Whatever the outcome of the negotiations over the future relationship between the European Union and the United Kingdom many operators are already taking for granted that English law will lose much of its appeal for governing financial transactions and other transactions between institutions and large companies where more than one European Union jurisdiction is involved. There are technical and political reasons behind this view.
The possible demise of English law will not be felt with any intensity until another legislation opens up the way and claims its place. In this Viewpoint we embark on a series of reflections on the future lex mercatoria in Europe and the battles that may arise.
Rise and fall of the empire of English legal profession?
The predictable departure of the United Kingdom from the single market will mean that, once the transition periods are over, any judgments rendered by the English courts will cease to have the so-called Brussels Regulation applied for their recognition and enforcement in the 27 member states. This will reduce the appeal of choosing the jurisdiction of the English courts in contracts, which will also prompt questions as to whether English law is the best choice if disputes will not be heard by the courts in that jurisdiction.
Added to this are other setbacks arising from the fact of English law ceasing to be one of the laws of the European Union, particularly in the eyes of financial regulation.
First we take Manhattan then we take Berlin
New York law is not a law of the European Union either but from this standpoint it will come to be on an equal footing with English law and they both share an origin in common law as well as being used frequently in international finance. An advantage emerges however for the option of the New York laws and courts: their global reach. By reigning over large financial transactions in the Americas, their hegemony in Europe would enable useful synergies for global institutions by bringing a large part of their transactions under only one law and only one jurisdiction.
Another factor to remember is that U.S. law firms have already become strong players in the City and it would not take much effort, from there, to deploy their New York qualified professionals towards the continent.
Twenty years ago the Loan Market Association started creating the most powerful tool for propagating English law: the models of syndicated loan agreements. Less than a year ago, however, the LMA’s U.S. equivalent, the LSTA, prepared and disseminated for the first time a facility agreement under New York law. Coincidence or not, one of the tools is already available.
A European winner?
Or will one of the national laws of the European Union and one of the European capitals emerge as the winner? One country and one place appear ready to engage in the battle: France and Paris. They have made a decided effort to attract the business that will leave the City and managed to have the headquarters of the European Banking Authority moved from London to Paris, which, by the way, is also the seat of the European Securities and Markets Authority. We have also observed France’s efforts to shape up its legislation. With an ambitious reform of its Civil Code in 2016 followed by a number of recent adjustments to the reform itself, France is expressly seeking to improve the international appeal of its laws.
Other European jurisdictions, though not many, may take up the gauntlet. The ISDA has published versions of its documents subject to French and Irish law which now stand alongside the documents under English and New York law.
Towards a European Regulation on obligations and contracts
None of the candidates described above are perfect and a return to fragmentation among multiple jurisdictions is hardly the most efficient option either. There is another alternative that would perhaps make up for the failings of those standing in line, and benefit all European lawyers equally: substantive harmonization of the law on obligations and contracts in the European Union, at least among professional parties.
Almost all the work has already been done in the 2009 Draft Common Frame of Reference prepared by the Study Group on a European Civil Code, an academic work which was carried out under the auspices of the Commission and is a proper code which includes both a general part and rules on special agreements.
French academics appear unhappy about not enough importance being given to French law in relation to preparing the DCFR, although France is now well equipped to drive this project and allow the weight of its recently modernized civil law to be felt in it.
The future is hard to predict although we must be aware of the match that is starting to be played. Will English law fall or not and which law will takes its place if it does? This is consequential on important decisions that must be taken by law firms and organizations as regards contractual policy, the recruitment and training of professionals and on the location of their offices. Additionally, the law on international contracts and the jurisdiction for dispute resolution are also factors to be taken into account for artificial intelligence applied to law.