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Is London the world’s legal capital?

2015 may be a watershed year for one part of the UK economy—the market for legal services.

Much is made of London’s status as the world’s legal capital. This has nothing to do with the legal issues that most people encounter, involving crime, wills, houses, or divorce. It concerns London’s pre-eminence in the resolution of international commercial disputes— those substantial business disputes, often involving foreign parties or contracts performed abroad, which might in principle be heard anywhere. That an English court is everyone’s court of choice in such cases has long been an article of faith, at least for English lawyers.

English law is often chosen as the law governing commercial contracts, even those having little or no connection with England, because it is valued for its certainty and commercial approach. So whether, say, a German company is liable for failing to perform a contract in Kazakhstan may depend on English rules. If English law is to be applied, however, it is perhaps obvious that this will be done best in the English courts. Those courts are also widely respected for their impartiality, for the quality of the judges, and for their experience in commercial matters. The quality and expertise of English lawyers, confirmed in a recent survey, and the availability of remedies unknown elsewhere, notably injunctions to prevent foreign proceedings and to freeze a defendant’s foreign assets, are also powerful attractions.

The assumption that London is the market leader in commercial disputes is also reflected in the numbers. Since 2008, when cases arising from the economic downturn began to emerge, more than 1,000 claims have been made each year in the London Commercial Court (housed in the state-of-the-art Rolls Building). But it is the nature of these cases, not the quantity, which is striking. 81% of those started in 2013 involved at least one foreign party, and 48% involved no party from the UK at all. The message is that the Court is not just a national court, but an international court favoured by litigants from around the world who could no doubt have taken their dispute elsewhere.

The effects of this dominance are significant. English law is recognized as setting the standard in resolving business disputes, and English judgments (and the work of English writers) are widely read around the world. The economic value of such disputes is also considerable, and the resolution of such cases is a major invisible export.

But London’s profile in resolving transnational disputes cannot be taken for granted. Even if the parties’ obligations are subject to English law, how their dispute is handled may not be. Whether a court can hear a case at all (the issue of jurisdiction) is in large part governed by EU law. Cases may ultimately be resolved not in London, but by the European Court in Luxembourg, under rules less flexible, and less commercially attuned, than the English courts have traditionally used. This matters because jurisdiction is at the heart of most commercial cases.

The threats to London’s prominence are also home-grown. The much prized certainty of English contract law has become less secure as the courts have toyed with requiring parties to comply not just with a contract’s terms but with an ill-defined duty of good faith. The courts have also become increasingly intolerant about failure to meet procedural deadlines, a hard thing to achieve in complex cases, which undermines (or may be seen to undermine) their traditionally flexible, common sense approach to litigation. They are also less willing to allow lengthy arguments about which country’s courts should hear a case, a particular issue when so many cases have little connection with England, which for the parties at least is usually the heart of their dispute. Most striking of all, the government has proposed charging premium fees for using the Commercial Court, significantly increasing the cost of litigation, partly to reflect concerns that the taxpayer should not be subsidising a court largely used by foreign litigants.

Some courts have sought to limit the fallout from this new approach, at least when it comes to contractual certainty, and managing cases inflexibly. There are also signs that the government has back-tracked on the controversial proposal to penalize commercial litigants with higher fees, given concerns that London’s dominance in the legal marketplace would suffer. But the genie is out of the bottle, and lawyers have become uneasy about official commitment to London’s role as a legal hub.

Such doubts, justified or not, are a dangerous thing in a competitive market, and London certainly faces increased competition from overseas courts. New commercial courts established in Dubai, Qatar and Singapore, generously funded by the state, may threaten London’s traditional dominance.

Neither the English courts nor Parliament can resolve the uncertainties of EU procedural law—short of leaving the EU altogether. But any damage done by making English law less certain, or by over-regulating civil disputes, or by exposing litigants to additional costs, is avoidable. Whether such self-inflicted injuries can be avoided and whether the English courts remain competitive depends, however, on making a choice—a choice for the courts and for politicians. Whether or not London is the world’s legal capital, do we want it to be?

The international standing of the English courts is unlikely to be featured in most people’s New Year’s resolutions. But for the courts and government perhaps it should.

Image Credit: Courts Closed. Photo by Chris Kealy. CC BY-NC-SA 2.0 via Flickr.

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