London’s pre-eminence as a forum for international disputes resolution both in courts and in arbitration is well established. A combination of history, strong rule of law and the city’s status as an international financial center—particularly for banking, insurance, shipping and commodities trade—has contributed to London’s international reputation as an arbitration hub.
Recent commentary has speculated that Brexit may prove a major threat to London’s position as one of the most preferred and widely used seats for international arbitration.
Although it is too early to tell for sure, London’s popularity as a leading arbitral seat has not yet been significantly impacted by Brexit. Back in 2018, most respondents (55%) to a Queen Mary survey about the impact of Brexit did not believe it would have a negative impact on London as a seat. As argued in a 2021 Queen Mary and White & Case study: “London’s continued presence at the top of the table suggests that, as was predicted by the majority of the respondents in our 2018 survey, its popularity as a seat has not been significantly impacted (at least so far) by the UK’s withdrawal from the European Union. London retains its reputation amongst users as a reliable seat of choice.”
What do the numbers suggest? In 2020, the London Court of International Arbitration (LCIA) received 444 referrals, including 407 arbitrations pursuant to the LCIA rules—both all-time highs, representing a 10% increase in the total number of referrals and an 18% increase in the number of LCIA arbitrations.4 There was a slight decrease in the choice of England as a seat (from 89% to 84%). But one cannot make too much of these numbers: Most of the underlying contracts containing the London-seated arbitration clause were likely drafted pre-2016. Thus it is simply too soon to tell whether London’s popularity as a seat will decline in the coming years, as Brexit settles in.
Brexit does not change the advantages of London as an arbitral seat
While the jury is still out on whether London as an arbitral seat will be significantly impacted by Brexit, there is no question that it will retain many of the qualities and advantages that have made it a such a prominent global disputes hub in the past. One could even argue that its position may be strengthened as these qualities and advantages become ever more unique in a post-Brexit world—and indeed that potential is among the reasons I relocated to London from New York in March, as part of Burford Capital’s pursuit of an expanded market opportunity in the city. Among those advantages, London is globally recognized for its rigorous legal and disputes resolution system and has a centuries-old developed body of law that is independent of the EU. English law remains the most popular governing law for cross-border contracts and is widely considered the international standard for nomenclature and terminology in contractual documents. In industries such as banking, finance and shipping, English law is undisputedly the most frequently chosen, which often goes hand in hand with the choice of London as arbitral seat. Additionally, commercial parties looking for certainty will want an arbitral seat that upholds contractual terms with minimal interference. English courts are well known for their non-interventionist approach to arbitral awards: Recently published statistics demonstrate a continuing downward trend in the appetite to bring challenges against arbitral awards under s.68 and s.69 of the Arbitration Act 1996.5
Minutes of the Commercial Court User Group Meeting that took place at the end of November 2020 show that challenges made under either of those sections have extremely low success rates and the year-on-year decrease in the number of s.68 and s.69 applications being brought before the Commercial Court suggests an increasing acceptance among applicants of the low chances of success associated with the applications. While the English courts continue to intervene where necessary and appropriate, there is a high hurdle for setting aside arbitral awards, allowing legitimate arbitral processes to proceed largely unfettered. Further, London is a center of gravity for legal expertise from all over the world, with a strong contingent of world-class commercially minded lawyers, arbitrators and expert witnesses. Given that Brexit concluded relatively recently, there remain a vast array of London-based practitioners trained and experienced in both EU law and other legal and technical areas of expertise. London also boasts a respected, reliable and independent judiciary, conducts proceedings in the English language (the primary language for international business) and has many excellent arbitration facilities, including the new International Arbitration Centre (IAC).
