The Competitive Advantage of English Law – An Internationalist Perspective
The Competitive Advantage of English Law - An Internationalist Perspective
Partner, Mark Sachs explains why his bet is still heavily placed on English law despite Brexit and other forces that are a potential threat to the international order upon which commercial parties rely.
I write this piece as I relocate from Singapore to London as a member of Thomas Cooper’s shipping and international dispute resolution practice. The move takes me to where the common law began and, I would submit, to the jurisdiction that remains the undisputed leader in commercial dispute resolution world-wide. In situations where parties to transactions of an international character have the choice to decide on what law to apply and where to resolve their disputes, more often than not, that choice is England (whether the English courts or arbitration). Despite Brexit and domestic strains on the judiciary (an own goal) I think this is set to continue. I also think that the information age, technological advance and globalisation, whilst shaking institutions generally still leaves English law as the undisputed leader.
I speak from some experience, having trained initially as a lawyer in Canada 30 years ago but having worked essentially as an English commercial lawyer in Canada, China and Singapore and having litigated or arbitrated disputes in England, Canada, China, Singapore, Hong Kong and Sweden. Through the cases I have been involved in I have also regularly been exposed to disputes with contacts with the US legal system and various civil law systems such as Japan and Germany. I have particular knowledge of China’s legal system as an emerging civil law jurisdiction.
Learning and practising commercial law in Canada meant studying leading precedents from England. Much of Canada’s statutory regime, so far as it impacts commercial law is English law based. This of course has historical reasons, but as a smaller common law jurisdiction (and a fractured one due to a federalist system—discussed further below) Canada has borrowed heavily from the English courts’ experience. Canadian courts will give considerable weight to English precedents and in this way are pre-disposed to attempt to harmonise commercial law within the common law system. The Singapore and Hong Kong courts face similar forces that are more acute given their relatively small populations and more recent direct ties to the English legal system (e.g. appeals to the Privy Council).
Why do I say that England is the leading international dispute resolution jurisdiction? I do not believe this is mere parochialism, or worse, a misguided admiration of the now long-past colonial order. By now historical advantage would have been removed by competition from other superior systems if that was the case. I offer the following arguments regarding the competitive advantages English law enjoys. I think these factors also generally form a virtuous circle reinforcing one another. They are:
1. The benefits of a unitary legal regime
England and Wales are a single legal jurisdiction. Commercial cases above a reasonably low monetary threshold are heard in the Commercial Court, a specialised division of the Senior Courts. This allows for a high degree of specialisation on the part of the judiciary and the lawyers that appear before them. Measured in sheer size, economic might and influence it should by rights be the US that is the leading legal jurisdiction. However, due largely to geography and its constitutional make-up, the US consists of 50 different legal jurisdictions with separate court systems. True, some disputes (although not most commercial ones) may be heard in US federal court but those too are governed by 10 different appellate jurisdictions. Relatively few commercial cases make it through to the US Supreme Court.
Canada and Australia are also federal systems. Speaking from experience, Canadian judges cannot hope to specialise in commercial law and must hear a broad range of cases. Interestingly, China has a system of specialised maritime courts. However, appeals are to non-specialist provincial level courts. There are other reasons (as discussed to a degree below) why the Chinese system, based largely on civil law, is not (or not yet) competitive as a jurisdiction of choice.
2. Background and Selection of Judges
Appointments to the bench in common law systems, unlike most civil law appointments, come after a lawyer has already proved herself or himself as a litigator. Those selected are generally leading practitioners before the courts of acknowledged competence and stature. When a lawyer becomes a judge he or she usually brings a certain spirit of independence, having practiced in the private sector (in most cases) and often having challenged or tested statutes and regulations. In civil systems appointments to the bench are usually made at a young age with selection of top law graduates. Those appointees then develop within the court system as career judges and do not generally practice as lawyers before the courts.
In England, because it is a unitary regime, there is a concentration of legal minds in London practicing before the senior courts. The junior barristers in the system hone their skills progressing to appointment as Queen’s Counsel if merited and it is from these ranks that judges are generally appointed. For the commercial court, most appointments have generally come from amongst the commercial bar. The separate bar and concentration of work in the commercial court generally results in the appointment of top-flight commercial litigators to the commercial court.
In this respect, federal systems are not adapted to concentrating specialists in this way and judges end up having to be generalists in most of the cases they hear. In the US, selection of judges varies considerably with election of judges in some states.
3. The Importance of Decided Cases and the Virtue of Commercial Certainty
In a system where the courts are generally expected to follow prior case precedent, the lawyers arguing an individual case need to pay close attention to cases decided on similar facts or principles. The judge likewise, is very concerned with precedent lest he get the principle wrong and is overturned on appeal.
Such a system requires judges to set out in writing detailed exposition of the relevant facts so that the appropriate precedents can be seen to apply. Generally, the legal reasoning also needs to be set out in some detail. A case law system produces a great many published cases that are closely read in researching and understanding the law. The common law therefore has a breadth and depth in judge made law that is constantly developing and evolving. As it is judge made law it is more malleable than statute or regulation made by the administrative branch. This allows the common law to adapt to new business practices — or in extreme cases, for the highest court to decide that it was wrong about a particular principle that came up for decision previously.
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.
English judges are mindful that the cases they decide, at least on important legal points, will be discussed in the legal press and will be used as guidance in commercial life. They realise that commercial parties wish to have a set of rules to live by that creates a reasonable level of predictability and certainty. Whilst far from perfect, the English system produces a higher level of predictability than other systems. Although civil systems have been moving towards giving case decisions more prominence and greater publicity, decided cases are still of lesser importance in a codified system.
