CORPORATE TRANSACTIONS & COMPLIANCE BLOG

The Benefits of Choosing English Law in Cross-Border Financial Transactions

By: Pushkala Sivaramakrishnan, COGENCY GLOBAL INC. on Thu, Mar 24, 2016

This is the third blog post of a series which seeks to explore the reasoning behind some of today’s most common choice of law and forum selection options in international contracts and the role of a process agent in those transactions.

choosing UK lawIn our previous blog post, The Benefits of Choosing New York Law in Cross-Border Financial Transactions,” we explored the benefits of choosing New York law for international contracts, as well as the considerations to bear in mind when making that choice. English law does not lag far behind New York in terms of its popularity or convenience as an international choice for cross-border business transactions. In fact, English law brings within its scope certain unique advantages from a choice of law perspective that we will examine in this blog post.

Before moving on, it is important to note that, generally speaking, English law is the legal system of England and Wales. Unlike Scotland and Northern Ireland, which maintain their own legal systems, Wales is not a separate jurisdiction within the United Kingdom. English law is based primarily on common law, which is developed by judges sitting in courts and creates binding precedents for future cases[1].

 

Global Reach of English Law
At the height of its power, in the early 20th century, the British Empire had widespread global reach that extended all the way from Australia, New Zealand, the far-east countries and the Indian subcontinent to large parts of Africa and Canada, as well as a number of other Commonwealth nations. As a result, the legal systems of many of these countries have been derived from or maintain a strong link to English common law principles. For that reason, not only is English law well understood and embraced by these countries (and, arguably, beyond them), the English decisions continue to be highly regarded and followed (in various degrees) even to this day. Consequently, when those countries are involved in international transactions, English law often becomes a natural choice for parties to those agreements.

 

United Kingdom as a Member of the European Union
At the time this blog post is being published, the United Kingdom is still an important member of the European Union and English law is well regarded by its member nations (a referendum to vote on a possible “Brexit”, i.e., whether or not the U.K. should withdraw from that community, is scheduled to take place in June of 2016)[2]. Many English judgments and court settlements can be easily enforced within the European Union under the Brussels Regulation[3] and the European Enforcement Order[4] [5].

 

England as a Centre for Arbitration
English courts recognize the benefits of mediation and other forms of Alternative Dispute Resolution (ADR) in helping parties to settle cases outside the court process. London is home to a large range of arbitral bodies with high quality mediators for international parties to resolve their legal disputes amicably without the need to litigate. The U.K. is party to a number of international reciprocal arrangements, including the New York Convention, allowing for mutual recognition and enforceability of arbitral awards.

 

More Reasons to Choose English Law
In addition to more obvious reasons, such as the wide prevalence of the English language as lingua franca, as well as London’s cosmopolitan character and the level of comfort of its legal professionals in dealing with international commercial disputes, other, more specific factors help explain England’s popularity as the choice of law and jurisdiction in cross-border deals:

  • Historically, English common law has given great deference to freedom of contract and party autonomy, in contrast with most civil law-based legal systems, which apply more stringent rules derived from codified statutes.
  • The statute of limitations (the “deadline” for initiating legal proceedings after a certain event has happened) is six years for ordinary English contracts (the same as New York’s). However, under English law, if a contract is executed as a deed (which involves a fairly simple process), the limitation period is extended to 12 years.
  • Historically, the English courts have been known to deter speculative or punitive damages in their decisions. They have always upheld the principle of assessing fair cost of damages if the parties involved cannot agree on the compensation. English courts also offer short and reliable lead times, thereby reducing the costs and time involved for the litigants.

 

The Need for a Process Agent Under English Law When Parties Do Not Have a Presence in England
As the capital of the world’s first industrialized nation, London quickly established itself as a pre-eminent business and legal hub. With a well-developed body of law and judicial precedents, the contracting parties are likely to get a fair trial, should one’s contract end up in dispute. The English Courts are competent to hear cases under any other law and deliver judgments in accordance with that law, which makes England a preferred venue for international disputes.

Therefore, in many cross-border commercial financing transactions (e.g., credit financing, debt and equity securities offerings, aviation leasing and financing) involving parties from around the globe, choosing English law as the governing law of the financing contracts is favoured by lenders and the parties involved in these financing transactions. As explained in our previous blog post, parties to international contracts often do not have a physical presence in England. In that situation, a Process Agent (also referred to as “agent for service of process” or “contract agent”) with an address in that jurisdiction is often required by one of the parties. The Process Agent will be responsible for receiving and forwarding service of process to the parties if there is ever a legal dispute under the contract. For reasons which we have explored in other blog posts[6], it is important to choose a knowledgeable and reliable Process Agent.

 

English Law Highly Regarded for Party Autonomy and Legal Certainty
Great Britain may have long lost its formal empire, but the island’s worldwide influence is still significant in many aspects, including frequently being chosen as the governing law in international transactions. While the English cuisine has not enjoyed the same level of popularity (fish and chips, anyone?), England’s commercial law and courts are still regarded as a model in terms of party autonomy and legal certainty.

 

 

This article is provided for informational purposes only and should not be considered, or relied upon, as legal advice.

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[1] http://www.nyulawglobal.org/globalex/United_Kingdom.html

[2] http://www.economist.com/blogs/graphicdetail/2016/01/graphics-britain-s-referendum-eu-membership

[3] http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=URISERV%3Al33054

[4] http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=URISERV%3Al33190

[5] A European Enforcement Order (“EEO”) is a certificate which allows for judgments and court settlements on certain uncontested claims to be recognized and enforced automatically between member nations of the European Union, avoiding the need for any intermediate proceedings, such as an exequatur.

[6] See Top 5 Criteria for Selecting a Process Agent and Appointing a Professional Process Agent vs. "Self-Representation".

Topics: International Corporate Services