English Law – A Love Letter

English law is frequently chosen as the governing law of the contract in international transactions, even though neither party to the agreement is English, and the transaction or project in question has no connection with England. There have been recent suggestions that this prevalence of English law may not, after all, be a good thing but rather a deplorable, yet self-perpetuating state of affairs. In particular, a piece published in Global Arbitration Review on 1 April 2014 (but apparently with serious intent) labelled English contract law 'literalist', 'full of unwelcome surprises' and 'backward'. At the heart of such criticism is the notion that other systems of law have a more enlightened, sophisticated, approach to discovering the true intention of the parties. This author does not agree that English contract law is literalist or formalist – and neither do the English decisions and authorities.

Some statistics

How often is English law chosen? Statistics published by Her Majesty's Courts and the London Court of International Arbitration ("LCIA") help shed some light on this question.

The English Commercial Court recorded that, over the period from 31 March 2012 to 1 April 2013, almost 81% of cases before it involved a foreign party, and around 49% of cases were entirely between foreign parties. In commercial disputes, 'foreign parties' usually means companies incorporated outside of England. A very similar picture emerges when looking at arbitration proceedings. London is one of the most popular arbitral venues worldwide. According to the LCIA, around 80% of the arbitrations it administers will involve a foreign party.

Although choice of forum and choice of law do not necessarily go hand-in-hand, they often do, and they should. English law was applied in the majority of these cases before the High Court or LCIA arbitral tribunals. A survey on practices and trends in international arbitration by Queen Mary University in 2010 suggests 40% of respondents adopted English law most frequently for their contracts.

General factors pointing towards English law

Why is English law popular? What factors point commercial parties in the direction of the law of England and Wales when they pick their governing law?

Choosing a governing law may involve a process of elimination. The governing law of the jurisdiction of any of the parties is perceived to offer them a 'home advantage'. Rightly or wrongly, the impartiality of the courts or tribunals of that jurisdiction may also be questioned. The governing law of the country with which the project or the transaction has the closest connection may be an unknown quantity. Hence, another system of law may commend itself.

Neutrality is not, in truth, a distinguishing feature of any particular system of law. It would be surprising if the commercial law of a particular country were to openly favour one party to an agreement over the other as a matter of principle. It might be that for a particular contract, one party would benefit from adopting a particular governing law, because that law might (for example) interpret a clause more widely, or apply a rule, in a way that would benefit the party in question in those particular circumstances. It would be rare to find a party who has spent time assessing whether Law X or Law Y would be better for it, in light of the draft contract it is about to sign. Commercial reality is such that a forensic comparison of the effect of different governing laws is hardly ever undertaken. It would amount to little more than crystal ball gazing.

'Neutrality' then is a matter of perception, but it is something for which English law has a reputation. One way in which English law might be 'neutral' is that it has adopted a straightforward approach to contractual interpretation, starting with the ordinary meaning of the language that the parties used in their written agreement. The bargain struck between commercial parties is generally upheld, and there is little room for implied terms, doctrines of good faith or notions of deliberate breach or fault-based remedies tilting the balance unexpectedly in favour of one or the other party. With English law, what you see is very often what you get.

English courts and tribunals have a (deserved) reputation for impartiality. While litigating or arbitrating in London is not cheap, justice will usually be done, and it will be seen to be done. One way of testing this proposition is considering the following question: do courts regularly find in favour of parties against the government? In England, they do.

Flexibility is another factor. English law, as a common law system, is based on judicial precedent and case law, as well as statute. The English law of contract is very much based on precedent: it is judge-made law. Over the centuries, English law has grown and kept pace with modern business practices and technology. It is therefore able to deal with complicated financial structures and technically complex issues, as in the energy, engineering and construction industries (sectors where English law is often chosen). The prevalence of English law has worked to its advantage. Because more complex contracts are subject to English law, English judges and arbitrators get to resolve more such disputes, and jurisprudence can develop. While decisions on contractual interpretations are limited to the agreement in question, it nonetheless helps to have recourse to a body of law on recurring issues and commentary on the standard forms that often provide the foundation for the parties' contracts.

Language is also a factor. English is the lingua franca of international commerce and the global...