Arguably, London’s position outside of the EU could enhance its attractiveness
With no evidence to date of any significant adverse impact on London’s position as a preferred seat post-Brexit, some legal commentary has argued the reverse— that Brexit may in the long run bolster London’s position as an “offshore” financial services hub.6 The reasons include London’s location in an island nation separate from the European continent, abundant and well-developed transportation links between the city and the rest of the world and London’s location midway between time zones in Europe, Asia and North America, which is convenient both for law and the financial markets. Its physical separation from the EU may also enhance its perception of neutrality for international disputes from the region in the longer term, just as Singapore is often viewed as an impartial but geographically close venue to bring disputes involving parties from mainland China. To that end, Singapore and Hong Kong both made significant percentage gains as preferred arbitral seats—54% and 50% respectively—in the 2021 Queen Mary survey as compared with previous surveys.
Investor-state arbitration awards may be easier to enforce in London
The Energy Charter Treaty (ECT) is a multilateral treaty that entered into force in 1998 to promote and protect investments in the energy sector through Investor State Dispute Settlement. ECT awards have become increasingly difficult to enforce in Europe as the European Commission (EC) and the Court of Justice of the European Union (CJEU) have taken an aggressively anti-intra-EU disputes stance. Prior to Brexit, English courts were formerly bound by CJEU judgments. Following the UK’s departure, English courts are now free to enforce arbitral awards which may be against EU public policy. While there is speculation that English judges may still be influenced by EU politics, it is likely that third parties will see English and Welsh law as being more certain and neutral if they are no longer bound by CJEU decisions, and therefore may adopt “English law, English seat” when drafting dispute resolution provisions. London is likely to become a particularly attractive destination for European investors looking to enforce arbitral awards without the risk of matters being referred to the European courts, although opposing parties may still file separately to the CJEU if they are a member state.
An opportunity for London to become an arbitral hub for European disputes
Commercial arbitration is becoming an increasingly popular means of settling disputes. With a perfect storm of uncertainty and change as a result of Covid-19 and disruptions in financial markets, parties will inevitably default on or look for ways to avoid and exit their contractual obligations, leading to an abundance of disputes. As the EU expands its trading relationships, including through trade deals such as the Comprehensive Economic and Trade Agreement with Canada or its free-trade agreement with Singapore, the volume of commercial disputes involving either transatlantic or Asian parties can also be expected to increase. London is well-placed to meet this demand, not least because several of the EU’s most important trading partners (the US and Commonwealth nations) have stronger affinities with it for reasons of history, legal tradition and language than any other continental seat. For centuries, English arbitration law and practice have thrived independently of the UK’s membership of the EU, not because of it, and commercially savvy parties will be well aware that the significant advantages of arbitrating disputes in London will endure in this post-Brexit world—and may indeed become stronger.
John Lazar is a Managing Director with responsibility for overseeing the growth of Burford’s substantial business in the UK and Europe by developing Burford’s strategy and opportunity. Prior to joining Burford, he was a litigator at Cravath and at Wollmuth Maher & Deutsch. He has extensive experience in arbitration and complex commercial litigation matters.
1 Nick Holland, “London’s status as a disputes hub is in serious jeopardy despite impending Brexit deal,” Law.com, December 24, 2020, https://www.law. com/international-edition/2020/12/24/londons-status-as-disputes-hub-in-serious-jeopardy-despite-impending-brexit-deal/.
2 2018 International Arbitration Survey: The Evolution of International Arbitration, Queen Mary University of London, http://www.arbitration.qmul.ac.uk/ media/arbitration/docs/2018-International-Arbitration-Survey-report.pdf.
3 2021 International Arbitration Survey: Adapting Arbitration to a Changing World, Queen Mary University of London, http://www.arbitration.qmul.ac.uk/ research/2021-international-arbitration-survey/.
4 2020 Annual Casework Report, LCIA, https://www.lcia.org/LCIA/reports.aspx.
5 Louise Bond and Ian Meredith, “2020 Report of the Commercial Court (England & Wales) confirms the deferential approach to arbitral awards continues,” JDSupra, February 11, 2021, https://www.jdsupra.com/legalnews/2020-report-of-the-commercial-court-6475559/
6 Leigh Crestohl, “How London could become Europe’s arbitration hub,” Law360, March 16, 2021, https://www.law360.com/articles/1364989/howlondon-could-become-europe-s-arbitration-hub