The degree of certainty in English law is a distinguishing factor from the US system. In my experience, the US system lacks sufficient certainty and predictability. The US still employs juries in civil cases. Many cases are therefore rendered without judicial elucidation of the facts and principles in important judgments. As well, US courts appear to put a premium on deciding the case before it based on the perceived fairness between the individual parties, rather than on applying prior cases and precedents that may produce predictability but seem unfair to the losing party. I am no expert on the American system but the outsider’s view I have is that it is far less predictable than England.
4. Procedural Rules and Disclosure
The English procedural rules generally require parties to disclose all documents relevant to a dispute. This includes documents that may be harmful to one’s case. In commercial disputes there is often a considerable volume of contemporaneous correspondence and documentation. It can be an onerous task to review and disclose the documentation and disclosure is a big factor in the cost of litigation. However, it means that, generally speaking, cases must be run with “one’s cards on the table”. Although clients from other legal systems without disclosure may at times be surprised at the breadth of disclosure required in the English system, it is one of the primary reasons that the English system is perceived as fair to both parties.
Other common law systems have similar documentary disclosure requirements as do some civil law systems, but usually disclosure in civil law systems is more limited. Civil systems may make up for this through the court’s investigatory powers, including the appointment of independent experts.
The US system also allows for oral discovery of evidence from witnesses through pre-trial depositions. US depositions often consume a very large amount of time and cost. Although some states have sought to limit depositions they are a significant additional cost in the US system as compared to other common law systems. They are a significant reason why international parties may perceive the US system as overly burdensome.
In my view, these four factors, working together, continue to make England the leading jurisdiction in the world for international disputes. That is not to say that there are not dangers to England’s pre-eminence. Recent strains imposed by the government (the barrier of high initial writ fees and issues with judicial pensions dissuading significant numbers of qualified candidates to join the bench) need to be addressed, particularly in the post-Brexit world. However, those are easy fixes if the government wishes to address them.
The Role of the English Legal System as Underpinning Insurance Markets
I should not leave off without also mentioning the insurance markets. Although the insurance markets grew up initially in England and there are therefore historical reasons for England being the leading international insurance market today, the presence of the insurance market is greatly dependent on the English legal system. It is the certainty and predictability of English legal precedents that underpin insurance law and without the legal system, the insurance market would very likely now be located in larger economies such as the US or Germany. In short, the insurance market has continued to vote with its feet in referring disputes to the English courts. In recent years, however, insurers have greatly curtailed any litigation in which they are involved as a paying (Defendant) party as a short-sighted cost-cutting exercise. I am concerned that in the long run this will weaken English law due to failure to attract the best and brightest to do this sort of work and in the long run a lack of new precedents to advance the law. . If taken to an extreme conclusion this would undermine the England based insurance market as well.
English Law and Arbitration
England is exceptional amongst developed jurisdictions for providing in its arbitration statute for the limited right of appeal on points of law. All others have generally followed the UNCITRAL Model Law on international arbitration which excludes all rights of appeal and only allows judicial intervention on extremely limited grounds rendering arbitration decisions virtually non-reviewable by the courts.
England has adopted all other aspects of the Model Law and relatively few cases (perhaps too few) make it through the limited appeal process (the bar is set high as the decision on the law must be “obviously wrong” or “of general public importance”). However, some important cases have been reviewed by the courts, for example the “RES COGITANS” decision of the Supreme Court in 2016. The case set an important precedent on interpretation of the English Sale of Goods Act and also has given guidance in hundreds of similar disputes arising from the OW insolvency that would otherwise have been required to be arbitrated individually. I also think that having a right of appeal, although limited, provides a needed degree of judicial supervision over the arbitral process. Arbitrators are aware that if they get it wrong, their decisions are liable to be reviewed by the courts in judgments that will be made public and their reputations may suffer if their awards are obviously deficient in quality.
There are good reasons why parties to international transactions wish to choose a neutral forum for their disputes. England remains the most popular choice, although other many cases are also resolved in other jurisdictions, in particular the ICC International Court of Arbitration in Paris (and its other offices).
Asian jurisdictions such as Hong Kong and particularly Singapore, have been openly competing to attract arbitration work away from London, gaining from their law being based on English law. The Singapore government has put its weight behind promotion of Singapore as an Asian arbitration hub to good effect. Many Singapore arbitration clauses may adopt English law as the governing law with the dispute to be arbitrated in Singapore.
However, in my view, arbitration in Singapore (and Hong Kong) will only work as intended if arbitrations remain sufficiently in line with English law and the relationship is a symbiotic one. As stated above, neither of these jurisdictions is large enough to develop their own set of case law precedents independently and must therefore rely on English court decisions. The fact that neither of these jurisdictions provides generally for appeals from arbitration awards on points of law is, in my view, detrimental to its long term usefulness. They are both jurisdictions with quality judiciaries whose judgments are of value in contributing to the development of the common law. Excluding appeals mean that these courts will inevitably contribute fewer cases. As well, in my view, the lack of rights of appeal leaves too much unfettered power to arbitrators in their decision making such that they may not apply the law as rigorously and uniformly. This difference with England inevitably leads to differences in practice.
In conclusion, my view is that there are good reasons why England remains a world centre of excellence for international dispute resolution. Also, in my view, it is in the general interests of the international business community and insurance markets to support a system that demonstrably works to their advantage and to give thought to whether they should support steps that will unnecessarily dilute that system. Whilst competition is a good thing, I think it is extremely difficult to reproduce the conditions that make the English legal system work and recognition of that reality is important. I for one am voting with my feet to be based in London and I hope my clients continue to follow me there.
To discuss this news item further or for more information, please contact the author Mark Sachs.