The risk and uncertainty of Brexit has cast a shadow over parts of the City, with some worried that two of London’s great crowns – global litigation centre and global financial capital – will be threatened. But how much will London’s standing on the world stage change in these respects as a result of Brexit?
Of course uncertainty abounds, but there are several reasons to be optimistic that London will maintain its position as a leading centre for cross-border business disputes.
First, London is a truly international dispute centre, with the majority of Commercial Court litigants coming from overseas. Portland Communications recently reported that 66 per cent were from outside the UK, with the majority of those being non-EU parties.
There is no reason why Brexit should undermine the respect enjoyed by the English legal system or the reputation of its judiciary. The court process is well-understood and supported by a strong UK legal services sector, with substantial investment having been made in recent years to give the Commercial Court a home fitting its premium brand in global dispute resolution.
English commercial law will continue to be well-known for its emphasis on respecting rather than re-writing contracts, and for applying established principles while developing to keep pace with the world outside the courtroom.
But EU law does play an important part in cross-border litigation, in particular on how to determine which country’s laws apply, where cases should be heard and the critical issue of how judgments can be enforced in different member states.
The remaining member states will still generally be required by EU law to uphold a choice of English law. And legal industry bodies are at pains to ensure the government appreciates the practical advantages of the existing EU framework on reciprocal jurisdiction and enforcement, or at least of having something of similar effect. Whatever happens, it is likely that contracting parties will remain free to agree to litigate in England, with English judgments enforced across a large number of jurisdictions.
Even with today’s uncertainty, the pre-eminence of English law in cross-border contracts and the strength of our legal system still give London a firm foundation to remain one of the world’s international dispute centres.
So one crown may remain for London, but what about our financial status?
Passporting is obviously an issue and, although operating in the City without a full EU passport will impact many financial institutions’ operations, some may conclude that they will have a reasonable chance to continue to provide services into the EU even if the passport ceases to be available. This is because EU legislation permits institutions that are not located in the EEA to provide certain cross-border services to customers without needing local licences if that institution is regulated in a jurisdiction with laws that are “equivalent” to those of the EU. The UK is on target to implement all applicable EU financial services legislation by the time we leave, so the UK’s laws should not only be equivalent but essentially identical to those of the EU.
However, “equivalence” is not a guaranteed right; it is at the gift of the EU Commission, so the granting of its status is likely to become political and cannot be relied upon.
The City will remain a significant global financial centre after Brexit because it will retain many functional, organisational, institutional and legal advantages over other alternatives and opportunities may be created, but Brexit and the loss of the EU passport will inevitably have an impact.
The City may not see a mass exodus the day after we leave the EU, but if Brexit means firms have to restructure, relocate or lay-off staff, transact through a longer chain of entities and lose the benefits of the concentration of clearing and liquidity, we could see incremental costs to capital raising, investment and hedging that together might damage the City and the wider economy.
Ultimately, even if negotiations with the EU result in a favourable outcome for the City, the threat of Brexit’s unknowns presents its own dangers. This is one of the reasons the City is pressing for an early agreement on transitional provisions to smooth the exit and possibly reduce the need for firms to react on the basis of insufficient information.