For whom the bell tolls: the predominant law post-Brexit
After Brexit, will English law still be the law of choice for Europe and beyond? Or will US, French or German law take its place?
Whatever the outcome of the negotiations over the future relationship between the EU and the UK, many commentators are already taking for granted that English law will lose much of its appeal for governing pan-European transactions. The possible retreat of English law will not really be felt, however, unless another law claims its place. The times they are a-changing and no one should speak too soon as the winner is not obvious and English law may even ultimately come back with a vengeance.
Hard times The expected departure of the UK from the single market will mean that any judgments rendered by the English courts will cease to have the so-called Brussels Regulation applied for their recognition and enforcement in the EU. There are other fallback options but arguably the appeal of choosing the jurisdiction of the English courts in contracts will diminish, which in turn will call into question the choice of English law.
EU financial regulation will also bring obstacles to the choice of a third country law. A Yankee in the court of Brussels New York law is not an EU member state law either, though it will soon come to be on an equal footing with Albion and they both share an origin in common law as well as being used frequently in international finance. An advantage emerges, however, for New York laws and courts: global reach. By reigning 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 one jurisdiction.
US law firms have already made the City their home and may easily push to deploy their New York-registered professionals towards the continent. Less than a year ago, the LMA’s US equivalent, the LSTA, prepared and disseminated for the first time a facility agreement under New York law. This is another stepping stone following on from the frequent choice of NY law to be applied to many terms in European leverage finance.
Nothing quiet on the Western front What about the national laws of the EU and the European capitals? France and Paris have thrown their hats in the ring. They have won for Paris the headquarters of the European Banking Authority which has been added to the seat of the European Securities and Markets Authority. 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 seem to be ready to wade into the contest. ISDA has published versions of its documents subject to French and Irish law. The German law Schuldschein is growing stronger by the day. Frankfurt and Brussels have set up courts to hear international cases in English. The same is happening in the Netherlands, which is aggressively marketing its insolvency laws.
European lawyers of the world, unite None of the candidates are perfect and a return to fragmentation is not an option. Substantive harmonisation of the law on obligations and contracts in the EU is looking like a Herculean task and the EU General Contracts and Obligations Regulation seems too far off, although other, no less daunting, harmonisation projects have been achieved.
Germany and France shunned previous attempts to sign into law a European civil code but we are at a different crossroads now. Divide and rule Returning to the subject of English law, reports of its death are greatly exaggerated. A post-Brexit buccaneer nation would hardly propose its laws to Europe, but in an otherwise orderly and reasonable post-Brexit world, probably polarised into three rivalling and relatively closed world blocks, English law may be a neutral and efficient choice for inter-block transactions. To continue with our literary references, great expectations are still an option for English lawyers.
Rafael González - Gallarza, partner at Corporate and Financial Law Practice of Garrigues in Madrid.