What this is: An overview of the unique advantages of choosing English law in cross-border business transactions.
What this means: Great Britain may have long lost its formal empire, but the Island’s worldwide influence is still significant in many aspects, including frequently being chosen as the governing law in international transactions.
The prominence and global reach of English law, over the years, has been well recognized by the international legal community. English law doesn’t lag far behind New York in terms of its popularity or convenience as an international choice for cross-border financial transactions.
In fact, parties prefer English law to govern their commercial transactions because of the large body of judicial precedents and the consistency and fairness of English courts. English law brings within its scope certain unique advantages.
It’s important to note that, generally speaking, English law is the legal system of England and Wales. Unlike Scotland and Northern Ireland, which maintain their own legal systems, Wales is not a separate jurisdiction within the United Kingdom (UK). English law is based primarily on common law, which is developed by judges sitting in courts and creates binding precedents for future cases.
The Global Reach of English Law
At the height of its power in the early 20th century, the British Empire had widespread global reach that extended all the way from Australia and New Zealand to large parts of Africa, Asia and Canada, as well as a number of other Commonwealth nations. As a result, the legal systems of many of these countries are derived from or maintain a strong link to English common law principles.
For that reason, not only is English law well understood and embraced by these countries, but it continues to be highly regarded and followed (in various degrees) even to this day. Consequently, when those countries are involved in international transactions, English law often becomes a natural choice for parties to those agreements.
England as a Center for Arbitration
English courts recognize the benefits of mediation and other forms of Alternative Dispute Resolution (ADR) in helping parties settle cases outside the court process. London is home to a large range of arbitral bodies, with high-quality mediators for international parties to resolve their legal disputes amicably without the need to litigate. The UK is party to a number of international reciprocal arrangements, including the New York Convention, allowing for mutual recognition and enforceability of arbitral awards.
Consequences of Brexit for UK and EU Member States
There were some concerns about the continued pre-eminence of English law for global transactions once Brexit came into effect.
Under the European Union (EU) Regulations (Rome I and Rome II Regulations), EU parties have the ability to choose the governing law with respect to their contractual and non-contractual obligations. Post-Brexit, the UK has enacted domestic legislation in line with said EU regulations, and consequently, English law continues to be used as the governing law for international transactions.
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Additional Benefits of Choosing English Law
Some of the more obvious reasons for choosing English law include the wide prevalence of the English language as lingua franca, London’s cosmopolitan character, as well as the comfort level its legal professionals have in dealing with international commercial disputes. Other more specific factors also help to explain England’s popularity as the choice of law and jurisdiction in cross-border deals:
- Historically, English common law has given great deference to freedom of contract and party autonomy. On the contrary, most civil law-based legal systems apply more stringent rules derived from codified statutes.
- The statute of limitations (the “deadline” for initiating legal proceedings after a certain event has happened) is 6 years for ordinary English contracts (the same as New York’s). However, under English law, if a contract is executed as a deed (which involves a fairly simple process), the limitation period is extended to 12 years.
- The English courts have been known to deter speculative or punitive damages in their decisions. They’ve always upheld the principle of assessing fair cost of damages if the parties involved can’t agree on the compensation. English courts also offer short and reliable lead times, thereby reducing the costs and time involved for the litigants.
Appointing a Process Agent Under English Law
As the capital of the world’s first industrialized nation, London quickly established itself as a preeminent business and legal hub. With a well-developed body of law and judicial precedents, the contracting parties are likely to get a fair trial, should one’s contract end up in dispute. The English courts are competent to hear cases under any other law and deliver judgments in accordance with that law, which makes England a preferred venue for international disputes.
Therefore, in many cross-border commercial financing transactions (e.g. credit financing, debt and equity securities offerings, aviation leasing and financing) involving parties from around the globe, choosing English law as the governing law of the financing contracts is favored by lenders and the parties involved. Parties to international contracts often don’t have a physical presence in England. In that situation, a process agent (also referred to as an “agent for service of process” or “contract agent”) with an address in that jurisdiction is often required by one of the parties. The process agent will be responsible for receiving and forwarding service of process to the parties if there is ever a legal dispute under the contract. As such, it’s important to choose a process agent that is knowledgeable and reliable.
Party Autonomy and Legal Certainty
Great Britain may have long lost its formal empire, but the Island’s worldwide influence is still significant in many aspects, including frequently being chosen as the governing law in international transactions. While English cuisine hasn’t enjoyed the same level of popularity (fish and chips, anyone?), England’s commercial law and courts are still regarded as a model in terms of party autonomy and legal certainty.
FAQs
What is English common law?
English common law is a legal system developed in England and used in many English-speaking countries, especially former British colonies, including the United States (except Louisiana), Canada (except Quebec), Australia and India. English common law functions under the doctrine of stare decisis, meaning "to stand by things decided." It is based on judicial decisions and precedents rather than written codes. This system emphasizes the role of courts in interpreting and applying the law, with past rulings guiding future decisions. Common law evolves through the courts' interpretations, making it adaptable to changing circumstances.
What is required of the counterparty in a financing transaction if it is subject to a jurisdiction in which it does not have a physical presence?
Jurisdictional preference and consent to jurisdiction is usually memorialized in "governing law" or "forum selection" clauses. If the party to a contract is consenting to be subject to a jurisdiction where it does not have a physical presence (a Brazilian borrower consenting to New York law, for example), it’s common practice for the counterparty to require appointment of an agent located in that jurisdiction who will be able to effectively receive and forward service of process should a lawsuit arise out of that transaction. To learn more, read our article, Process Agent Appointment: Choice of Law in Multiple Jurisdictions.
What are choice of forum and choice of law clauses?
Forum selection and governing law clauses are usually presented together and require a lot of consideration from the lawyers who are drafting the contract. Some of the main questions typically asked include:
- Does the forum chosen have a clear and well-developed body of law?
- Does the law of that particular jurisdiction respect party autonomy and freedom of contract?
- Are the courts in that jurisdiction accessible to foreign parties and capable of deciding on international business matters?
To read more on this topic, visit our article, Do I Need a Process Agent Even if My Contract Includes an Arbitration Clause?
This content is provided for informational purposes only and should not be considered, or relied upon, as legal advice.
