenue of the one hundred largest British law firms is generated by international offices. These firms are active all over the world, with 6,000 British-qualified solicitors in major offices in global hot spots such as Tokyo, Beijing, Hong Kong, Singapore, Moscow, Dubai and America.
English common law is the most popular system in the world, covering 30% of the world’s 320 legal jurisdictions, with the Privy Council still acting as final court of appeal for many Commonwealth countries. It is a major reason why people from all over the world come to Britain: they wish to live in a country where the judiciary have a superlative record for impartiality and providing certainty and fairness. Our system includes legendary legal figures of international renown that many spent their years in law school reading about, such as Lord Hoffman, Lord Neuberger and Lord Woolf.
Unlike some jurisdictions, Britain is remarkably open to international competition. Two hundred foreign law firms have offices in the UK, half of which are American. Our legal success also contributes to the growth of others, with UK and US law firms responsible for training around 30% of the Paris bar.
That other great success story – the City of London’s financial services (banking, insurance and fund management) – has thrived together with the legal sector in a complimentary way, perhaps for the same reasons: our strong, stable, well-regulated and competitive markets are bolstered by world class support services and infrastructure in London. The English language’s position as the lingua franca of international business also helps.
It should therefore come as little surprise to learn that over 80% of claims issued in the Commercial Court of the High Court last year involved at least one party from outside of England and Wales. It is also estimated that English contract law is the law of choice for 40% of all global corporate arbitrations.
That is not to say that Britain is the hegemon of the global legal sector. The world’s pre-eminent legal markets are New York, Singapore, Hong Kong and Dubai as well as England and Wales, all of which use the English language – and all of which are coming to use litigation funding, a form of financing pioneered (in respect of English common law) in Britain, thanks to the complimentary aspect of easy access to London’s financial markets.
However, the importance of English law to the British economy and influence worldwide is plain to see. It is therefore worth examining the impact that may be felt after Britain leaves the EU.
Uncertainties, Solutions and Issues for Negotiation
For the companies all over the world using English common law to do business and English courts to settle disputes, Brexit brings uncertainties. These concerns relate to the relationship between Britain and the EU but, of course, not to matters in which international parties choose English law to govern commercial activity that does not venture within or involve the EU.
The most significant areas of potential disruption as between the English law and the EU are:
- the applicable law for contracts;
- the enforcement of jurisdiction clauses in contracts; and
- the reciprocal enforcement of judgments.
The current European regime which guarantees the respect of commercial parties’ choices in respect of the above considerations is made up of three key regulations.
Two EU regulations (593/2003 known as “Rome I” and 864/2007 known as “Rome II”) manage issues relating to which jurisdiction’s laws govern a dispute and a commercial party’s right to choose the law that will apply to a commercial agreement. These regulations deal with a host of claims from ordinary commercial disputes to those involving intellectual property, competition law and product liability.
The obligations contained in these regulations do not only apply between EU member states. Any country can sign up to them, or the predecessor treaty which pre-dates the EU, and thereby agree to respect the choices of commercial parties. Due to their “simple” status, both regulations can be incorporated into English law by an act of Parliament, perhaps in a bespoke way which suits Britain’s needs more so than in their EU format. A serious problem easily solved, but, as you will see below, perhaps the only one!
However, a key regulation that is subject to the principle of reciprocity relates to the mutual recognition and enforcement of judgments between EU states and choice of jurisdiction: EU regulation 1215/2012 (also known as “Brussels recast”). This regulation applies between EU and European Free Trade Association (EFTA) states that contract to the Lugano Agreement (relating to Iceland, Norway and Switzerland). We are all aware that there is a risk that no bilateral, post-Brexit arrangement will be made (at least not by the end of the two-year period allowed by Article 50 of the Lisbon Treaty). If that happens, Britain cannot simply incorporate Brussels recast into domestic legislation unilaterally. A simple solution is to join the Lugano Convention in the same way EFTA states do. However, Lugano is considered to be outdated and less cumbersome than the current EU regime. An even simpler, yet perhaps lengthier solution is to enter into a bespoke, bilateral agreement as Denmark did with the EU in 2005. However, this may founder if political considerations are allowed to enter into the fray. Whilst politicians are often regarded as petty and appealing to populist notions of the day, it is hard to see that the judiciaries of Europe will feel the same way. It would be strange if the current mutually beneficial – and “mutual” is the key word here – arrangement were to be disrupted.
Other reciprocal arrangements are also matters for consideration, such as the Service Regulation (Regulation 1393/2007) which governs issues relating to the service of legal documents within the EU and the Evidence Regulation (1206/2001) which deals with the way in which a member state court can request the English court to help obtain evidence from a witness for the purpose of a civil or commercial trial taking place in the court of that member state. These regulations and others like it, whilst less material than those listed above, form the nuts and bolts of the current EU co-operative regime, which will need to be replaced come March 2019.
In the face of a lack of cooperation from the EU, Britain could take an old-fashioned approach. Where an issue requires reciprocity and none is forthcoming, Parliament could legislate to ban the enforcement of judgments of EU courts. Britain could become a haven for those who wished to deal with parties in the EU but avoid the consequences of the decisions of their courts. This childish doomsday scenario is unappealing – but not without its benefits.
Attractiveness of the English legal system
Will these uncertainties result in parties choosing jurisdictions other than Britain? They may have some impact but, perhaps not in any material fashion. Commercial parties all over the world respect our legal system for the certainty delivered by its professional, sophisticated and conspicuously independent judiciary. In Boat Quay, Singapore, you can still see statues of Chinese and Malay citizens presenting their case before a statue of a British redcoat, seen by the parties as an independent arbitrator of their dispute. It is this perception of professionalism, neutrality and independence that continues to endure today, to Britain’s benefit.
English law will maintain its connection with the English language, the City of London and London itself. Meanwhile, English courts are driven by a desire to modernise and improve their services constantly. The recent introductions of the Judicial College, electronic-only working of the High Court and the specialist Business and Property Courts stand as a few recent examples of this drive.
Further, the boom in litigation in the English courts by parties from countries within the former USSR in recent years shows the value of an impartial system to those who do not expect the same in their own countries, an aspect independent of any association with the EU.
Some even say that leaving the EU will make arbitrating in England even more attractive to commercial parties, as the arbitral regime we are signed up to is seen as sturdier than the relevant EU regulation. Whatever happens, it seems that the English law’s current success will continue, rather than collapse.
Britain remains one of the best places in the world to resolve legal disputes, if not the best. The figures indicate that this is a view held all over the world. This pre-eminence existed long before the EU was formed and will continue long after Britain has left it.
Having said that, the process of addressing issues caused by leaving the EU may not necessarily be smooth, so why risk it? Sue someone in the EU today and buy even more certainty!
10 May 2017